August 16, 2023 4:30 PM ET
Company Participants:
Stuart Smith – IR
Michael Mo – CEO
Keith Cochran – President and COO
Shawn Canter – CFO
Conference Call Participants:
Howard Halpern – Taglich Brothers
Akylbek Subanbekov – Litchfield Hills Research
Jake Sekelsky – Alliance Global Partners
__________
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 Officer Sean Canter. After that, we will transition to the Q&A portion of the call 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 10K filed with the Securities Exchange Commission on March 28th, 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, Stuart. 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 2300% year over year. Our business model and customer engagement process starts with design and testing services for our customers. We expect the strong growth in our service contract revenue as an early indication of our overall revenue growth potential in the future, which will be driven largely by product sales rep. 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 the 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 US 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 US 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 5 global manufacturer in the electric vertical takeoff and landing EV to market to utilize the KULR ONE platform to test your battery safety.
Together we will further advance EV to battery safety as federal regulators look to put forth certification rules for the emergent EV to 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’ll utilize the quarter one design solutions platform to accelerate design readiness for the automakers advanced EV roadmap. Another growth engine for us is our safe case 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 for recycling. Cirba Solutions is the largest and the most comprehensive battery materials and management processor for end of life EV batteries and giga manufacturing scrap. This collaboration focuses on developing a safe transportation platform for original equipment manufacturers to store and transport prototype, end of life, damaged, defective, and re-quality mount batteries up to 2.5 kilowatt-hours, by utilizing KULR’s safe case product line and serve as 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 safe case, our engineering team continues to advance our energy management platforms across multiple fronts. We’ll be integrating wireless sensors, vehicle onboard capabilities in the cloud-based user interface to the next generation KULR battery 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 of these hardware, software, and services together to generate the most amount of valuable proprietary data across our platforms. We expect to unleash the full potential of this data product and service platform when 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 nonconformances. 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 engineering talent. We will continue to see additional expansions as we move into the second half of the year. As noted, 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, IZM 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 one 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 in support of engineering growth, and also as we return a large portion of our thermal runway shield manufacturing back to the US 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 construction 37. We were able to process more than 20,000 18650 cells for the quarter, and the automation is working as planned.
We are also on track to begin introducing 21700 cell 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 2023 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 10Q, 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, an 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’s 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 KULR’s 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, Shawn. Stuart, we’re ready for questions from our analysts.
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 a 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:
Also a 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:
Stuart, this is Michael Mo, so I’ll take that. Hi Howard, how are you? Thanks for the question. Yeah, 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 thirties margins as we grow both our service and the product business, and then as the business grow we think that we are going to settle somewhere in the low forties 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:
Yeah, I was going to say, yeah, both on the sales cycle and also the development cycle as well. We have customers that have gone through our design and go to production in years in the previous cycles, and now in our Army contract we’re getting them in months, or 12 month cycle. From engagement and start deploying it in April or start designing it in April 2023, we’re going to get them to manufacturing readiness by April 2024. As we get more customers into the sales pipeline and execute them faster, so you’re going to see that’s how we’re going to be comfortable with the revenue growth.
Howard Halpern:
And just one last one, when you talk about for the drone contract having an all-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. Yeah, the press release that we talked about with the drone customer was really focused on the KULR ONE design solutions power. This is really 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. As we continue to build that out, we’re going to incorporate more and more of these capabilities so all of our customers going to get the benefit of the leverage across all of that platform. In terms of KULR Vibe, I’m glad you asked that question. We have been working on KULR Vibe 2.0, and 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 quantified performance benefits for these new applications. What you’re going to find coming up is that in the second half of this year as we launched this product and with our customers, there are going to be very targeted and very specific performance benefits, and we are very, very excited about it. As you alluded to, 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, well thanks and keep up the great work guys.
Michael Mo:
Thank you, Howard.
Stuart Smith:
All right, from Howard, we’re going to move on to Akylbek Subanbekov. He is a senior analyst at Litchfield Hills Research. Akylbek, I know you’re there. The call is yours. It looks like you’ve got a couple of questions for the company.
Akylbek:
Thank you. First of all, congratulations on outstanding results. My question is, KULR has announced numerous new contracts recently and you’ve generated more revenue in the first half of 2023 than in all of 2022. My question is, what is your capacity to add additional contracts, and do you need to invest in Cap Ex to meet and fulfill your existing contracts?
Keith Cochran:
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 Cap Ex spend to support it. However, the vast majority of this Cap Ex 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 Cap Ex outflow. However, we are still in discussion with local governments for potential grant monies should we decide to go the brick and mortar route.
Akylbek:
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:
Yeah, great question. As you noted, we do have a very diverse product line in support of a holistic solution for the electrification of the economy. We have a multipronged 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 sufficient for us. Yeah, I hope that provides the insight you’re looking for.
Akylbek:
Yes, thank you, and congrats again.
Keith Cochran:
Thank you so much.
Stuart Smith:
All right, thank you Akylbek. Now we’re going to get questions from Jake Sekelsky, managing director and senior research analysts at Alliance Global Partners. Jake wasn’t able to be with us, so he did email the questions in, and I have the first one here. Looking at the announcement made earlier today, is the testing of battery cells under the contract with the global automaker specific to silicone anode battery chemistry? Or do you expect to apply K1-DS across a spectrum of chemistries for this customer?
Michael Mo:
Yeah, so I’ll take that. Yeah, our solution is chemistry agnostic, so we can apply the KULR ONE design solutions platform across multiple chemistries and also multiple shapes of the battery cells. We’ve been working with cylindrical cells a lot because NASA really focused on that, but now we’re also working with pouch cells, and also large format cylindrical cells and also prismatic cells. For prismatic cells, we’re testing for cells over 100 Amp-hours. For automotive and also large energy storage customers that’s demanded, and we are the exclusive licensee from NASA on the large format FTRC. And so this has allowed us to provide, we believe is the most comprehensive testing capabilities in the industry and that has attracted a lot of customer attention.
Stuart Smith:
All right, next question. Are you able to share any color on the structure of the contract? Did the automaker engage KULR to provide K1-DS services for a specific period of time during test work?
Michael Mo:
Yeah, well actually like what Keith talked about earlier about our sales organization and also our sales strategy, we employ a land and expand type of model. When we land a customer engagement, usually the customer is looking for one solution or maybe a couple solutions out of our entire KULR ONE design solution suite. But as we get into the organization and start building a relationship with the customer, and we perform these tasks, we start expanding our relationship or engagement as they look across other product service offerings that we have. As you can see in our Q2 financials, our number of customers grew from 12 in Q2 of 2022 to 19, and also our revenue per customer grew 200% in addition to the 60% growth in the customer number. We feel like this land and expand model is working and we’ll continue to execute on the strategy.
Stuart Smith:
Margins were strong in both Q1 and Q2 of this year. Are these levels something we should expect to remain constant during the second half of the year heading into 2024?
Shawn Canter:
I’ll take that one, Mike, it’s Shawn. Thanks for the question and yes, as we grow and scale, we believe our gross margin should improve as the question indicates. In fact, if we look back this second quarter, our gross margin was about 37% and the same quarter last year was 28%, evidencing a significant enhancement. As we grow, we estimate the gross margin enhancement from here, especially on the product side of the business will grow, and our long-term goal is to get to a gross margin in the low to hopefully mid-forties.
Stuart Smith:
Shawn, it looks like I have an additional question for you. What’s the status of your capital position relative to driving operational breakeven?
Shawn Canter:
Sure. Well, I guess, as you may be aware today KULR announced a capital raising transaction because all of the available details about the offering are publicly accessible by reviewing the preliminary prospectus supplement filed this afternoon, we’ll refer you to that document for any further details.
Stuart Smith:
All right, very good. Mike, it looks like the final question will be towards you. How has KULR VIBE been gaining customer awareness and traction in the market?
Michael Mo:
We’ve been going to industry conferences to market KULR VIBE, and as Howard asked a question earlier or a similar question earlier about KULR VIBE integrating with the drone customer, yeah, in my prepared remarks I talked about, we’ve been really focused on executing on KULR VIBE 2.0 and we’re working with strategic partners integrating those new features into the product. During those engagements, we are really focused on how the new features, the product offers specific and quantifiable performance benefits for these customers and new applications. Later this year we will be demoing these products with the customer. Will be very targeted, very specific and we’re super, super excited about that.
Stuart Smith:
Well, very good. As mentioned at the outset of that question, that was our final question. I know the company along with myself would like to thank our analyst, Howard Halpern. Theodore O’Neill, who was replaced today by his associate Akylbek Subanbekov, who is a senior analyst at Litchfield Hills Research, and Jake Sekelsky, managing director and senior research analysts at Alliance Global Partners. Of course, I want to thank all the members of the management team, CFO, Shawn Canter, President, and COO, Keith Cochran and Chief Executive Michael Mo. That concludes our call for today, the Q2 2023 earnings conference call. I’ll turn it over now to our operator, Thomas. Thank you, Thomas.
The End
