KULR Technology: Charged Up To A ‘Growth Inflection Point’ (NYSE:KULR)

KULR Technology Group (NYSE:KULR) has emerged as a leader in specialized battery thermal and safety management. The products here include thermal components and software tools that are critical to securing and monitoring lithium-ion batteries which are recognized as potentially explosive in certain circumstances. The attraction here is the significant market opportunity across applications in electric vehicles, energy storage systems, and industrial equipment that require these types of solutions.

The company is ramping up a commercialization strategy with its credibility backed by contracts with major corporations and is even trusted by NASA which has used KULR solutions on the International Space Station. While the stock is high-risk considering recurring losses and negative cash flows, we highlight an expectation for accelerating growth into 2023 supporting a more positive long-term outlook.

What Does KULR Do?

KULR is targeting the rising demand for high-performance batteries and electronic systems that can run cooler, lighter, and safer. KULR's thermal management solutions extend across the entire life cycle of lithium-ion batteries and related electronics.

The idea here is that companies can incorporate KULR's "Thermal Runaway Shield" and "Passive Propagation Resistant" solutions into the initial design and testing stage of new battery products. The use cases extended into secure transportation and recycling. Some of the practical advantages include the lightweight and low-contact pressure requirements compared to alternative solutions.

The revenue model captures design services, product sales, IP licensing, as well as subscription opportunities which are all expected to be expanded in the future. We mentioned NASA but other high-profile customers include Defense and Aerospace leaders like Lockheed Martin Corp (LMT) and Raytheon Technologies Corp (RTX), and Airbus SE (OTCPK:EADSF).

A featured product is the "CellCheck" battery management platform which incorporates real-time monitoring of key performance and safety indicators across temperature, moisture, discharge rate, and more connected to a software platform. The value proposition here for customers is to offer the world's "smartest battery" with built-in safety features. The recent commercial launch is expected to a be a growth driver in the coming quarters.

KULR management sees a multi-billion dollar market opportunity with the global sales of thermal management materials climbing from $11.1 billion in 2019 to $16.2 billion by 2024. Everything from the growth of electric vehicles to lithium-ion recycling which requires safe transportation can benefit from KULR solutions. Just capturing an incremental slice of this opportunity represents the bullish case for the stock.

KULR Key Metrics

The company last reported its Q2 financials in August with $588k in revenue which was a decline compared to $628k in the quarter last year. That being said, the context here is the timing in the rollout of new products and the lag in recognition of some large orders. The ramp-up effort in the business is evident by SG&A climbing by 59% year-over-year which includes a push with marketing and an expanded sales force.

Overall, the operating loss year to date has reached -$9.3 million although the company reported ending the quarter with $13 million in cash. With negative cash flows expected to continue for the foreseeable future, the strategy will be to raise capital through additional equity issuances. After the quarter's end, KULR has announced upwards of $50 million in standby equity purchase agreements, which management believes leave the company positioned to expand the business and scale appropriately.

There's little to cherry-pick in terms of the financials that are objectively weak. That being said, several developments in recent months keep the stock interesting. The first point here is a series of headlines with new contract announcements. In September KULR received approval from the Department of Transportation to increase the energy level shipment certification for its "SafeCase" product up to 2.5 kWh batteries. This opens up new commercial opportunities for large-scale deployments requiring this type of certification for end users.

Separately, the company announced a new contract with a "Fortune 500" airline for the development of new electric vertical takeoff and landing ((eVTOL)) aircraft batteries. This is an exciting high-growth market segment where the implementation of high-performance battery design and thermal safety is naturally very important. The understanding is that this particular customer would likely require several more orders as the eVTOL market takes off.

Finally, the latest update is a $500k initial deployment order from a leading "Department of Defense contractor" with future considerations of a multi-million dollar relationship over the next year. This case highlights the application related to drone and autonomous technologies that incorporate batteries requiring thermal protection.

Putting it all together, the takeaway here is for a stronger top line over the next few quarters as these types of engagements become recognized. Management touched on this outlook during the earnings conference call:

We believe that we're at an inflection point of KULR's growth path. In the past year, we have made significant investments across research and development, facility infrastructure, SG&A and assembling in high caliber workforce. These strategic investments have resulted in the build out of our holistic total battery safety platform, providing customers with an extensive set of solutions to achieve battery sustainability within their respective ecosystems...

In the customer engagements that we're working on very closely, we expect the volume to ramp in their business in second half of 2022 and also well into 2023.

In terms of valuations, there's not much to go on with limited targets and a lack of guidance from management. We know the company generated approximately $2.2 million in revenue over the past year, set to climb toward $3.2 million in 2022. By this measure, KULR is trading at a forward sales multiple of 69x.

More favorable is the outlook for 2023 where a ramp-up in the commercialization strategy can drive revenue near $34 million within the current consensus across two Wall Street estimates indicative of the growth inflection point. There is a lot of uncertainty with this figure, but if KULR can get anywhere near that amount with a push over the next few quarters, we have a solid growth stock by any measure.

KULR Stock Price Forecast

We rate KULR as a hold ahead of the company's upcoming Q3 earnings report scheduled to be released on November 9th. The report will also give management an opportunity to cover the latest updates.

The good news for KULR is that shares have staged an impressive rally over the past month, nearly doubling from its October low when it traded down at $1.06. With a current market cap of around $200 million, the expectation here is for this type of extreme trading swing to reflect the stock's speculative profile. As long as the stock holds the ~$1.60 of support, shares should maintain some bullish momentum.

The bullish case is that the market adoption of KULR Technologies products accelerates with larger orders and an expanding customer base translating to a firming earnings outlook. Monitoring points here include the gross margin and the regular string of corporate developments detailing new contracts.

On the other hand, the fundamental weakness goes back to the cash flow trends. If liquidity becomes a concern, larger share issuances will be required for funding and dilutive to existing shareholders. Some level of a rising outstanding share count would be tolerated if it's supportive of expanding growth. 2023 will be critical in this regard. Investors need to see this as a long-term story that may take many years to play out.

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