KULR Technology Group 2Q 2020 Shareholder Update Call


Stuart Smith: Welcome to the KULR Technology Group Incorporated shareholder update call today, Tuesday, August 18th. I’m Stuart Smith, and today I will be joined by KULR Chief Executive Officer Michael Mo and KULR Chief Financial Officer Simon Westbrook. Let me read for you now the KULR Technology Group Incorporated safe-harbor statement, which you can find, of course, at the bottom of all their press releases. 

“This call does not constitute an offer to sell or a solicitation of offers to buy any securities of any entity. 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 in this call are based on information available to the company as of the date hereof. The actual results may differ materially from those stated or implied in such forward-looking statements due to risks and uncertainties associated with the company’s business, which include the risk factors disclosed in the company’s Form 10K filed on May 14th, 2020. Forward-looking statements include statements regarding the 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 in this call are based on information available at this time, and management expects that the 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 the company’s current contracts, current backlog of opportunities and conversations with new and existing customers about the company’s products and services. KULR Technology Group Incorporated assumes no obligation to update the information included in this call, whether as a result of new information, future events or otherwise.”

Now let me introduce to you KULR Chief Executive Officer Michael Mo. Michael, welcome to the call.

Michael Mo: Thank you, Stuart. It’s great to be here.

Stuart Smith: Very good. Good to speak with you again, Michael. KULR Chief Financial Officer Simon Westbrook, how’re you today?

Simon Westbrook: I’m fine. Thanks for introducing me, too.

Stuart Smith: Well, thank you for taking the time to call in. Michael, the floor is yours for your opening statements.

Michael Mo: Well, thank you, Stuart. First of all, I’d like to thank the investors for joining the call today and sending the questions. This is our first investor call, and the purpose of this call is to allow for a greater degree of transparency between the company and our shareholders. So, we would like to encourage our shareholders to continue sending questions and all different kind of communications to all the IR team, including today’s host, Stuart Smith. So, if I may, I’m gonna spend the first couple minutes on some of the highlights of the last quarter in our recent events. In the Q2 of 2020, we grew our revenue 255 percent from the same quarter in 2019. Meanwhile, we reduced our monthly expenses by 20 percent in our effort to manage through this COVID-19 environment. 

We were going to two patents, one on the TRS technology, one on the FTI technology. We are very, very proud of that. Patents and IP is the fundamental building blocks of our business, and we believe these two patents would enable us to build better products and engage more customers into the future. KULR has sales transaction with ten customers in the second quarter of 2020 compared to four of the comparable quarter 2019. Meanwhile, we’re engaged in a contract with strategic customers, such as NASA, the U.S. Air Force and other government agencies in projects that are critical to our national interest and also have a high degree of funding commitment that provides the stability and foundation to our business. Meanwhile, we engage with new commercial customers, such as Volta Energy, Drako Motors and Americase. These are some of the showcases of commercialization effort in the Q2 of this year.

Stuart Smith: Very good. Let’s now get an opening statement from Chief Financial Officer Simon Westbrook.

Simon Westbrook: Thanks for the introduction, Stuart. As these are results have been reported both in our 10Q and press release, but I would like to just highlight a few key facts. The year to date has been an interesting challenge. On the one hand, we’ve been preparing to support incredible growth in interest in battery-power mobility. On the other, we have been facing the uncertainty brought on by the restrictions and efforts to remediate the onslaught of the COVID-19 virus, which has restricted our supply chains, canceled travel and technology conference plans and frustrated an efficient decision-making process. With this in mind, we took action during Q1 to position the company for these tricky times ahead like cutting back on our expenses to conserve cash. Our R&D expenses were down 49 percent compared to the corresponding June quarter last year, while our SG&A expenses were down 20 percent. 

At the same time, we focused our attention on our customer relationships. During the quarter, we serviced a total of ten customers compared to four in the corresponding June quarter last year; however, fortunately these included a number of substantial international-scale companies and government agencies whose budget and planning focus was not derailed by short-term reactions of the COVID pandemic. As a result, our sales for the June quarter were up 250 percent compared to the corresponding June quarter last year, and overall, we were able to reduce our net loss by just under $200,000.00. We saw the greater portion of our growth coming from the provision of services rather than supply of product, and we view this as a positive sign, since the customer relationship typically starts with service projects to evaluate or customize solutions but subsequently ramp up the product sales in subsequent periods. 

We also focused on building our cash position to be better prepared for managing growth. We secured $155,000.00 of PPP loan from the SBA and have applied that to qualifying expenditures. Additionally, our net cash position was improved by $659,000.00 so far this year to date as a result of promissory-note funding and stock sales, and we are well positioned to raise up to approximately another $7 million under this facility to fund additional growth needs as required. We believe we’re in a strong position going into the next quarter. Thank you.

Stuart Smith: Very good. Well, as mentioned, we did receive quite a few questions. These questions will be directed primarily to you, Michael. You can pass off anything to Simon as you see fit, but these are operational questions, and I’ll start with the first question, referencing your last interview on CNN about the migration into battery safety as it pertains to government regulation, keeping the public safe whether it’s shipping logistics, critical care, medical centers or insurance. That sounds like a platform play. Can you elaborate on this?

Michael Mo: Yeah, great. Yeah, we positioned our thermal management technology as a platform play by focus on three different components. The first component is kind of a bread and butter. It’s where we developed the cutting-edge technology with NASA, Air Force and government agencies, where we really develop for them this – the critical technology for them, and that’s where we cut our teeth. 

And then the second component is actually working with the regulatory bodies, such as Department of Transportation, Consumer Protection Agency and so forth, to make sure that our solution can offer them and the consumer the best safety solution for battery safety. And then the third component is how to apply these technologies to mass-market and vertical applications, such as the energy-storage market like our Volta example, in the EV market, in battery transportation and going forward in the 5G AI and other vertical applications. So that’s our kind of technology-platform strategy. As you mentioned, as related to insurance company and etcetera, that’s really kind of morphing the business model from pure component supplier to system integrator all the way to offering total business solutions. So that’s a longer-term goal of the company as a platform play.

Stuart Smith: All right. Well, the next question says, a lot of OTC companies hemorrhage money tremendously, so I was surprised when you stated in June the company was targeting cash-flow break-even by the fourth quarter of 2020. Is this goal still attainable?

Michael Mo: Well, we have been reducing our operating costs, like Simon was saying, and it has shown in our Q2 results. And as we navigate through this COVID-19 environment, we will continue to do that, and we will continue to grow our revenue. So, it is still our goal to get to cash-flow break-even by fourth quarter of this year, but now, because we’re in a much stronger cash position than actually the beginning of the year – so we may choose to invest into some product areas if we see significant growth in those opportunities. At the end of the day, we believe that the investors look at KULR, evaluate KULR and also invest in KULR, because we are technology growth companies. So, we need to take advantage of those growth opportunities when they present themselves.

Stuart Smith: All right, very good. Here is the next question for you, and it’s about a congratulations, actually. Congratulations on the Drako announcement. From a cooling, as well as battery-safety perspective, how is KULR’s technology best suited for the faster charging rates demanded by next-gen. electric vehicles?

Michael Mo: Well, that’s a great question. Actually, one of the key performance bottlenecks for EV is the temperature limitation, fast charging and discharging. By discharging, it’s really fast acceleration. That makes the batteries too hot and out of their optimal temperature range. So, our high-performance FTI solution removes the heat more efficiently than traditional solutions for the battery to the car’s liquid cooling system. Therefore, it makes the battery temperature lower and also makes it more even in the battery pack, which is critical for the performance of these high-performance cars. That’s significant for EV super car like the Drako GTE and also offers other mechanical properties that benefit for that as well, which – for the Drako GTE, they can get – they would like to take advantage of every bit of performance to make it the fastest EV in the galaxy.

Stuart Smith: All right. Next question is in regards to Volta Energy, Drako Motors and Americase. The question is, this represents a nice mix of business verticals, as well as potential reference design wins. Any idea when these announcements could translate into meaningful top-line growth?

Michael Mo: Yeah. These are what I call the early signs of success in a mass-market adoption of our technology in different vertical markets. These customers themselves are navigating through the COVID-19 environment, so I think it will be safe to say that 2021 is when you’ll see significant top-line growth from these and other opportunities that we’re pursuing right now, and we’re constantly working on the new customer and markets and new engagements.

Stuart Smith: All right, very good. Here’s a little bit of a history lesson for me, anyways. Last year, an explosion at an APS energy-storage facility near Phoenix raised the utility industry’s concerns about the dangers of lithium-battery fires caused by thermal runaway. Wood Mackenzie forecast the global energy storage market to grow 13-fold with an $18 billion invested in 2019 to $100 billion by 2025. Recently, KULR announced a deal with Volta Energy to provide PPR technology for energy storage models from the grid. Given the high-growth forecast and heightened concerns about battery fires, what is KULR doing to capture opportunities in this space?

Michael Mo: Yeah. So, there was a lot of report and discussion about the root cause of the APS energy-storage fire and subsequent explosion, which for the most part points to internal short circuit failure and then propagated to the other cells. This is probably the most common failure mode for batteries, and our PPR technology is at the root to solve this core problem. So, as you said that the energy market’s gonna grow from $18 billion to $100 billion by 2025 and that by working with Volta Energy to showcase our PPR, the passive propagation resistant technology, this really paves the way to build these truly safe battery modules that we have developed for NASA applications, to commercial applications, and hopefully we can participate in this $100 billion market by giving the industry a truly safe solution.

Stuart Smith: All right. A lot has been written lately regarding the decline of lithium-ion battery costs and new chemistries coming out. I envision this being a double-edged sword for KULR. Unit cost would come down, but volume would increase. How do you envision this paradigm playing out as it pertains to KULR and how the company is positioned going forward?

Michael Mo: Well, when you have an industry that grows from $18 billion in 2019 to $100 billion by 2025, that’s a huge amount of growth. And that growth is driven by advance in technology, lower costs and wider adoption. So lower cost is a key driver for that, and that is a trend that KULR can definitely benefit from on the application side, where higher energy density and more applications using larger battery packs is key. So, safety and performance will become more and more important for these applications, and our solutions to make the battery safer and to make the total battery pack smaller, lighter and cooler will be very important to drive these wide adoptions for both the markets and the regulators.

Stuart Smith: Okay, next question. Earlier this year, General Motors director of battery-cell engineering and electrification strategy trumpeted the capabilities of its large, flexible EV pouch cells. If you would, please talk a little bit about cell-form-factor pouches versus prismatic cells. Does KULR design thermal solutions for both?

Michael Mo: We actually work with cells all different kinda size and shapes. So, cylindrical cell 18650 and 21700 – cylindrical cells are probably the most popular that we deal with, and it’s because their ubiquity and their cost advantages. Pouch or prismatic cells have certain advantages, energy density, but they present bigger challenges in terms of safety, because they’re larger cells. So, we work with all those three, and we are actually seeing ourselves working with customers at the earlier stage or phases of the design and testing, and as they’re deciding which form factor to use, they’re working with KULR to actually make that decision and designing their mechanical structures together with them in that decision process. So, we’re looking at incorporating our solution as – you can think about it as a more integral part of the platform. So that’s actually a very exciting development for us, getting the safety and the thermal part early in the decision as being a driving factor of the decision instead of an afterthought.

Stuart Smith: Well, no doubt your shareholders are highly educated about the company and its operations. We do have a question now regarding the company’s stock performance, and it says, “The company’s stock price has fallen considerably in the face of positive events and growth potential reported by the company. An equity short interest report produced by FINRA showed 14,550 shares short interest on July 31st, 2020. Over the last month or so, there appears to have been aggressive intraday shorting of the stock by exploitive market-makers. As a concerned shareholder, can you provide any insight into what’s happening and what the company’s doing to counter this? When do you plan to up-list away from the OTC markets to the NASDAQ or NYSE?”

Michael Mo: Yeah. Well, as a CEO of the company, my focus is – well, my priority is laser-focused on growing the business, on the – position the company’s product and services the best for our customers and our partners and drive an increase in shareholder value. So, on some of the events that, Stuart, you just mentioned, we are keenly aware of some of the market volatility events recently, and we are allocating resources both inside the company and also work alongside capable partners to address these issues to enhance our shareholder value. And on your question about the up-list to NASDAQ and NYSE, that’s definitely what I call maybe a near-term or intermediate-term objective for the company. Providing or getting liquidity to the company is Step Number One. Building more shareholder equity is Step Number Two, and I think that we’re well on our way to be able to apply for up-list to one of the senior exchanges in the near future, hopefully before the end of the year.

Stuart Smith: All right, very good. Our final question for this call says, “Recently I saw a story on CNBC stating that the new, fifth generation of mobile networks, that’s 5G, could be catalyst for the next industrial revolution. I have read in previous press releases the company put out that KULR is involved in 5G infrastructure. As much as you can, will you elaborate no how KULR is involved in the global 5G infrastructure buildout?”

Michael Mo: Yeah. That’s a great question. I think that in the U.S. we’re still in the fairly early days of this 5G deployment. Our space-grade FTI product can offer very high performance to – for the cooling of this 5G equipment, but we need to work with partners and on applications for mass-market deployment. So, we will continue to work on both the performance and the productization of this product for these 5G and cloud-computing applications. We hope to be able to announce some of our work and our partnerships before the end of the year for this. And also, on the 5G and cloud-computing side there’s energy storage in those data centers as well. So, like the cooling aspect of it, we’re exploring those opportunities, and hopefully we can announce something about that soon.

Stuart Smith: Well, as I mentioned, that was our final question for the call. First, I want to thank you, Michael Mo, for taking the time to answer all these questions and making the time to speak directly to your shareholders.

Michael Mo: Okay. Thank you very much, Stuart, for hosting us today, and we look forward to hearing more from our shareholders. Thank you.

Stuart Smith: Simon, it was a pleasure meeting you today on this phone call, and thank you for your insights into the company’s performance this year and, of course, this second quarter.

Simon Westbrook: Thank you very much, Stuart, and it’s always great to be able to put a little perspective on the overall financial numbers.

Stuart Smith: Well, listeners, that concludes our call today. Please, again, continue to send your questions directly to us here at SmallCapVoice.com. My e-mail address is [email protected], and of course any member of the IR team for KULR Technology Group. For Michael Mo and Simon Westbrook, this is Stuart Smith saying thank you for joining us today on this call.

[End of Audio]

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