KULR Technology Group, Inc. (KULR) Q3 2021 Earnings Call Transcript

Welcome and thank you for joining us for the KULR Technology Group Incorporated November 2021 Shareholder Update Call and Discussion of the Third Quarter 2021 Financial Results. KULR Technology Group is a publicly traded company listed on the New York Stock Exchange under the ticker symbol KULR. Therefore, it is important that I start this call with a reading of the Safe Harbor statement covering this call. Now this call does not constitute an offer to sell or a solicitation of offers to buy any securities of any entity. This call may contain certain forward-looking statements based on the company's current expectations, forecasts, and assumptions that involve risks and uncertainties. Forward-looking statements made on this call are based on the information available to KULR Technology Group as of the date hereof. The company's actual results may differ materially from those stated or implied in such forward-looking statements due to risks and uncertainties associated with the company's business, which include risk factors disclosed in the company's Form 10-K filed with the Securities and Exchange Commission on March 19, 2021. Forward-looking statements include statements regarding the company's expectations, beliefs, intentions, or strategies regarding the future, and can be identified by forward-looking words, such as anticipate, believe, could, estimate, expect, intent, may, should, and would, or similar words. All forecasts provided by management on this call are based on information available at this time. And management expects that internal projections and expectations may change over time. In addition, any forecast made is entirely on management's best estimate of their future financial performance, given their current contracts, the current backlog of opportunities and conversations with new and existing customers about the company's products and services. KULR Technology Group assumes no obligation to update the information included in this call, whether as a result of new information, future events, or otherwise. Now today's call will consist of opening statements from management followed by a Q&A session, where management addresses questions that were emailed in from shareholders and other interested parties and finally closing statements. I'm Stuart Smith, your host and moderator for the call today. And I am honored to be joined by Michael Mo, Chief Executive Officer of KULR; Keith Cochran, President and COO of KULR; and Simon Westbrook, CFO for KULR. I will now turn the call over to Michael Mo. Michael, the call is yours.

Hey, thank you so much, Stuart. This is Michael Mo, and thanks to everybody’s time today to join our Q3 2021 shareholder investor update call. For today's call, I’ll first talk about our Q3 business highlights and provide updates on recent developments. Keith Cochran will provide operational updates. Simon Westbrook will then talk about financial highlights for Q3, and then we'll have a Q&A session as we conclude our call today. I am very pleased to report that KULR’s Q3 revenue increased by over 300% year-over-year, as we continue to make significant investments and execute our business strategy. Our gross margin was 74%, which is a function of favorable product mix for the quarter. This is really an important and exciting quarter for all of us at KULR, not only because of the financial figures but also the validation of our long-term strategy and the execution that's delivering a solid foundation for future growth. Since our inception, KULR’s long-term strategy has been to co-develop cutting-edge thermal management technologies alongside NASA, the U.S. Department of Energy, and the U.S. Department of Defense, prime contractors while working closely with regulatory agencies and international testing organizations. Our intent was to incorporate these technologies into regulatory roadmaps and also mass market applications. As we deployed these technologies into mass markets, such as energy storage and electric transportation, we look to leverage our IP across multiple verticals and capitalize on multiple revenue streams to accelerate our revenue growth. Our battery safe case is a perfect example of how that strategy is showing signs of success. This technology was tested by NASA and has been used on the International Space Station to keep the astronauts’ laptop and tablet battery safe from battery thermal runaway propagation since 2019. Then we worked with the U.S. Department of Transportation to provide safety testing data of protecting commercial batteries up to 2.1 kilowatt-hours in energy capacity. With that work, we received DOT special permits for recycling, used DDR, and prototype batteries to be transported by ground, rail, boat, and air in Q3 of 2021. This has been a long process, and we got it done. We believe that the KULR-Tech Safe Case is the only solution in the market that has all these permits and capabilities. Now we are taking this space-proven technology with DOT special permits into the commercial world. KULR partnered with Heritage Battery Recycling to provide safe transportation of battery collection operations across North America. Heritage Battery Recycling has over 100,000 customer locations, 2,500 employees, and a fleet of over 1,300 power units in over 100 facility locations. They recently merged with Retriev Technologies to become the largest lithium-ion battery recycler in North America. We are very excited about this partnership. KULR also joined Clarios and the U.S. Department of Energy in a lithium-ion battery lifecycle initiative to develop the manufacturing and the reuse of lithium-ion batteries and their chemical elements in the United States. Clarios is the largest lead-acid battery maker in the U.S. In this project, KULR will provide safe transportation of lithium-ion batteries within the full battery management life cycle from manufacturing through recycling and through reuse. Our goal is to provide a total battery safety solution for more efficient battery systems, to increase sustainability, and analyze battery management, making KULR a key technology provider in the migration to the global circular economy. In addition to the KULR-Tech Safe Case product, we continue to make significant strides in our other products and developments. We announced CellCheck product during our Battery Solutions Day on September 21. We're very excited about this project and this product as we believe it to be the smartest AI-powered battery management system of its kind, integrated with our thermal management technologies. This is another significant step for us to position KULR as the one-stop shop and total solution provider for battery thermal energy and safety management. Keith will give you some more updates later on. At the Battery Solutions Day, we also shared with you that we started a research and development initiative using carbon fiber structures to produce battery cells with higher energy density and faster charging capabilities. We believe fast charging would be the killer app for the next generation batteries. Right now overheating is a key limiting factor in advancing fast charging technology. We'll be developing and testing new battery architecture with a carbon fiber matrix that can improve thermal performance and also make thicker cathode structures with higher loading factors, and also anode structures with silicon and lithium metal. We want this architecture to work with existing lithium-ion battery chemistries as well as solid-state electrolytes. This is a long-term strategic development for KULR that we expect to share more performance and testing data with you in early 2022. Another very exciting development that we're working on is to apply our advanced carbon fiber solution that was developed for the hypersonic program to high-performance computing applications. Our team worked on the X-51 hypersonic vehicle with a liquid cooling thermal management system utilizing our proprietary carbon fiber matrix. Now we're working on applying that technology to cost-effectively cool high-power computer chips for applications such as cloud computing, AI, virtual reality simulations, or as someone would call it the metaverse, and crypto mining applications. The key is to take away the heat more efficiently from the chip to the liquid or air, and therefore allowing the chip to run faster without overheating or to consume less energy with the same amount of processing problem. This will allow servers and data centers to run more efficiently, sustainably, and profitably. We look forward to sharing more updates with you in the near future. On the capital market side, there were also some significant events during Q3. For instance, on July 9, KULR celebrated its uplifting to the NYSE American exchange by ringing the closing bell at the New York Stock Exchange. That was a very exciting day for all of us. In October and November, KULR received approximately $6.5 million in cash from the exercise of warrants to purchase an aggregate of 2.6 million shares, which was part of our May 2021 financing. Combined with our approximately $11 million cash position at the end of Q3 and with no debt, KULR is in its strongest financial position in its history. On November 17, options started trading on KULR on the NYSE American options. And we are also honored to have Vanguard Funds now as our largest institutional shareholder with approximately 3% ownership. We're thrilled and honored to have them as one of our largest shareholders alongside other institutional shareholders, such as State Street, Northern Trust, and Charles Schwab. We've come a long way since our OTCQB days, but we feel that we're just getting started on our mission. Speaking of just getting started, Keith Cochran will give an update on the growth of our team, our new facility, and the development of new programs. Keith, please.

Hello, everyone. And thanks for attending the call today. We appreciate that. It was my pleasure to share with you the following highlights related to operations and product development. KULR has completed the transition to our new, larger Shawline facility with all operations now closed at Nancy Ridge. Our labs, machine shop, and materials processing and manufacturing are fully operational and running as normal. We are preparing the factory floor and increasing our power services to accommodate the launch of our strategic battery reserve, automated testing machinery, which will be installed and certified in Q1. We are anticipating being fully operational in Q2. As noted in our financials, we're also making the necessary investments in SG&A needed to safely and efficiently support our significant anticipated growth. We have added engineering, quality, product development, and sales support in Q3 to accommodate the upcoming product and service demands. We have also increased our IT infrastructure with third-party support to greatly reduce our exposure to cybersecurity threats. To date, we've been able to attract an extremely talented and passionate team. We're very eager to support our vision for KULR. Our current headcount has tripled since the beginning of the year to support the product development and rollout of our new platforms to be delivered in the first half of 2022. And as Michael shared, KULR announced its CellCheck at our Battery Solutions Day event, as we believe this to be a revolutionary platform that provides significant improvements in battery management and safety. KULR will provide a live demonstration of CellCheck at the upcoming advanced automotive battery conference on December 7 in San Diego, California, and we encourage you to attend or watch the live stream. Also, if you missed Battery Solutions Day, please check out a recorded event on our website for further details.

Thanks, Keith. So we generated revenues of just over $600,000 in the third quarter ended September 30 this year. This was an increase of 339% compared with revenues of $137,000 we reported in the same period last year. The increase in revenue was mainly due to increased sales of KULR products and two large new contracts. These results reflect management's continuing efforts to develop new and existing customer relationships. On the SG&A expenses front, SG&A increased to $3.1 million in the third quarter of this year from $830,000 in the corresponding prior year period. The increase of 273% was primarily due to an increase in stock-based compensation expense, marketing and advertising expenses, consulting fees, travel expenses, following the end of COVID restrictions, and other miscellaneous expenses. In the R&D level, our expenses in the third quarter of 2021 increased by 830% from $52,000 last year to $482,000 this year. We have significantly increased our R&D spending to accelerate our product developments. Our loss from operations came to $3.1 million for the third quarter of this year, compared to $811,000 for the comparable period of 2020. And net loss for the third quarter of 2021 increased to $3.1 million compared to a net loss of $1 million in the comparable period of 2020. Our net loss per share for the third quarter of this year was $0.03 as compared to $0.01 for the comparable period last year. The comparison was impacted by higher SG&A expenses, partially offset by the favorable impact of our increase in revenues. Looking at our cash position at September 30 this year, we had cash balances of $11 million compared with $8.9 million at December 31, 2020. KULR received approximately $6.5 million of cash in the months of October and November from the exercise of warrants to purchase an aggregate of 2.6 million shares, which is part of our financing from May of last year. This funding leaves KULR very well positioned to expand our operations, support new business growth, and fund ongoing product development initiatives.

Thank you, Simon. Stuart, now we're open for questions.

Yes, thanks, Stuart. I appreciate the question. The most aggressive estimates for solid-state batteries to begin being commercialized for sale appear to be about 2025, 2026 timeframe, and even then lithium-ion batteries will have a significant cost advantage. Therefore, we anticipate large EV platforms to be the early adopters that offer the technology itself as a premium alternative to lithium-ion. We also anticipate the transition period to be pretty lengthy from lithium-ion batteries to solid state. Therefore, we don't really anticipate any negative impact to the KULR family and KULR products, and right now we don't have any products that deploy into the solid-state cells. However, we are certainly looking closely at applications to be able to use our current technology and development platforms in solid-state battery production. Yes. Well, that's a great question. Thank you. We certainly have studied this internally. So the projection of lithium-ion battery recycling is roughly about $4.6 billion for 2021, and I believe the estimated number is to reach about $23 billion in 2030. So obviously, it's a huge market, and where KULR participates today is in the transportation and the storage of cells and battery packs up to 2.1 kilowatt-hours that are recycled, damaged, defective, recalled, or end of life. Based on our internal studies, we estimate that the total available market for our current solutions to be roughly $150 million in 2021, and it should rise to about $575 million by 2030. However, I do want to stress that this is our internal estimate based on the data published in the market and reviews we have done with our partners. We have not done an industry study yet that definitively confirms the total available market to this granular level. Hope that answers your question. Yes. Okay. I'll give you a little update on that. And thanks for the question. The business combination resulting from Heritage Environmental acquiring Retriev and keeping the name for their lithium-ion battery recycling has actually increased the number of opportunities we're pursuing together. This is based on existing contracts Retriev had with customers and the market pool for a full lifecycle solution within Retriev that goes from pickup through recycling and then back to the cell manufacturer as raw materials. We are piloting now with multiple customers in the partnership and we'll keep everybody apprised as this goes to hopefully into production in early 2022.

Yes. Thanks for that question. To date, we have not issued any formal guidance but we do expect in 2022 to start issuing guidance as we gain more momentum and backlog in our business. So please stay tuned.

Yes. Thanks, Stuart. Well, I would tell you that historically it has probably been true that there's been a greater focus on battery recycling in Europe compared to the United States. However, I do feel the focus in the United States is seriously picking up with various states, such as California, New York, Maine, and the District of Columbia, which are all proposing strict requirements on the collection and recycling of lithium batteries. At the federal level, you have the EPA and Department of Energy that are promoting policies and regulations. For example, I know the EPA recently released its 2021 national recycling strategy and that strategy is intended to address major recycling challenges to create a stronger, more resilient, cost-effective solid waste recycling system. Additionally, you have the Department of Energy, which announced the lithium-ion battery recycling prize intended to focus on new ways to recycle lithium-ion batteries used in various applications. And I don't want to leave out that the lithium battery recycling industry is heavily investing in capabilities to meet the forecasted $1.4 million lithium-ion battery market in 2028, including our partners such as Heritage and Retriev. Well, that one is quite difficult for KULR to answer as we have a very diverse offering of products and engineering services. We also try to target voids we see in markets that we participate in, such that there are very limited to no competitors and that we have a solution that is very unique for KULR. For example, our battery cell screening automation and our special permit safe tech cases at 2.1 kilowatt-hours are quite unique. We're not going after commodity markets. We tend to focus on higher-margin plays where, again, to be frank, we're the only game in town. So some of those are mass markets for sure. But we're very differentiated in those markets.

Yes. So, a great question. We look at solving that problem is to improve the cooling for these high-power computing applications. So the key is to take away the heat more efficiently from the chip to the liquid, whether it's emerging cooling or to the air, and therefore allowing the chip to run faster without overheating, or you can consume less energy with the same processing power. So that will allow the server and data center to run more efficiently, sustainably, and profitably. The incentive to switch is driven by lowering the operating cost, which is achieved by less energy consumption for cooling and faster performance, which is achieved by running the chip faster and therefore being more profitable. So for crypto mining, the faster you can run a chip, the faster you can mine cryptocurrencies, which makes it more profitable. We're developing this platform independently of chipsets and vendors. So we're developing this on our own and across multiple platforms, across multiple chip vendors, and across multiple mediums, both liquid-cooled and air-cooled. Hope that answers the question. Well, I'd like to thank everyone for your time today. Thank you to all of our shareholders, investors, especially those who have been with us since our OTC days. We sincerely appreciate your support and faith in KULR. We are in a solid financial position to make significant investments in our people, infrastructure, and technology product development roadmap. We believe we are building a great foundation to accelerate our growth in the coming years. So have a wonderful holiday season, and thank you so much.

Thank you for everyone joining us today on the KULR call. We look forward to more of your questions sent in the future, and I'd like to thank Keith, Simon, and Michael, and as Michael said, happy holidays to everyone.