KULR Technology Group, Inc.

Welcome everyone to the Cooler Technology Group second quarter 2024 earnings call. Cooler Technology Group is traded on the New York Stock Exchange under the ticker symbol KULR. In just a moment, I will be joined by the CEO of the company, Michael Moe, as well as by the CFO of the company, Sean Cantor. As usual, like the calls in the past, today's call will cover opening comments from both Michael Moe and Sean Cantor, and then it will be followed by a Q&A session where the company representatives will answer questions that were emailed in to the company for this call. Now, before we get started on the call, we do need to cover the safe harbor statements. This call does not constitute an offer to sell or 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 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 their Form 10-K statement with the Securities and Exchange Commission on April 12, 2024, as may be amended or supplemented by other reports the company files with the Securities and Exchange Commission from time to time. Forward-looking statements include statements regarding their expectations, beliefs, intentions, or strategies regarding the future and can be identified by forward-looking statements such as anticipate, believe, could, estimate, expect, intend, may, should, and would, or similar words. All forecasts are provided by management made on this call are based on the information available to them 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 their future financial performance given their current contracts, current backlog of opportunities with conversations ongoing, and conversations with new and existing customers about their products and services. The company assumes no obligation to update the information included on this call, whether as a result of new information, future events, or otherwise. With that, I'll turn over the call to Michael Moe. Michael, the call is yours.

Thank you, Stuart. This is Michael Moe. Thanks to everyone for joining us today. I'd like to go over some of the financial and operational highlights with In Q2 2024, we achieved revenue of $2.43 million, up 39% sequentially from Q1. Engineering service revenue increased 76% year-over-year to approximately $1.3 million, a record for Cooler. Total paying customer number increased 42% year-over-year to 27. Service revenue customer increased 100% year-over-year to 14, and product revenue customer increased 25% year-over-year to 15%. In Q2, Cooler makes significant investments to enhance the capabilities and talent within our battery center of excellence located in Webster, Texas. These investments are critical to our goal of driving revenue growth by providing comprehensive in-house product and service solutions that spend the entire lifecycle of battery design, testing, prototyping, and volume production all under one roof. I believe we are well positioned to resume year-over-year revenue growth in the second half of 2024 with our new customer wins. During this quarter, we moved into our new state-of-the-art 17,500 square foot facility. This expanded space was designed specifically to meet the growing demands of our battery design and testing contracts, supporting key industries such as aerospace, defense, electric mobility, and space exploration. This space is approximately 2.1 miles from NASA Johnson Space Center and is next to companies like Axiom Space, Leidos, Blue Origin, and many others. It's an ideal location to provide the one-stop shop for rapid turnaround design, testing, and production service to the surrounding ecosystem of aerospace customers. We now have vast majority of our battery engineering team in Webster, Texas to perform three key functions. Battery cell impact level testing, battery design and analysis, and battery production and engineering services. Our battery design testing capabilities are a key factor in establishing credibility in understanding and mitigating thermal runaway and lithium-ion batteries. We have accumulated extensive data on various cell chemistries, formats, and the reaction to different triggers. This growing data set directly informs ongoing improvements to the CoolerOne architecture. The impact of this work is already evident in this quarter as we secured a contract from top Japanese automaker for testing and analysis of high energy battery cells for the next generation electric vehicles. Once we complete our quarter Texas facility filled out by the end of Q3, we estimate our testing service capacity at approximately $2 million per quarter. These services include the NASA NASA's award-winning FGRC test, as well as various cell impact level abuse thermal runaway tests. These are high margin services that leads us to design better and safer batteries for our customers. Our battery design and analysis capabilities are a key differentiator. We assemble a team of seasoned design experts complemented by advanced computer modeling, and analysis tools allows us to deliver cutting-edge solutions in this critical area. In addition to our proprietary products and components such as thermal runaway shield and ISC trigger cells, we continue to provide and develop new technologies for thermal runaway cell body heating protection and ejecta mitigation. At the system level, We have developed Cooler's own radiation-tolerant battery management system for our space exploration customers. We're incorporating all these capabilities into the design analysis process to build a more robust Cooler One Space, Cooler One Guardian, and Cooler One Air batteries. In Q2, we also expanded our battery production capabilities. Being a one-stop shop for quote-unquote space and quote-unquote guardian customers is a big competitive advantage for us as these customers require speed and quality. We enhance our infrastructure by integrating our expert fabrication and sampling teams with on-site precision machine, which allows us to scale production quickly and efficiently. As you know, our service revenue is an early indication of potential product revenue. As we achieve record engineering service revenue for Q2, we're preparing for these service customers to go into prototype and production build in the near future. This is why we have been carefully and strategically investing in our production capabilities to bring one-stop shop service to our customers. A big driver for our service revenue and our motivation to invest in these capabilities is the cooler one-space market opportunities. The space economy is going to be $1.8 trillion by 2035, according to McKinsey. This is driven by commoditization of the space industry. The space battery market is estimated to grow to $6.35 billion by 2030. We expect our core-to-one space platform to play an important role in this market. Some of the key players in driving this tremendous growth in the space economy include the rapidly growing private companies such as SpaceX of new origin, continued growth of the traditional government prime contractors such as Boeing, Northrop Grumman, and new and upcoming companies like Voyager Space, Axiom Invest. Many of these are already cooler customers. During Q2, we made significant investments in the technology readiness level of our cooler one space battery architecture. which is already being utilized by Voyager Space and other partners for the upcoming missions. The Kula-1 space architecture is a scannable, safety-first battery design, developed with the goal of achieving NASA JSC 20793 certification for human spaceflight applications. Our efforts in Q2 also focus on commercialization of the Q1 space architecture to meet the specific mission requirements of the CubeSat and SmallSat industries. The first off-the-shelf commercial version of the Q1 space is a 200-watt-hour version that will be available in fall of 2024. This off-the-shelf solution is engineered to deliver an optimum balance of performance, quality, safety, and cost advantage positioning as the industry leader. These developments underscore our commitment to provide advanced battery solutions to meet the rigorous demand of this space exploration market and beyond. Next to Codavive. In addition to the traditional helicopter and drone delivery markets, we see good opportunity to apply Codavive to computer server fans and industrial fan applications. If AI demands exponentially more computing power and energy consumption, so does the need for cooling with both air and liquid thermal systems. For air cooling, fan performance is critical to drive enough airflow to cool the latest AI GPUs. Fan performance is limited by the vibration and rotor speed. By removing vibration, Cooler Vive can make fans run at higher speed with less energy, less noise, and generate more airflow, therefore providing more cooling to the AI chips. According to Morgan Stanley, the liquid cooling system for NVIDIA's GB200 Blackwell high-end rack costs more than $80,000, about 15 to 20 times the cost of an air cooling system for an existing rack of NVIDIA H100 chips. More than 95% of the current data centers use air cooling because of its maturity and reliability. There lies our opportunity. We're working on fans used by Facebook's Open Compute project servers. We're also working on higher speed fans that can be used to cool the highest performance AI servers. We expect to report performance results in new customers in the second half of 2024. Next, Sean Cantor will go over financial highlights. Sean?

Thanks, Mike. Our Form 10-Q for the second quarter of 2024 is now available online. Please refer to it for more details. I'd like to highlight three themes that we are focused on. One, growing revenue and relevant KPIs. Two, spending less cash. And three, stronger balance sheet. This slide shows key cooler full-year annual growth trends from 2021 to 2023. Total revenue up over 300%. Product revenue up over 360%. Service revenue up almost 220%. Paying customers up 165%. Revenue per customer up 54%. Huler is a growing business. Here's the trailing 12-month revenue chart starting from the first quarter of 2021. As you can see, growth doesn't always happen in a straight line. When you get a perspective, You can see the growth trend. Trailing 12 months revenue since the first quarter of 2021 is up almost 900% through the second quarter of 2024. Going from a broader perspective, now let's zoom in. Second quarter versus the first quarter of 2024, revenue is up 39%. Cooler is using less cash. Comparing the six months ending June 2023 and 2024, cash used from operating activities is down 7%. Cash used in investing activities is down 82%. For a combined cash use reduction of 13%. Cooler's balance sheet. Comparing the end of 2023 to the end of June 2024, cash plus accounts receivable up 40%. Liabilities, down 42%. Cooler's balance sheet is getting stronger. Back to you, Stuart.

All right, thank you for that. Now let's move on to the question and answer portion of the call. Here is the first question submitted by one of your shareholders. Regarding bills HR 1797 and S.1008, setting consumer standards for Lithium Ion Batteries Act and with Representative Richie Torres as the sponsor, it seems like Cooler fits perfectly to be the leading candidate for this bill. Can you give us any information regarding this bill and whether Cooler is a top candidate? Also, is Cooler building the new cathode for Tesla in the Cybertruck? So a detailed question right there. I'll put it to both of you and see who wants to answer it.

All right, Stuart, I'll take that. Yeah, this is Michael Moe. We have engaged with various stakeholders in this area, including our departments, hazmat teams, local officials, and national organizations offering our expertise on thermal runaway mitigation. So our small student challenge has been multifaceted. We provide 10 key packs, battery packs, to build in thermal runaway protection, assist other battery design teams in ensuring their designs are safe from propagation, for safe case as a solution for safe storing and transportation of batteries. So regardless of their starting points. It's crucial for first responders, as well as customers in automotive, aviation, defense, and aerospace sectors who prioritize safety. We hope this legislation continues its efforts, which specific details have not been fully released yet, as far as we know. And also can comment on the new capital development for the Tesla cyber application.

Okay, I just want to clarify that last part. There was just a little bit of interference, and you said you cannot or you can comment on the new cathode.

Cannot. Cannot.

Understood. Understood. Okay, great. Let's move on to the next question. Over the last year, we haven't heard much about Cooler Vibe. As this is a software-based solution, it would seem like a low-cost way for companies to save money and cooler to generate revenue. Why hasn't Cooler found more success here, and can you demonstrate actual cost savings to present to potential clients? Thinking in terms of energy saved to run a data center, fan, or fuel saved to fly a helicopter, as a couple of examples, if I can spend $5 to save $10, I'm probably going to do that running a business. The use cases here seem very large.

So I'll take that as well. So we see good opportunity to apply CoolerVive to server fans and industrial applications. So by removing vibration, the fan can run at higher speed with less energy, less noise, and more airflow, and therefore providing more cooling to the chips. We're now working on fans used by Facebook's OCP, which is an open compute project servers. We're also working on higher speed fans that are used to cool high-performance AI servers. So we hope to report results on the testing, also new customers in the second half of 2025. Oh, sorry, 2024.

Okay, great. Thank you for that, Michael. All right, so Cooler is a small company, and thus expanding manufacturing capacity of its product seems like a costly way to grow its business. Licensing your technology to OEMs seems like the best way to grow revenue. How does this fit into your strategy going forward?

So, Stuart, being a one-stop shop for our Quantum of Space and Quantum of Guardian customer is a big competitive advantage for us. That's why we're investing in all the technical capabilities in our Texas facility, especially for large and important customers. being fast in Agile is very important to them. So a cooler frequently leverage with these companies and government groups that have their own design, battery design capabilities. In these cases, Cooler becomes a trusted partner for them for rapid testing and prototype, which gives Cooler's expertise to new departments and also their next generation designs. So with Entryway, we explore additional Cooler offerings that complement their current design and also help them to accelerate their time to market. So it's very important for us.

All right, next question. Can we expect Cooler to announce its automotive partnership soon? If not, why and what happened? If so, then when?

Yeah, EV, I think we've stated before, the EV market is not a focus area for us for Cooler One batteries because of its long lead time and also low margin. However, we are serving many of the automotive events with our battery testing and safe case technology. So these are good business for us with high margins and good growth. We'll continue to serve the automotive market with these products and services.

All right. Next question then. What are the plans to reverse the decline in stock value that started over three years ago when the stock price reached $3.60 per share?

I'll take that one, Stuart. It's Sean. It's an interesting question, and maybe to answer it, I'll start with a little bit of history. Cooler first traded on the New York Stock Exchange American in June 2021, a little over three years ago. Since then, the high closing price for Cooler stock was $3.53, and that was in November 2021. In calendar year 2021, Cooler generated about $2.5 million of revenue. In 2022, about $4 million of revenue, and in 2023, about $10 million of revenue. So from 2021 to 2023, that's about a 300% growth in annual revenue. The markets cooler serves have only grown since 2021. The demands for more energy-intense batteries have only grown across the various segments that cooler serves, like space, military, industrial, Electric vehicles, electric planes, electric drones. From an operational point of view, I think Cooler's in the best position it's ever been in. You know, look, stocks go up and down for any number of reasons. I won't pretend to be able to predict the future. Management thinks Cooler is in the best operational performance and customer satisfaction position it's ever been in. When does the stock price reflect that? I don't know. I would guess though that when it does, it'll reflect a similar trend.

All right, very good. Thank you for that, Sean. So next question, will cooler management use cash via equity funding or borrowing from the bank to fund ongoing operations of the company until the end of the year?

Why don't I take this one, Mike? As I highlighted in my prepared remarks, Cooler's balance sheet is getting stronger. We evaluate funding needs and opportunities through the lens of what serves Cooler's operating requirements and keeps Cooler on this trend of a stronger balance sheet. That's good for operations. It balances risk. And ultimately, those things are good for shareholders.

All right. So here's the next question. Can the company speak to its outreach to vehicle manufacturers? If the products are so great, why are they not the industry standard?

Yes, Stuart. Being an industry standard takes a long time and it's hard. We are serving automotive customers with our battery testing and safe case technology, which we hope will become de facto standards over time. And these engagements allow Cooler to sell more products and services to our Tier 1 automotive customers.

Next question. How does Cooler expect the future mass production of solid-state batteries to impact the business?

Yes, we are testing batteries of all chemistries and sizes for customers. So as more solid state batteries come to the market, we expect to do the same and also design them into a quarter one battery platform. So it should be a positive impact to our future growth.

Okay, next question. In the Q1 earnings report, Cooler listed 34 customers. Understanding the constraints of NDAs, non-disclosure agreements, can you share any customer names that we might not already know about? Additionally, please expand on any new customer engagements that might interest investors.

Yeah, so as we shared in our prepared work, that we continue to grow our customer base, which is up 50% year over year this quarter. Many of them are some of the largest OEMs in the world, and we're working with them on the next generation product platforms. So it's important that we keep their confidentiality, and then also do our best to speed their product development. And these developments are across space applications, common applications, energy storage applications. So it's a very exciting time right now.

Okay. Thank you for that. Next question. How does the war in Europe and the Middle East impact the revenue of cooler?

I'll take this one, Mike. So far, we haven't seen any negative impacts to our pipeline or supply chain that I'm aware of. We'll certainly continue to monitor what's going on and adapt accordingly. Our work with drone manufacturers regarding both batteries and vibration control may be implicated by what's going on in the world, of course. As drones and artificial intelligence-based mobile systems become more commonplace, the need for high-powered, safer batteries and vibration control would seem to be growing. In fact, you might remember, Stuart, that this was referenced in a cooler press release, I think it was back in April, about the Ukraine.

Yeah, I do remember, and thanks for pointing that out, Sean. And here comes the next question then. In the Q1 earnings call, Cooler had a slide that listed private space stations in relation to the Cooler One space product. Can you provide any details or is there anything that you can share on current or future space station projects?

Yes, Stuart. We have customers designing private space stations with our battery technology. As a matter of fact, I think that different governments now are trying to do their own space stations and then subcontract that to private companies to do this. So we see many more applications actually in the space economy ecosystem. to use it for one space, which is the space economy ecosystem is forecast to be $1.8 trillion. This is definitely a new market, and it's growing very, very quickly. So we see huge opportunity in this.

All right, you guys will have to forgive my naivete here on this. That's from the shareholder. They wanted to preface their question with that, and they say, but can I see after reviewing the website? But I can see after reviewing the website that cooler products can be used in storage and transportation of batteries. But can the company's products be used on batteries that are operating, such as in cars that are in use? If so, can this help prevent car fires?

I think this question from this shareholder is about the safe case application for battery storage and transportation. Yes, they are used to store batteries during production, during the storage, the shipping, and the recycling lifecycle of the battery. We are expanding the safe case application with fire departments and hazmat professionals around the country. So you'll see more and more of these adoptions of the technology across multiple battery applications.

Let's see, we have about two more questions here. So here's the second to last question. While investors have come to understand in general that you cannot disclose the company and contract values for most EV companies under NDA, there has been a lot of news about EV news released in the last couple of years. This has led to speculation among retail investors about who Cooler is working with. Can you give us the tiniest taste of excitement by telling us the number of automakers you are working with

So let me recap some of these customer engagements. I think we talked about top automotive OEM in the world. So that would be Japanese and German automotive OEMs. So talked about the number one automaker in the U.S. And we talked about the number one electric SUV maker in the U.S. So that kind of recap should give our shareholders some idea about who we're working with.

So here is Our final question has to do with something Sean Cantor mentioned. Here's the question. Sean Cantor mentioned in November 2023 YouTube interview that the service business can be seen as foreshadowing future product sales opportunities. Can you share any specific examples from Q2 where service business engagements have led to or are expected to lead to future product sales?

I think this one already has my name on it. We are starting to ship sample cooler one space batteries and cells to customers. These are the results of our design service engagements with customers throughout 2023 and through the first part of 2024. We expect to see more of that in the second half of 2024 and to ramp up in 2025 since these programs usually take about 12 to 18 months of lead time to get to production. Thanks.

Well, excellent. That was the final question. I know I speak on behalf of both my guests today, Michael Moe and Sean Cantor, and expressing our gratitude for the shareholders and interested parties for sending in their questions. I will now turn the call back over to our operator to close out the call.

Thank you. This does conclude today's conference call and webcast. You may disconnect at this time and have a wonderful day. Thank you for your participation.