KULR Technology Group Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 16, 2023

There are 6 speakers on the call.

Operator

Welcome to the Cooler Technology Group Second Quarter Earnings Conference Call. Cooler Technology Group is a publicly traded company on the New York Stock Exchange, traded under the ticker symbol KULR. My name is Stuart Smith, and I will be the moderator for the call today. Today's call will include 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, Sean Kantor. After that, we will transition to the Q and A portion of the call and will be joined by analysts who have been covering the company.

Operator

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 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 Kooler 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 Kooler's business, which include the risk factors disclosed in their Form 10 ks filed with the Securities and Exchange Commission on March 28, 2023.

Operator

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 management's best Estimate of the company's future financial performance given Koolers' 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 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 Moll.

Operator

Michael, the call is yours.

Speaker 1

Thank you, Stuart. Thanks, everyone, for joining the Koolearn Q2 2023 earnings call. This is Michael Moe. I'm the CEO and Co Founder of CUDA Technology Group. I'm pleased to report that we achieved a record revenue quarter in Q2 2023.

Speaker 1

While our overall revenue grew approximately 3 60% year over year, Our service contract revenue grew over 2,300 percent year over year. Our business model and customer engagement process starts with design and testing services for our customers. We expect the strong growth in our service contract revenue as a early indication of our overall revenue growth potential in the future, which will be driven largely by product sales rent. In Q2 of 2023, our product sales revenue grew approximately 2 50% 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 fueled by our Quarter 1 platform.

Speaker 1

Since we officially launched the Quarter 1 platform At CES in January this year, the market reception has been overwhelming. In April, Cordar was awarded a 1.1 $3,000,000 U. S. Army contract to develop next generation high energy battery packs employing the Cooler 1 design solutions platform. Kooler will fast track this new design through prototyping phase and into manufacturing readiness for U.

Speaker 1

S. Army's advanced aviation applications. Development activities began at the end of April in 2023 and are slated to run through early 2024. Management believe this timeline sets a new standard for what could have historically taken several years. Kooler has also received an additional development contract for a branch within the United States Armed Forces to develop high energy battery packs for uninterruptible power supplies for mobile command centers.

Speaker 1

Koolearn partnered with a world leading provider of drone power delivery service, e commerce package delivery service. CUDA will leverage our CUDA 1 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. Koolearn has partnered with a top 5 global manufacturer in the electric vertical takeoff and landing, eVTOL market to utilize the QUARTER-one platform to test their battery safety. Together, we will further advance eVTOL battery safety as federal regulators look to put forth certification rules for the emerging eVTOL air taxi market. Earlier today, We announced that we received a contract from a world's top selling automaker for testing and analysis of high energy battery cells for their next generation electric vehicles.

Speaker 1

We will utilize the quarter 1 design solutions platform to accelerate design readiness for the automaker's advanced EV roadmap. Another growth engine for us is our Safe Case product line. In June, we announced a joint collaboration with Surpass Solutions to establish a national groundbreaking program for high wattage lithium ion battery packaging or recycling. Surpass solution is the largest and the most comprehensive Battery materials and management processor for end of life EV batteries and Gigafactory scrap. This collaboration focuses on developing a safe transportation platform for original equipment manufacturers to store and transport prototype, End of life, damaged, defective and recorded amount batteries up to 2.5 kilowatt hours by utilizing Cooler's Safe Case product line and serve us nationwide logistics and recycling services.

Speaker 1

Together, we're serving some of the largest customers such as EV manufacturers, Smartphone makers, consumer electronics companies, gigafactories, large retailers and operators for the battery recycling needs. In addition to the Cooler 1 and Safe Case, our engineering team continues to advance our energy management platforms across multiple fronts. We'll be integrating wireless sensors, vehicle onboard capabilities and the cloud based user interface to the next generation cooler by platform. 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.

Speaker 1

Our vision is to integrate all 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 integrate machine learning and AI capabilities to provide the most comprehensive data safety intelligence in the industry. Next, Keith Cochran will provide operational updates. Keith, please.

Speaker 2

Hello, everyone, And thank you for attending our Q2 2023 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 audit in May and completed the annual ISO 9,001 audit in June. In both cases, There were 0 nonconformances.

Speaker 2

This once again demonstrates the organization's commitment to delivering a best in class quality management system to support our customers. As discussed in our last call, Kooler has expanded our facilities to Webster in 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 we move into the second half of the year. As noted, Our Webster facility is the center of excellence for our Cooler One battery design services.

Speaker 2

This location supports internal and external battery pack design, fractional thermal runaway calorimetry, IZM 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 1 direct to consumer online retailers, which have awarded cooler purchase orders 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 in support of engineering growth and also as we return a large portion of our thermal runaway shield manufacturing back to the U. S.

Speaker 2

For automated assembly in house. We shared last quarter our development of the only fully automated Battery cell inspection and test system performing to NASA Work Instruction 37. We were able to process more than 20,018,650 cells for the quarter and the automation is working as planned. We are also on track to begin introducing 21700 cell testing in Q4 'twenty three in line with customer demand. Again, This is the highest battery cell testing standard for NASA and is required for all manned flight missions.

Speaker 2

We are seeing strong interest from multiple industries and agencies for this level of testing to support mission critical applications. I am very pleased with the performance of all areas of operations in Q2. And Phil, we are very well prepared to deliver the rest of 2023 through this continued time of rapid growth for Kooler. Thank you. And now I will turn the call over to our CFO, Sean Cantor for a financial overview.

Speaker 3

Thank you, Keith. You can see the financial results from our Q2 in our 10 Q, which is now online. I'll touch on some highlights. 2nd quarter 2023 revenue was approximately 2,700,000 versus $600,000 in the same quarter last year and over 3 60% increase. Revenue per customer grew by approximately 200% from the Q2 2023 of approximately 150,000 versus $49,000 in the same quarter 2022.

Speaker 3

Gross margin for the Q2 of 2023 was approximately 37% versus approximately 28% for the same quarter in 2022. The Q2 of 2023 was another record revenue quarter for Kooler. Kooler generated more revenue in the 1st 6 months of 2023 than in the entire 2022. Solar's trailing 12 months revenue trend continued with the 4th straight quarter of trailing 12 months revenue growth. Cooler Management continues to be upbeat regarding the Positive trends of Cooler's increasing revenue ramp, pipeline and expanding margins.

Speaker 3

Based on what we are seeing today, We estimate full year 2023 revenue to be between $10,000,000 $14,000,000 These estimates imply a year over year growth rate of 150% at the lower end and an estimated 2 50% at the higher end of the range. Back to you, Mike.

Speaker 1

Thank you, Sean. Stuart, we're ready for questions from our analysts.

Operator

All right, excellent. Thank you, Michael. Right now, we will be joined by Howard Halpern. He's joined us on previous calls. He is the Senior Equity Analyst at Taglich Brothers.

Operator

Howard, the call is yours. It looks like you have a handful of questions for the company.

Speaker 4

Okay. Yes. Well, also new question, which would be, 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 the design and then into the implementation and deployment.

Speaker 1

Stuart, this is Michael Mose. So I will take that. Hi, Howard. How are you? Thanks for the question.

Speaker 1

Yes, and as you can see, our 2 margin was approximately 38% or 37%, 38%, which is a bump from last year's 20 As we move forward, we see that we're going to maintain the high-30s margins as we grow both our service and the product business. And then as the business grow, We think that we're going to settle somewhere in the low 40s in our overall blended margin.

Speaker 4

Okay. That sounds good. Also in terms of The sales cycle, I guess, in getting these development contracts, are you seeing even that Timespan shortening up as you become more recognized in the industry?

Speaker 1

Yes, I mean both yes, sorry, Keith. I was going to say yes, both on the sales cycle And also the development cycle as well, I mean, we have customers that gone through our design and go to production in years in the previous cycles. And now in our army contract, we're getting them in months or 12 month 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 manufacturer readiness by April 2024. So as we get more customers into the sales pipeline And execute them faster.

Speaker 1

So you're going to see a that's how we're going to be comfortable with the revenue growth.

Speaker 4

Okay. And just one last one, when you talk about like for the drone contract having an all encompassing offering. Is that going to include having the sensors that eventually Maybe you could sell cooler vibe into those customers?

Speaker 1

Very interesting. Yes. The press release that we talked about with the drone customer was really focused on the quarter one design solutions Howard, so this is really kind of in my opening remarks, we talked about the great reception The market has on the quarter 1 design solutions package since we officially launched it early this year. So as we continue to build that out, we're going to incorporate more and more of these capabilities. So all of our customers are going to get the benefit of the leverage across all of that platform.

Speaker 1

In terms of quarter by, I'm glad you asked that question. So We have been working on QuarterVibe 2.0 and to 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 to find specific and quantify the performance benefits for these new applications. And then so what you're going to find coming up is that in the second half of this year as we launch this product and with our customers, They're going to be very targeted and very specific performance benefits. And we are very, very excited about it. As you kind of alluded to, there is certainly we hope there is cross selling and upselling opportunity for quarter buy into these battery customers.

Speaker 1

That's the whole goal.

Speaker 4

Okay. Thanks and keep up the great work guys.

Speaker 1

Thank you, Howard.

Operator

All right. From Howard, we're going to move on to Akhilbek Subendikov. He is a Senior Analyst at Litchfield Hills Research. Akhilbek, I know you're there. So the call is yours.

Operator

It looks like you've got a couple of questions for the company. Yes.

Speaker 5

Thank you. First of all, congratulations on outstanding results. My question is, Color has announced numerous new contracts recently and you've generated more revenue in the first half of 2023 then in all of 2022. My question is, what is your capacity to add additional contracts? And Do you need to invest in CapEx to meet and fulfill your existing contract?

Speaker 2

Yes. Hey, Michael, I'll go ahead and 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.

Speaker 2

And also from my comments, we will move into a larger facility to accommodate Growth in Q1, twenty 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, should we decide to go, the brick and mortar route.

Speaker 5

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?

Speaker 2

Yes, great question. As you noted, we do have a very diverse product line in support of a holistic solution for the electrification 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.

Speaker 2

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 of experience and context to make that sales process sufficient for us. So, yes, I hope that provides the insight you're looking for.

Speaker 5

Yes. Thank you. And congrats again.

Speaker 2

Thank you so much.

Operator

All right. Thank you, Akhilbek. Now we're going to get questions from Jake Sekelsky, Managing Director and Senior Research Analyst at Alliance Global Partners. Jake wasn't able to be with us, so he did email the questions in and I have the first When you're looking at the announcement made earlier today, is the testing of battery cells under the contract with the global automaker specific to silicone anode battery chemistry or do you expect to apply K1DS across a spectrum of chemistry for this customer?

Speaker 1

Yes, so I'll take that. Yes, our solution is chemistry agnostic. So We can apply the CoolerOne design solutions platform across multiple and also multiple shapes of the battery cells. We've been working with cylindrical cells a lot because NASA really focused on that. But now we're also working with pouch cells and also large format, cylindrical cells and also prismatic cells.

Speaker 1

For prismatic cells, we're testing for cells over 100 amp hours. So for automotive and also large energy storage customers that's demanded. And we are the exclusive licensee from NASA on the large format FERC. And so this has a testing capabilities in the industry and that has attracted a lot of That's my attention.

Operator

All right. Next question. Are you able to share any color on the structure of the contract? Did the automaker engage Kuler to provide K1DS services for a specific period of time during test work?

Speaker 1

Yes. Well, actually kind of like what Keith talked about earlier about our sales organization and also our sales strategy, We kind of employ kind of a land and expand type of model. So when we land a customer Engagement, usually the customer is looking for one solution or maybe a couple of solutions suite. But as we get into the organization, start building relationship with the customer, We perform these tasks, we start expanding our relationship or engagement as they look 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 Q2 of 2022 to 2019 And also our revenue per customer grew 200% in addition to the 60% growth in the customer number.

Speaker 1

So we feel like this land expand model is working and we will continue to execute on the strategy.

Operator

Okay. Margins were these levels something we should expect to remain constant during the

Speaker 3

I'll take that one, Mike. It's Sean. Thanks for the question. Yes, as we grow in scale, we believe our gross margin should improve as the question indicates. In fact, If we look back this second quarter, our gross margin was about 37% and the same quarter last year was 28%, evidencing a significant enhancement.

Speaker 3

So as we grow, we estimate the gross margin enhancement from here, especially on the product

Operator

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

Speaker 3

Sure. Well, as I guess as you know, as you may be aware today, Kooler 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'll refer you to that document for any further details.

Operator

All right, very good. Mike, it looks like the final question will be towards you. How has Cooler Vibe in gaining customer awareness and traction in the market?

Speaker 1

Yes. We've been Going to industry conferences to market quarter vibe, and as Howard kind of asked a question earlier or similar question earlier about quarter vibe Integrating with the drone customer, yes, we've been in my prepared remarks, I talked about we've been really focused on And we're working with strategic partners integrating those new features into the product. So during those engagements, we are really focused on how the new features, the product offers specific and quantifiable performance benefits for these customers and new applications. So later this year, we would be Demoing these products with the customer will be very targeted, very specific that we're super, super excited about that.

Operator

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 analyst Howard Halpern. Theodore O'Neill, who was replaced today by his associate Kielbek Subenbakov, who is a Senior Analyst at Litchfield Hills Research and Jake Sokowski, Managing Director and Senior Research Analyst At Alliance Global Partners, of course, we I want to thank all the members of the management team CFO, Sean Cantor President and COO, Keith Cochran and Chief Executive, Michael Mote. That concludes our call for today, the Q2 2023 earnings conference call. I'll turn it over now to our operator, Thomas.

Operator

Thank you, Thomas.

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Key Takeaways

  • Cooler reported a record Q2 revenue of $2.7 million, up 360% year-over-year driven by a 2,300% surge in service contract revenue and 250% growth in product sales.
  • The company secured a $1.13 million U.S. Army contract to fast-track high-energy battery pack designs on its COOLER 1 platform and won additional development deals across multiple military branches.
  • Management highlighted a land-and-expand sales model, signing partnerships in drone delivery, eVTOL, and with a top automaker for advanced EV battery testing using the COOLER 1 platform.
  • Operations achieved zero non-conformances in ISO 9001 and customer quality audits, expanded its Webster, TX facility, and processed over 20 million cells with its automated TRS system.
  • CFO outlined a 37% gross margin in Q2 (up from 28% last year), full-year revenue guidance of $10 million–$14 million (150%–250% growth), and noted H1 2023 revenue exceeded all of 2022.
A.I. generated. May contain errors.
Earnings Conference Call
KULR Technology Group Q2 2023
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