Welcome everybody to KULR Technology Group 1st quarter 2023 earnings call set for today, Monday, May 15, 2023. With me on the call today is Michael Mo, he is the CEO of KULR Technology Group, as well as Keith Cochran, President and COO, and Shawn Canter, Chief Financial Officer of KULR Technology Group. As we have done on prior calls, we will have opening statements from management followed by a Q&A section with some analysts that will be joining us later on the call. Before we begin this call, please allow me to read the following safe harbor statement regarding statements that are made on this call. 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 information available to the company as of the date hereof. KULR'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 the risk factors disclosed in their Form 10-K filed with the Securities and Exchange Commission on March 28, 2023. Forward-looking statements include statements regarding their expectations, beliefs, intentions, or strategies regarding the future and can be identified by forward-looking words such as anticipate, believe, could, estimate, expect, intend, may, should, and would, or similar words. All forecasts 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, the forecasts are entirely on management's best estimate of their future financial performance given their current contracts, current backlog of opportunities, and conversations with new and existing customers about their products and services. KULR assumes no obligation to update the information included in this call, whether as a result of new information, future events, or otherwise. With that, I would like to turn the call over to the CEO of KULR Technology Group, Michael Mo. Michael, the call is yours.
Thank you, Stuart. Good afternoon. This is Michael Mo. Thank you everyone for joining us today. KULR's mission is to build industry-leading energy management platforms to accelerate the global transition to a sustainable electrification economy. Over the past two years, we've worked very hard to transform KULR from a niche component supplier to NASA and Department of Defense to a company with multiple platforms powering the electrification economy. KULR is now solidly a growth stage company. Our first quarter 2023 revenue grew 778% over the same quarter in 2022 to reach approximately $1.8 million. In 2023, we're focusing on revenue growth. We continue to broaden our customer base to include names beyond our initial space and military marquee clients. We're experiencing increasing customer demand across multiple vertical markets.
We believe we are well-positioned to service the increasing customer demand that we have in these large and fast-growing markets. Specifically, areas like lithium-ion battery market is estimated to be over $150 billion by 2030, and battery recycling is to reach $23 billion in 2030. We view our product and service platforms as mission-critical across multiple sectors, given that we sit at the intersection of sustainability, electrification, clean energy, and mobility. The increasing demand from consumer, commercial, industrial, and government markets, along with the growing regulatory requirements in these areas, drive further demand for our tested and proven solutions. McKinsey estimates the global lithium-ion battery market to be approximately $400 billion by 2030. KULR operates in the approximately $200 billion portion of the market that include battery cells, battery packs, and recycling.
Lithium-ion battery safety is a critical bottleneck for the growth of this industry. We believe KULR provides a leading platform solution for this challenge. Energy storage is the largest market opportunity for KULR in 2023. We launched the KULR ONE platform at CES this past January. It's a modular, safe, intelligent, and sustainable energy storage unit that can serve multiple applications like electric mobility and commercial energy storage. The KULR ONE Design Solutions platform is our holistic methodology to solve battery safety issues with patented technologies such as our Thermal Runaway Shield, SafeCASE technology, and Internal Short Circuit device, which KULR is the exclusive licensing partner for NASA. We're seeing significant customer demand for our KULR ONE Design platform.
We recently announced that we received a $1.13 million contract from U.S. Army to develop their next generation high-energy battery pack utilizing our KULR ONE Design Solutions platform. We're seeing customer engagement in electric vehicles, electric aviation, and energy storage for fast-charging infrastructure for the KULR ONE platform. Our customer engagement process starts with analysis and design. This is where our expert engineers evaluate the battery cells, understand its energy release, provide multi-physics modeling, which is a fancy way to say using computer to simulate what happens in real life, and design the battery pack based on that analysis. This process can take anywhere between three months to a year historically, depending on the customer requirements. After analysis and design, we build a prototype and do a lot of testing. After testing and any necessary refinements, we help the customer go through the safety certification for the applications.
Doing this process as I've described so far, KULR generates mostly service revenue. When the customer's product goes into volume production, KULR generates product sales revenue because our solutions are built into the customer's product line. When a customer's production scales up in volume, our revenue scales up with it as our solutions are built into the products that are specifically certified and designed. We anticipate that with increasing customer wins, our KULR ONE Design Solutions platform will be able to shorten the cycle time from design to manufacturing. Our goal is to be at one year or less, like what we're doing with the U.S. Army battery pack design, where we start the design in April 2023 and get to manufacturing readiness by April 2024.
We think we can get there accelerating both our customers' return on investment in our product sales map. Next, Keith Cochran, our President and Chief Operating Officer, will provide operational updates. Keith.
Hello, everyone, thank you for attending our Q1 2023 earnings call. I am pleased to report highlights from our operations. In Q1, our operations expanded to Webster and San Leon, Texas. Our Webster facility is the center of excellence for our KULR ONE battery design services. This location will support internal and external battery pack design, Fractional Thermal Runaway Calorimetry, FTRC, which measures the total heat output of a cell in thermal runaway and the fraction of the total heat that is released through a cell's casing versus through its ejected material. This testing is crucial to understanding a cell's thermal event properties, so proper protections are designed into a battery pack. We also do bomb calorimetry, which measures the thermal and gas characteristics in a cell thermal runaway.
The facility is conveniently located to our customers near Houston, is close to a major international airport, and being in the middle of the country allows for short trips from our U.S.-based customers who want to visit our facility. Our San Leon facility is established to execute destructive testing for internal and external lithium-ion battery pack designs. Our testing facilities are modular and portable if needed. We will continue to expand our capacity as demand continues to increase. At present, we have significant backlog and expect further expansion of capacity in Q4 2023. I am also excited to share KULR has now deployed the only fully automated battery cell inspection and test system performing to NASA Work Instruction 37. This standard, which is the highest battery testing standard for NASA, is required for all manned flight missions.
The system went live in Q1 to deliver fully tested and traceable cells to NASA, Department of Defense, and eVTOL, electrical vertical takeoff and landing customers. We have received and executed our first NASA Johnson Space Center order for this advanced testing. We believe this exacting standard may also be adopted for eVTOLs acting as human taxis in the future. We stand as the only fully automated inspection and testing option capable of meeting the standard. KULR designed the system as modular, such that we can be flexible with capacity and mix. The equipment can test both 18650 and 21700 cells to adjust to mix and can easily be replicated as capacity demands increase. We have already done the hard work of establishing our manufacturing here in North America, limiting our future CapEx requirements and providing us with capital planning flexibility.
We should only have to invest in significant CapEx as we hit capacity constraints on our testing and screening equipment due to increase in customer demand. Over the past two years, KULR focused on getting our brand and our capabilities recognized. We have successfully built significant brand recognition and are just in the early innings of monetizing that investment. Accordingly, we will reduce our spend in brand marketing in favor of targeted customer acquisition activities. As I mentioned, we are anticipate continuing to invest behind our customer demand. Lastly, the team continues to focus on operational excellence.
As such, we recently conducted an external audit of our quality management system, QMS, in preparation for our upcoming ISO 9001 annual audit. The results of the audit were outstanding, with the auditors giving high praise to our KULR team for elevating our QMS system during a significant growth ramp for the company. There were 0 non-conformances found during the audit. I highlight this as our focus on quality and delivery has been recognized by our customers as industry-leading. Their recommendations to other companies have led to multiple recent wins for KULR, and that is the best marketing of all. The team and I are quite proud that our customers are singing our praises to their peers. As such, we have now expanded operations to accommodate that growth.
I am pleased with the performance of all areas of operations in Q1 and feel I am very well prepared to deliver the rest of 2023. Thank you. Now I will turn the call over to our CFO, Shawn Canter. Shawn?
Thank you, Keith. You can see the detailed financial results from our first quarter. I'll touch on some highlights. As Mike mentioned initially, first quarter 2023 revenue was approximately $1.8 million, a 778% increase over the same quarter last year. Gross margin for the first quarter of 2023 was 37% versus 39% for the same quarter, 2022. We ended the first quarter of 2023 with approximately $7.2 million in cash. Equipment plus equipment deposits was approximately $6.9 million versus approximately $2.7 million for the same quarter last year. Inventory plus inventory deposits ended the quarter at approximately $1.9 million versus approximately $287,000 for the same quarter last year.
These investments in our business reflect the continuing trend of increasing customer demand for our products and services. Our product and engineering services revenue both logged significant increases. Our product sales generated approximately $1.6 million compared to approximately $172,000 in the same quarter in 2022, for an 844% increase. Our services revenues were approximately $130,000 versus approximately $27,900 in the same quarter last year for a 368% increase. We generated over $125,000 in revenue per revenue-generating customer this quarter versus only $18,000 in the same quarter last year, a 590% increase.
While on the topic of customers, I wanted to highlight and remind everyone that the number of paying customers we had almost doubled from full year 2022 versus full year 2021. You can see our trailing twelve-month revenue growth trend. After international supply chain issues due to COVID lockdowns in the first part of 2022, our sales growth trend line has returned to its prior trajectory. I wanted to highlight and remind everyone that KULR insiders, our team, including management and the board, own approximately 33% of KULR shares. As Warren Buffett says, "In the short run, the stock market is a voting machine. In the long run, it is a weighing machine." The weight of addressing a meaningful need in the marketplace, product market fit, long-term growth and ultimately earnings driving the per share value of the stock.
We are focused on the long-term growth and earnings power of KULR. Since we have meaningful equity stakes, we eat our own cooking. If you are a shareholder of KULR, we are proud and humbled to have you as our partner. If you aren't, we invite you to learn more about us at kulrtechnology.com. That concludes our opening statements from management. Back to you, Stuart.
All right. Thank you, Shawn, and thank you, Keith, as well as you as well, Michael, for your opening statements. Let's now open up the Q&A portion of this call. We're going to start with Alliance Global Partners Managing Director and Senior Research Analyst, Jake Sekelsky. Jake, are you there? The call is yours.
Hey, Michael and team. Thanks for taking my questions.
Hi, Jake. How are you?
Good. How are you?
Great.
Just starting with, the new R&D center in Texas, I'm just curious, is this gonna be a location for prototyping across the product portfolio, or is it more geared for specific products, and customers?
Yeah, I'll go ahead and take that one, Jake. The facility will be primarily designed for prototype. We'll do our KULR ONE development there, and we'll do initial pack testing at that facility. Once it gets into volume production, that will move into a third-party location for volume manufacturing, limiting our capital expense there.
Okay. That's helpful. It's more for earlier stage prototyping before transitioning more towards commercialization.
That's correct. Eventually we will be doing our Thermal Runaway Shield manufacturing in that facility, which is completely automated, so it makes it very cost competitive. We'll pull that back onshore from China, That'll probably happen sometime late Q4, early Q1.
Got it. Okay. Just switching over to the Army contract, you announced a few weeks ago. It seems like product development's underway. Do you have a sense of the timeline to commercialization there? I'm just trying to get a sense of when we could see either a follow-on order or a transition from development testing to commercialization.
No, I, I can take that one. This is a contract that utilizes, you know, KULR ONE Design Solutions platform to really analyze their new high energy cells. These are, as we talked about in the PR, silicon anode cells. We'll design the battery pack, we'll build a product pack, and we'll perform the safety testing around that. And by the way, a lot of the safety testing will be performed at the Texas facility. As you may know that, you know, Texas will be a much, you know, easier place to do a lot of these disruptive tests than California. That development timeline is we started in April of this year. We expect to get them manufacturing readiness by April of 2024.
A 1-year development time frame to do that. During that time, the revenue that we receive is for the design and services. We expect that to go into production in 2024. As you may know, Army is one of the largest consumer of batteries other than EV vendors in the world. We think the opportunity could be fairly large, both on getting this battery configuration into volume production into the Army space, as well as the design and testing work that we're doing for these very high energy battery cells into very tight battery pack configurations could be benefit to other commercial customers that are using similar, if not higher energy level cells, whether it's silicon anode or lithium metal.
We definitely hope to benefit from both of these, commercial, contract development opportunities.
Okay. Thanks for the color there. That's all on my end. I'll hop back in the queue. Congrats again on a strong quarter.
Thank you, Jake.
All right. Thank you very much, Jake. Now we are going to get Howard Halpern. He is an analyst with Taglich Brothers. Howard, the call is yours for your questions. Go ahead.
Guys, congratulations. Another good quarter. In terms of where you are or if you could highlight a little bit maybe more, where you are in the funnel of like the, how many customers or the value of the customers that are, you know, in the initial phase then move to the prototype and how many are close in the certification process? I guess that'll give us some insight as to when, you know, the aggregate revenue will jump materially on a sequential basis.
Yeah, I can take that. Hey, Howard. You know, Shawn has shown that in Q1, you know, per customer revenue has increased significantly to $125,000 per paying customer. We haven't really broken down on the different customer granularity, different phases, but what we can say, I think in the queue, we talked about, you know, Q1 paying customer was 14. And we definitely see very strong customer demand from a quarter one Design Solutions, the platform. Service like the battery FTRC test, the safety tests that we perform, they're very unique in the industry. And we see especially strong customer interest in that.
I think Keith talked about some of the backlog that we've seen that. That's what we're, you know, expanding and investing in the Texas facility to accommodate for that. You know, different customers are coming into the design cycle through different stages. We're definitely trying to get them through that cycle as quickly as possible, as I talked about earlier, which is trying to shorten that cycle to less than one year and get to that, you know, product sales revenue ramp opportunity.
I'll probably remind everyone that, you know, in the last 10-K in March when we did the investor call, I talked about, you know, I expect quarter one, the solutions platform, is expected to generate about $10 million in revenue for 2023, and have a strong revenue opportunity to, you know, over the next, you know, few years to be over $100 million. I think the U.S. Army contract is kind of an important milestone on our path to that revenue ramp. As we engage with more customers and take them through the development cycle more quickly, we will definitely see an acceleration of that revenue ramp. Shawn shared with you the, you know, the TTM revenue trend line, and you can see the momentum picking up there.
As the, you know, as the quarter progresses and the year progresses, just we will continue to have press release out about customer wins and then take our shareholders through that, the design phase stage.
Okay. Along with, I guess KULR Vibe, how has that initial customer been performing? You know, are there additional customers that you could foresee in the next 12-18 months jumping on the Vibe product line?
Yeah, thanks Howard for the question. Really appreciate that. Well, you know, as you know, KULR Vibe has an incredible capability to execute track and balance maintenance for helicopters to provide significant vibrational reductions to the aircraft. You know, just as a little bit of an education there, vibrations are measured in inches per square per second in the vertical, horizontal, and lateral planes, with most helicopters considered operational up to 0.2 IPS. While this is technically acceptable, the level of vibration is still damaging to parts and pilots. Our KULR Vibe results are typically in the 0.0X IPS range with minimal adjustments compared to our competition. This leads to an aircraft that's significantly more stable and causes less wear on the mechanical components while reducing fatigue on the pilots.
The results are reduced maintenance and increased flight readiness for the aircraft. You can imagine there's a lot of demand and support behind this. We had a tremendous response at CES, and it's led to numerous engagements for us. I think coming out of the show, we're a little surprised by the number of drone and eVTOL companies that are struggling with vibration in their new designs. They need a solution that can address vibrations without complete redesign of the aircraft. As such, we've been asked not to only provide a software solution for these vibration issues. We have engaged customers right now that want a hardware and sensor package as well, and we've added additional resources to the Vibe team to complete the development of hardware solutions. Soon we'll be able to provide a one-stop complete solution set to our growing customer demands.
We're very excited about this. I would just say lastly, we continue to work with the Department of Defense customers as well as the National Guard. The response from them continues to be super positive. It's taken just a little bit longer to get into their budgets than we originally anticipated, we still believe we are well positioned to land a branch of the United States Armed Forces in the next few months. We're excited where we are. We think we're close to landing a few more customers, hopefully that addresses your question.
Okay. Yep, it does. Thanks, and keep up the great work, guys.
Thanks a lot, Howard.
All right. Thank you, Howard. Any further questions? Let's move on to Theodore O'Neill from Litchfield Hills Research. Theo is an analyst for them. Theo, are you on the call? The call is yours for your questions now.
Thank you very much. Guys, you recently won a contract to test 18650 cells for NASA. I'm assuming this is a type of safety test, and if so, is there really a way to predict failure or catastrophic failure?
Yeah. Yeah. Hey, hey, Theo. Yeah, this is a contract to screen cells for the NASA based on their NASA Work Instruction 37 standard, which is really to thoroughly screen the cells based on their, you know, mechanical and electrical characteristics. As we have discussed in, you know, in the call, we believe this is the only automated screening line to perform this task for NASA. Prior to this, they were doing the screening manually. You know, as you can imagine, our process provides a much more consistent and reliable result. Also more importantly, it provides much more data on the screen results, you know, automatically.
This is a huge benefit for NASA and our other customers, and we can, you know, take this vast amount of data and combine it with battery operational data to provide the most comprehensive view on battery safety data, pretty much complete in the industry on this. This whole solution combination is another very important building block for KULR ONE Design Solutions platform to really provide more intelligence to our customers about the state of health of the battery through its lifetime.
Is it just safety or is it safety and performance?
Yeah, performance is part of it, but ultimately it's safety. Screen out bad cells with latent built-in internal short, you know, defects through mechanical, through electrical, through the aging process. Yeah, it's a very complex and very en-engaged process, I think, performed over 15 months.
Okay.
On these cells.
Okay. You also recently won a contract with the Army to develop a safe high-energy battery platform, which you talked about here on the call. Is this also about testing for safety and selecting safer cells? What's the significance of these batteries using a silicon anode?
Yes. This is definitely, you know, using the KULR ONE design solution platform to analyze silicon anode cells. Silicon anode packs a lot more energy per battery cell, so that the Army can get more energy out of the limited space they put the battery pack into, for the applications. The challenge is that the more energy you pack in, it means that the more dynamic the behavior when the battery goes into thermal runaway. In other words, it's a lot more violent. For these mission critical, you know, applications for Army, that safety is of obviously critical importance. Now they rely on KULR ONE going through or they rely on KULR to go through this KULR ONE design methodology to devise the safest battery pack for them, you know?
That's really the significance of this. In terms of the size of the business, I think, you know, Army is one of the largest consumer of batteries. Once this platform gets mature, gets proven out, I think there's a huge opportunity for us.
Okay. Thank you very much, Michael.
Yeah, thanks, Theodore.
All right. Well, if there's no further questions from any of the analysts, then I guess we will wrap up the call here now. I wanna thank the management team of KULR Technology Group, as well as our analysts that joined us here today. Tom, you are the operator. If there are any questions, let us know now, or you can close out the call.
Certainly. As a reminder, analysts joining the call, if you'd like to ask a question at this time before closing, you may press star one on your telephone keypad to ask any final questions. Once again, analysts, if joining the call, if you would like to press star one if you have any final questions, please do so at this time. Stuart, there are no further questions at this time.
Excellent. Thank you, Thomas. Well, once again, I wanna thank the management team, and I know they would like to extend their thanks and gratitude to all the shareholders and investors that have joined us here today. That concludes our phone call. Thank you, Tom.
Thank you. You may disconnect your phone lines at this time. Have a wonderful day. Thank you once again for your participation.