Beam Global

Good day, and welcome to the BEAM Global Second Quarter 2023 Financial Results and Corporate Update. All participants will be in a listen-only mode. And should you need any assistance, 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 touchtone phone. To withdraw a question, please press star, then two. I would now like to turn the conference over to Kathy McDermott, CFO. Please go ahead.

Thanks, Joe. And good afternoon. Thank you for participating in BEAM Global's 2023 second quarter conference call. We appreciate you joining us today to hear 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 recently filed 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, August 14, 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. After the market closed today, BEAM Global issued a press release and our Form 10-Q announcing our fiscal 2023 Q2 and year-to-date financial results. As you will see, we had an excellent quarter, in fact, the best in our history, with material improvements across all financial metrics. Since you have the numbers in front of you, I will save you the time of rereading them to you. This press release and our Q2 Form 10-Q are available on our IR website and can also be accessed via sec.gov. In addition, you will find a supplemental information deck on our IR website. And with that, I will turn the call over to Desmond Wheatley.

Thank you, Cathy. And thank you all for joining us today to hear this update on our operating activities for Q2 of 2023. Welcome, everybody. The second quarter of 2023 is now the 10th quarter in a row of growth at Beam Global. But the beam team is really knocked out of the park for the past few quarters and especially this time. The production team produced and delivered over 200 EV arcs this quarter. That's essentially the same as all the EV arc systems produced and delivered in 2022. And 2022 was by far and away our best full year of production and deliveries up until this point. In other words, the beam team is now on a cadence to produce and deliver as many or more EV arcs in a quarter than we've produced in any full year prior to 2023. On the energy storage side of our business, we continue to produce more than 10 times more kilowatt hours of batteries than our Chicago-based team was producing before we acquired All-Cell in March of 2022. And Q2 energy storage revenues were higher than in any quarter since the acquisition. By the way, remember that we don't count internal use of batteries as revenue for that side of our business. This fantastic increase in production and deliveries has, of course, resulted in an equally fantastic increase in revenue. The 17.8 million in revenues we generated in Q2 represents a 379% increase over the same period prior year. And looking at the first half, we generated just 31 million in revenues, which is about 312% increase over the full first half of 2022. As I've already said, we're producing about 10 times more kilowatt hours of batteries than all cell was before we acquired it. And we actually produced about six times more EV arcs in the second quarter of 2022 than in the same period prior year. But our cost didn't increase at the same rate. We managed to squeeze all of this growth out of the same buildings. And while we're producing six and 10 times more product, we only increased our headcount by about one and a half times. We increased our other overheads by even less. With the same footprint and around one and a half times more people, we've gone from just over $7 million of revenue in the first half of 2022 to almost $31 million in the first half of 2023. All this increase in production has come from a variety of different factors, and none of them were accidents. First of all, we're just better at what we do. The teams, both on the electric vehicle charging infrastructure product side and also on the energy storage side, have really gelled. I love walking through the factory and watching them. There's clearly muscle memory. Things are moving more smoothly, and people are getting a lot more done with a lot less effort. We put a great deal of time and effort into figuring out how we can do things more efficiently. The people are happy in their work. They know they're getting things done, and working smarter, not harder, has made the factory environment safer, too. The other part of walking the factory floor, which I love, is observing how different it looks. We've invested in a lot of new tooling and fixturing, which makes us much more efficient while substantially reducing the opportunity for errors. EV arcs are rolling through the factory now faster, more smoothly, more safely, and in far greater volumes. We're already producing more product now than many thought was possible when we first moved into this facility. But the great news is we still have a massive amount of opportunity for further improvements. It takes a lot of work, a lot of consideration, some trial and error, And it's a process, not an event, but the team keeps doing it, and the evidence of the success of their efforts is clear to see in the numbers. I said we've invested in a lot of new tooling and fixturing, but as any of you who have looked at our use of cash will have observed, we've not committed significant amounts of capital to these improvements. The fact is we've done most of the tooling and fixturing ourselves. We have a talented and well-trained team, and no one is more qualified to make decisions about how to improve our manufacturing processes than the people who are actually making the products themselves. I have a corner office with a view of our driveway and the ingress and egress points from the factory. I'm often pleasantly distracted by watching the trucks rolling in, loaded with steel, batteries, electronics, solar modules, and all the other components and materials which are integrated into our products. While on the other side, I watch the trucks rolling out with completed EV arcs. The level of activity here is completely different than it was a few months ago. But here again, we know we can and will do so much more. Our improved production processes and efficiencies are important because they enable us to produce a lot more product faster at a time when the global demand for EV charging infrastructure is accelerating dramatically. But they're also important because they contribute so meaningfully to our ability to control the cost inputs of our products. Last quarter, I told you that our engineering and operations teams had identified improvements to the way we make our products which would result in significant reductions in our cost of goods sold. And as a result, significant improvements in our gross profits. I also told you that we believe that we were at or near the end of the hyperinflationary environment, which we've been tackling for the last couple of years. Finally, I told you that as we increase the volumes of products running through our factory, the impacts of our fixed overheads would lessen while our labor costs per unit would come down. As it happens, we've so far only benefited from the last of those areas of cost reduction. The engineering and manufacturing improvements that we've identified are just now starting to impact us halfway into this third quarter, which is, I think, actually pretty much exactly what I said during my last quarterly report to you. So, we did not actually receive any cost reduction benefits in the quarter of a material nature from our improved engineering of the product. And while it's true that we're no longer seeing dramatic increases in prices of components and commodities, we've yet to see any significant decreases, though we do anticipate that this will happen during the coming months and quarters. In fact, we have for the first time in our history hired a full-time purchasing manager to ensure that we're getting the most favorable pricing and the most efficient inventory leverage possible. In spite of not benefiting from these two areas of cost reduction, The BEAM team were still able to improve our gross margins by over 12% when compared to the same period prior year. More or less all of this margin improvement has come from increased overhead absorption and the increased efficiency in our labor, which I already described. Revenue for employees is actually about three times what it was just one year ago. We've now reported positive gross profits two quarters in a row, with the second quarter gross being 100 times greater than the first. If I'm honest, we could have done better. It's hard to grow at the pace that we're growing and to do so efficiently and without making errors. We're human. We made a couple of moves in the second quarter, which, in hindsight, were not worth what we paid for them. That's going to happen from time to time, particularly as long as we're growing at this rate. What I'm encouraged by is the fact that the Beam team identified these errors and will not repeat them, so that the process, which has delivered a 12% improvement year-over-year in gross margin, continues. We get better. We identify errors. We fix them. We get more intelligent and efficient in the way we produce the product. And as a result of all this is that even without the drastic changes or improvements, there's a sort of continual process of cost reduction, which results in further improved gross profits. You can rest assured that we will never consider that project complete. The good news is that the significant cost reductions the team identified in the second quarter are still ahead of us. We're implementing the first of those now and should see the full benefits of them at the beginning of the first quarter of 2024. And again, I think that's pretty much exactly what I said during our last call. And we've not just benefited from operating leverage where our direct costs are concerned. Our second quarter operating expenses, while they have increased, are 44% less as a percent of revenue than they were this time last year. And I think we're getting a lot of benefits from the various investments we've made. Clearly, increases like paying more sales commissions are a very good thing. But we're also adding more depth in management, finance, and crucially for a growing company like ours, in human resources. We have a pretty simple rule at Beam Global, which is that if it doesn't make the product, make the product better, or sell the product, we don't invest in it. I'm confident that any increase in overhead spending, which is within our control, so I'm excluding costs like audit and the various other public company expenses that are outside of our control, Any increases which are within our control are adding value and setting us up for even more efficient and profitable growth. Remember that both our gross and net profit numbers include quite a lot of non-cash items which do not truly reflect our spending. You can find details of those in our filings. Speaking of cash, we're in great shape where that's concerned as well. With around $24 million in cash and over $37 million in working capital, which as you know I believe is a better metric for a business like ours, We're in a great position to execute on our future business plans. In case we need further short-term liquidity for significant growth, we still have our as-yet untapped $100 million line of credit, which is very competitively priced. Finally, we have no debt, zero debt, except I suppose I should mention that we're making payments on a couple of new trucks, which we've had to add because of the expansion and the number of EV arcs that we now have to deliver. It's a good thing. I can tell you that from my point of view, the most important of the growth plans that we have is our expansion into Europe. There are about 405 million cars in Europe at the moment, compared to just under 300 million in the United States and just over 300 million in China. And the European Union has announced a law banning all but zero emission vehicles 12 years from now in 2035. Europe is also very aggressive about tackling climate change and moving towards carbon neutrality in the next couple of decades. This means that they're very focused on integrating renewable energy sources into their energy mix. The fires in Greece this year, which are being tragically replicated in Hawaii at the moment, have sharpened European resolve to a zero-carbon energy future while increasing their needs for rapidly deployed infrastructure products. At the same time, the war in Ukraine and the worsening relations with Russia, from which Europe used to buy much of its natural gas used to generate its electricity, has greatly increased the valid perception of energy insecurity felt across Europe. Oh, and it's even harder to deploy grid-tied EV chargers in Europe than it is in the United States. When you put all that together, you see that there are going to be an awful lot of electric vehicle chargers deployed rapidly. They don't have enough electricity. What they do have is nowhere near as secure as it should be. and they need to transition to sustainable, renewable energy, and they need to do all of this in the next couple of decades. You certainly want to ask yourself, does anyone have a product that could solve all those challenges? Beam Global does, and it's a product with a great deal of credibility and over a decade of reliable service being used by customers like the U.S. Army, the Marine Corps, New York City, the state of California, and many others, and a whole host of the best-known global corporations. So you can perhaps see why a month ago, or so, I was very excited to announce that we're entering into the process to acquire a company in Europe which will position our manufacturer, sell our products to the biggest and what I think is the most exciting market in the world. Amiga DOO is a Serbian manufacturer of steel structures with integrated electronics. If you think about it, that's basically what our products are. It's one of the top manufacturers of smart street lamps in Europe. They've been in business since 1990, and they are profitable. They have 210 employees, of which around 30 are exactly the sort of engineers that we find challenging to recruit in the United States. By the way, those engineers cost less than a welder in California. They're great people. They're very well educated. They speak English, and they work hard. They have the facilities, the equipment, the experience, and the personnel required to make our EVR products. if they don't have our IP. If they did, it would take them very little learning and investment to start making EV arcs. We intend to get them that IP as soon as the acquisition is complete. For the last 30 years, they've developed a fantastic reputation for selling quality products to exactly the same customer profile as we've had so much success with in the United States. They sold streetlights, energy infrastructure, communications towers, and security infrastructure to cities, states, militaries, and corporations in 16 different nations, including the United States. In fact, if you're in Florida, it's not unlikely that you walk under streetlights manufactured by our target, Amiga. Now, in my list of things that I'm most excited about for this company, right after expanding our business into Europe comes developing the EV standard product. Beam Global is in the process of acquiring one of the top engineering and manufacturing companies in Europe, which develops, manufactures, and sells streetlights. When you combine our intellectual property, our engineering teams, their engineering teams, and their ability to manufacture, you simply can't come up with a more exciting combination where EV standard development and Beam Global growth is concerned. I've been spending a lot of time in Europe. in particular in Serbia with our new friends at Amiga. I'm increasingly impressed with their capabilities and their enthusiasm for joining with Beam in creating a sustainable EV charging infrastructure powerhouse that we intend to be unrivaled in the biggest electric vehicle market in the world. But the benefits from this acquisition will not only impact our European goals. As I've already mentioned, we'll absorb a highly qualified and talented engineering team, which has many capabilities that we seek for our U.S. business, A perfect example of that is the fact that we've had the EV standard patented since 2019, but have not yet produced it because our in-house engineering team has been so busy contributing to the phenomenal growth of our EV art product set. After we close this transaction, we'll be able to send engineering tasks to our team in Serbia at the end of any given day and have work product in our inboxes upon our return the following morning, thanks to the difference in time zones. I believe this will dramatically enhance our ability to make improvements to our existing products, as well as to continue to bring new and exciting innovations to the field of clean transportation. Beyond that, I think it's likely that, at least in the beginning, we'll produce the EV standard product in Serbia, even for the U.S. market. First of all, our cost structure will be much lower in Serbia. And because whereas we can only fit two EV arcs into a 40-foot container, we should be able to stack many EV standards into the same space, meaning that the cost of shipping will be much less impactful than they are with EV arc. So much so, in fact, that I think it's likely that, at least in the beginning, as I say, it will make a lot more economic sense to manufacture all EV standards in Serbia, whether they're deployed across Europe or shipped to the United States. I travel a lot in the United States and in Europe and the Middle East, and I can tell you that everywhere I go, I've met with nothing but enthusiasm for EV art and nothing but impatience for the EV standards. I cannot wait to start to sell EV art in Europe and to complete the development of EV standards. Just letting some jets fly over here, folks. If you all know, we're next to the Miramar Air Force. The Marine Corps Air Station. Looks like that's them. Anyway, as I said, I think it's going to make a lot more sense to manufacture all EV standards in Serbia, whether they're deployed across Europe or ship to the United States. And I was going on to say that having traveled a lot in the United States and Europe, I've met a lot of enthusiasm for the EV arc and nothing but impatience where the EV standard is concerned. I can't wait to start selling both of them in Europe and to complete the development of EV standard and to start manufacturing it and selling it there and, of course, over here as well in the United States. I'm very confident with the way the due diligence process is going. We've engaged an excellent and highly professional team in Serbia to assist us with this process, both on the legal and business side. I'm very happy with the way the deal is structured, just as I was with the way we were able to execute on the all-sell transactions. This deal is different in that, unlike AllSell, which is an all-stock deal, this is a combination of stock and cash. So I'm delighted that we were able to have such success with the offering we completed in June, with its minimal dilution, no warrants, and less than 9% discount. That unusually clean structure and pricing, along with the incredible demand, the deal was heavily oversubscribed. was not only an excellent move for the future of Dean Global, but also a significant vote of confidence from Wall Street and the investment community in general. So, yes, I'm very excited about this acquisition, our expansion into Europe and our ability to accelerate the development of EV standards and all the future innovative products which we intend to bring to market. So, to conclude, record revenues, record production and deliveries, record gross profits, and all of these metrics improving quarter after quarter. Record cash in working capital and a very attractive tax structure. No debt and a clean balance sheet. The most exciting international expansion I've ever been involved with and the reality of bringing what might be our largest volume selling product to market with a fantastic international team. The sales team still bringing in the orders and the markets we're addressing are going rapidly and yet still at the earliest of stages. There were certainly other exciting things that happened in the quarter, but I think that for now what I've shared with you is enough to demonstrate that it is more than ever a great time to be being global. And with that, I'll turn it back to the operator and gladly answer any questions that you may have. Thank you. Over to you, operator.