KULR Technology Group, Inc. (AMEX:KULR) Q1 2023 Earnings Call Transcript May 15, 2023

KULR Technology Group, Inc. misses on earnings expectations. Reported EPS is $-0.06 EPS, expectations were $-0.043.

Stuart Smith: Welcome, everybody, to KULR Technology Group First Quarter 2023 Earnings Call set for today, Monday, May 15, 2023. With me on the call today is Michael Mo. He is the CEO of KULR Technology Group; as well as Keith Cochran, President and COO; and Shawn Canter, Chief Financial Officer of KULR Technology Group. Now as we have done on prior calls, we will have opening statements from management followed by a Q&A section with some analysts that will be joining us later on the call. But before we begin this call, please allow me to read the following safe harbor statement regarding statements that are made on this call. This call does not constitute an offer to sell or a solicitation of offers to buy any securities of any entity.

This call may contain certain forward-looking statements based on 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. KULR’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 the risk factors disclosed in their Form 10-K filed 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. KULR 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 would like to turn the call over to the CEO of KULR Technology Group, Michael Mo. Michael, the call is yours.

Michael Mo: Thank you, Stuart. Good afternoon. This is Michael Mo. Thank you, everyone, for joining us today. KULR’s mission is to build industry leading energy management platforms to accelerate the global transition to a sustainable electrification economy. Over the past 2 years, we’ve worked very hard to transform KULR from a niche component supplier to NASA and Department of Defense to a company with multiple platforms powering the electrification economy. KULR is now solidly a growth-stage company. Our first quarter 2023 revenue grew 778% over the same quarter in 2022 to reach approximately $1.8 million. In 2023, we’re focusing on revenue growth. We continue to broaden our customer base to include names beyond our initial space and military marquee clients.

We’re experiencing increasing customer demand across multiple vertical markets. We believe we are well positioned to service the increasing customer demand and we have in these large and fast-growing markets. Specifically, areas like lithium ion battery market is estimated to be over $150 billion by 2030, and battery recycling is to reach $23 billion in 2030. We view our product and service platforms as mission-critical across multiple sectors, given that we sit at the intersection of sustainability, electrification, clean energy and mobility. The increasing demand from consumer, commercial, industrial and government markets, along with the growing regulatory requirements in these areas, drive further demand for our tested and proven solutions.

McKinsey estimates the global lithium ion battery market to be approximately $400 billion by 2030. KULR operates in the approximately $200 billion portion of the market that include battery cells, battery packs and recycling. Lithium-ion battery safety is a critical bottleneck for the growth of this industry. We believe KULR provides a leading platform solution for this challenge. Energy storage is the largest market opportunity for KULR in 2023. We launched the KULR ONE platform at CES this past January. It’s a modular, safe, intelligent and sustainable energy storage unit that can serve multiple applications like electric mobility and commercial energy storage. The KULR ONE Design Solutions platform is our holistic methodology to solve battery safety issues with patented technologies such as our Thermal Runaway Shield, SafeCase technology, an internal short circuit device, which KULR is the exclusive licensing partner for NASA.

We’re seeing significant customer demand for our KULR ONE Design platform. We recently announced that we received a $1.13 million contract from the U.S. Army to develop their next-generation high-energy battery pack utilizing our KULR ONE Design Solutions platform. We’re seeing customer engagement in electric vehicles, electric aviation and energy storage to fast-charging infrastructure for the KULR ONE platform. Our customer engagement process starts with analysis and design. This is where our expert engineers evaluate the battery cells, understand its energy release, provide multi-phases modeling, which is a fancy way to say using computers to simulate what happens in real life and design a battery pack based on that analysis. This process can take anywhere within 3 months to a year historically, depending on the customer requirements.

After analysis and design, we build a prototype and do a lot of testing. After testing and any necessary requirements, we help the customer go through the safety certification for the applications. During this process as I have described so far, KULR generates mostly service revenue. When the customer’s product goes into volume production, KULR generates product sales revenue because our solutions are built into the customer’s product line. When our customer’s product — when our customer’s production scales up in volume, our revenue scales up with it as our solutions appear into the products that are specifically certified as designed. We anticipate that with increasing customer wins, our KULR ONE Design Solutions platform will be able to shorten the cycle time from design to manufacture.

Our goal is to be at 1 year or less, like what we’re doing with the U.S. Army battery pack design, where we start the design in April of 2023 and get to manufacturing readiness by April 2024. We think we can get there, accelerating both our customer’s return on investment and our product sales map. Next, Keith Cochran, our President and Chief Operating Officer, will provide operational updates. Keith?

Terry Cochran: Hello, everyone, and thank you for attending our Q1 ’23 earnings call. I am pleased to report highlights from our operations. In Q1, our operations expanded to Webster and San Leon, Texas. Our Webster facility is the center of excellence for our KULR ONE battery design services. This location will support internal and external battery pack design, fractional thermal runaway calorimetry, FTRC, which measures the total heat output of a cell and thermal runaway and the fraction of the total heat that is released through a cell’s casing versus through its objective material. This testing is crucial to understanding a cell’s thermal event properties so proper protections are designed into a battery pack. And we also do bomb calorimetry, which measures the thermal and gas characteristics in a cell thermal runaway.

The facility is conveniently located to our customers near Houston, is close to a major international airport and being in the middle of the country, allows for short trips from our U.S.-based customers who want to visit our facility. Our San Leon facility is established to execute destructive testing for internal and external lithium-ion battery pack designs. Our testing facilities are modular and portable if needed. We will continue to expand our capacity as demand continues to increase. At present, we have significant backlog and expect further expansion of capacity in Q4 ’23. I am also excited to share KULR has now deployed the only fully automated battery cell inspection and test system performing to NASA Work Instruction 37. This standard, which is the highest battery testing standard for NASA, is required for all manned flight missions.

The system went live in Q1 to deliver fully tested and traceable cells to NASA, Department of Defense and eVTOL, electrical vertical takeoff and landing customers. Further, we have received and executed our first NASA Johnson Space Center order for this advanced testing. We believe this exacting standard may also be adopted for eVTOLs acting as human taxis in the future. Again, we stand as the only fully automated inspection and testing option capable of meeting the standard. KULR designed the system as modular such that we can be flexible with capacity and mix. The equipment can test both 18650 and 21700 cells, to adjust to mix and can easily be replicated as capacity demands increase. We have already done the hard work of establishing our manufacturing here in North America, limiting our future CapEx requirements and providing us with capital planning flexibility.

We should only have to invest in significant CapEx as we hit capacity constraints on our testing and screening equipment due to increasing customer demand. Over the past 2 years, KULR focused on getting our brand and our capabilities recognized. We have successfully built significant brand recognition and are just in the early innings of monetizing that investment. Accordingly, we will reduce our spend in brand marketing in favor of targeted customer acquisition activities. As I mentioned, we anticipate continuing to invest behind our customer demand. Lastly, the team continues to focus on operational excellence. As such, we recently conducted an external audit of our quality management system, QMS, in preparation for our upcoming ISO 9001 annual audit.

The results of the audit were outstanding with the auditors giving high praise to our KULR team for elevating our QMS system during a significant growth ramp for the company. There were 0 nonconformances found during the audit. I highlight this as our focus on quality and delivery has been recognized by our customers as industry-leading. Their recommendations to other companies have led to multiple recent wins for KULR. And that is the best marketing of all. The team and I are quite proud that our customers are singing our praises to their peers. As such, we have now expanded operations to accommodate that growth. I am pleased with the performance of all areas of operations in Q1 and feel we are very well prepared to deliver the rest of ’23.

Thank you, and now I will turn the call over to our CFO, Shawn Canter. Shawn?

Shawn Canter: Thank you, Keith. You can see the detailed financial results from our first quarter. I’ll touch on some highlights. As Mike mentioned initially, first quarter 2023 revenue was approximately $1.8 million, a 778% increase over the same quarter last year. Gross margin for the first quarter of 2023 was 37% versus 39% for the same quarter of 2022. We ended the first quarter of 2023 with approximately $7.2 million in cash. Equipment plus equipment deposits was approximately $6.9 million versus approximately $2.7 million for the same quarter last year. Inventory plus inventory deposits ended the quarter at approximately $1.9 million versus approximately $287,000 for the same quarter last year. These investments in our business reflect the continuing trend of increasing customer demand for our products and services.

Our product and engineering services revenue both logged significant increases. Our product sales generated approximately $1.6 million compared to approximately $172,000 in the same quarter in 2022 for an 844% increase. Our services revenues were approximately $130,000 versus approximately $27,900 in the same quarter last year for a 368% increase. We generated over $125,000 in revenue per revenue-generating customer this quarter versus only $18,000 in the same quarter last year, a 590% increase. While on the topic of customers, I wanted to highlight and remind everyone that the number of paying customers we had almost doubled from full year 2022 versus full year 2021. You can see our trailing 12-month revenue growth trend. After international supply chain issues due to COVID lockdowns in the first part of 2022, our sales growth trend line has returned to its prior trajectory.

I wanted to highlight and remind everyone that KULR insiders, our team, including management and the Board own approximately 33% of KULR shares. As Warren Buffett says: “In the short run, the stock market is a voting machine, in the long run, it is a weighing machine.” The weight of addressing a meaningful need in the marketplace, product market fit, long-term growth and ultimately, earnings driving the per share value of the stock. We are focused on the long-term growth and earnings power of KULR. Since we have meaningful equity stakes, we eat our own cooking. If you are a shareholder of KULR, we are proud and humbled to have you as our partner. If you aren’t, we invite you to learn more about us at kulrtechnology.com. That concludes our opening statements from management.

Back to you, Stuart.

Stuart Smith: All right. Thank you, Shawn, and thank you, Keith, as well as you as well, Michael for your opening statements. Let’s now open up the Q&A portion of this call. We’re going to start with Alliance Global Partners Managing Director and Senior Research Analyst, Jacob Sekelsky. Jake, are you there? The call is yours.

Q&A Session

Q – Jacob Sekelsky: So just starting with the new R&D center in Texas. I’m just curious, is this going to be a location for prototyping across the product portfolio or is it more geared for specific products and customers?

Operator: [Operator Instructions]. And Stuart, there are no further questions at this time.

Stuart Smith: Excellent. Thank you, Thomas. Well, once again, I want to thank the management team, and I know they would like to extend their thanks and gratitude to all the shareholders and investors that have joined us here today. That concludes our phone call. Thank you, Tom.

Operator: You may disconnect your phone lines at this time, and have a wonderful day. Thank you once again for your participation.