Beam Global

Welcome to the BEAM Global first quarter 2023 financial results and corporate update. All participants will be in a listen-only mode for the duration of the call. And should you need any assistance today, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw a question, please press star, then two. Please note that this event is being recorded. I would now like to turn the call over to the Chief Financial Officer, Kathy McDermott. Please go ahead.

Thanks, Joe. Good afternoon, everyone, and thank you for participating in BEAM Global's 2023 First Quarter Conference Call. We appreciate you joining us today and hearing an update on our business. Joining me is Desmond Wheatley, President, CEO, and Chairman of BEAM. Desmond will be providing an update on recent activities at BEAM, followed by a question and answer session. But first, I'd like to communicate to you that during this call, management will be making forward-looking statements, including statements that address BEAM's expectations for future performance or operational results. Forward-looking statements involve risks and other factors that may cause actual results to differ materially from those statements. For more information about these risks, please refer to the risk factors described in BEAM's most recent file, Form 10-K, and other periodic reports filed with the SEC. The content of this call contains time-sensitive information that is accurate only as of today, May 15, 2023. Except as required by law, BEAM disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. And next, I will provide you with the financial results for BEAM's first quarter of 2023. Our first quarter revenues started out very strong, increasing 245% over the first quarter of 2022 and 65% over the prior fourth quarter of 2022, which is typically our highest quarter. Revenues for the quarter ended March 31st, 2023, with $13 million compared to $3.8 million in the same quarter in the prior year. The increase can be attributed to the increase in federal sales, primarily to the U.S. Army, as a result of several large federal orders we received in late 2022 that will deliver through the end of 2023. Our manufacturing operations have increased our production capacity by increasing our production team, close management of our supply chain, and through improved tooling and design changes to allow us to fulfill this higher demand for our products. After many quarters of reporting a gross loss, we're happy to report a gross profit for the quarter ended March 31st, 2023. Our gross profit was 5,000 compared to loss of 0.3 million or 8.1 of sales for the first quarter of 2022. This improvement resulted from the increased production levels providing favorable fixed overhead absorption and improved labor efficiency. Our material costs for steel and other components remain higher than Q1 2022 due to supply chain shortages and other inflationary pressures. Also, our cost of goods sold includes 0.2 million of non-cash intangible amortization related to purchase assets from the all-sale acquisition. Operating expenses were 3.8 million or 30% of revenues for the first quarter of 2023 compared to 2 million or 52% of revenues for the same period in the prior year. We acquired all-sale technologies in March of 2022 and reported one month of expenses in Q1 2022 So 0.5 million of the increase is due to a full quarter of energy storage expenses in Q1-23. In addition, we invested 0.4 million for additional resources in R&D, 0.3 million for non-cash compensation expense, 0.3 million for audit fees, and 0.3 million for admin salaries and bonus expense. Our net loss was 3.8 million, but the three months ended March 31, 2023. compared to $2.3 million for the first quarter of 2022. These quarters included non-cash expense items such as depreciation, IP amortization, and non-cash compensation expense of $0.9 million and $0.4 million, respectively. Net loss excluding these expenses would have been $2.9 million and $1.9 million, respectively. On March 31, 2023, we had cash of $1 million compared to $1.7 million at December 31st, 2022. The cash decrease was primarily from the net loss as well as an increase in accounts receivable, partially offset by an increase in accounts payable. Our working capital decreased from $6.8 million to $5.5 million from December 31st, 2022 to March 31st, 2023. And with that, I will turn it over to Desmond.

Thank you, Cathy, and thank you to all of you shareholders, followers, and analysts who have joined this call to hear our Q1 2023 results. I'm going to make some comments, and then I'm looking forward to answering your questions before we close the meeting. Well, the Beam team really knocked it out of the park this quarter with record revenues and deliveries, a positive gross margin, and record Q1 sales orders and pipelines. This continues the team's trend of breaking records quarter over quarter and year over year. We generated by far the highest revenue of any quarter in our history. In fact, about three times more revenue than in the first quarter of the previous year, more than half as much again as in the prior quarter, and a quarterly revenue rate that was higher than any full year in our history, barring 2022. Q1 of 2023 is now our eighth quarter of consecutive revenue growth. and continues a trend which, barring a few minor instances, goes back a good deal longer than that. 2022 was a year in which the Beam team generated a 548% increase in orders over the prior year, and the prior year was up significantly over its predecessor. Clearly, demand for the product was no longer a problem. The new question in everybody's mind was whether or not we could deliver on all this growth. In this first quarter of 2023, the Beam team delivered more EV arcs and more battery systems than in any other quarter in our history. We delivered 150 EV arcs, up from 103 in the fourth quarter of 2022. And again, this delivery rate was higher than any full year in our history, except for 2022, which was, of course, a record year. By the end of 2022, our team in Chicago was producing about 10 times more kilowatt hours of batteries than Allcell, the company we acquired, did during the month prior to our acquisition. And that trend has continued through the first quarter of 2023 and was enabled without significant capital expenditure on our part. During the first quarter of 2023, the operations and engineering teams at Beam Global have continued to make improvements in our processes, fixtures, equipment, and product engineering. These improvements have taken place during the quarter and have resulted in a daily and weekly production rate at the end of the quarter, which is far superior to that which we began in 2023. I believe that the result of these activities will mean a continuation of our accelerating trend of production, so that in Q2, Q3, and Q4 of this year, we will continue to increase our output, absent any unforeseen event which is outside of our control. At any rate, even at our current run rate, we're on track to produce something like three times more EVRs in 2023 than we did in 2022, which, as I've already stated, was a record year and 144% over 2021. I've consistently stated that with increased volumes, we would see improvements to our growth profitability, and that assertion has certainly been borne out in this latest quarter. We reported a growth loss of 8.1% in the fourth quarter of 2022, But in the first quarter of 2023, we generated and reported positive gross profits, albeit a minor, and when excluding non-cash amortization of intangible assets resulting from our acquisition and wholesale, the picture was actually a couple of percentage points better. I repeat, we made money at the gross profit line across the entire Beam Global platform gap. And excluding the arcane accounting treatment of our very successful acquisition, we did better than we reported by about 2%. We achieved these improvements in gross profitability through combinations of increased efficiency, improved engineering, and the inevitable reduction of our per-unit fixed overhead allocation that comes with growth. I've long stated that we received positive margin contribution from the sale of EV arc systems. The GAAP numbers now show unequivocally that this is correct as we've reached a point in our levels of production where all our overhead costs associated with producing the products have been covered and we're now able to produce a gross profit across the company. I'm confident that these improvements in growth profitability will continue as our volumes increase and as we continually improve our processes and methods of manufacturing while upgrading our tooling and fixturing to increase our throughput and reduce labor hours per unit. But there will be other contributors to improving gross profitability, which I believe will have even more impact during the next two or three quarters. I'll describe the three most significant of those to you now. Firstly, our combined engineering team on both the battery and EV charging product side of the business has identified engineering and component improvements, which we believe will make the EV arc a better product while at the same time reducing our cost to produce them by between $10,000 and $12,000. This reduction in cost should equate to approximately 16% to 20% improvement to the margin contribution from a base EVR. We expect to see the impact of these improvements starting in a small way in the second quarter, but complete by the end of 2023. Secondly, because of the exceptional demand for our EVR products from both governmental and commercial entities, we have decided to increase our sales price for the first time by approximately 8.25% on a base model system. Pricing in EVR has, over the years, been the subject of much discussion and analysis here at Beam Global. On the one hand, because we have a unique and well-patented product with no direct competition in the marketplace, there's been a strong argument to suggest that increasing our prices makes sense. On the other hand, there's a competing argument. that increasing acceptance of the product and hence volumes of production was so important that doing anything that might create a hurdle for increased adoption, like, for example, increasing our prices, might in turn have a negative impact on the overall health of the business. We have been patient and we've been prepared to learn from the market And I'm delighted to report demand for our product is so strong and growing that after much consultation with our sales and marketing teams, we've come to the conclusion that we can increase our prices without having a negative impact on the order flow. On the contrary, we believe that the urgency of demand for our products will continue its long-term trend of increasing and accelerating. We've introduced this 840% increase in our selling price as a line item on our proposals. addressing the inflationary environment in which we're currently operating. We believe that this line item will be well understood and accepted by our prospective customers. And we're also encouraged by the flexibility that this price increase strategy affords us. The third contributor to our increasing profitability is the disinflationary impact to the cost that we're paying for components, commodities, and transportation. We first started to detect this trend towards the end of 2022, and we believe that we will see a decrease in the cost of materials and transportation throughout the remainder of 2023. I stress that the improvement of growth possibility in the first quarter of 2023 has not been assisted by this disinflationary trend, as we and our vendors have worked through inventories accumulated during the period of hyperinflation up to the end of last year. The result of this is that the EV arcs and batteries that we sold during the first quarter of 2023 were still negatively impacted by the highest costs that we've ever paid. And yet, we were able to improve our gross profitability and generate positive gross profits in spite of these influences. We should start to see the positive impacts of the disinflationary environment on our cost of goods sold, starting in a minor way in the second quarter and continuing throughout the rest of 2023. By taking the impact of all three contributors to improving gross profitability, along with our already demonstrated ongoing improvements resulting from increased volumes and efficiencies, we can do some simple arithmetic. 16% to 20% of improvement through engineering enhancements, 8.25% improvement due to our price increase, and an as yet unidentifiable improvement as a result of disinflationary activities amounts to a potential for approximately 24% improvement over our current positive gross margins. I've stated before that I'm targeting a 50% gross profit on our EV arc and other charging products. And I think you can see with the outlined improvements I've just described that we're taking the right steps to move towards that goal. Cost improvements are a process, not an event. And as I've said, we'll start to see the benefits of the steps we're taking in the second quarter, but more dramatically in the third and fourth quarters of this year. In the interest of being abundantly clear, the price increase I've just announced became effective on May 1st of this year, and as a result, had no impact on our gross profitability in the first quarter. All of the improvements in gross profitability in Q1 came as a result of increased efficiencies and volumes. The impact of this price increase will be on any new orders which come in and are delivered after we've worked our way through our currently priced backlog. The other cost savings that I've mentioned above will be impactful to elements of our current price backlog because we'll institute these changes as quickly as we possibly can. And as I've already stated, we expect to see these improvements take effect beginning modestly in this quarter and continuing with more vigor during the remainder of the year. Our constantly improving growth profitability provides the best type of support for our cash position. We continue to manage cash carefully and with prudence. We have approximately $5 million in cash in the bank today, which is significantly more than we reported on our balance sheet at 12-31 or 3-31 of 2023. We have over $100 million of liquidity because in addition to the $5 million we have in the bank, we still have the as yet unused $100 million line of credit issued to us by the OCI Group in London. As a reminder, this $100 million line of credit is liquidity that we can use at our discretion at a cost of SOFR, or the secured overnight finance rate, plus 300 basis points. There are no other fees or costs associated with using this money, and there is no equity impact whatsoever. I'm aware that the cash position on our balance sheet has sometimes raised a few eyebrows. But as we very clearly demonstrated in the first quarter of this year, we have managed to dramatically increase our production and improve our profitability while maintaining a disciplined approach to managing our cash resources. Further insight into our cash out comes from looking at our working capital position, which stands at approximately $13 million when excluding non-cash items. It's essential to recognize the positive contribution margin from our products when understanding our cash. This has been made abundantly clear by our positive growth probability in the first quarter of 2023. As we see increased volumes of products moving through our factory, combined with our planned cost reductions and our pricing increase, we will see an increase in contribution margin, which will have a further positive impact on improving our cash flow. We should continue to see this increase in volume, not only because we started 2023 with the highest contracted backlog in our history, but also because the Beam Global sales team has produced a record first quarter of selling, while our operations team has produced a record quarter of production. The sales team sold more product in the first quarter of 2023 than in any first quarter in our history. But perhaps much more importantly, Our pipeline now stands at over $130 million, which is the highest pipeline position we've ever had at this time of year. And last year, we took a beginning pipeline of $80 million and converted $76 million of it into hard contracts. We now have $130 million in pipeline. And while no one can say with certainty what percentage of that pipeline will convert to backlog, our historical performance has certainly been very good. we will undoubtedly still see lumpiness in orders, somewhat driven by degrees of seasonality amongst the varied strata of customer prospects we target. But this very strong first quarter shows that even with the lumpiness, the general trend continues to grow and indeed accelerate. This lumpiness in order cadence has replaced what used to be lumpiness in revenues. However, we're no longer experiencing choppy revenue recognition. That has been replaced by consistent and dramatic growth. A little over half the orders we received in the first quarter came from governments, with the remainder coming from commercial entities, continuing a trend of a return from the commercial sector into our sales pipeline. We announced orders from one of the top global automotive OEMs, as well as from the materials re-handling sector and a fascinating robotics company. On the government and pseudo-governmental side, we saw interesting growth from corrections and native nations. This healthy mix of government and commercial business looks set to continue and is certainly represented in our greater than $130 million pipeline. We are seeing no indication of a reduction in investments in electric vehicle charging infrastructure, energy storage, or energy security. We will continue to grow our intellectual property portfolio on both the battery and EV charging side of the business. Already in 2023, we've announced new patents in Asia and Europe for both sides of the business. We intend to pursue our EV standard product as resources permit during the remainder of 2023, and our engineering teams will not cease from seeking methods to improve our existing products, making them of greater value for our customers while reducing our costs to produce them. We will continue to invest in sales and government relations activities, as well as R&D, and we will not shy away from opportunities to grow geographically. particularly where massive markets like Europe exist that are so well matched to the fantastic value proposition delivered by our products. None of these activities will in any way reduce our laser focus on continuing to improve our growth possibility and manage our cash. You need not take my word for this. It's absolutely clear in this quarter's results. In summary, the Beam team delivered more products than in any quarter in our history. We tripled our revenues over the same period prior year. We generated a positive gross profit across the company, and we have more cash in the bank today than we had at the end of 2022 without, and I stress this, without tapping our as yet unused $100 million credit facility. We have clearly identifiable and achievable opportunities for continued dramatic improvements to our gross profitability to be executed during the remainder of this year. We continue to break sales records in a market which shows no signs of abatings. We have increased our patent portfolio with it, and with it, the barrier to entry for the competition, and we have a roadmap of new and excellent products to bring to market. So far, all of the success has been derived within the United States, but we continue to see opportunities to replicate and accelerate the success internationally. The public markets have certainly been a challenging environment for growth stocks like ours. I believe our share price has been impacted by factors which are clearly not linked to our performance. We cannot impact the behavior of the broader markets, but we can continue to deliver material and excellent improvements to our performance. We have done, are doing, and will continue to do exactly that. I'll now return the call to the operator and take any questions which you may have.