KULR Technology Group, Inc. (AMEX:KULR) Q2 2023 Earnings Call Transcript

KULR Technology Group, Inc. (AMEX:KULR) Q2 2023 Earnings Call Transcript August 16, 2023

Stuart Smith: Welcome to the KULR Technology Group Second Quarter Earnings Conference Call. KULR 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 KULR management team, including Chief Executive Officer, Michael Mo; President and Chief Operating Officer, Keith Cochran, as well as Chief Financial Off, Shawn Canter. After that we will transition to the Q&A portion of the company and will be joined by analysts, who have been covering the company. Before I introduce and turn the call over to Michael Mo, 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 KULR 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 KULR’s 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 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 KULR’s current contracts, current backlog of opportunities, and conversations with new and existing customers about their products and services. KULR 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 Mo. Michael, the call is yours.

Michael Mo: Thank you, Stewart. Thanks, everyone, for joining the KULR Q2 2023 earnings call. This is Michael Mo, I’m the CEO and Co-Founder of KULR Technology Group. I’m pleased to report that we achieved a record revenue quarter in Q2 2023. While our overall revenue grew approximately 360% year-over-year, our service contract revenue grew over 2,300% year-over-year. Our business model and customer engagement process starts with design and testing services for our customers. We expect that 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 250% 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 KULR ONE platform. Since we officially launched the KULR ONE platform at CES in January this year, the market reception has been overwhelming. In April, KULR was awarded a $1.13 million U.S. Army contract to develop next generation high energy battery packs, employing the KULR ONE design solutions platform. KULR will fast track this new design through prototyping phase and into manufacturing readiness for U.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. KULR 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.

KULR partnered with a world leading provider of drone power delivery service, e-commerce package delivery service, KULR will leverage our KULR ONE 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. KULR has partnered with a top five global manufacturer in the electric vertical take-off and lending eVTOL market to utilize the KULR ONE platform to test your 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.

We will utilize the KULR ONE design solutions platform to accelerate design readiness for the automaker’s advanced EV roadmap. Another growth engine for us is our SafeCASE product line. In June, we announced a joint collaboration with Cirba Solutions to establish a national groundbreaking program for high wattage lithium ion battery packaging or recycling. Cirba Solution is the largest and the most comprehensive battery materials and management processor for end of life EV batteries and Giga factory manufacturing scrap. This collaboration focuses on developing a safe transportation platform for originally equipment manufacturers to store and transport prototype, end of life, damaged, effective, and recall lithium ion batteries up to 2.5 kilowatt hours by utilizing KULR SafeCASE product line and surpassed nationwide logistics and recycling services.

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 KULR ONE and SafeCASE, our engineering team continues to advance our energy management platforms across multiple fronts. We’ll be integrating wireless sensors, vehicle onboard capabilities and a cloud-based user interface to the next generation KULR 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. Our vision is to integrate all these hardware, software, and services together to generate the most amount of valuable for 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.

Keith Cochran: Hello, everyone, and thank you for attending our Q2 ‘23 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 9001 audit in June, in both cases, there were zero non-conformances. 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 KULR has expanded our facilities to Webster and San Leon, Texas. The expansion has gone as planned and the sites are rapidly growing with the engineering talent.

We will continue to additional expansions, as we move into the second-half of the year. As note our Webster facility is the Center of Excellence for our KULR ONE battery design services. This location supports internal and external battery pack design, fractional thermal runaway calorimetry, IZ and 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 KULR 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 ’24 and supported engineering growth and also as we return a large portion of our thermal runaway shield manufacturing back to the U.S. 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] (ph) cells for the quarter, and the automation is working as planned. We are also on track to begin introducing 21,700 cells testing in Q4 ’23 in line with customer demand. Again, this is the highest battery cell testing standard for NASA, and is required for all manned flight missions. 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 feel we are very well prepared to deliver the rest of ’23 through this continued time of rapid growth for KULR.

Thank you. And now I will turn the call over to our CFO, Shawn Canter for financial overview.

Shawn Canter: Thank you, Keith. You can see the financial results from our second quarter in our 10-Q, which is now online. I’ll touch on some highlights. Second quarter 2023 revenue was approximately $2.7 million versus $0.6 million in the same quarter last year, and over 360% increase. Revenue per customer grew by approximately 200% from the second quarter 2023, of approximately $150,000 versus $49,000 in the same quarter 2022. Gross margin for the second quarter of 2023 was approximately 37% versus approximately 28% for the same quarter in 2022. The second quarter of 2023 was another record revenue quarter for KULR. KULR generated more revenue in the first six months of 2023 than in the entire 2022. KULR trailing 12-months revenue trend continued with the fourth straight quarter of trailing 12-months revenue growth.

KULR management continues to be upbeat regarding the positive trends of KULRs increasing revenue ramp, pipeline and expanding margins. Based on what we are seeing today, we estimate full-year 2023 revenue to be between $10 million and $14 million. These estimates imply a year-over-year growth rate of 150% at the lower end and an estimated 250% at the higher end of the range. Back to you, Mike.

Michael Mo: Thank you, Sean. Stuart, are we ready for question from analysts.

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Q&A Session

A – Stuart Smith: 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. Howard, the call is yours. It looks like you have a handful of questions for the company.

Howard Halpern: Okay. Yes. Well, I 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?

Michael Mo: Stewart, this is Michael Mo. So I will take that. Hi, how are you? Thanks for the question. Yes, and as you can see, our Q2 margin was approximately 38% or 37%, 38%, which is a bump from last year’s 28%. 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.

Howard Halpern: Okay, that sounds good. Also, in terms of the sales cycle, I guess, in getting these development contracts, are you seeing even that time span shortening up as you become more recognized in the industry?

Michael Mo: 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 — you know, in years in the previous cycles. So 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 manufacture readiness by April 2024. So, as we get more customers into the sales pipeline and execute them faster. So you’re going to see a — that’s how we’re going to be comfortable with the revenue growth.

Howard Halpern: Okay. And just one last one, when you talk about like for the drone contract having an own encompassing offering, is that going to include having the sensors that eventually maybe you could sell a KULR VIBE into those customers?

Michael Mo: Very interesting. Yes, the press release that we talked about with the drone customer, was really focused on the KULR ONE design solutions power. So this is really kind of in my opening remarks, we talked about the great reception the market has on the KULR ONE 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 that platform. In terms of KULR VIBE, I’m glad you asked that question. So we have been working on KULR VIBE 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, that there’s, certainly, we hope there’s cross-selling and upselling opportunity for KULR VIBE into these battery customers. And that’s the whole goal.

Howard Halpern: Okay. Micheal thanks and keep up the great work guys.

Michael Mo: Thank you, Howard.

Stuart Smith: Alright. From Howard, we’re going to move on to [Indiscernible], who have been on the call. He is a senior analyst at Litchfield Hills Research. [Indiscernible], I know you’re there. So the call is yours. It looks like you’ve got a couple of questions for the company.

Unidentified Analyst: Yes. Thank you. First of all, congratulations on outstanding results. The question is KULR 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 contracts?

Keith Cochran: Yes. Hey, Michael, I’ll go ahead and take 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. And also from my comments, we will move into a larger facility to accommodate growth in Q1 ’24. 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 money’s. Should we decide to go — the brick-and-mortar route?

Unidentified Analyst: 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?

Keith Cochran: Yes, great question. As you noted, we do have a very diverse product line in support of 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 our sales team, which is led by our engineering leadership. And additionally, we contract with subject matter experts, who are 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 efficient for us. So, yes, I hope that provides the insight you’re looking for.

Unidentified Analyst: Yes, thank you. And congrats again.

Keith Cochran: Thank you so much.