KULR Technology Group Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 15, 2024

There are 3 speakers on the call.

Operator

All right. Thank you for joining us today for the Kooler Technology Group First Quarter 2024 Earnings Call. I will be joined on the call today by the CEO of Cooler Technology Group, Michael Moe and the Chief Financial Officer for the company, Sean Kantor. But before we begin the call, please listen closely to the following statements. This call does not constitute an offer to sell or a solicitation of offers to buy any securities of any entity.

Operator

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 the company 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 their business, which include risk factors disclosed in Cooler Technology Group's Form 10 ks filed with the Securities and Exchange Commission on April 12, 2024, as may be amended or supplanted by other reports the company files with the Securities and Exchange Commission from time to time. Forward looking statements include statements regarding their expectations, beliefs, intentions or strategy 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 projection and expectations may change over time.

Operator

In addition, the forecasts are entirely on management's best estimate of Cooler Technology Group's future financial performance given their current contracts, current backlog of opportunities and conversations with new and existing customers about their products and services. Kooler Technology Group assumes no obligation to update the information included on this call whether as a result of new information, future events or otherwise. I will now turn the call over to the Chief Executive Officer of Cooler Technology Group, Michael Moe. Michael, the call is yours.

Speaker 1

Thank you, Stuart. This is Michael Moe. Thanks to everybody for joining us today. I'd like to go over some of the financial and operational highlights with you today. I will discuss how we achieved over 7 60% year over year growth in our Q1 design solution business, which is our engineering services business in Q1 of 2024 compared to Q1 of 2023 and how this tremendous growth in service business drives the growth in our overall product sales business, especially in the quarter one space and the quarter one Guardian product lines.

Speaker 1

While we're experiencing this big growth, we have reduced our cash used in operating and investment activities by 23% and total operating expenses by 20 5% year over year for the Q1 in 2024 compared to 2023. I will also give an update on our Newquarter Texas facility and how we're strategically positioning it to be the center of excellence for battery design and testing and also foster innovations together with our customers. Market is changing very quickly. Our customers are very demanding. They want the best and they wanted it yesterday.

Speaker 1

With the ever changing regulations around safety of lithium ion battery usage, customers demand fast turnaround time in addition to the requirements on quality, performance and customization to fit perfectly to their applications. At quarter, we're winning customer engagements by offering a one stop shop solution to all their battery needs. We start with a holistic design methodology to come up with a modular design that is easy to customize for our customers' needs. Our dedicated and experienced engineering team is very focused on safety and we can turn around very quickly with our in house testing, machine shop, tooling and manufacturing capabilities. This has enabled us to achieve over 7 60% year over year growth in our Q1 design solutions business.

Speaker 1

Furthermore, through our Q1 design solutions process, we're collecting valuable data through the cell screening, to testing, to design and ultimately accelerating the customer certification process with treasure trove of data. This data is becoming the glue and the fuel to our business. Let's use FTRC testing as an example on how it's driving new and recurring revenue. We recently announced that we have successfully completed large format FTRC test for 200 amp hour high energy battery cells for automotive OEM customer. It's the 1st in the industry and the only one because Cordar has an exclusive license with NASA on this technology.

Speaker 1

We're able to provide our customers with battery cell data that are not available anywhere else. And this data is critically foundational to build truly safe battery packs for certification, which makes our service very sticky with our customers. Automotive customers like customers in electric aviation, energy storage and industrial markets are constantly evaluating new generation of battery cells with colorimetry data. Therefore, our unique and exclusive position in the battery cell testing market is bringing us new and recurring businesses in the global cell testing market estimated to reach over $7,000,000,000 by 2,030. To drive our ecosystem further, we're working with battery cell companies to test and qualify their new battery cells with data, like our partnership with Amprius, which we announced recently for their silicon anode cylindrical cells.

Speaker 1

We see tremendous demand for FTRC testing business because it's providing customers with critical data that they cannot get anywhere else. We're building a couple of new testing lines in our new Texas facility, which will be fully operational in Q3 of this year. And we're expecting our testing service alone to be over $1,000,000 a quarter revenue for us by the end of this year. We're also developing AI based data collection and report generation tools to streamline the testing and the data analysis operations. That will further drive our battery design and product sales business.

Speaker 1

In Q1, we saw the number of product sales customers grew from 13 in 2023 to 25 in 2024. We had 1 large customer in Q1 of 'twenty three that did not place order with us in Q1 of 20 24. Due to the sticky nature of our products that are certified into that customer's products, management expects that customer to continue purchasing from quarter in this year and beyond. Excluding that one large customer, our product sales revenue grew over 400% in Q1 of 'twenty four year over year. We expect our Cooler 1 Space battery to be a key driver for our growth going forward.

Speaker 1

The space economy is going to be over $1,800,000,000,000 by 2,035 according to McKinsey. This is driven by the commoditization of commercialized space industry. The space battery market is estimated to grow to $6,350,000,000 by 2,030, and we expect our CoreLog One space platform to play an important role in this market. Some of the key players that drive this tremendous growth in the space economy include rapidly growing private companies such as SpaceX and Blue Origin, continued growth of traditional government and contractors like Boeing and North America and also new upcoming companies like Voyager Space, Acxiom, VAST and many of these already quoted customers. What all these companies look for in their energy storage system is high performance, space qualified and competitively priced battery solutions with the highest level of safety that meets NASA safety standards, especially the NASA JSC 20,793 specification that's mandated to be part of a crew space mission.

Speaker 1

That's exactly what KULA-one space architecture offers. A prequalified design architecture that can be customized, spaceflightready and certified for NASA GSE 20,793 specifications in record time. We're offering a solution that can dramatically improve time to market and offer cost savings to our customers. Another successful example of providing fast time to market engineering service and pave the way for high potential future product sales is our Quarter 1 Guardian platform. We started this platform with our contract with RV DevCom for the next generation aviation battery in Q2 of 2023.

Speaker 1

The contract has since been expanded to over 1,800,000 and we're scheduled to deliver our prototype batteries to them in August of this year. Data has shown that a new battery will be a game changer for Army in terms of safety and energy capacity. Now we're expanding our cooler 1 Guardian product portfolio to standard size 2,590 battery, swappable UPS battery and additional custom batteries for DoD customers based on the same scalable architecture. What sets Q1 platform apart from the competition is data, safety and speed. Our customers demand the batteries to have the superior thermal performance and safety with the highest energy power.

Speaker 1

The quarter 1 architecture is flexible and can be quickly customized to meet regulatory requirements across a wide spectrum of applications. Our end to end one stop shop solution is what the customers are looking for. Our Safe Keys product is another example of data driven solution within the marketplace. We have performed exhaustive thermal runaway tests on batteries of all sizes and chemistry in our FATEX product. The comprehensive test results are presented to U.

Speaker 1

S. Department of Transportation and also logistic partners like UPS to receive special permits to ship batteries for recycling and other applications. We've also presented these tests and data to fire departments across the country, including San Diego and New York. They're very excited about our Safe Case and how we can help them fight battery fires. We continue to grow our Safe Case customer base across multiple industries and markets.

Speaker 1

Customer excited about the Safe Case because real life test data has shown that it has the highest energy capacity to handle in the industry. Its patented technology is the most effective to mitigate battery thermal runaway. It's been used on International Space Station since 2019 and is reusable, which makes it much more sustainable and cost effective solution compared to our competition. The quarter 1 the quarter online marketplace represents a pivotal expansion in quarter sales strategy by offering direct order facility that complements our traditional distribution channels. This direct to business and consumer channel is going to help us scale up our product sales more quickly.

Speaker 1

Currently, the marketplace offers our Safe Case and Safe Sleep products. We've already received orders from fire department and department energy branches throughout the website. We plan to expand our online offerings to include internal short circuit devices, trigger cells, red powder and BMS, quarter 1 battery packs and also rapid engineering design services in the near future. Kudai spent the last few years creating a portfolio of service solutions that allowed the company to support every aspect of battery lifecycle. We have now consolidated the infrastructure to execute our Equinor 1 design solution services under one roof, all in house in our new Center of Excellence of Battery Design and Testing in Webster, Texas.

Speaker 1

This facility is approximately 2.1 miles from NASA Johnson Space Center and is next to companies like Axiom Space, Leidos, Blue Origin among many others. It's an ideal location to provide rapid turnaround, real time VIP style battery design testing and production services to the surrounding ecosystem of aerospace companies. We signed a lease in April of this sorry, in February of this year and we are in the midst of finishing up the further improvements, moving in and also execute our daily operation at the same time. So a big shout out to my Texas team. Our success story with the NASA RFI program is a perfect example to highlight how Cooter Texas facility is providing rapid turnaround solution to our customers.

Speaker 1

Within 6 hours of engagement, the quarter team was able to provide NASA's R5 team with a solution which successfully passed their testing requirements and get the CubeSat battery space ready. With the Q1 design solution infrastructure in place, we can provide in house and custom battery design, testing services, analysis and modeling services, abuse testing, style level categorization and cycling, fabrication and also production services, all in one shop, all under one roof. In addition to customer support, Quarter Texas is our R and D center to advance our next generation modular Quarter 1 architecture. It's also our customer innovation center where customers will come in and develop exciting new products next to our engineers under one roof. So I'm super excited about this new facility and how it would drive the future of Cooler and frankly our industry together with our customers.

Speaker 1

Next, Sean Kenter will provide financial highlights.

Speaker 2

Sean? Thanks, Mike. Cooler's financial position is the strongest it's been in over a year. Today, Kuhler has over $3,000,000 in the bank and the prepaid advance note has been fully repaid. You can see the financial results from our Q1 2024 and our Form 10 Q, which is now online.

Speaker 2

I'll touch on a few highlights. Total revenue in the Q1 of 2024 was 1,800,000 dollars Product revenue was approximately $615,000 down from about $1,600,000 As Mike mentioned, this decrease was substantially due to delayed orders from a customer who placed a large order in the Q1 of 2023 and didn't order in the Q1 of 2024. Further emphasizing Mike's earlier point, due to the sticky nature of our products as certified into our customers' products, management expects this customer to continue purchasing from Cooler this year and going forward. Due to the nature of our customer base and the end markets we serve, quarter over quarter comparisons may not always capture the larger trend in the business. As Cooler grows and continues to expand its customer base, any one customer's purchase order timing is likely to have less of an effect on interim, annual and longer trends.

Speaker 2

Additionally, some unanticipated delays at government agencies in issuing particular licenses for our Safe Case products impacted revenue in the Q1. These licenses have been issued to Cooler and Cooler sales team is now in market with these products. Cooler services revenue was up 7 69% in the Q1 over the same quarter last year. As we have previously discussed, service revenue may be seen as a predictor of future product revenue. Gross margin for the Q1 was 29% versus 37% in the same period last year.

Speaker 2

The decrease primarily stemmed from expenses related to a major project without corresponding revenue in the same period. While the Q1 gross margin related to this particular project was a drag on the overall gross margin for the quarter, The overall gross margin for this project is estimated to be approximately 50%. Overall, management anticipates gross margins returning to historical trends in the upper 30s to low 40s. Switching to customers. The total number of revenue generating customers in the Q1 of 2024 numbered 34 versus only 15 in the Q1 of 2023, a 127% increase.

Speaker 2

Q1 2024 versus q1 2023 revenue generating customers from products grew 92% and from services, 180%. Touching on expenses. Operating expenses went down in the Q1 compared to the same quarter last year by about 25%. In the Q1 of 2024, Cooler not only reduced its operating expenses, the company continued to reduce its cash consumption. Net cash used in operating activities decreased 18% in the Q1 of 2024 over the same period last year, and net cash used in operating plus investing activities decreased 23% Q1 2024 over the same quarter in 2023.

Speaker 2

And finally, earnings per share improved by 33% in the Q1 2024 compared to Q1 last year. Back to you, Stuart.

Operator

Okay. Thank you for that, Sean. Now we are going to transition into our question and answer phase of the call. I want to thank everyone who sent in their questions. We did have a deadline.

Operator

So unfortunately, if you submitted your questions after 12 pm Eastern yesterday, more than likely we were not able to include them, but we did try to grab as many as we could. Without further ado, let's jump into the first question. Here we go. Can we expect major partners to come in and put this company on the map?

Speaker 1

Yes, sure. I'll take that. I actually think that we are already on the map with a lot of customers. Many of them are very large name brand Tier 1 customers and partners. Some of them we can talk about, but some of them were under NDA.

Speaker 1

We can't really talk about it. But if what you mean by putting Kooler on the map is from a name brand recognition perspective, Let's say, for example, when our safe case is going to be used by, let's say, for example, Apple in their retail store for the Apple Care products that where people can put their iPhone and iPads in there for recycling or like the Amazon Prime shipment for batteries, so our safe cases in their trucks where every fire department in the country is going to use our safe case to solve the battery problems. These things will take time, but they could happen over time. But most of our products is they are built into the customers and products. So they're not so visible from a brand name recognition perspective to the average consumer.

Operator

All right, great. Could you provide any insights or updates regarding the status of the partnerships with SpaceX, Blue Origin, Archer Aviation, Beta Technologies and Wisk Aero. As mentioned by Mr. Moe earlier this year, understanding the constraints of confidentiality, I should say, and strategic timing, any additional information would be greatly appreciated by shareholders like myself who are keen to see Cooler's continued growth and collaboration within the aerospace industry?

Speaker 1

Well, Stuart, in my prepared remarks, I talked about how the Coeur d' Texas facility is very close to all these space industry giants and also the new upcoming private space companies. And so we're serving many of them already with our engineering service. For the eVTOL customers that the question addressed, they're a little bit more spread out geographically. We're working with many of them because often care about the same things, battery data, high energy, high power battery cells and the safest battery possible to pass FAA certification. So our products and services are ideally suited for those industries.

Operator

So which leading electrical vehicle and leading electrical vehicle manufacturer did KULR make a deal with a couple of weeks ago? If you can't answer, why is it kept secret?

Speaker 1

Well, we have announced a number of PRs about working with automotive OEMs over the last few months. For example, our safe case used by a leading automotive OEM, FTRC test for world's largest automotive OEM as well as EV truck and SUV OEM. We can't disclose the name because we're under NDA with these large customers. So you may ask maybe this question is that if you can't say the name and the dollar man, why put on a PR? The answer is simple.

Speaker 1

We use PR as a very cost effective way to do product marketing. It costs us a couple of $100 to put on the Global Newswire and it gets thousands of views from both the Newswire distribution, also our social media channels, which have thousands of following through our multiple channels. And sometimes we get picked up by trade media as a story. And so we found these PRs to be a great way to get new customers. You'd be surprised how many times we put a PR, the story is written and we got inbound track for customers and partners.

Speaker 1

And then in addition to get these new customers, we're also keeping our shareholders informed on our progress. So we found this to be super cost effective. And by the way, these large customers well, the larger the customer, the least likely they will allow us to disclose your name. And then when we put it out there and then we also attract other large customers in the market to contact us. And so that's a great way and a very cost effective way for us to do product marketing.

Operator

You recently announced that you're moving to a larger facility that's 3x bigger than your previous Texas location. Is the previous location being decommissioned? Do you still plan on keeping the California facility? Or is that being consolidated into a single location down in Texas? Will there be a need for another facility?

Speaker 1

Yes. We have decommissioned the previous locations in Texas and we have consolidated all under one roof in the new Webster facility. We still have our San Diego location that's doing a lot of our thermal work. Some of our corporate organization is running out of there and also battery cell screening line is still in San Diego. So those are the 2 facilities and we don't have a need for another facility right now.

Operator

Could you break down Cooler 1, the number of contracts and stages that they are in? We know that most revenue comes in later stages, but it's unclear how many clients are in the pipeline and at what stage they might be in?

Speaker 1

Yes. We haven't broken down the different customers and stages in the kind of detail that the question is asking for. But we actually we do look at engineering service customer growth and revenue growth as an indication of future product sales growth. So we're focused on customers that have big product sales upside potentials, recurring revenue potentials and also diversify our product portfolio or our product and our customer portfolio to reduce our risk on customer concentration. So when you look at our Q1 performance, we grew our service revenue in customer size and also in revenue numbers and our new customers for product sales in both the size and the revenue numbers.

Speaker 1

So I think our strategy is working and we need to continue to execute on those.

Operator

You've recently authorized a reverse split, but you haven't announced anything yet. With the recent stock price improvement, do you feel like a reverse split is still needed?

Speaker 2

Thanks, Stuart. It's Sean. Maybe I'll take that one. Good question. We recently announced that the New York Stock Exchange informed us that we have regained compliance with regards to the level of our share price.

Speaker 2

As a result, we're under no obligation to do a reverse split. And I guess, I'll leave it with we have and we'll continue to work towards our shareholders' best interest. Thanks.

Operator

Okay. What part of the business are they most excited about, they being you internally at Kooler, regarding growth and potential?

Speaker 1

Yes. I'm very excited about the actually the overall strategy is working in the different parts of technology. Portfolio is driving each other for growth. Obviously, the FPRC test is growing leaps and bounds and that's driving customer engagements in battery design, contracts with larger customers and that's driving product sale business for us in both number of customers and revenue growth. Underlying it all is the data that we generate throughout the process and that is a glue in the field to the flywheel of our business.

Speaker 1

Everybody talked about proprietary data now and how it can be used for AI applications. So we are building up our treasure trove of proprietary data and we will explore that further with potential AI opportunities in the near future.

Operator

With Kooler being the only company bringing FTRC to the table, would it be safe to say that all independent companies such as Intuitive Machines, Lunar Outpost and Venturi Astro Labs that are working on NASA projects are in turn on the books as unnamed cooler clients for at minimum battery testing purposes?

Speaker 1

Well, yes, we have the exclusive license on the large format FERC test, which that most of the EV energy storage industrial applications, companies that are using this large format. And also we have made significant improvements on the FERC device in general. And more importantly is the algorithm of the data collection and the analysis based on the original NASA software. Will Walker, our CTO, is the inventor of the FTRC technology. So I think it's safe to say that Cordura will be in the leading position to service all these space related customers for our FTRC setup.

Speaker 1

In addition for these customers to meet the NASA battery pack safety standard, you need your battery cell to be screened by the working instruction 37, which we have the only automated cell screening line in the world to perform that at scale and also reliably providing the cell screening data. And also then you need to build a battery pack to meet the JSC 20,793 specification, which can be served by our quarter 1 space architecture like I talked about in the presentation. So this is where we can start engagement with the customer with the FTRC cell testing and then we can end up with the customer by building them a total solution using our quarter 1 space battery platform with screen cells. This will save customer money and time. It is a win win partnership for both of us.

Operator

All right. Does the company believe its competitive advantage is strengthening? If so, what key factors contribute to this?

Speaker 1

I believe it's definitely strengthening. The key contributing factors are data, safety and speed. I think I repeat again and again, we are providing our customers with battery cell performance and safety data that they can't get anywhere else consistently in a broad based type of data proprietary data. And we're safety focused organization. So our team is really focused on doing that and all the design decisions are made around thermal performance and safety.

Speaker 1

That is a critical decision factor for our customers. And now we have the one stop shop total solution package all under one roof in our Texas facility and they can get their battery design tested and certified in record time. I definitely believe our competitors competitive advantage is strengthening. Great.

Operator

All right. Next question. How is the company ensuring timely order deliveries amidst increased volumes to prevent backlog issues affecting revenue recognition?

Speaker 2

Stuart, it's Sean. I think maybe that was a good one for me to take. With respect to revenue recognition, we filed the established accounting rules. Having increasing customer demand is certainly a nice problem to have. Meeting customer timing requests is always critical and something we're very focused on.

Speaker 2

We're always trying to gain additional efficiencies to do more with the resources we have. For example, responding to customer demand growing customer demand as a result of being booked out for the next for almost the next couple of quarters, we're bringing on 2 additional FTRC testing machines online. We're also evaluating different programs, for example, where we would offer premium subscriptions or subscription type programs for customers who have particularly time sensitive requirements. Thanks.

Operator

So what's the company's future patent application strategy? Any specific areas or technologies targeted for patent protection?

Speaker 1

Yes, Aisur. So our patent strategy has been very consistent from day 1 is that we look to patent core technology and its applications around that core technology. So for example, our TRS technology, the pan is on how to build it, the internal configurations of it and variations of that and how to use in a system. So I think that creates the defensive mode around our technology and around our pen. So, as we build out the different pieces of our quarter one platform, we'll continue to pen new innovations in materials, in configurations of these materials and also how these new pieces are used in the application of these technologies.

Speaker 1

That's our patent strategy.

Operator

Okay. Well, how does this quarter differ from the previous one in terms of strategic changes and performance goals?

Speaker 1

Yes. Then again, our strategy has been fairly consistent throughout. So what might be a little bit different this quarter compared to the previous quarters is that we see the acceleration of growth in our Q1-one Design Solutions business in both the number of customers and also revenue growth. So we are seeing the flywheel of testing services contracts translating to design contracts and then driving product sales, new product sales revenue and so forth. So now we're going to continue to monitor the new customer numbers, focus on customers that have large contracts, recurring revenue and large product sales opportunities going forward.

Operator

Regarding the online store, any plans to expand its availability internationally?

Speaker 1

Yes. We just launched our online store, I think within a month. Frankly, we're just getting our feet wet and see how we can serve the fire departments, hazmat groups and other government agencies directly and also directly to consumer as well. So there's plenty of business for us when we become successful doing that. Then we'll be looking at international opportunities online.

Speaker 1

Now if there are companies interested in doing distribution for us internationally and they see local opportunities, yes, definitely please contact me or our sales at quartertechnology.com and we can definitely have a conversation about how to work together and serve these international markets.

Operator

Very good final question here. Any plans for future share offerings or sales, especially regarding the debt cancellation with Yorkville? How does this impact the company's financial strategy?

Speaker 2

Stuart, it's Sean again. I'll take that one. Cooler has a standing company policy of not talking about potential or future strategic activities. I can say that management thinks the repayment of the Yorkville prepaid advance note strengthened our balance sheet substantially. Regarding our strategy, I'm not sure anything has really changed.

Speaker 2

The principles we're focused on are keep working to meet the growing customer demands in a growing market, and that should address revenue trajectory. Keep a watchful eye out to thoughtfully reduce costs and gain efficiencies where we can. Don't be wasteful. Don't be penny wise and pound foolish. And always be ready to take advantage of opportunities when they present themselves.

Speaker 2

They will present themselves, and it's just hard to predict exactly when. So we need to be ready. Strengthening our balance

Operator

All right. As mentioned, that was our final question. And that does conclude the call today. I will now turn the call back over to our You may disconnect at this time and have a wonderful day. Thank you for your participation.

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Key Takeaways

  • Achieved over 760% year-over-year growth in Q1 Design Solutions services, driving product sales growth while reducing operating cash use by 23% and operating expenses by 25%.
  • Opened a new 86,000-sqft Center of Excellence in Webster, Texas as a one-stop battery design, testing, and manufacturing hub to accelerate customer innovation and expand FTRC testing capacity, targeting over $1 million/quarter in testing revenue by year-end.
  • Holds the only exclusive NASA license for large-format FTRC testing, positioning Kooler to capture recurring business in an estimated $7 billion global cell testing market by 2030 through proprietary safety and performance data.
  • Product sales customers grew from 13 to 25 in Q1, with product revenue (excluding one-time order timing effects) up over 400% year-over-year and the Kooler-One Space platform primed for the $6.35 billion space battery market by 2030.
  • Strengthened the balance sheet with over $3 million in cash, full repayment of the prepaid advance note, Q1 revenue of $1.8 million, service revenue up 769%, customer count up 127%, and EPS improvement of 33%.
A.I. generated. May contain errors.
Earnings Conference Call
KULR Technology Group Q1 2024
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