NYSE:KULR
READ THE FULL KULR RESEARCH REPORT
The New Administration and DOGE Could Provide Opportunities and Challenges for KULR
The reaction in the market to the election and potential changes going forward has been mixed for those involved in EV batteries, green energy, and space. The new administration’s main goal is to rein in the administrative state and cut spending and regulations to spur the economy and growth. These actions could help KULR (NYSE:KULR) in some ways and hurt it in others. One way to cut spending is to repeal or alter the contradictory Inflation Reduction Act, which could eliminate the subsidies on electric vehicles and hurt KUHL’s EV customers. It might also cancel grants for battery research.
On the other hand, cutting regulations and red tape to accelerate space technology and modernize the military could aid sales. DOGE is keen to save money, and KULR’s Vibe is a product with huge potential and virtually immediate ROI for the military. While it is much too early to predict what actions might be taken, KULR’s focus might switch as opportunities arise.
The company’s main drivers—acceleration of the space battery market, improved batteries for military use, and KULR vibration technology are all in strong positions regardless of what happens. They all push modernization efforts and save the government money.
Q3 Results Include the First Licensing Payment for KULR Vibe Technology
Revenues for the quarter ending September 30th were $3.2 million versus $3.0 million, showing an increase of 4.8%. 53% of those sales were from two customers. The larger was a new customer, a Japanese fan manufacturer who paid a one-time license fee of $1.0 million for KULR Vibe, resulting in 32% of sales. This was the first licensing deal for KULR Vibe. The second customer generated $670,000 in revenues. Both of these customers were not customers last year. In last year’s quarter, 56% of sales came from one customer who bought nothing in this quarter and is expected to buy nothing in Q4. Excluding that customer, revenue would have been up 138%.
The gross margin for Q3 2024 was 70.9%, up from 44.0% in Q3 2023, as the $1 million license fee had no cost of goods. Gross margin dollars increased 68.8%.
Total operating expenses for Q3 2024 declined to $4.0 million from $6.4 million in the same period of 2023. The biggest drop was in S,G&A, where expenses declined $2.1 million from the year before. The decrease was due to a reduction in stock-based compensation due to clawing back amortization for unvested, canceled restricted stock awards of $638,592, a decrease in advertising expense of $571,238 due to a sponsorship agreement terminating in 4Q23, and a decrease of $481,661 in depreciation expense primarily due to leasehold improvements for the San Diego facility being fully depreciated in 2Q24.
The operating loss for the quarter was $1.7 million versus a loss of $5.1 million last year. The company had a net interest expense of $29,000 versus $188,000 last year as the company paid off debt. The pre-tax loss was $2.0 million versus $5.5 million last year. Taxes were zero for both periods. This resulted in a loss per share of $0.01 versus a loss of $0.05 last year. Shares outstanding were 195 million versus 117 million in 2023, up 66%.
Taking out a small amount of stock-based compensation, non-GAAP net loss was $1.9 million versus $4.7 million or $ 0.01 versus $0.05 per share.
Balance Sheet
As of September 30, KULR had $912,000 in cash, a negative $1.2 million in working capital, and $1.3 million in debt. It had a negative free cash flow of $1.3 million (not including changes in working capital) for the quarter.
On July 3, 2024, KULR entered into an ATM to sell up to $20 million in stock. During the quarter beginning July 3rd, KULR sold a total of 12.8 million shares of stock for gross proceeds of $3.4 million. After the quarter ended, it sold another 13.0 million shares for gross proceeds of $4.3 million through November 12, 2024. In the first half of the year, KULR had funded its deficit through stock sales to Yorkville advisors through a SEPA. The SEPA was terminated as of June 30, 2024.
On October 31st, KULR repaid the remaining balance of a $100,000 note payable.
As of November 12th, there were 214,227,808 primary shares outstanding. At the end of September, there were also 150,000 unvested restricted stock awards, 3,537,611 unvested restricted stock units, 538,341 options, and 2,714,587 warrants, all totaling 6,940,539.
The company also has been factoring its receivables. On July 11th, it received $758,850 of cash (net of underwriting fees of $40,000 and $201,150 used to pay the remaining balance of the first merchant cash advance), with the obligation to repay $1,350,000 over forty-three weekly payments of $31,395, beginning July 18, 2024. From October 1, 2024, to November 12, 2024, the company repaid $313,487 of the merchant cash advances. As of November 12, 2024, the outstanding balance of the merchant cash advances was $810,830.
During the Quarter
On July 8th, KULR announced it received a purchase order exceeding $400,000 from NASA as part of a $2 million multi-phase agreement for its advanced automated battery cell screening system. The contract with NASA is to test lithium-ion cells in future battery packs designed for the Artemis Program, a series of United States-led international human spaceflight programs.
On August 20th, the President and Chief Operating Officer resigned. KULR agreed to provide certain separation benefits, which include accelerated vesting of the final tranche of his restricted stock award, consisting of 500,000 unvested shares previously granted. As a result, the company reversed $435,000 in amortization expense related to the unvested award.
Also, on August 20th, KULR announced it had been selected for a pivotal battery pack reference design project by Amprius Technologies. The final reference design will provide Amprius’ customers with a solution to address thermal runaway at the battery pack level that leverages KULR ONE Design Solutions, with Amprius’ high-energy Silicon Anode pouch cells to meet FAA and European Union Aviation Safety Agency (EASA) standards.
On September 25th, KULR announced that it was on track to complete its initial engagement with the United States Army by Q3 2024 and that the Army has expanded its battery contract with the company to $2.4 million. This contract includes the development of additional prototypes and comprehensive environmental qualification testing per MIL-STD-810E standards.
On September 29, 2024, KULR entered into a $2.35 million three-year licensing agreement with a customer in Japan to use its KULR VIBE software to measure and reduce fan vibration levels. This customer is a leading Japanese corporation specializing in systems integration and advanced semiconductor solutions. It intends to use Vibe to balance industrial fan systems used in data center computer cooling, HVAC, and other industrial applications. The agreement gives the customer the exclusive license to use the software in Japan (for Japanese customers) to operate KULR’s Balancer. The Balancer is a hardware device used to measure vibration levels.
During the quarter, KULR recognized $1.0 million from a one-time, non-refundable license fee of $500,000 for the right to use its IP, plus future minimums required by the contract. The fan manufacturer will pay royalty fees of $0.20 per unit of any rotational system balanced by a Balancer and 3% of gross sales of all Balancers the customer manufactures and sells to a third party. The customer will make quarterly royalty payments to the company, which is expected to vary from period to period, with a minimum quarterly payment of $50,000. Since the payment of the minimum royalty occurs significantly after performance, this indicates a significant financing component. Therefore, KULR immediately recognized revenue equal to the present value ($528,767) of the $600,000 to be received, using the prevailing interest rate of 8.0%.
Since the Quarter Ended
On November 14th, KULR announced it was awarded a contract to develop a specialized Phase-Change Material (PCM) heat sink for an undisclosed major missile program.
FORECASTS
For 2024, we are raising our revenue and earnings expectations due to the revenue beat in Q3 as well as an expectation of lower-than-forecasted spending. We now expect revenue to reach $10.2 for the year and for the net loss to be $16.8 million. Using the average of EV/2025 estimated sales of its peer group of 9.4 times and KUHL’s estimated 2025 revenues of $15 million, we get an enterprise value and market cap of $141 or $0.65 per share.
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