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spk05: Welcome to the Cooler Technology Group second quarter earnings conference call. Cooler 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 Cooler Management team, including Chief Executive Officer Michael Moe, President and Chief Operating Officer Keith Cochran, as well as Chief Financial Officer Sean Cantor. After that, we will transition to the Q&A portion of the call, and we'll be joined by analysts who have been covering the company. Before I introduce and turn the call over to Michael Moe, please pay attention to the following Safe Harbor statement. The statements made 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 information available to Cooler 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 Cooler's business, which include the risk factors disclosed in their Form 10-K filed with the Securities Exchange Commission on March 28, 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 Cooler's current contracts, current backlog of opportunities, and conversations with new and existing customers about their 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. With that, I will turn the call over to Chief Executive Officer Michael Mo. Michael, the call is yours.
spk02: Thank you, Stuart. Thanks, everyone, for joining the Cooler Q2 2023 earnings call. This is Michael Mo. I'm the CEO and co-founder of Cooler 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 2,300% 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 rent. 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 their products and services. This impressive growth is largely fueled by our Q1 platform. Since we officially launched the Q1 platform at CES in January this year, the market reception has been overwhelming. In April, Cooler was awarded a $1.13 million U.S. Army contract to develop next-generation high-energy battery packs employing the Cooler One design solutions platform. Cooler will fast-track this new design through prototyping phase and into manufacturing readiness for U.S. 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. Cooler 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. Cooler partnered with a world leading provider of drone power delivery service, e-commerce package delivery service, Cooler will leverage our Cooler 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. Cooler has partnered with a top five global manufacturer in the electric vertical takeoff and landing EVTOL market to utilize the CoolerOne platform to test their battery safety. Together, we will further advance EVTOL battery safety as federal regulators look to put forth certification rules for the emerging EVTOL 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 will utilize the quarter one design solutions platform to accelerate design readiness for the automaker's advanced EV roadmap. Another growth engine for us is our safe case product line. In June, we announced a joint collaboration with Serpa Solutions to establish a national groundbreaking program for high-wattage lithium-ion battery packaging for recycling. Serpa Solutions is the largest and the most comprehensive battery materials and management processor for end-of-life EV batteries and gigafact manufacturing scraps. 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 kWh by utilizing Cooler's SafeCase product line and SERPA's 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 CoolerOne and SafeCase, our engineering team continues to advance our energy management platforms across multiple fronts. We'll be integrating wireless sensors, vehicle onboard capabilities, and a cloud-based user interface to the next generation cooler Vibe 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 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.
spk03: 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 non-conformances. 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, Cooler has expanded our facilities to Webster in San Leon, Texas. The expansion has gone as planned, and the sites are rapidly growing with the 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 Cooler 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 1 direct-to-consumer online retailers, which have awarded cooler 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 Q124 in support of engineering growth, and also as we return a large portion of our thermal runaway shield manufacturing back to the U.S. 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 Instruction 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 Q423 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 Phil, we are very well prepared to deliver the rest of 23 through this continued time of rapid growth for Cooler. Thank you. And now I will turn the call over to our CFO, Sean Cantor, for a financial overview.
spk04: 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 and 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 Cooler. Cooler generated more revenue in the first six months of 2023 than in the entire 2022. Coolers trailing 12 months revenue trend continued with the fourth straight quarter of trailing 12 months revenue growth. Cooler management continues to be upbeat regarding the positive trends of coolers 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.
spk02: Thank you, Sean. Stuart, we're ready for questions from our analysts.
spk05: All right, excellent. Thank you, Michael. Right now, we will be joined by Howard Halpern. He's joined us on previous calls. He is the Senior Equity Analyst at Taglich Brothers. Howard, the call is yours. It looks like you have a handful of questions for the company.
spk06: Okay, yep. Well, also, you know, new question, which would be, you know, of all the contracts that you have and, you know, going through the deployment process, what do you see the margin profile of all those projects being as you work your way through the, you know, design and then into the implementation and deployments?
spk01: So, I'll take that. Hi, Howard, how are you?
spk02: 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 30s margins as we grow both our service and the product business. And then as the business grow, we think that we're going to settle somewhere in the low 40s in our overall blended margin.
spk06: Okay. That sounds good. Also, in terms of the 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?
spk02: Yeah, I mean, both. Yeah, sorry, Keith. I was going to say, yeah, both on the sales cycle and also the development cycle as well. I mean, we have customers that have gone through our design and go to production in years in the previous cycle. So now in our RV contract, we're getting them in months or 12 months cycle, right? So 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. So 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.
spk06: Okay. And just one last one. When you talk about like for the drone contract having, you know, an all-encompassing, you know, offering, Is that going to include having the sensors that eventually maybe you could sell a cooler vibe into those customers?
spk01: Very interesting.
spk02: Yeah. The press release that we talked about with the drone customer was really focused on the cooler one design solutions power. So, you know, this is really kind of in my opening remarks, we talked about the great reception feature. the market has on the quarter one design solutions package since we officially launched it early this year. So as we continue to build that out, we're going to incorporate more and more of these capabilities. So all of our customers are going to get the benefit of the leverage across all of that platform. In terms of quarter vibe, I'm glad you asked that question. So we have been working on quarter 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. And so what you're going to find coming up is that in the second half of this year, as we launch this product with our customers, they're going to be very targeted and very specific performance benefits. And we are very, very excited about it. As you kind of alluded to, certainly we hope there's cross-selling and up-selling opportunity for Cooler Vibe into these battery customers. That's the whole goal.
spk01: Okay. Well, thanks, and keep up the great work, guys. Thank you, Howard.
spk05: All right, from Howard, we're going to move on to Akeelbek Subendikov. He is a senior analyst at Litchfield Hills Research. Akeelbek, I know you're there, so the call is yours. It looks like you've got a couple of questions for the company.
spk07: Akeelbek Subendikov Yes, thank you. First of all, congratulations on outstanding results. My question is, Kohler 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 CapEx to meet and fulfill your existing contracts?
spk03: Yeah, 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 CapEx spend to support it. However, the vast majority of this CapEx 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 Q124. Our current intent there is to lease the property to limit CapEx outflow. However, we are still in discussion with local governments for potential grant monies, should we decide to go the brick and mortar route.
spk07: Okay, great. 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?
spk03: Yeah, great question. You know, as you noted, we do have a very diverse product line in support of holistic solution for the electrification of the economy. We have a multi-pronged approach to how we handle this diversity. Our sales team is broken out by technology and by region. We provide significant training for 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. So, yeah, I hope that provides the insight you're looking for.
spk07: Yes. Thank you. And congrats again.
spk03: Thank you so much.
spk05: All right. Thank you, Akhil. Back now, we're going to get questions from Jake Sikelski, Managing Director and Senior Research Analyst 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 K1DS across a spectrum of chemistries for this customer?
spk01: Yes, so I'll take that. Yeah, our solution is chemistry agnostic.
spk02: So we can apply the cooler 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, you know, 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. So 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.
spk05: All right, next question. Are you able to share any color on the structure of the contract? Did the automaker engage Cooler to provide K1DS services for a specific period of time during test work?
spk02: Yeah, well, actually, kind of like what Keith talked about earlier about our sales organization and also our sales strategy, we kind of employ kind of a land and expand type of model. So when we land a customer engagement, usually the customer is looking for one solution or maybe a couple of solutions out of our entire CoolerOne design solution suite. But as we get into the organization, 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. So 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. So we feel like this land expand model is working, and it will continue to execute on the strategy.
spk05: Okay. 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?
spk04: I'll take that one, Mike. It's Sean. Thanks for the question. Yes, as we grow and scale, we believe our gross margins should improve, as the question indicates. 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. So 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-40s.
spk05: Sean, it looks like I have an additional question for you. What's the status of your capital position relative to driving operational break even?
spk04: Sure. Well, as I guess, as you know, as you may be aware, today, Cooler announced a capital raising transaction because all of the available details about the offering are publicly accessible by reviewing the preliminary prospective supplement filed this afternoon. We'll refer you to that document for any further details.
spk05: All right, very good. Mike, it looks like the final question will be towards you. How has Cooler Vibe been gaining customer awareness and traction in the market?
spk02: Yeah, you know, we've been... going to industry conferences to market Quarter Vibe. And as Howard kind of asked a question earlier, or similar question earlier about Quarter Vibe integrating with the drone customer. Yeah, we've been, you know, in my prepared remarks, I thought about we've been really focused on executing on Quarter Vibe 2.0. And we're working with strategic partners, integrating those new features into the product. So during those engagements, we're really focused on how the new features, you know, the product offers specific and quantifiable performance benefits for these customers and new applications. So later this year, we would be, you know, demoing these products with the customer. It would be very targeted, very specific, and we're super, super excited about that.
spk05: 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, Akhil Beksubendikov, who was a senior analyst at Litchfield Hills Research, and Jake Sikalski, managing director and senior research analyst at Alliance Global Partners. Of course, I want to thank all the members of the management team, CFO Sean Cantor, President and COO Keith Cochran, and Chief Executive Michael Moe. 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.
spk02: Thank you very much, Stuart. And once again, that does conclude today's conference call and webcast. You may disconnect at this time and have a wonderful day. Thank you for your participation.
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