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spk01: Welcome and thank you for joining us for the Cooler Technology Group Incorporated November 2021 shareholder update call and discussion of the third quarter 2021 financial results. Cooler Technology Group is a publicly traded company listed on the New York Stock Exchange under the ticker symbol KULR. Therefore, it is important that I start this call with a reading of the safe harbor statement covering 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 the information available to Cooler Technology Group 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 the company's business." which include risk factors disclosed in the company's Form 10-K filed with the Securities and Exchange Commission on March 19, 2021. 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 caller based on information available at this time, and management expects that internal projections and expectations may change over time. In addition, any forecasts made 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 the company's products and services. Cooler Technology Group assumes no obligation to update the information included in this call, whether as a result of new information, future events, or otherwise. Now, today's call will consist of opening statements from management, followed by a Q&A session where management addresses questions that were emailed in from shareholders and other interested parties, and finally, closing statements. I'm Stuart Smith, your host and moderator for the call today, and I am honored to be joined by Michael Moe, Chief Executive Officer of Cooler, Keith Cochran, President and COO of Cooler, and Simon Westbrook, CFO for Cooler. I will now turn the call over to Michael Moe. Michael, the call is yours.
spk03: Hey, thank you so much, Stuart. This is Michael Moe. And thanks to everybody's time today to join our Q3 2021 shareholder investor update call. For today's call, I will first talk about our Q3 business highlights and provide updates on recent developments. Keith Cochran will provide operational updates. Simon Westbrook will then talk about financial highlights for Q3 updates. Then we'll have Q&A session as you talked about sort and conclude our call today. I am very pleased to report that Cooler's Q3 revenue increased by over 300% year over year as we continue to make significant investments and execute our business strategy. Our gross margin was 74%, which is a function of favorable product mix for the quarter. This is really an important and exciting quarter for all of us at Cooler. not only because of the financial figures, but also the validation of our long-term strategy and the execution that's delivering solid foundation for future growth. Since inception, Kohler's long-term strategy has been to co-develop cutting-edge thermal management technologies alongside NASA, U.S. Department of Energy, and U.S. Department of Defense prime contractors while working in close collaboration with regulatory agencies and international testing organizations. Our intent was to incorporate these technologies into regulatory roadmaps and also mass market applications. As we deploy these technologies into mass markets, such as energy storage and electric transportation, we look to leverage our IP across multiple verticals and capitalize on multiple revenue streams to accelerate our revenue growth. Our battery safe case is a perfect example of how that strategy is showing signs of success. This technology was tested by NASA and has been used on the International Space Station to keep the astronauts' laptop and tablet batteries safe from battery thermal runaway propagation since 2019. Then we worked with U.S. Department of Transportation to provide the safety testing data on protecting commercial batteries up to 2.1 kilowatt hours in energy capacity. With that work, we received DOT special permits for recycling, used, DDR, and prototype batteries to be transported by ground, rail, boat, and air in Q3 of 2021. This has been a long process, and we got it done. We believe that cooler tech safe case is the only solution in the market that has all these permits and capabilities. Now we're taking this space-proven technology with DOT special permits into the commercial world. Kohler partnered with Heritage Battery Recycling to provide safe transportation of battery collection operations across North America. Heritage Battery Recycling has over 100,000 customer locations, 2,500 employees, and a fleet over 1,300 power units in over 100 facility locations. They recently merged with Retreat Technologies to become the largest lithium-ion battery recycler in North America. We are very excited about this partnership. Kohler also joined Kleros in the US Department of Energy lithium-ion battery lifecycle initiative to develop the manufacturing and reuse of lithium-ion batteries and their chemical elements in the United States. Kleros is the largest lead-acid battery maker in the US. In this project, Cooler will provide safe transportation of lithium-ion batteries within the full battery management lifecycle from manufacturing through recycling and through reuse. Our goal is to provide a total battery safety solution for more efficient battery systems, increase sustainability, and end-of-life battery management, making Cooler a key technology provider in the migration to the global circular economy. In addition to the cooler tech safe case product, we continue to make significant strides in our other product and developments. We announced cell check product at our battery solutions day on September the 21st. We're very, very excited about this project and this product as we believe it to be the smartest AI power battery management system of its kind integrated with our thermal management technologies. This is another significant step for us to position Cooler as the one-stop shop of total solutions provider for battery thermal energy and safety management. Keith will give you some more updates later on. At the Battery Solutions Day, we also share with you that we started a research and development initiative using carbon fiber structures to produce battery cells with higher energy density and faster charging capabilities. We believe fast charging will be the killer app for next generation batteries. Right now, overheating is a key limiting factor in advancing fast charging technology. We've been developing and testing a new battery architecture with a carbon fiber matrix that can improve the thermal performance and also make thicker cathode structures with higher loading factors and also anode structures with silicon and lithium metal. We want this architecture to work with existing lithium-ion battery chemistries as well as solid-state electrolyte. This is a long-term strategic development for cooler that we expect to share more performance in testing data with you in early 2022. Another very exciting development that we're working on is to apply our advanced carbon fiber solution that was developed for hypersonic program to high-performance computing applications. Our team worked on the X51 hypersonic vehicle with a liquid cooling thermal management system. I utilize our proprietary carbon fiber matrix. Now we're working on applying this technology to cost effectively cool high power computer chips for applications such as cloud computing, AI, virtual reality simulation, or somebody will call metaverse and crypto mining applications. The key is to take away the heat more efficiently from the chip to the liquid or air and therefore allowing the chip to run faster without overheating or consume less energy with the same amount of processing power. This will allow the server and data centers to run more efficiently, more sustainably, and profitably. We look forward to share more updates with you in the near future. On the capital market side, there was also some significant events during Q3 and since. On July 9th, Cooler celebrated its uplifting to the NYSE American Exchange by ringing the closing bell at the New York Stock Exchange. That was a very exciting day for all of us. And in October and November, Cooler received approximately $6.5 million in cash from exercise warrants to purchase an aggregate of 2.6 million shares, which was part of our May 2021 financing. Combine that with our approximately $11 million dollar cash position at the end of Q3 and with no debt, Cooler is in its strongest financial position in its history. On November 17th, options start trading on Cooler on the NYSE American options. And we also honored to have Vanguard Funds, now our largest institutional shareholder with approximately 3% ownership. We're so thrilled and honored to have them as one of the largest shareholders. alongside other institutional shareholders such as State Street, Northern Trust, and Charles Schwab. We've come a long way since our OTCQB days, but we feel like we're just getting started on our mission. Speaking of just getting started, Keith Cochran will give an update on the growth of our team, our new facility, and development of new programs. Keith, please.
spk04: Hello, everyone, and thanks for attending the call today. We appreciate that. It is my pleasure to share with you the following highlights related to operations and product development. Cooler has completed the transition to our new larger Shawline facility, with all operations now closed at Nancy Ridge. Our labs, machine shop, and materials processing and manufacturing are fully operational and running as normal. We are preparing the factory floor and increasing our power services to accommodate the launch of our strategic battery reserves automated testing machinery, which will be installed and certified in Q1. We are anticipating being fully operational in Q2. As noted in our financials, we're also making the necessary investments in SG&A needed to safely and efficiently support our significant anticipated growth. We have added engineering, quality, product development, and sales support in Q3 to accommodate the upcoming product and services demands. We have also increased our IT infrastructure with third-party support to greatly reduce our exposure to cybersecurity threats. To date, we've been able to attract an extremely talented and passionate team who are very eager to support our vision for Cooler. Our current headcount has tripled since the beginning of the year to support the product development and rollout of our new platforms to be delivered in the first half of 2022. And as Michael shared, Cooler announced Cell Check at our Battery Solutions Day event. As we believe this to be a revolutionary platform that provides significant improvements in battery management and safety, Cooler will provide a live demonstration of Cell Check at the upcoming Advanced Automotive Battery Conference on December 7th in San Diego, California. And we encourage you to attend or watch the live stream. Also, if you missed Battery Solutions Day, please check out our recorded event and website for further details. Next, Simon Westbrook will go over the financial highlights. Simon?
spk02: Thanks, Keith. So we generated revenues of just over $600,000 in the third quarter ended September 30th this year. This was an increase of 339% compared with revenues of $137,000 we reported in the same period last year. The increase in revenue was mainly due to increased sales of cooler products and two large new contracts. These results reflect management's continuing efforts to develop new and existing customer relationships. On the SG&A expenses front, SG&A increased to $3.1 million in the third quarter of this year from $830,000 in the corresponding prior year period. The increase of 273% was primarily due to an increase of stock-based compensation expense, marketing and advertising expenses, consulting fees, travel expenses following the end of COVID restrictions, and other miscellaneous expenses. On the R&D level, our expenses in the third quarter of 2021 increased by 830%, from $52,000 last year to $482,000 this year. we have significantly increased our R&D spending to accelerate our product developments. Our loss from operations came to 3.1 million for the third quarter of this year, compared to 811,000 for the comparable period of 2020. Our net loss for the third quarter of 2021 increased to 3.1 million compared to a net loss of 1 million in the comparable period of 2020. And our net loss per share for the third quarter of this year was $0.03, as compared to $0.01 for the comfortable period last year. The comparison was impacted by higher SG&A expenses, partially offset by the favorable impact of our increase in revenues. Looking at our cash position at September 30th this year, we had cash balances of $11 million, compared with $8.9 million at December 31st, 2020. Kula received approximately $6.5 million of cash in the months of October and November alone from the exercise of warrants to purchase an aggregate of 2.6 million shares, which is part of our May last year's financing. This funding leaves Kula very well positioned to expand our operations, to support new business growth, and to fund ongoing product development initiatives. So over to you now, Michael. Thank you, Simon.
spk03: Stuart, now we're open to questions.
spk01: All right. Thank you, gentlemen. The first question I'm going to ask you, Keith Cochran, and it says, how will Cooler's business be affected by the development of solid state batteries? Is Cooler's technology used in solid state batteries?
spk04: Yeah, thanks, Stuart. You know, I appreciate the question. The most aggressive estimates for solid state batteries to begin being commercialized for sale appears to be about 2025, 2026 timeframe. And, you know, even then lithium ion batteries will have a significant cost advantage. Therefore, we anticipate large EV platforms to really be the early adopters and offer the technology itself as a premium alternative to lithium ion. We also anticipate the transition period to be pretty lengthy from lithium ion batteries to solid state. don't really anticipate any negative impact to the core family and core products. And right now we don't have any products that deploy into the solid state cells. However, we are certainly looking at closely for applications to be able to use our current technology and development platforms in solid state battery production.
spk01: All right, very good. So the next question is about your partnership with Clarios. It says, your recent partnership with Clarios sounds like it has the potential to generate significant revenue for cooler. Could you give us a sense of what you believe the market potential is for products that you provide for the safe transport of lithium ion batteries through their full life cycle, Keith?
spk04: Yeah, well, that's a great question. Thank you. Well, we certainly have studied this internally. So the projection of lithium-ion battery recycling is roughly about $4.6 billion for 2021, and I believe the estimated number is to reach about $23 billion in 2030. So obviously it's a huge market, and where Cooler participates today is in the transportation and the storage of cells and battery packs up to 2.1 kilowatt hours that are recycled as damaged, defective, recalled, or end-of-life. Based on our internal studies, we estimate that the TAM, which is total available market, for our current solutions could be roughly $150 million in 2021 and should rise to about $575 million by 2030. However, I do want to stress, this is our internal estimate based on the data published in the market and reviews we have done with our partners. We have not done an industry study yet that definitively confirms the TAM to this granular of a level. Hope that answers your question. Thank you.
spk01: All right. Very good. Well, the next question is about the heritage partnership and it says, when do you think we could see some details surrounding the heritage partnership? Has the recently announced business combination slowed progress with respect to the partnership with cooler and heritage? Go ahead, Keith.
spk04: Yeah. Okay. I'll give you a little update on that. And thanks for the question. Now, the business combination resulting from Heritage Environmental acquiring Retrieve and keeping the name for their lithium ion battery recycling has actually increased the number of opportunities we're pursuing together. This is based on existing contracts Retrieve had with customers and the market pull for a full lifecycle solution within Retrieve that goes from pickup to recycling and then back to the cell manufacturer as raw materials. And we are in pilot now with multiple customers in the partnership. And we'll keep everybody appraised as these go, hopefully, into production in early 2022.
spk01: All right, Michael, do you expect to issue guidance for 2022? And if not, what steps do you think need to be taken prior to issuing formal guidance, Michael?
spk03: Yeah, thanks for the question. To date, we have not. issue any formal guidance, but we do expect in 2022 to start issuing guidance as we gain more momentum and backlog to our business. So please stay tuned.
spk01: All right, very good. Keith, it seems like the U.S. is somewhat behind the ball with respect to recycling logistics and regulations compared with Europe. Are you able to provide any color on legislation and steps being taken to formalize the regulatory aspect of the battery industry?
spk04: Yeah, thanks, Stuart. Well, you know, I would say that historically it probably has been true that there's been a greater focus on battery recycling in Europe. as compared to the United States. However, I do feel the focus in the United States is seriously picking up steam with various states such as California, New York, Maine, District of Columbia, which are all proposing strict requirements on collection and recycling of lithium batteries. And at the federal level, you have the EPA and the Department of Energy that are promoting policies and regulations. For example, I know the EPA recently released It's 2021 National Recycling Strategy. And that strategy is intended to address major recycling challenges to create a stronger, more resilient, cost-effective solid waste recycled system. And also you have the Department of Energy, which announced the Lithium Ion Battery Recycling Prize, intended to focus on new ways to recycle lithium ion batteries used in various applications. And, you know, I don't want to leave out that the lithium battery recycling industry is heavily investing in capabilities to meet the forecasted 1.4 million lithium ion battery market, you know, in 2028, including our partners such as Heritage and Retrieve. Thank you.
spk01: And Keith, here's this question is for you. Who do you consider your direct competitors?
spk04: Well, you know, that one is quite difficult for Kuhler to answer because as we have a very diverse offering of products and engineering services. We also try to target voids we see in markets that we participate in such that there are very limited to no competitors and that we have a solution that's very unique for cooler. For example, our battery cell screening automation and our special permit safe tech cases at 2.1 kilowatt hours are quite unique. We're not going after commodity markets. And we tend to focus on higher margin plays where, again, kind of to be frank, we're the only game in town. So some of those are mass markets for sure, but we're very differentiated in those markets. Thank you.
spk01: All right, Michael, can you explain how your materials can be used in lowering energy use in data centers and cryptocurrency mines? And a follow-on question to that is, since data centers and mines are using other means to cool chips, what would be the incentive to switch? If that is the plan, or are you going to come up with a product jointly developed between cooler and a chip maker?
spk03: Yeah, I saw a great question. We look at solving that problem is to improve for these high-power computing HPC applications. The key is to take away the heat more efficiently from the chip to the liquid, whether it's emerging cooling or to the air, and therefore allowing the chip to run faster without overheating, or you will just consume less energy with the same processing power. So that will allow the server and data center to run more efficiently, sustainably, and profitably. And the switching incentive to switch, the question you had was, it's driven by lowering the operating cost, which is achieved by less energy consumption for cooling. and faster performance, which is achieved by running the chip faster, and therefore more profitable. So for crypto mining, the faster you can run a chip, the faster you can turn these cryptocurrencies, the more profitable it becomes. We're developing this platform independent of chipsets and vendors. So we're developing this thing on our own and across multiple platforms, across multiple chip vendors, across multiple mediums, liquid-cooled and air-cooled. Hope that answered the question.
spk01: Very good. Well, Michael, that was the last question. Any closing thoughts or comments?
spk03: Well, I'd like to thank everyone for your time today, joining our call to all of our shareholder investors, especially those who have been with us since our OTC days. We sincerely appreciate your support and faith in Cooler. We are in solid financial position to make significant investments in our people, in our infrastructure, in our technology product development roadmap. We believe that we're building a great foundation to accelerate our growth in the coming years. So have a wonderful, great holiday season, and thank you so much.
spk01: Thank you for everyone joining us today on The Cooler Call. We look forward to more of your questions sent in in the future, and I'd like to thank Keith, Simon, and Michael. And as Michael said, happy holidays to everyone.
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