KULR Technology Group, Inc.

All right, everybody, thanks so much for your patience and waiting on the line. We will now begin the Cooler Technology Group fourth quarter and full year 2021 earnings call for today, Thursday, March 17th, 2022. Let me give you an overview of the phone call. The call is going to consist of opening statements from Michael Moe, CEO, Keith Cochran, President and COO, and Simon Westbrook, CFO. The company will then answer questions from a group of analysts that have joined us today. But before we get this call started, I'm going to read the safe harbor statements. Many of you know these safe harbor statements can be found at the bottom of every press release as well as on the filings for the company. Now, statements on this call do 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 the company as of the date hereof. Actual results may differ materially from those stated or implied. on this call. Now, if you want to learn more, again, find the filings for the company on the SEC, as well as at the bottom of the press releases for the company. At this time, I would like to introduce Michael Moe to the call. Michael, the call is yours.

Yeah. Hey, thank you, Stuart. I appreciate all of you for joining us today on our Q4 and full year 2021 earnings press release call. I'm happy to report that 2021 was a pivotal and significant year for Cooler in our growth path. We continued our strong expansion in the fourth quarter. Revenue increased by 267% year-over-year to $766,000. For the whole year of 2021, we achieved a total revenue of over $2.4 million, which is 287% growth over 2020. We also had approximately $14.9 million of cash on the balance sheet at the end of 2021 compared to approximately $8.9 million of 2020. These financial results have put Cooler in its strongest financial position in its history and has built a solid foundation to continue our growth in 2022 and beyond. During 2021, we made significant investments in our people, our infrastructure, and product development. We expanded our executive management team. We grew our workforce by over fourfold, and we moved into a new facility that's three times larger. Additionally, we launched a number of new product development efforts, including cooler tech safe case, cell check, cell screening automation system, and a new battery architecture development. All these product launches and developments are progressing well. The Safecase product is gaining significant traction in the marketplace through our partnership with Retrieve Technologies. With the recent acquisition of Battery Solutions, they're the largest end-to-end battery recycler in the United States. We believe Safecase will drive significant business growth for Cooler in 2022, supporting the battery recycling, battery storage, and transportation markets. We're very excited about the growth opportunities in 2022. We see energy storage and battery recycling as the key growth drivers for us in the commercial market segments. Our partnership with Volta Energy Products positions us to deliver significant growth in the commercial energy storage market. Continuing that theme, Cooler will support products and services in support of Lockheed Martin's advanced energy systems for the DoD customers. In addition, we expect to see customer launches, which incorporate Cooler's proprietary PPR design in electric aviation and micro mobility. In the battery recycling and transportation market, We're expanding our safe case product line to facilitate the storage and transportation of new and used batteries for e-mobility, power tools, micro mobility, such as e-bikes, and consumer electronics. As companies and governments around the world pledge to meet net zero emissions over the next few decades. Cooler products and technologies are uniquely positioned to accelerate the adoption of clean and sustainable energy products that propel the migration to a global circular economy. In 2022, we expect to see continued growth in our thermal management business with government agencies and DOD customers. Our long-term strategy has been to co-develop cutting-edge thermal management technologies alongside NASA, the U.S. Department of Energy, the U.S. DOD, and while working in close collaboration with regulatory agencies and international testing organizations. Our goal is to incorporate these technologies into regulatory roadmaps that can serve multiple mass market applications. As we deploy these technologies into 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. We expect this flywheel effect to continue and possibly accelerate in 2022. All in all, we are very excited about this year and expect our growth to continue into 2023. Next, Cooler President COO Keith Cochran will give an update on our business operations. Keith, please.

Thanks, Michael, and thanks all for attending today's call. We appreciate that. As Michael said, we relocated in October of 2021 to a new facility located at 4863 Shawline Street, San Diego, California. The facility is three times larger than our previous facility with adequate room to support our forecasted personnel growth and new automated battery cell testing capabilities that will launch in Q3 of 22. Additionally, we installed independently enclosed areas to support the machine shop, testing lab, battery lab, and FTI flocking lab. We have implemented a 5S standard for the entire facility and will seek ISO 9001 certification in June of 22. With regards to the automated battery cell testing mentioned earlier, Kuhler began working in Q2 of 21 to support the stringent requirements of battery cell testing for NASA and the Department of Defense. This platform has been designed to meet the entire specification of NASA Work Instruction 037 battery testing requirements. Automated equipment is modular, and the initial processing capability is 500,000 cells annually. Based on the current commitments for the equipment, we intend to have the system installed and validated in Q3 of 22. I also mentioned earlier about employee growth. In January of 21, Cooler had 10 full-time employees. As of March 1st, 22, the organization has grown to 55 permanent employees with an additional 44 people working on cooler projects via contract. Cooler has many open requisitions today to support our growth outlook, primarily in sales, engineering, and technicians. We are pleased that we've been able to hire top talent to continue accelerating the growth of cooler platforms. Some of our recent hires include Dr. William Will Walker, as Director of Engineering, and Peter Hughes as Technical Marketing Engineer, Battery Applications. Both individuals have already had distinguished careers with NASA and now bring their collective knowledge to Cooler to support our renewable energy platforms. Cooler will continue to add additional permanent employees as needed while using outsourced leverage where it's appropriate. An example of outsourced leverage for Cooler is in cybersecurity. In Q1 of 21, Kuhler engaged with management solutions to enhance our IT infrastructure and improve all aspects of cybersecurity. As a subcontractor for Department of Defense programs, it is vital that Kuhler has state-of-the-art IT systems and controls. We believe the best path based on our current scale is to outsource this activity to a professional IT services organization. The result of this activity has been an estimated improvement of our NIST score of over 140 points. This critical improvement opens additional opportunities for Cooler in support of those DoD programs. Next, Cooler's CFO, Simon Westbrook, will give an update on our financial highlights. Simon? Thanks, Keith.

Well, we invested heavily in strengthening our team and building out our infrastructure this year as we prepare for a ramp-up in growth of our future business. This was reflected in our results for both the fourth quarter of 2021 and the whole year ended December 31st, 2021. For the quarter, our revenue increased from $208,000 to $766,000 in the comparable quarters. Our gross margin increased from $166,000 to $536,000. Our operating expenses increased from $845,000 to 4.5 million which included a 1.4 million non-cash stock compensation charge and net loss increased from 859 000 to 4.1 million and our net loss per share went from 0.01 to 0.04 per share for the whole year into december 31st our revenue increased from 624 000 to 2.4 million Our gross margin increased from $436,000 to $1.5 million. Our operating expenses increased from $2.8 million to $12.9 million, which included $4.2 million of non-cash stock compensation expense. Our net loss increased from $2.9 to $11.8 million. And our net loss per share increased from $0.03 to $0.15 per share. At the end of the year, We have $14.9 million in cash compared with $8.9 million at December 31st last year, which leaves us well-positioned to expand operations, support new business, and fund ongoing product investment and development in 2022. Thank you. Back to Stuart.

All right. Thank you, Simon. At this time, we are going to welcome to this call Jake Sikelski. He's from Alliance Global Partners. He's a managing director and senior research analyst. Jake, you're on the call. You have a couple of questions. Please read off your first question for us.

Yeah. Hey, Michael, Keith, and Simon, thanks for taking my questions. Just looking at margins here, we've seen some cost inflation across the board in various industries over the last quarter or two. Can you maybe just walk us through some of the inputs you're most sensitive to from a cost standpoint and maybe touch on any steps that you think you can take to mitigate further margin pressure related to more general cost inflation?

Yeah, no problem, Jay. So obviously, you know, we do have a global supply chain. Transportation costs are sensitive for us. Material pricing is also sensitive for us. As such, we've taken some mitigating factors now. We have begun the process of relocating some of our outsourced manufacturing down into Mexico. We found very good supply chain partners there, and we're rapidly making the move to bring those partners up to improve our not only logistics costs, but also the lead time flexibility for our customers in the end. Hope that helps.

That's helpful. And then just looking at SG&A, I mean, you guys have obviously done quite a bit of hiring as you've been in growth mode over the last year or so. Do you expect these levels to remain somewhat constant throughout 2022? It sounds like you guys are obviously focused on growth this year as well as revenue continues to ramp.

You know, Jake, as I mentioned in my prepared comments, We will definitely continue to grow our organization, but we're going to do that in a combination of internal hires as well as outsource leverage. And where that makes sense, we choose to do some of that outsource leverage. I think this past year for us has been about building the bones of the company. We've added BP of Sales, an entire HR program and management system in place, brought in a lot of senior engineering talent. All of this has created a really outstanding portfolio of platforms that now are being realized primarily starting in the second half of the year for us. We'll really see the fruits of all of that labor. So I think we've done a lot of the heavy lifting as far as the senior infrastructure personnel-wise for the company. And so we'll see probably a little bit of tailing off there, but we'll definitely see growth in sales personnel and in our technicians and also some of our engineering, especially on the automation side.

All right, so next we have Litchfield. We've got Theodore O'Neill from Litchfield Hills Research. He is a research analyst. Theo, welcome to the call. You have a couple of questions for the management team.

Thanks. My first question, I think you just about covered it, the previous question here, but you've been doing a lot of hiring, and I was wondering, do you expect 2022 expenses to go up as much as they did in 2021? And how do you see your business growth catching up with these cost increases?

Yeah, so, hey, Theo, great to hear from you. So as Keith was saying, 2021 was a lot of heavy lifting. You know, hire a lot of engineering talent, build a foundation. we really make very significant investment in our people, infrastructure, manufacturing process, and product development. There's a very high percentage of year-over-year growth or increase on the expense side. At this moment, we don't expect the same percentage growth or increase on the cost side because a lot of heavy lifting the foundation has been built. And then we expect the revenue growth to continue in 2022 and 2023. And sooner versus later, the two will catch up and then, you know, will put us in a better or really good financial position.

Okay. And on the automated battery testing market, can you give us a look into how you differentiate your products versus current ones being used to test cells currently in production?

Yeah, sure. I can certainly do that. You know, I think there's a lot of automotive manufacturers out there today that do have internal testing for cells. You know, they test a somewhat limited parameter for those cells before they put those into packs for the EV markets. You know, with that said, the cooler solution and specifications are designed to ensure that every cell has been tested and proven to meet very, very rigid standards of operation for mission-critical applications. And I think that's a big difference here. The screen battery cells go into applications whereby they just simply can't sell or the mission becomes a great risk. That's one thing, you know, to have your car break down on the side of the road. It's a whole different problem when you're in flight space or underwaters, for example, in the submersible. Also, the Cooler solution is able to be programmed customized to support the various testing needs of a wide variety of OEMs and government agencies as a service operating versus the in-house solutions used by automotive manufacturers. So I would say Cooler is kind of a little different as well because we track all of the testing information at a sell-by-sell level. So our customers at any time can dial into our system and see the performance of the cells that they've sent through our process. If they ever do have some type of an event, they're able to go back and see exactly what all the parameters were of that particular cell. And then we can bring in the OEM manufacturer of that cell for deeper dive discussions with data.

All right. Well, now we're going to be joined by principal equity analyst at Taglich Brothers. That's John Nobile. He's got a few questions. John, the floor is yours. The call is yours.

Hi, and thanks for taking the questions in this call. Congratulations on the fourth quarter and your results. Obviously, commercialization looks like it's ramping up nicely. Just a few questions here. uh michael or whoever could answer this as far as you know uh does volta still plan to bring between 750 to 1 000 battery storage units to market in 2022 and are they looking still to increase that up to 50 000 units in 2023 yeah hey uh yeah the answer is yes um they're very bullish on the ramp up plan for 2022

and 2023. As a matter of fact, I think they announced in January that they received $100 million in equity financing, which include a couple of our strategic investors, National Grid and Sunbelt Rental. National Grid is one of the largest utility companies, and Sunbelt Rental is like an $11 billion equipment rental company. And now these companies, as they're shareholders and strategic customers, we're actually more confident in their point of use energy storage product. By incorporating the cooler's PPR design, the product has the highest safety rating in the industry, and we believe it will be a leader in the market. So very, very bullish on that product.

Great. That's good to hear, Linda. What potential do you believe your acquisition of the IT rights from Centropy could have on future sales of your products and high-power computing applications? Obviously, with Bitcoin and crypto mining, that's a very big area. I just wanted to grasp what type of market this could be, and where do you see yourselves with this in, say, a few years from now?

Yeah, no, that's a great question. Actually, the acquisition like this, this kind of IP acquisition is really kind of the sweet spot for Cooler. We really want to acquire core high-performance IPs and to incorporate into our existing platform to kind of enhance the performance across multiple applications, not just on the high-performance power computing and the Bitcoin mining space, but even incorporating into our existing aerospace and defense applications as well so we see that there is a lot of applications for that and we expect to actually acquire more ips along that line to go both horizontal and vertically in the stack and the goal is really to build the end to end the best of the breed uh product solution to the market you know um so that's you you'll see us continue to execute on that strategy

okay great and uh uh just one final question uh could you talk a little about the market potential you believe is possible from the u.s department of transportation's permit authorizing your cooler tech safe case for battery transport yeah hey michael i'll take that one yeah and hi john uh thank you for your question uh i think i've hit on this a little bit in the past but let me expand a little further um

Right now, the total market for lithium-ion battery recycling in 2021 was about $5 billion, but it's growing at a 22% kegger. So, you know, we expect that market to grow to $24 billion by 2030 with a lot of government incentives, you know, behind that. And the recycling industry provides a wide range of services, including facilitating the reclaim of damaged, defective, and recalled batteries. which is what our safe tech cases provide protection against. So our DOT special permits make the cooler solution perfect for these types of applications. And this is where we are seeing really solid gains in our business and outlook.

Well, all right, that wraps up our questions for the call today. I do want to point out once again, an entire recording of this call will be archived on the Cooler Technology website. And again, you can reach out to the company directly at that website as well with your investor questions. You've been listening to the Cooler Technology Group fourth quarter and full year. 2021 earnings call thank you so much for joining us thank you to the management team keith michael and simon as well as our analysts that joined us here today and most of all thank you to the investors and shareholders for your belief and support in our company have a wonderful rest of your week