KULR Technology Group, Inc. 2026 Q2 Earnings Call

Thank you, Stuart. Good afternoon, everyone. Thank you for joining. On our last earnings call, we told you 2026 would be measured by three things: product revenue growth, gross margin improvement, and cost discipline. I want to start today by being direct with you. Second quarter fell short. Second quarter revenue was $2.1 million, down significantly from both prior year and the first quarter with a gross loss. That's not the quarter we planned, and I'm not going to make excuses. What I'm going to do is walk you through three things. What challenged us in the second quarter, what we're doing to resolve those challenges, and the growth we expect to see in the second half of this year, and why. KULR builds high-power battery systems for the physical AI era, autonomous systems, drones, underwater vehicles, robotics, and telecom critical infrastructure.

In June, I wrote to shareholders that battery is infrastructure, and there is no grid in the sky, in orbit, in the ocean, or on the battlefield. Everything we do is in service of that mission, and nothing about this quarter changed it. Four things challenged us this quarter, and I'll name each one. First, supply chain. New programs mean new parts, and in this environment, new parts mean long lead times and critical bottlenecks. These constraints delay the production and delivery of our battery products, and shipments we had planned for the second quarter were delayed. Second, execution focus. KULR is carrying more customer programs that our resource can execute with the speed and quality our customers demand of us. In one sense, that is a good problem. It reflects real demand. But it's still a problem. In the second quarter, it costed us.

We're evaluating all of our customer engagements and prioritizing on engineering and manufacturing resources towards the highest value opportunities. Third, alignment. The board and management changes during the quarter consumed a significant amount of management bandwidth and slowed decision-making. That transition is now behind us. Mike Kimmel, our Chief Financial Officer, will talk about how we're taking this opportunity to step back and reassess some of our business processes. Fourth, production capacity. Our new Texas facility was not yet contributing in the second quarter. The good news is that the facility and the production lines are coming up nicely, and we expect them to be operational in the third quarter. As we work through these challenges, I believe that the demand for our products and services remains strong. Our business shift to the right, and we're in the very early phase of this market growth in the United States.

Look underneath the quarterly fluctuations, and you can see that our core energy platform business remained essentially stable on the first half basis. Energy management platform revenue was $4.76 million versus $4.73 million in the prior period, slightly higher year-over-year. Total first half revenue was $6.03 million versus $6.1 million a year ago. The composition of that revenue shows that demand is broadening. Second quarter product sales was driven principally by two large orders, both from new customers and both involving new battery configurations. We're not just selling more of the same product to the same customer base. We're bringing new battery configurations into new accounts, and that's exactly the type of customer expansion we want to see as KULR ONE scales. Now, let me tell you what we're doing to resolve these challenges. Four things, and they map directly what I just described.

First, we're prioritizing the operating business above all else. Our priority is clear: deploy our technology, our capital, our people towards scaling KULR ONE and building a world-class energy system platform for Physical AI economy. That means the same three accountability measures that we laid out in June, product revenue growth, gross margin improvement, and cost discipline, centered around five markets: space and defense, drones and autonomous vehicles, telecom and critical infrastructure, and robotics. Within that, we're qualifying our customer engagements more carefully, concentrating our best engineering and production talent on the programs with the strongest economics and strategic value. Second, we're simplifying. Since the second quarter close, we exited Bitcoin mining, and we repaid our $20 million credit facility in full using proceeds from Bitcoin sales without issuing a single share through our ATM this year.

The board and the management team have decided to divest our Bitcoin treasury to focus our balance sheet on the operating business. Mike Kimmel will walk you through the balance sheet logic, but the principle is simple: reduce volatility, preserve flexibility, and then let the management team and investors see the operating business clearly. With approximately $60 million on our balance sheet and no debt, we believe we have the financial resources to execute our growth strategy. We have also brought some early-stage activities to an orderly conclusion with the conservative reserves Mike Kimmel will describe. Third, we are fixing alignment and execution. The leadership team is now set, aligned with technology go-to-market strategy oriented four members, a CFO who is operationally focused, and clear priorities.

On that foundation, a company-wide operating review is underway to standardize our data, refine our workflows, strengthen the systems that give management real operational visibility, and become more selective about the vendors and customers that we partner with. Fourth, we are building capacity. We are building a full stack operation in Texas, design, prototyping, testing, certification, manufacturing, battery management software, and electronics all together under one roof. in May, we signed a lease on approximately 25,000 sq ft facility to expand our manufacturing footprint. A new automated production line for both cylindrical and pouch cells will be operational in that facility. On the supply chain side, we are multi-sourcing components to reduce single supplier as a critical bottleneck. Our cell-agnostic architecture let us qualify multiple chemistries and form factors. We are investing more in production readiness.

Raw materials inventory is up roughly five-fold since end of 2025, and you should expect inventory to increase further in the second half as we position ourselves to meet anticipated demands. The infrastructure we are putting in place is designed to shorten the path from customer requirements to prototype, to qualification, to volume production. That vertical integration is central to how we improve speed, control, and ultimately economics. Now, let me share with you on why we expect the second half to look different. The American drone market is converting from policy to purchase orders. The United States is at the early cycle of its unmanned system build-out. Europe shows where that curve goes. Ukraine produced roughly 4 million drones last year and is targeting 7 million this year. The United States, by comparison, produced on the order of 100,000 small drones a year.

Washington has decided to close that gap. Department of War's $1.1 billion Drone Dominance program moved from plan to purchase order this summer. The first delivery order has been accepted. Roughly 30,000 units are being delivered right now, and the department has said it will order 60,000 more in September on the way to hundreds of thousands of drones by 2027. The fiscal 2027 budget requests include more than $70 billion for drones and counter-drone systems, the largest such investment in the U.S. history. Here is why that matters for KULR. American drone makers are being required to stop using foreign parts, including batteries. That makes American-made power like ours more important every quarter. When drones are classified as consumables, batteries become consumables too, which means recurring demand. The rest of the market tells the same story.

One of the largest drone battery cell suppliers in the market reported this month that about 16% of its latest quarterly revenue came from North America, while roughly 70% came from Europe and the Middle East, much of it shipping directly to Ukraine. The overseas cycle is at scale. The American cycle is just beginning to convert to orders. That is a demand wave that KULR is positioned for. We are executing across dozens of active customer programs, supporting Drone Dominance-related customers, maritime programs, and KULR ONE space programs. In the second quarter, we secured initial defense drone battery orders from a U.S. drone maker participating in the Drone Dominance initiative. It is a customer opportunity that exceeds $5 million. We demonstrated KULR ONE Air with next generation solid-state cells at over 350 watt-hour per kilogram. We were selected by Axiom Space as battery providers for its orbital transport mission.

We are building the ecosystem around batteries, not just the pack itself. We are now sampling NDA compliant 6S chargers supporting both cylindrical and pouch cells. We have completed our 18S charger prototype, and by the end of 2026, we expect to be shipping NDA compliant chargers to U.S. customers. Power, thermal management, BMS, charging, all from one compliant stack, engineered and built by one supplier. That is how we are positioning KULR ONE to be the power platform for Physical AI. Here is how the second half of 2026 could look like in summary. Delay shipments will be recovering. New Texas facility and battery production lines will be operational and contributing to the business. Pack volume starting to ramp, and NDA compliant power electronics and chargers shipping by the end of the year. While U.S. drone procurement cycles is converting into orders.