KULR Technology Group, Inc.

All right, thank you for joining us today for the Cooler Technology Group first quarter 2024 earnings call. I will be joined on the call today by the CEO of Cooler Technology Group, Michael Moe, and the Chief Financial Officer for the company, Sean Cantor. But before we begin the call, please listen closely to the following statements. This call does not constitute an offer to sell or a solicitation of offers to buy any securities of any entity. This call contains 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 the company 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 their business, which include risk factors disclosed in Cooler Technology Groups Form 10K filed with the Securities Exchange Commission on April 12th, 2024, as may be amended or supplanted by other reports the company files with the Securities Exchange Commission from time to time. Forward looking statements include statements regarding their expectations, beliefs, intentions or strategy 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 information available at this time and management expects that internal projection and expectations may change over time. In addition, the forecasts are entirely on management's best estimate of Cooler Technology Groups future financial performance given their 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 on this call, whether as a result of new information, future events or otherwise. I will now turn the call over to the Chief Executive Officer of Cooler Technology Group, Michael Moe. Michael, the call is yours.

Thank you, Stuart. This is Michael Moe. Thanks to everybody for joining us today. I'd like to go over some of the financial and operational highlights with you today. I would discuss how we achieved over 760% year over year growth in our Cooler One Design Solutions business, which is our engineering services business in Q1 of 2024 compared to Q1 of 2023. And how this tremendous growth in service business drives the growth in our overall product sales business, especially in the Cooler One space and the Cooler One Guardian product lines. While we're experiencing this big growth, we have reduced our cash use and operating and investment activities by 23% and total operating expenses by 25% year over year for the first quarter in 2024 compared to 2023. I will also give an update on our new Cooler Texas facility and how we're strategically positioning it to be the center of excellence for battery design and testing and also foster innovations together with our customers. Market is changing very quickly. Our customers are very demanding. They want the best and they wanted it yesterday. With the ever changing regulations around safety of lithium-ion battery usage, customers demand faster run time in addition to the requirements on quality, performance, and customization to fit perfectly to their applications. At Cooler, we're winning customer engagements by offering a one-stop shop solution to all their battery needs. We start with a holistic design methodology to come up with a modular design that is easy to customize for our customers' needs. Our dedicated and experienced engineering team is very focused on safety and we can turn around very quickly with our in-house testing, machine shop, tooling, and manufacturing capabilities. This has enabled us to achieve over 760% year over year growth in our Cooler One Design Solutions business. Furthermore, through our Cooler One Design Solutions process, we're collecting valuable data through the cell screening, to testing, to design, and ultimately accelerating the customer's certification process with treasure trove of data. This data is becoming the glue and the fuel to our business. Let's use FTRC testing as an example on how it's driving new and recurring revenue. We recently announced that we have successfully completed large format FTRC test for 200 amp-hour high energy battery cells for automotive OEM customers. It's the first in the industry and the only one because Cooler has an exclusive license with NASA on this technology. We're able to provide our customers with battery cell data that are not available anywhere else. And this data is critically foundational to build truly safe battery packs for certification, which makes our service very sticky with our customers. Automotive customers, like customers in electric aviation, energy storage, and industrial markets, are constantly evaluating new generation of battery cells with colorimetry data. Therefore, our unique and exclusive position in the battery cell testing market is bringing us new and recurring businesses in the global cell testing market, estimated to reach over $7 billion by 2030. To drive our ecosystem further, we're working with battery cell companies to test and qualify their new battery cells with data, like our partnership with Ampreus, which we announced recently for their silicon-anil cylindrical cells. We see tremendous demand for FTRC testing business because it's providing our customers with critical data that they cannot get anywhere else. We're building a couple of new testing lines in our new Texas facility, which will be fully operational in Q3 of this year. And we're expecting our testing service alone to be over $1 million a quarter revenue for us by the end of this year. We're also developing AI-based data collection and report generation tools to streamline the testing and the data analysis operations. That will further drive our battery design and product sales business. In Q1, we saw the number of product sales customers grew from 13 in 2023 to 25 in 2024. We had one large customer in Q1 of 2023 that did not place order with us in Q1 of 2024. Due to the sticky nature of our products that are certified into that customer's products, management expects that customer to continue purchasing from quarter in this year and beyond. Excluding that one large customer, our product sales revenue grew over 400% in Q1 of 2024 year over year. We expect our Cooler One space battery to be a key driver for growth going forward. The space economy is going to be over $1.8 trillion by 2035, according to McKinsey. This is driven by the commoditization of commercialized space industry. The space battery market is estimated to grow to $6.35 billion by 2030. We expect our Cooler One space platform to play an important role in this market. Some of the key players that drive this tremendous growth in the space economy include rapidly growing private companies such as SpaceX and Blue Origin. Continued growth of traditional government private contractors like Boeing and Northern Grumman and also new up and coming companies like Voyager Space, Axiom, Vast, and many of these are already Cooler customers. What all these companies look for in their energy storage system is high performance, space qualified, and competitively priced battery solutions with the highest level of safety that meets NASA safety standards. Especially the NASA JSC 20793 specification that's mandated to be part of a crew space mission. That's exactly what Cooler One space architecture offers. A pre-qualified design architecture that can be customized, space flight ready, and certified for NASA JSC 20793 specifications in record time. We're offering a solution that can dramatically improve time to market and offer cost savings to our customers. Another successful example of providing fast time to market engineering service and pave the way for high potential future product sales is our Cooler One Guardian platform. We started this platform with our contract with Army DEFCOM for the next generation aviation battery in Q2 of 2023. The contract has since been expanded to over 1.8 million and we're scheduled to deliver our prototype batteries to them in August of this year. Data has shown that a new battery will be a game changer for Army in terms of safety and energy capacity. Now we're expanding our Cooler One Guardian product portfolio to standard size 2590 battery, swappable UPS battery, and additional custom batteries for DOD customers based on the same scalable architecture. What sets Cooler One platform apart from the competition is data, safety, and speed. Our customers demand that the batteries to have the superior thermal performance and safety with the highest energy power. The Cooler One architecture is flexible and can be quickly customized to meet regulatory requirements across a wide spectrum of applications. Our end to end one stop shop solution is what the customers are looking for. Our SafeKey product is another example of data driven solution winning the marketplace. We have performed exhaustive thermal runaway tests on batteries of all sizes and chemistry in our SafeX product line. The comprehensive test results are presented to US Department of Transportation and also logistic partners like UPS to receive special permits to ship batteries for recycling and other applications. We've also presented these tests and data to fire departments across the country, including San Diego and New York. They're very excited about our SafeKey and how we can help them fight battery fires. We continue to grow our SafeKey's customer base across multiple industries and markets. Customers are excited about the SafeKey because real life test data has shown that it has the highest energy capacity to handle in the industry. Expanded technology is the most effective to mitigate battery thermal runaway. It's been used on international space stations since 2019 and it's reusable, which makes it much more sustainable and cost effective solution compared to our competition. The Koodle Online Marketplace represents a pivotal expansion in Koodle's sales strategy by offering direct order facility that complements our traditional distribution channels. This direct to business and consumer channel is going to help us scale up our product sales more quickly. Apparently, the marketplace offers our SafeKey and SafeSleep products. We've already received orders from fire department and department energy branches throughout the website. We plan to expand our online offerings to include internal short circuit devices, trigger cells, RAT tolerant BMS, Koodle One battery packs, and also rapid engineering design services in the near future. Koodle has spent the last few years creating a portfolio of service and solutions that allow the company to support every aspect of battery life cycle. We have now consolidated the infrastructure to execute our Koodle One Design Solutions services under one roof, all in-house in our new Center of Excellence of Battery Design and Testing in Webster, Texas. This facility is approximately 2.1 miles from Massa Johnson Space Center, and it's next to companies like XCM Space, LIDL's Blue Origin, among many others. It's an ideal location to provide rapid turnaround, real-time VIP style battery design testing to production services to the surrounding ecosystem of aerospace companies. We signed a lease in February of this year, and we are in the midst of finishing up the facility improvements, moving in, and also execute our daily operation at the same time. So a big shout out to my Texas team. Our success story with the NASA RFI program is a perfect example to highlight how Koodle Texas facility is providing rapid turnaround solution to our customers. Within six hours of engagement, the Koodle team was able to provide NASA's RFI team with a solution which successfully passed their testing requirements and get the CubeSat battery space ready. With the Koodle One Design Solutions infrastructure in place, we can provide in-house and custom battery design testing services, analysis and modeling services, abuse testing, down-level categorization and cycling, fabrication, and also production services, all in one shop, all under one roof. In addition to customer support, Koodle Texas is our R&D center to advance our next generation modular Koodle One architecture. It's also our customer innovation center where customers will come in and develop exciting new products next to our engineers under one roof. So I'm super excited about this new facility and how you would drive the future of Kooler and frankly our industry together with our customers. Next, Sean Kenter will provide financial highlights. Sean?

Thanks, Mike. Kooler's financial position is the strongest it's been in over a year. Today, Kooler has over three million dollars in the bank and the prepaid advance note has been fully repaid. You can see the financial results from our first quarter 2024 and our Form 10Q, which is now online. I'll touch on a few highlights. Total revenue in the first quarter of 2024 was 1.8 million. Product revenue was approximately 615,000, down from about 1.6 million. As Mike mentioned, this decrease was substantially due to delayed orders from a customer who placed a large order in the first quarter of 2023 and didn't order in the first quarter of 2024. Further emphasizing Mike's earlier point, due to the sticky nature of our products as certified into our customers products, management expects this customer to continue purchasing from Kooler this year and going forward. Due to the nature of our customer base and the end markets we serve, quarter over quarter comparisons may not always capture the larger trend in the business. As Kooler grows and continues to expand its customer base, any one customer's purchase order timing is likely to have less of an effect on interim, annual, and longer trends. Additionally, some unanticipated delays at government agencies in issuing particular licenses for our safe case products impacted revenue in the first quarter. These licenses have been issued to Kooler and Kooler's sales team is now in market with these products. Kooler services revenue was up 769% in the first quarter over the same quarter last year. As we have previously discussed, service revenue may be seen as a predictor of future product revenue. Gross margin for the first quarter was 29% versus 37% in the same period last year. The decrease primarily stemmed from expenses related to a major project without corresponding revenue in the same period. While the first quarter gross margin related to this particular project was a drag on the overall gross margin for the quarter, the overall gross margin for this project is estimated to be approximately 50%. Overall, management anticipates gross margins returning to historical trends in the upper 30s to low 40s. Switching to customers. The total number of revenue generating customers in the first quarter of 2024 number 34 versus only 15 in the first quarter of 2023. A 127% increase. Q1 2024 versus Q1 2023 revenue generating customers from products through 92% and from services 180%. Touching on expenses. Operating expenses went down in the first quarter compared to the same quarter last year by about 25%. In the first quarter of 2024, Kooler not only reduced its operating expenses, the company continued to reduce its cash consumption. Net cash used in operating activities decreased 18% in the first quarter of 2024 over the same period last year. And net cash used in operating plus investing activities decreased 23% first quarter 2024 over the same quarter in 2023. And finally, earnings per share improved by 33% in the first quarter 2024 compared to Q1 last year. Back to you Stuart.

Okay, thank you for that Sean. Now we are going to transition into our question and answer phase of the call. I want to thank everyone who sent in their questions. We did have a deadline. So unfortunately, if you submitted your questions after 12pm Eastern yesterday, more than likely we were not able to include them, but we did try to grab as many as we could. Without further ado, let's jump into the first question. Here we go. Can we expect major partners to come in and put this company on the map?

Yes, sir. I'll take that. I actually think that we are already on the map with a lot of customers. You know, many of them are very large name brand tier one customers and partners. Some of them we can't publicly talk about, but some of them were under NDA. We can't really talk about it. But what you mean by putting cooler on the map is from a name brand recognition perspective. Let's say, for example, when our safe case is going to be used by, you know, let's say, for example, Apple in their retail store for the Apple Care product, where people can put their iPhone, iPads in there for recycling, or like the Amazon Prime shipment for batteries. So our safe case is in their trucks, where every fire department in the country is going to use our safe case to solve the battery problems. You know, these things will take time, but they could happen over time. But most of our products are built into the customers and products, so they're not so visible from a brand name recognition perspective to the average consumer.

All right, great. Could you provide any insights or updates regarding the status of the partnerships with SpaceX, Blue Origin, Archer Aviation, Beta Technologies, and Wisk Aero, as mentioned by Mr. Moe earlier this year? Understanding the constraints of confidentiality, I should say, and strategic timing, any additional information would be greatly appreciated by shareholders like myself, who are keen to see coolers' continued growth and collaboration within the aerospace industry.

Well, Stuart, in my prepared remarks, I talked about how the cooler Texas facility is very close to all these space industry giants and also the new upcoming private space companies. And so we're serving many of them already with our engineering service. For the e-Vito customers that the question addressed, they're a little bit more spread out geographically. We're working with many of them because all of them care about the same things, you know, battery data, high energy, high power battery cells, and the safest battery possible to pass FAA certification. So our products and services are ideally suited for those industries.

So which leading electrical vehicle and leading electrical vehicle is in quotes, manufacturer, did KULR make a deal with a couple of weeks ago? If you can't answer, why is it kept secret?

Well, we have announced a number of PRs about working with automotive OEMs over the last few months. For example, our safe case used by a leading automotive OEM, FTRC test for world's largest automotive OEM, as well as EV truck and SUV OEM. We can't disclose the name because we're under NDA with these large customers. So you may ask, maybe this question is that if you can't say the name and the dollar man, why put out a PR? The answer is simple. We use PR as a very cost effective way to do product marketing. You know, it costs us a couple hundred bucks to put on the global newswire. And it gets thousands of views from both the newswire distribution, also our social media channels, which have thousands of, you know, following Throughout multiple channels. And sometimes we get picked up by trade media as a story. And so we found these PRs to be a great way to get new customers. You'd be surprised how many times we put a PR, the stories run and we got inbound track for customers and partners. And then, you know, in addition to get these new customers, we also keep our shareholders informed on our progress. So we found this to be super cost effective. You know, and by the way, these large customers, the larger the customer, the least likely they will allow us to disclose your name. And then when we put it out there, and then we also attract other large customers in the market to contact us. And so that's a great way, a very cost effective way for us to do product marketing.

You recently announced that you're moving to a larger facility that's three times bigger than your previous Texas location. Is the previous location being decommissioned? Do you still plan on keeping the California facility or is that being consolidated into a single location down in Texas? Will there be a need for another facility?

Yes, we have decommissioned the previous locations in Texas and we have consolidated all under one roof in the new Webster facility. We still have our San Diego location that's doing a lot of our thermal work. Some of our corporate organization is running out of there. And also battery cell screening line is still in San Diego. So those are the two facilities and we don't have a need for another facility right now.

Can you break down Cooler One, the number of contracts and stages that they are in? We know that most revenue comes in later stages, but it's unclear how many clients are in the pipeline and at what stage they might be in.

Yeah, we haven't broken down the different customers and stages in the kind of detail that the question is asking for. But we actually, we do look at engineering service customer growth and revenue growth as an indication of future product sales growth. So we're focused on customers that have big product sales upside potentials, recurring revenue potentials, and also diversify our product portfolio. Or our product in our customer portfolio to reduce our risk on customer concentration. So when you look at our Q1 performance, we grew our service revenue both in customer size and also in revenue numbers in our new customers for product sales in both the size and the revenue numbers. So I think our strategy is working and we need to continue to execute on those.

You've recently authorized a reverse split, but you haven't announced anything yet. With the recent stock price improvement, do you feel like a reverse split is still needed?

Thanks Stuart, it's Sean. Maybe I'll take that one. Good question. We recently announced that the New York Stock Exchange informed us that we have regained compliance with regards to the level of our share price. As a result, we're under no obligation to do a reverse split. And I guess I'll leave it with we have and we'll continue to work towards our shareholders best interest. Thanks.

Okay, what part of the business are they most excited about, they being you internally at Cooler, regarding growth and potential?

Yeah, I'm very excited about the actually the overall strategy is working. In the different parts of technology, portfolio is driving each other for growth. You know, obviously the FDRC test is growing leaves and bounds. It does driving customer engagements in battery design, contracts with larger customers, and that's driving product sales business for us in both number of customers and revenue growth. Underlying it all is the data that we generate throughout the process that is the glue in the field to the flywheel of our business. You know, everybody talked about proprietary data now and how it can be used for AI applications. So we are building up our treasure trove of proprietary data and we will export that further with potential AI opportunities in the near future.

With Cooler being the only company bringing FDRC to the table, would it be safe to say that all independent companies such as intuitive machines, lunar outpost and Venturi astrolabs that are working on NASA projects are in turn on the books as unnamed Cooler clients for at minimum battery testing purposes?

Well, yes, we have the exclusive license on the large format FDRC test, which that most of the EV energy storage industrial applications, you know, companies that are using this large format. And also we have made significant improvements on the FDRC device in general. And more importantly is the algorithm of the data collection and the analysis based on the original NASA software. Will Walker, our CTO, is the inventor of the FDRC technology. So I think it's safe to say that Cooler will be the leading position to service all these space related customers for our FDRC setup. In addition for these customers to meet the NASA battery pack safety standard, you need your battery cell to be screened by the working instruction 37, which we have the only automated cell screening line in the world to perform that at scale. It also reliably providing the cell screening data. It also then you need to build a battery pack to meet the JSC 20793 specification, you know, which can be served by our Cooler OneSpace architecture like I talked about in the presentation. So, you know, this is where we can start engagement with a customer with the FDRC cell testing and then we can end up with a customer by building them a total solution using our Cooler OneSpace battery platform. With screen cells. This will save customer money and time and it's a win win partnership for both of us.

All right. Does the company believe its competitive advantage is strengthening? If so, what key factors contribute to this?

I think it's definitely strengthening. The key contributing factors are data safety and speed. You know, I, you know, I think I repeat again, again, you know, we are providing our customers with battery cell performance and safety data that they can't get anywhere else, you know, consistently in a broad base the type of data, proprietary data. And we're a safety focused organization. So our team is really focused on doing that and all the design decisions are you know, made around thermal performance and safety. You know, that is a critical decision factor for our customers. And now we have the one stop shop total solution package all under one roof in our Texas facility and they can get their battery design tested and certified in record time. I definitely believe our competitors competitive advantage is strengthening.

Great. All right. Next question. How is the company ensuring timely order deliveries amidst increased volumes to prevent backlogs, ish backlog issues affecting revenue recognition?

Stuart, it's Sean. I think maybe that was a good one for me to take. With respect to revenue recognition, we follow the established accounting rules. Having increasing customer demand is certainly a nice problem to have. Meeting customer timing requests is always critical and something we're very focused on. We're always trying to gain additional efficiencies to do more with the resources we have. For example, responding to customer demand, growing customer demand as a result of being booked out for the next for almost the next couple quarters, we're bringing on two additional FTRC testing machines online. We're also evaluating different programs, for example, where we would offer premium subscriptions or subscription type programs for customers who have particularly time sensitive requirements. Thanks.

So what's the company's future patent application strategy? Any specific areas or technologies targeted for patent protection?

Yeah, so our patent strategy has been very consistent from day one, is that we look to pan core technology and its applications around that core technology. So, for example, our TRS technology, the pan is on how to build it. The internal configurations of it and variations of that and how to use in a system. So I think that that creates the defensive mode around our technology and around our patents. So, as we build out the different pieces of our quote on one platform, we'll continue to pan new innovations in materials, in configurations of these materials and also how these new pieces are used in the application of these technologies. That's our patent strategy.

Okay, well, how does this quarter differ from the previous one in terms of strategic changes and performance goals?

Yeah, you know, then again, our strategy has been fairly consistent throughout. So what might be a little bit different this quarter compared to the previous quarter is that we see the acceleration of growth in our quote on one design solutions business, in both the number of customers and also revenue growth. So we were seeing the flywheel of, you know, testing services contracts, traveling to design contracts, and then driving product sales, new product sales, revenue and so forth. So now we're going to continue to monitor the new customer numbers, focus on customers that have large contracts, recurring revenue and large product sales opportunities going forward.

Regarding the online store, any plans to expand its availability internationally?

Yeah, we just launched our online store, I think, within a month. Frankly, we're just, you know, getting our feet wet and see how we can serve the fire department, hazmat groups and other government agencies, you know, directly and also directly to consumers as well. So there's plenty of business for us when we become successful doing that. Then we'll be looking at international opportunities online. Now, if there are companies interested in doing distribution for us internationally and they see local opportunities, yes, definitely please contact me or our sales at quartertechnology.com. We can definitely have a conversation about how to work together and serve these international markets.

Very good. Final question here. Any plans for future share offerings or sales, especially regarding the debt cancellation with Yorkville? How does this impact the company's financial strategy?

Stuart, it's Sean again. I'll take that one. Cooler has a standing company policy of not talking about potential or future strategic activities. I can say that management thinks the repayment of the Yorkville prepaid advance note strengthened our balance sheet substantially. Regarding our strategy, I'm not sure anything has really changed. The principles we're focused on are keep working to meet the growing customer demands in a growing market and that should address revenue trajectory. Keep a watchful eye out to thoughtfully reduce costs and gain efficiencies where we can. Don't be wasteful. Don't be penny wise and pound foolish and always be ready to take advantage of opportunities when they present themselves. They will present themselves. It's just hard to predict exactly when, so we need to be ready. Strengthening our balance sheet, for example, moves us in that direction and I'd like to think makes Cooler more attractive for opportunities to present themselves more often to us. Thanks.

Alright, as mentioned, that was our final question and that does conclude the call today. I will now turn the call back over to our operator Thomas to finish up the call. Thank you.

Thank you everyone. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.