KULR - AMEX

Welcome, everyone, to the KULR Technology Group Second Quarter 2024 Earnings Call. KULR Technology Group is traded on the New York Stock Exchange under the ticker symbol KULR. In just a moment, I’ll be joined by the CEO of the company, Michael Mo, as well as by the CFO of the company, Shawn Canter. As usual, like the calls in the past, today's call will cover opening comments from both Michael Mo and Shawn Canter, and then it will be followed by a Q&A session where the company representatives will answer questions that were e-mailed 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 filed 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 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 -- 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 will turn over the call to Michael Mo. Michael, the call is yours.

Thank you Stuart. This is Michael Mo. Thanks to everyone for joining us today. I'd like to go over some of the financial and operational highlights here. 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 KULR. 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, KULR made 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 span the entire life cycle 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-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 is 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 a vast majority of our battery engineering team in Webster, Texas to perform three key functions, battery cell and pack-level testing, battery design and analysis, and battery production and engineering services. Our battery design testing capabilities are a key factor in establishing our credibility in understanding and mitigating thermal runaway in lithium-ion batteries. We have accumulated extensive data on various cell chemistries, formats and their reaction to different triggers. This growing data set directly informs ongoing improvements to the KULR ONE architecture. The impact of this work is already evident in this quarter, as we secured a contract from a top Japanese automaker for testing analysis of high-energy battery cells for the next generation electric vehicles. Once we complete our KULR Texas facility built out by the end of Q3, we estimate our testing service capacity at approximately $2 million per quarter. These services include the NASA’s award-winning FGRC test, as well as various stealth 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 assembled a team of seasoned design experts complemented by advanced computer modeling and analysis tools allows 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 KULR’s own radiation-tolerant battery management system for our space exploration customers. We’re incorporating all these capabilities into design analysis process to build a more robust KULR ONE Space, KULR ONE Guardian, and KULR ONE Air batteries. In Q2, we also expanded our battery production capabilities. Being a one-stop shop for our KULR ONE Space and KULR ONE Guardian customers is a big competitive advantage for us as these customers require speed and quality. We enhanced our infrastructure by integrating our expert fabrication and assembling teams with on-site precision machining, 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 achieved 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 KULR ONE Space market opportunity. The space economy is going to be $1.8 trillion dollars 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 KULR 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 and Blue Origin, continued growth of the traditional government flying contractors, such as Boeing and Northrop Grumman, and new and upcoming companies like Voyager Space, Axiom, and Vast. Many of these are already KULR customers. During Q2, we made significant investments in the technology readiness level of our KULR ONE Space battery architecture, which is already been utilized by Voyager Space and other partners for their upcoming missions. The KULR ONE Space architecture is a scalable 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 KULR ONE Space architecture to meet the specific mission requirements of the CubeSat and SmallSat industries. The first off-the-shelf commercial version of the KULR ONE 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 the space of exploration market and beyond. Next to KULR Vibe, in addition to the traditional helicopter and drone delivery markets, we see good opportunity to apply KULR Vibe to computer server fans, and industrial fan applications. As AI demand 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, KULR Vibe can make bandwidth 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 are working on fans used by Facebook’s Open Compute Project servers. We are also working on higher-speed fans that can be used to cool the highest performance AI servers. We expect to report performance results and new customers in second half of 2024. Next, Shawn Canter will go over financial highlights. Shawn?

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 KULR 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%. KULR 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 us zoom in. Second quarter versus the first quarter of 2024 revenue was up 39%. KULR’s 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%. KULR’s balance sheet, comparing the end of 2023 to the end of June 2024, cash plus accounts receivable up 40%. Liabilities down 42%. KULR’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 H.R. 1797 and S.1008 Setting Consumer Standards for Lithium-Ion Batteries Act and with Representative Ritchie Torres as the sponsor, it seems like KULR fits perfectly to be the leading candidate for this bill. Can you give us any information regarding this bill and whether KULR is a top candidate? Also, is KULR building the new cathode for Tesla in the Cybertruck? So, a detailed question right there. I will put it to both of you and see who wants to answer it.

All right, Stuart, I’ll take that. Yeah, this is Michael Mo. 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 response to the challenge has been multifaceted. We provide three key packs, battery packs with built-in thermal runaway protection, assist other battery design teams ensuring their designs are safe from propagation for SafeCase as a solution for safely storing and transportation of batteries, so regardless of their starting point. So, 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’t comment on the new cathode development for the Tesla Cybertruck 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.

I cannot, cannot.

Understood, understood. Okay, great. Let’s move on to the next question then. Over the last year we haven’t heard much about KULR Vibe. As this is a software-based solution, it would seem like a low-cost way for companies to save money and KULR to generate revenue. Why hasn’t KULR 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 am 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 a good opportunity to apply KULR Vibe to server fans and industrial applications. So, by removing vibration, the fan can run at higher speed with less energy, less noise, and generate more airflow, therefore providing more cooling to the chips. We’re now working on fans used by Facebook’s OCP, which stands for Open Compute Project servers, but we are 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 2024.

Okay, great. Thank you for that, Michael. All right, so KULR 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 being a one-stop shop for our KULR ONE Space and KULR ONE Guardian customer is a big competitive advantage for us. That’s why we’re investing in all of the technical capabilities in our Texas facility, especially for large and important customers, being fast and agile is very important to them. So KULR frequently collaborating with these companies and common groups that have their own design battery design capabilities. In these cases, KULR become the trusted partner for them for rapid testing and prototype, which introduce KULR’s expertise to new departments and also their next-generation designs. So, it’s an entryway for groups to explore additional KULR 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 KULR to announce its automotive partnership soon? If not, why and what happened? If so, then when?

Yeah, EV, I think we’ve stated for the EV market is not this area for us for KULR ONE batteries because of its long lead time and also low margin. However, we are serving many of the automotive units with our battery testing and SafeCase 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 Shawn. It’s an interesting question and maybe to answer it I’ll start with a little bit of history. KULR 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 KULR stock was $3.53, and that was in November of 2021. In calendar year 2021 KULR 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 is about a 300% growth in annual revenue. The markets KULR serves have only grown since 2021. The demands for more energy intense batteries have only grown across the various segments that KULR serves like space, military, industrial, electric vehicles, electric planes, electric drones. From an operational point of view, I think KULR is in the best position it is ever been in. Look, stocks go up and down for any number of reasons. I won’t pretend to be able to predict the future. Management thinks KULR 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 will reflect a similar trend.

All right, very good. Thank you for that, Shawn. So next question, will KULR 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, KULR’s balance sheet is getting stronger. We evaluate funding needs and opportunities through the lens of what serves KULR’s operating requirements and keeps KULR 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 SafeCase technology, which we hope it will become de facto standards over time, and these engagements allow KULR to sell more products and services to our tier-one automotive customers.

Next question, how does KULR 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 KULR ONE battery platform, so it should be a positive impact to our future growth.

Okay. Next question, in the Q1 earnings report, KULR 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, also as we shared in our prepared remark that we continue to grow our customer base, which is up 50% a year-over-year this quarter. Many of them are some of the largest OEMs in the world, and we are working with them on the next-generation product platforms. So, it is important that we keep their confidentiality, and then also do our best to speed up their product development. And these developments are across space application, 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 KULR?

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 KULR press release, I think it was back in April about the Ukraine.

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

Yes, Stuart. We have customer 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 subcontract out to private companies to do this. So, we see many more applications actually in the space economy ecosystem to use KULR 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 I can see after reviewing the website that KULR 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 SafeCase application for battery storage and transportation. Yes, they are used to store batteries during production, during the storage, the shipping and the recycling life cycle of the battery. We are expanding the SafeCase 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 is 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 KULR 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 the top automotive OEM in the world, so that will be Japanese and German automotive OEMs. So, I talked about the number one automaker in the US, and we talked about the number one electric SUV maker in the US. So, I think that recap should give our shareholders some idea about who we’re working with.

So here is our final question. It has to do with something Shawn Canter mentioned. Here is the question Shawn Canter mentioned in a 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 KULR ONE’s 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 months 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 Mo and Shawn Canter, in 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.