KULR Technology Group Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
April 12, 2024

There are 5 speakers on the call.

Operator

Welcome everyone to the full year 2023 earnings call for KU LR Technology Group Incorporated.

Operator

The company is traded on the New York Stock Exchange, the NYSE, under the ticker symbol KULR. I will be joined on the call today by the CEO of the company, that's Michael Moe and the Chief Financial Officer of the company, Sean Cantor. The call will proceed as follows. We will get opening statements from both members of the management team. After those opening statements have concluded, we will welcome on to the call various analysts who will also be asking their questions directly to the company at the conclusion of the Q and A portion of this call.

Operator

We will then wrap up the call. With that, before the call can begin, please listen to the following statements. This call does 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 Kooler's expectations, forecasts and assumptions that involve risks and uncertainties. Forward looking statements made on this call are based on the information available to management as of the date hereof.

Operator

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 their business, which include risk factors disclosed in their Form 10 ks with the Securities and Exchange Commission on March 28, 2023. Forward looking statements include statements regarding their 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 information 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 their future financial performance given their 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.

Operator

With that, I will now turn the call over to the CEO of the company, Michael Moe. Michael, the call is yours.

Speaker 1

Thank you, Stuart. Thank you, everybody, for joining us today. 2023 was the most challenging yet pivotal year for Kula. For most of 2023, we're working on paying down approximately $8,000,000 of prepaid advanced convertible notes that we owe to You. This outstanding debt really limited Kura's ability to access capital in a market that had already been the most difficult for small cap companies in recent history.

Speaker 1

The difficulties in accessing capital really limited our ability to grow our business as we had to reduce our workforce by 15% and worked with our customers and partners closely to manage our operations. During 2023, we completed 2 equity financing for a total of approximately $3,500,000 We experienced significant shareholder value erosion during that process. We're not interested in doing that again. I'm happy to report that we have retired the entire prepaid advance convertible note on March 27 of this year. Despite these challenges, 2023 was a transformational year for Corolla as we achieved record revenue growth and built a solid foundation to grow in 2024 and beyond.

Speaker 1

2023 total revenue increased 146% year over year to reach a record $9,800,000 Total number of customers increased from 36 to 53. Product sale revenue increased 161 percent and number of product sales customers grew from 33 to 39. Engineering services revenue increased 117%. Total number of engineering service customers grew from 14 to 17. In addition to the tremendous growth in our business, we have built an industry leading technology platform for battery safety and thermal management and a world class engineering team to execute our plan.

Speaker 1

I would like to share with you more about our CoolerOne platform and how it's serving some of the leading companies in the world. Generally speaking, every combination of battery application, storage and operational environments and driving requirements and standards are different. Further, there's variability in chemistry based on the use and also on the chemistry improvements over time. There will always be something new to address. Therefore, there's no one size fit all solution, which necessitates taking a holistic approach to ensure the technical provider's ability to effectively and competitively support lithium ion battery development.

Speaker 1

It all starts with accessing high quality battery cells from top tier OEMs. Then we provide cell level testing categorization. That's from electrical level to mechanical level and also to destructive test level for thermal runaway energy release. With the data from the cell level categorization testing, we can build computer models of the battery pack for simulation analysis, which give us confidence on the battery pack's performance before it's ever built. Then we build a prototype battery pack for pack level and system level testing that range from electrical performance, thermal performance and also safety ratings.

Speaker 1

We've also built our own radiation tolerant battery management system BMS, intelligent battery monitoring system to get more data when the battery is in field of use. Last but not least is our safe case technology that keeps storage and transportation of batteries safe throughout its lifecycle of usage. To address this need for holistic approach, Cooler spent the last few years building a team and have developed a portfolio of products and services that can address all the aforementioned points. Some of the Kula's key products include ISC, which is internal short circuit trigger cells, which Kola has an exclusive license from NASA and DOE. We have served over 100 customers over the years with this technology.

Speaker 1

Our patented Thermal Runaway Shield TRS product is used to prevent thermal runaway propagation. Our recent announcement on over $1,000,000 order from H55 demonstrate how this technology is helping the pioneer and global leader in electric aviation to meet European Union Aviation Safety Agency battery safety requirements. For safety testing, Koda has onboarded a diverse array of tools used to categorize battery cell performance. Among them is the FTRC technology, which won NASA invention of the year award in 2023. We have performed FTRC testing for the world's largest automotive OEMs, leading private space exploration companies and top eVTOL customers.

Speaker 1

We expect the battery safety testing to be a multimillion dollar business for us and an anchor of our product offering. CUDA has invested heavily in quality and electrical testing capabilities and has fully automated NASA Work Instruction 37, which screen cells and is part of the cell qualification process for human space exploration. We have the only fully automated cell screening line in the industry to meet NASA Work Instruction 37 requirements. In addition to NASA, we have served several other private space exploration companies that require these battery cells to meet the standard to be part of the Artemis mission going to the moon. CUDA is an industry leader in safe storage and transportation with a safe case and safe sleep products that are the workforce of our SafeX product line.

Speaker 1

Collectively, these products, services and solutions are referred to as CoolerOne Design Solutions or K1DS and they allow Cooler to jump in with any customer anytime, anywhere through their battery development cycles. Koolearn leverages all components of the Koolearn design solutions to design house battery systems and also provide ground up custom solutions for our customer base. Regarding in house batteries, Quanta focused on using cell level categorization data to drive the designs of reference architectures that can be rapidly adopted to meet customers' needs. Key example include the Quarter 1 Space, which for the space application Quarter 1 Guardian, which is for military application and also Quarter 1 Max for modular energy storage applications. What sets Quarter 1 battery design apart from the competition is not only the superior thermal performance and safety aspect of it, it's the flexibility of the architecture that allows to be quickly customized and still meet regulatory requirements across a wide spectrum of applications.

Speaker 1

Our end to end and one stop shop solution is what the customers are looking for. The Cordova space architecture is focused on providing high performance and energy dense solutions that are designed with intent to satisfy NASA GSE 20,793 requirements, which is a gold standard for safe batteries in space exploration. The combination of the Cordova space architecture with Cordova's offerings available to our customer through Cordova Design Solutions is the driving force for some of our key customer engagements, including Nanorack, which is part of Voyager space among many others. CUDA is able to provide rapid time to market to fully qualified battery systems, something that has been expressed as a much needed capability by the customer base. While others may take 3 to 4 years to build such systems, the Kudo engineering team will take 18 months or less to deliver to our customers.

Speaker 1

As the space economy is expected to reach over $1,800,000,000,000 by 2,035, we believe that lithium ion battery will be the important role as the primary energy source. We expect Q1 space platform to capture meaningful market share in the coming years. The QuarterOne Guardian architecture like with the QuarterOne space focus on safety and performance. The primary differentiator here is to focus on military standards rather than a NASA GSE standard. Under the Kula One Guardian umbrella, Kula is working on the next generation standard format 2,590 battery that achieved energy levels never seen before in this form factor.

Speaker 1

Our development engagement with RMB DevCom is a perfect example of a QuarterOne Guardian engagement. We started this project in Q2 of 2023 to deliver the next generation aviation battery for the Army with the latest silicon anode technology. Army has since increased the total contract value to over 1,800,000 dollars and we're scheduled to deliver our prototype battery in August of this year. This battery will be a game changer for the Army in terms of safety and energy capacity. A hybrid between quarter 1 Guardian and quarter 1 MAX is our UPS program with the Army as well.

Speaker 1

Under a multiyear contract, Corter has delivered a quarter 1 battery pack specifically for Army's effort to modernize future command posts. This specialized pack combines high performance 2,1700 power cells with a state of art thermal management technology to enhance propagation resistance while minimize size and weight overhead. This customization has resulted in impressive 80% improvement in UPS runtime, providing strategic edge in the tactical command operations. The safe case design has been improved over the last year with adoption of robust thermal liner in a strap and buckle system. Kuda has demonstrated the performance of the recent design with live demonstration with the San Diego Fire Department and HACCP officials across the country.

Speaker 1

And with the publication of test result to the public for a 2.5 kilowatt hour battery pack in full propagation with nearly 100 cells that propagated in an hour timeframe. Koolearn also maintains a transparent offering of our testing result to step forward in 2023 by offering the entire testing and qualification data set to U. S. Department of Transportation. The Koolearn team recognizes that no 2 batteries in thermal runaway events are the same.

Speaker 1

Therefore, it's important to continue testing, ensure the test results and lesson learned. Customers are coming to Kooler because the Safe Case has the highest energy capacity in the industry. Its Panda technology is the most effective in the industry and has been used on the International Space Station since 2019. And it's reusable, which makes it much more sustainable and cost effective compared to our competitions. In addition to the battery recycling applications, we're finding new application for Safe Case used for energy storage in battery and EV production.

Speaker 1

We're working with a leading U. S. Automaker focused on mitigating thermal runner risk in EV battery module during vehicle production. This project underscores Koolearn's commitment to safety and innovation in the rapidly growing electrical vehicle market. Safecase is also being adopted by a leading eVTOL customer for their production line, which showcase the versatility and efficacy of Safe Case ensuring safe handling and transportation of battery across sophisticated production facilities.

Speaker 1

We believe that CoolerOne platform and Safe Case product line are going to be the main growth driver for Cooler going forward. To more efficiently facilitate our growth, we've established Cooler Texas in our new facility in Webster, Texas in February of this year. This facility is conveniently located 2.1 miles from NASA Johnson Space Center and is surrounded by large number of Kulin existing and target customers. This 17,000 square foot facility is home to our battery R and D team, our battery testing service and our battery panel production line. It's going to be our standard of excellence to show all the capabilities of the KULA-one design solutions.

Speaker 1

Next, Sean Kanter will provide financial updates. Sean?

Speaker 2

Thanks, Mike. You can see the financial results from our full year 2023 in our 10 ks, which is now online. I'll touch on some highlights. 2023 was another record revenue year for Kooler. Kooler extended its growth trend, growing revenue at about 100% compound annual growth rate for the last 2 years.

Speaker 2

Additionally, Cooler extended its trailing 12 month revenue growth record once again. Cooler generated revenue of approximately $9,800,000 versus 4,000,000 dollars in 2022, an increase of 146%. Product revenue increased 161% and service revenue was up 117% year over year. Gross margin for 2023 was 37% versus 59% in 2022. This reflects the increase in product sales and larger portion of revenue mix that management anticipates will scale revenue going forward.

Speaker 2

Revenue generating customers in 2023 numbered 53 versus 36 in 2022, a 47% increase. Revenue per customer in 2023 was approximately $185,000 versus approximately $111,000 in 2022, a 67% increase. Kooler consumed less cash from operating and investing activities in 2023 than in 2022. Net cash used in operating activities decreased 31% year over year. Net cash used in operating and investing activities decreased 41% year over year.

Speaker 2

With that, back to you, Stuart.

Operator

All right. Thank you, Sean. And now we will begin the Q and A portion of this earnings call. First, we have a call or questions from Jake Sikalski. He is the Managing Director and Senior Research Analyst at Alliance Global Partners.

Operator

And I'm going to be asking his questions for him this time he was not able to make it today. So the first question is, what inventory management strategy are you looking at as safe case sales ramp on the back of the EBITOL contract announcement?

Speaker 2

Thanks Stuart. It's Sean. I'll take that one. Our contract manufacturing partners hold buffer raw materials inventory and have capacity to support our demand on short notice. We'll hold minimal finished goods inventory to support small orders and have our supply chain ready to quickly fill large orders as they come in.

Speaker 2

I think this will put us in a good position for supporting customers while maintaining our focus on improving our cash flow. Thanks.

Operator

Okay, very good. This next question is a 2 part question. Do the recent award permits from the Department of Transportation for the safe transportation of EOL and DDR batteries have a specific timeframe that they are active for? Also, can you touch on some areas the new permit opens the door to?

Speaker 1

Sure. Yes, I take that. This is Michael Moe. On the Safe Case special permit, they're good for 3 years and the new permit really gives our OEM customers and also logistic partners more flexibility on how many smartphones, tablets, laptops and power tools that can fit into each safe case and safe sleep is really for business purposes. So we're working with top logistics shipping companies and e commerce logistic companies to use these solutions for the OEM customers.

Speaker 1

It turns out that these logistic partners themselves have a lot of batteries for internal use, storage and shipment. So as we explore more, we're finding new applications, kind of like what we talked about in the prepared remarks, how we work with automotive OEMs, eVTOL customers. The more we get into their operation, the more application we find and now we're taking these application requirements and refine our solutions so they can serve these entire industry, entire new markets with the safe case and safe access technology. So we're super excited about these new applications opportunities and that we expect them to be good revenue drivers going forward for

Operator

us. Thank you, Michael. All right. Now we're going to be joined by Theodore O'Neill. He is the Principal of Equity Research at Litchfield Hills Research.

Operator

Theodore, you now have the call. Please proceed with your questions.

Speaker 3

Thanks very much and congratulations on a solid quarter. I have two questions for you. My first question is, in the last 3 months, Coolers announced projects or contracts with a leading global space innovator, Nanoracks, a leading automaker, the Army, Lockheed and H55 and you received special permits from the DOT. Can you prioritize for us if possible the timeline for these to turn into recurring revenue and how big those markets might be?

Speaker 1

Yes. So thank you, Theo. We actually talked quite a bit about these customers in my prepared remarks and how they kind of tie into our customer or our product roadmap and really excited about these engagements. As you can see, they're in different markets. They're not correlated markets.

Speaker 1

And so that's really our diversification strategy on our customer base and reduce our risk. The service contract so to answer your question, Phil, we always start with service contract revenue. As you can see, our service contract revenue start grew 117% year over year. That's really indication of what can lead to future product revenue growth for us. The H55 engagement, for example, we start the contract services revenue about 3 years ago.

Speaker 1

Now you can see the ramp up in volume for over 1,000,000 dollars worth of order. The army dev comp contract, we started 18 months ago and now we're delivering the prototype battery. And the NanoRacks, the prototype battery is delivered within 9 months. So as you can see, we're shortening the design cycle for our customers. We're getting them faster time to market so they can win and we expect that trend to continue.

Speaker 1

And each customer frankly has different life cycles and product ramp set side product ramp cycles. But the faster time to market that we enable for them is why they choose Cordova.

Speaker 3

Okay, that's helpful. My other question is that you've opened an online marketplace, which customers is this aimed at and who'd be buying online versus going directly to you and trying to negotiate some kind of contract?

Speaker 1

Yes. Well, thanks for keeping real up to date because I think our online store just opened up a couple of days ago. It did. It is for both yes, thank you. It is for both for B2B and B2C customers.

Speaker 1

We're getting a lot of increase from fire departments, HAZMAT teams, dangerous goods teams, companies as well as consumers directly inquiring about the safe case. So we established the online store. We believe it's a good way to directly interface with our customers and can serve them in a scalable way. And in addition, we're also working with online and offline distributors who are focused on hazmat safety, dangerous goods industry. So stay tuned for more business partnership announcements in the future on additional distribution channels for us.

Speaker 3

Okay. Thanks very much.

Speaker 1

Thank you, Teo. All right.

Operator

Thank you, Theo. And now we'll be joined by Michael Legg Sr. He is the Managing Director at Benchmark in Emerging Growth Research. Michael, the call is now yours. Please provide us with your questions.

Speaker 4

Thanks. Michael, Sean, great job getting the debt off the balance sheet. I know that I'd be a large part of your focus at the end of 'twenty three and the beginning of 'twenty four. And want to try to understand how much of that focus now that you have that off the balance sheet and put back to strategic growth getting more out the door. And obviously, the revenues in the Q4 were down sequentially from the previous quarter.

Speaker 4

Was any of that impacted by the cash on the balance sheet and your ability to get product out the door? Don't want to get into the revenue run rate and where we're at now and how you see that going forward. So let's just start there, please.

Speaker 1

Yes. Michael, thank you. Yes, I'll take that. So I mean that the outstanding debt that we had throughout 2023, also 1st part of 2024, which we just got completely paid off and retired, was very, very consuming for the management to solve that. In my prepared remarks, I talked about how that really choked up access to capital, that really forced us to work very closely with our customers and partners on our operations and cash flow.

Speaker 1

I would say that that had impact in our performance leading to the second part of 2023. And we had to cut workforce. We had to put certain programs on hold to focus on the right programs to serve I mean every customer is a good customer, but some customers, a little bit more urgent, so we have to prioritize, if you will. So yes, no, it had a real impact on not just the management time frame, the resources, the mind share, but also operations. But we're certainly glad that that's out of the way.

Speaker 1

And Sean and I and the entire team can really focus on the business. Meanwhile, super proud of the team executing on the technology side, on the infrastructure side, operations side and getting huge growth in customer engagements, huge growth in revenue per customer. And I think we're just setting up the stage for a very strong future growth.

Speaker 4

Great. And when you look at all these new contracts you're bringing on, what type of visibility do you have into those for when deliveries will be? And how much lead time on that do you usually have?

Speaker 1

I would say that the engineering service contracts are hopefully getting shorter and shorter. Like I said, the NanoRx delivery was 9 months. So some of these engineering service contracts still, I'd say conservatively 9 to 18 months design, qualification, testing, prototype, so forth, and then you get to starting to ramp. And so you're looking at 2024, getting the 2023 customers to ramp and then you get 2024 customers or end of 2023 customers start going to pilot productions in 2024, 2025. And yes, I think that's probably a 12 to 18 months rev story, Mike.

Speaker 4

Okay, great. Congrats and nice to see all the progress and look forward to 2024.

Speaker 1

Great. Thank you so much.

Operator

All right. Well, with that, that was our last set of questions from Michael. And we want to thank Michael, Theodore and Jake for providing their questions to us here today. That now concludes our call. So I will turn the call back over to our operator, Tom's, to end the call.

Operator

Thank you, Stuart. This does conclude today's conference call. You may disconnect at this time and have a wonderful day. Thank you for your participation.

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Key Takeaways

  • KULR retired its entire $8 million prepaid advanced convertible note in March 2024, enhancing its capital flexibility and avoiding further shareholder dilution after $3.5 million of 2023 equity financings.
  • The company posted record full-year 2023 revenue of $9.8 million, up 146% year-over-year, with product revenue rising 161%, service revenue up 117%, and customer count growing from 36 to 53.
  • KULR’s CoolerOne platform delivers end-to-end lithium-ion battery safety and thermal management, featuring exclusive ISC trigger cells, patented Thermal Runaway Shield, NASA-licensed FTRC testing, and Safe Case transport solutions.
  • The firm secured multi-million-dollar contracts across space, defense, eVTOL, automotive, and electric aviation markets, demonstrating 18-month-or-faster design cycles and rapid time-to-market.
  • In February 2024, KULR opened a 17,000 sq ft facility in Webster, Texas, near NASA’s Johnson Space Center, to expand battery R&D, automated testing, and production capacity and drive 2024 growth.
A.I. generated. May contain errors.
Earnings Conference Call
KULR Technology Group Q4 2023
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