KULR Technology Group, Inc.
Q2 2021 Earnings Call Transcript

Published: 24 Aug 2021

[Operator:]

Greetings, and welcome to KULR Technology Group's Q2 2021 Investor Call. . As a reminder, this conference is being recorded. This shareholder update call does not constitute an offer to sell or a solicitation of offers to buy any securities of any entity. This shareholder update call contains certain forward-looking statements based on our current expectations, forecasts and assumptions that involve risks and uncertainties. Forward-looking statements in the shareholder update call are based on information available to us as of the date hereof. Our actual results may differ materially from those stated or implied in such forward-looking statements due to risks and uncertainties associated with our business, which include the risk factors disclosed in our Form 10-K filed with the Securities and Exchange Commission on March 19, 2021. Forward-looking statements include statements regarding our 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 release and 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 our future financial performance given our current contracts, current backlog of opportunities and conversations with new and existing customers about our products and services. We assume no obligation to update the information included in the shareholder update call, whether as a result of new information, future events or otherwise. I would now like to turn the conference over to your host, Michael Mo, CEO and Co-Founder of KULR Technology Group.

[Michael Mo:]

Thank you, Joe. This is Michael Mo. I'm the CEO of KULR Technology Group. Thanks to everybody's time today to join our Q2 2021 investor update call. For today's call, I will first talk about our Q2 operational highlights and provide updates on some recent developments, and then Keith Cochran, our President and COO, will provide operational updates. Simon Westbrook will then talk about the financial highlights for Q2 2021. And then we will have Q&A session to conclude our call today. KULR's Q2 revenue increased by over 200% year-over-year as we continue to make significant investments in all areas of our business to sustain and expand the growth in 2021 and beyond. We raised over -- we raised $6.5 million in equity capital on May 20, which has strengthened the balance sheet and helped facilitate our uplisting to New York American Exchange on June 7. Trading on the New York Stock Exchange provides the company more visibility to a much broader pool of institutional and retail investors and then to increase our liquidity. In addition, we received approximately $3.7 million in Q2 from exercise of warrants to purchase an aggregate 3 million shares of common stocks and also approximately $1.5 million from exercise of warrants to purchase a total of 1.2 million shares of common stocks in July. With over $12 million in cash at the end of June, KULR is in the strongest financial position in its history. Since inception, our long-term strategy has been to co-develop cutting-edge in thermal management technologies alongside NASA, the U.S. Department of Energy and the U.S. DoD while working in close collaboration with regulatory agencies and international testing organizations. And our intent is to incorporate these technologies into mass market applications. And in the second quarter, this strategy materialized into encouraging initial results with meaningful upside potentials in 2 key markets

[Keith Cochran:]

Thanks, Michael, and thanks, everyone, for your time today. I will now provide some operational highlights. During Q2, KULR has completed the process flow and design of our proprietary automated battery cell screening line. The line will serialize, test and visually inspect each battery cell to ensure that they meet 100% of their stated cell specifications. Our initial launch will be with our Department of Defense and aerospace customers to serve their strategic battery reserve initiatives. The company has sourced critical test and automation equipment with 3 world-class development partners. KULR anticipates this system to be capable of processing up to 1.2 million cells per year for 18650 and 21700 cylindrical battery cells. We anticipate the system to be in full operation during the first half of 2022 in our new facility in San Diego. As previously shared, the company is developing a smart battery system, which includes both hardware and software platforms to monitor the health of battery cells. We believe integrating software and services with hardware will enable better control over data intelligence. KULR's long-term vision is to provide a completely integrated hardware and software platform to manage battery safety and thermal stability. Our first battery pack was delivered this quarter, and we are currently in the execution of our test and validation process. Also with our battery cells, KULR believes fast charging is the killer app of battery energy systems. KULR is developing a carbon fiber-based architecture for thicker cathode and advanced anode materials to enable faster charging and safer battery cells. The company expects to show preliminary test results on September 21, 2021, at Battery Solutions Day. We certainly hope everybody will join us for that. On a personnel side in June of 2021, Greg Provenzano join KULR as Vice President of Sales and Marketing. Greg joins KULR with over 35 years of leadership and worldwide sales experience in electronic components, design services and system solutions across a variety of industries, most notably at Arrow Electronics and Advanced Energy. At KULR, he will play a crucial role in developing the company's sales channel strategy as it pivots into large-volume applications and products supporting strategic growth goals. Also during the quarter, the company added a new Vice President of Operations in Antonio Martinez. Antonio joins KULR with over 37 years of leadership and worldwide manufacturing experience in electronics manufacturing and operations. He spent most of his career at Pulse Electronics Corporation in the electronics manufacturing service industry and most recently served as Principal Program Manager of Jabil since 2015. Next, Simon Westbrook will provide Q2 financial highlights.

[Simon Westbrook:]

Thanks, Keith. Following the successful fundraising and our New York Stock Exchange uplisting in 2021, the company is building the foundations for a business expansion plan, including hiring additional engineering staff, senior management, expanded facilities, new and automated test and production equipment, advertising and marketing expenses as well as investor relations activities. While this investment impacts short-term profitability, KULR believes this will pave the way for longer-term growth and improved shareholder value. On revenues, we generated $0.6 million of sales in the second quarter ended June 30, 2021, which was an increase of over 200% compared to the revenue reported in the same period last year. The increase in revenue was mainly due to increased sales of KULR products as opposed to services. Selling and general and admin expenses increased to $2.8 million in the recent quarter from $0.4 million in the corresponding period last year. The over 500% increase in SG&A expenses was due to additional marketing and advertising expenses, consulting fees and noncash stock-based compensation paid to employees and consultants. For R&D, our expenses in the second quarter of this year increased by over 400% to $300,000 compared to $60,000 in the same period last year. This reflected a combination of headcount and process improvements implemented in the first quarter of this year. Overall, our loss from operations was $2.9 million in the recent quarter compared to $0.3 million for the comparable quarter of the preceding year. The increase in operating loss included a $1 million increase in noncash stock-based compensation expense, $700,000 increase in advertising and marketing expense, $300,000 increase in payroll costs and other expenses in professional fees and research and development projects. The net loss for the quarter increased to $3 million compared with a net loss of 0.2 -- $0.4 million for the same period last year. On June 30 this year, the company reported cash balances of $12.2 million compared with $8.9 million at December 30, 2020. This funding leaves us well positioned to expand operations, support new business and fund ongoing product developments despite the difficult COVID-inspired trading conditions experienced through recent quarters. Now I'll return to Joe to open up the Q&A.

[Operator:]

. Our first question. With the current cash position, can you fund your near-term plans or will you need to raise additional capital through offerings or upcoming partnerships?

[KeithCochran:]

Yes. John, I'll go ahead and take that. This is Keith Cochran. With our current cash position, we're fully funded to execute our product development and business plans that we're discussing today with our shareholders.

[Operator:]

Our next question. Can you walk us through the recycling arm of your business and how that impacts everyday life?

[Michael Mo:]

Yes, John -- Joe, sorry. I'll take that. This is Michael Mo. Yes, I believe our battery safety case will play a very important role in the battery recycling ecosystem. We received recently the DoT special permit for recycling, prototype and DDR batteries, up to 2.1 kilowatt hours. We're now working on expanding that energy capability to accommodate even larger battery packs. We're also working with battery recycling companies, e-mobility and power to OEMs to customize their solution for their battery recycling needs. Just remember that we just received these special permits in Q2. Now the real work has started to get customer engaged, get them on board to these solutions and make them the de facto safety standards for the industry. And so there's a lot of work ahead, and we're really looking forward to that.

[Operator:]

Our next question. What problems in the EV battery space do your products currently solve? And a follow-up. 5 to 10 years down the line, what problems would you like to address?

[Michael Mo:]

Yes, Joe, this is Michael Mo again. Our technology portfolio and the suite of products and services that we're building is to address the battery, thermal stability and safety issues. We're addressing these problems with our carbon fiber material. We're developing new hardware and software platforms to actively monitor and manage the systems and its data. And eventually, as we get into the next-generation batteries with a material that's for faster charge and safer batteries, we believe that these are key technology issues that the industry will need to resolve over the next 5 to 10 years. Our goal is to position KULR as the leading solutions provider in the industry and therefore, maximize our shareholder return in the process.

[Operator:]

And our next question. How will the price of materials affect their profit margins?

[KeithCochran:]

Yes. Michael, I'll take this one. Well, we are certainly seeing some price increases in materials and transportation costs pretty much like everybody else. Additionally, we are also seeing some longer lead times on certain equipment and components. However, these factors have minimal impact on our business, but it's not, like I said, very significant in any way. We're able to adjust our pricing should the impacts become material. So we think it will be negligible at least for the foreseeable future.

[Operator:]

Our next question. Are you planning on using your partnership with Andretti to work with other racing teams? Or are you an exclusive provider in the Autosport space?

[Michael Mo:]

Yes. Andretti Technologies, our partnership with them has been great. They've been a great partner with us so far. We're in the early stage of our technology partnership to develop a lot of killer products for that industry. So there's a lot to do for both of us to fully realize the synergy of our partnership. So that's early stages for us.

[Operator:]

And for our next question. There was a post the other day about creating a safety guide for NASA. Can you explain what that entailed and if it's still in use today?

[KeithCochran:]

Not really sure which post they were referring to. We do work really closely with NASA on their battery safety and cell testing technologies. But yes, I'm not clear what post that would be referring to. I would suggest if they would like to ask that question independently, they could write into our Investor Relations group, and we'll track it down and maybe give back some more information on that.

[Operator:]

And our next question. Will KULR products ever be available directly to consumers?

[KeithCochran:]

Well, we certainly hope so. With our smart and safe battery pack, we think there will be an opportunity to market this product directly to customers through online or direct channels. And in support of that, we hired Greg Provenzano this past quarter to build out our sales channels in anticipation of delivering products that will have mass market consumption. So the short answer is we're setting systems in place to deliver to consumers in the first half of 2022.

[Operator:]

And our last question. What is KULR doing with Molicel? A handful of purchase orders between the two of you are on the Internet.

[Michael Mo:]

Yes. Yes, we have been working with a number of cell makers to produce ISC trigger cells. So I think the question may be referring to some of the government contracts post online that involved Moli Energy battery cells, and they've been a great partner. They're one of the battery cell makers that we were working with and to serve our aerospace and defense customers.

[Operator:]

There are no further questions at this time. I would like to turn the call back to Michael and management for any closing remarks.

[Michael Mo:]

Well, great, Joe. Thank you for that. And so we at KULR, we're diligently building a suite of products and services to provide a total solution for battery thermal management and safety. We believe this is going to be a critical technology building block for the whole electrification revolution. As industries and regulations demand more sustainable solutions for recycling clean energy for the circuit economy, we believe we are well positioned to enjoy the tailwind of the shift to ESG investment initiatives. And we have a attractive and scalable business model with multiple product lines and revenue streams to serve the life cycle of battery circular economy. We have Tier 1 customers and partners based in government, aerospace, defense and commercial sectors. And we have a very strong and growing patent portfolio. Our space-proven battery safety technology is a critical platform play for multiple billion-dollar growth markets. And last not least, our experienced management team is very dedicated for the long-term growth of the company and increased shareholder value. So I'd like to thank everybody for spending time with us, and we will see you all on Battery Solutions Day on September 21, 2021. Thank you so much.

[Operator:]

This concludes today's conference. You may disconnect your lines at this time. Thank you very much for your participation, and have a great day.