Beam Global

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

Thank you. Good morning, and thank you for participating in BEAM Global's 2023 third quarter conference call this early morning. We appreciate you joining us today to hear an update on our business. Joining me is Desmond Wheatley, President, CEO, and Chairman of the Board of BEAM Global. 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 Bean'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 through today, November 14, 2023. Except as required by law, Bean disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. Next, I'd like to provide an overview of our financial results for BEAM's third quarter and the first nine months of 2023. The revenues for the third quarter of 2023 continued strong at $16.5 million, a 149% increase over $6.6 million revenue reported in the third quarter of 2022. Revenues for the first nine months of 2023 were $47.3 million, a 236% increase over $14.1 reported for the same period in 2022. Our revenue growth in 2023 is primarily driven by an increase in deliveries to federal agencies. We also increased our energy storage revenues by $2.5 million year-to-date compared to the same period in 2022. Ten percent of our revenues year-to-date are international sales, primarily for our energy storage business, but we're looking forward to beginning production of EV arcs at our new serving facility to expand our EV charging sales into Europe. Our gross profit for the quarter ended September 30th, 2023 with 0.3 million or 1.7% of revenues compared to a gross loss of 0.3 million or 5.1% of sales. Gross profit year-to-date through September 30th, 2023 was 0.8 million or 1.7% of sales compared to gross loss of 1 million for the same period in the prior year. As a percentage of sales, our gross profit year-to-date improved by 9%. The improvement in gross margin was primarily due to the increase in production levels compared to our prior year, which resulted in favorable fixed overhead absorption and labor efficiencies. We're also beginning to see some vendor cost reductions and benefit from recent engineering design changes. Operating expenses for the third quarter of 2023 were $4 million compared to $6.5 million in the same period in the prior year, an improvement of 73% of revenues year-over-year. Operating expenses decreased by $3.9 million for non-cash contingent consideration recorded in Q3 2022 related to the off-law acquisition, partially offset by increases for sales commission and non-cash compensation expense. For the nine months ended September 30, 2023, we reported operating expenses of $11.9 million, or 25% of revenues, compared to $10.9 million, or 78% of revenues. for the same period in 2022, an improvement of 52% as a percentage of revenues. Year-to-date 2022 only included seven months of expenses for energy storage business operations based on the March 2022 acquisition date. 2023 cost increases are primarily attributable to non-cash compensation expense, administrative salaries and bonus accrual, sales and marketing expenses, including commission accrual, and investment in R&D salaries and expenses. These increases were partially offset by a decrease of $3.4 million for non-cash contingent consideration related to the all-sale acquisition. Our net loss was $3.6 million, or 22% of revenue, for the third quarter of 2023, compared to $6.8 million, or 103% of revenue, for the same period in 2022. Net loss was $11 million for the nine months ended September 30, 2023, compared to $11.9 million for the first nine months of 2022. The year-to-date net loss included non-cash expense items such as depreciation, intellectual property amortization, and non-cash compensation expense of $3 million in 2023 and $5.2 million in 2022. On September 30th, 2023, we had cash of 14.8 million compared to 1.7 million at December 31st, 2022. The cash increase was primarily due to capital raise in June, 2023, offset by increased accounts receivable due to the increased revenues and operating losses. Our working capital increased from 6.8 million to 3.4 million from December 31st, 2022 to September 30th, 2023. The working capital balance is increased by the 25 million net capital raised in June and increased accounts receivable based on increased sales. With that, I will now turn it over to Desmond to provide a business update. Desmond?

Cathy, thanks very much for that. And thanks also to everybody who's listening in today, particularly those of you who are on the West Coast. I'm well aware of the fact that this is the second time in a week I've asked you to get up in the wee hours to join these exciting Beam Global updates. So thank you for that. I'm actually speaking to you from Europe, where I've spent the last 10 days in our new facilities in Belgrade and Krajevo in Serbia. Having spent the last 11 months negotiating the acquisition of the company that was formerly known as Amiga and is now Beam Europe, the parties, which were formerly sitting on opposite sides of the table, are now all engaged in the creation of a growth engine for Beam Global in the largest market in the world for our products. Beam Europe is a reality. And as each day goes by, we're operating more and more as one company. It's been an exciting and fantastically busy 10 days. during which I and the entire management team over here have been totally immersed in the integration of Beam Europe into our global operations. I hope that many of you were able to join the live tour of our new six and a half acre facility last week. It was an intense and information packed hour during which I attempted to show the scale and capabilities of our operations over here. In case you missed it, there's an archive version which you can find on the investor relations section of our website. I'll return to the subject of our European expansion later on in this call, because it's certainly the most significant event in Beam Global's 2023. And in my opinion, after the invention, first sales and production of the EV Arc, it's the most important evolution in our company's history. It's quite an achievement for any event to be referred to as the most significant in our 2023, a year in which we've seen absolutely phenomenal growth and improvements in every area of our business. None of them were insignificant, and all have contributed to making Beam Global a better company than at any time in our history. We've dramatically increased the rate of production of our products. We've dramatically increased our revenues. We've dramatically improved our gross profitability. And we've significantly reduced our operating costs as a percentage of revenues as the year has advanced. Starting with revenues, we've delivered triple-digit year-over-year percentage growth in each quarter of this year. Our Q3 results were a continuation of the trend. $16.5 million of revenue we generated in the third quarter of 2023 represents a 149% year-over-year increase. And as I said, that's the third quarter in a row where we've had triple-digit year-over-year growth. When looking at our year-to-date results, we obviously have another record, over $47 million in revenue. That's a 236% increase over 2022. And to put it into further context, just looking at absolute numbers, we did $22 million in revenue in 2022, and we're already at $47 million with another quarter left in this year to add to that. Just as a quick historical reminder, we did $6 million in revenue in 2020, $9 million in 2021, $22 million in 2022, and now we're at $47 million just three quarters into 2023. So clearly, a phenomenal growth story that continues today. The acceleration in the pace of our production of both batteries and EV arc products is even more impressive. Production of EV arcs so far in 2023 has increased 295% year over year. And our battery manufacturing facility in Chicago produced something in the order of 10 times more kilowatt hours of batteries than they did before we acquired them. In case you're wondering how it can be that the 295% year-over-year growth in EV arc production is greater than the 236% increase in revenue, the main explanation for this is that we produced more EV arcs than we were able to deliver in Q3, in no small part due to the threatened federal government shutdown at the end of that quarter. It's not that those deliveries won't take place. It's just that because there was uncertainty around whether or not federal employees would be at work, deliveries of certain EV arcs were postponed. This temporary blip is just that, temporary, and we believe that as long as there's not another and prolonged federal shutdown, we should catch up back up in the next few months. We had backlog of over $31 million at September 30th, and our sales team continues to convert elements of the over 100 million in pipeline that we have into backlog on a regular basis. While we continue to see lumpiness in large order cadence, the flow of purchase order wins brought in by the sales team is actually improving over prior years. And we've received no indication from any of our existing customers or prospects that they're slowing down their plans for EV charging deployments. We're all aware that there have been reports in the media recently about a slowing in the growth of adoption of electric vehicles. Certain of the large automobile manufacturers have announced reductions in their aggressive growth plans for the electrification of their fleets in coming months. To put this into context, we need to look at the facts behind the stories. While it's true that there's been a reduction in the speed of electric vehicle adoption as a percentage in August and September of this year only, the absolute numbers continue to grow rapidly. And the slowing down that the media is referring to might be better described as a significant growth instead of a phenomenal growth. 2023 EV sales are 61% higher than they were by this time in 2022. Interestingly, it seems that Tesla has taken the hardest hit with 41% year-over-year growth, while the combination of all the other brands have seen 98% year-over-year growth in the same period. Now, I view that as a further mainstreaming of EVs as they move from the niche Tesla audience to everyone else. Any way you look at this, it's still phenomenal growth and far higher growth than that which has been experienced by internal combustion engine vehicles or ICs. The installation of electric vehicle charging infrastructure has not kept pace with EV sales, and there was already not enough publicly available chargers for the existing fleet of electric vehicles, far less than the tremendous growth that we're still seeing. The two biggest barriers to consumer adoption of electric vehicles continue to be number one, perception of their costs, and number two, lack of available charging infrastructure. beam global is in the business of solving for number two and as i've already said those of us in the eb charting industry are and will be playing catch up and therefore less susceptible to predictable fluctuations in consumer adoption of the ever-expanding lineup of new evs by the way norway gives us a good look at what the future holds for the rest of the world there ev sales are 98 of the market There's been heavy investment in education and EV charging infrastructure in Norway. And they've now amassed enough data to show that total vehicle ownership costs are around 20% less for the consumer. And that data includes the earlier models of EVs, which were much more expensive than today's offerings. So the argument that EVs are more expensive is already false. When consumers get the hang of that, I think we'll see a rapid shift in sentiment. Between shifting consumer sentiment and continued government tailwinds, we anticipate, as I've said, nothing but growth for the foreseeable future. Any fluctuations that we do see in order cadence in 2023 and in the next several quarters will be more likely to do with the sometimes unpredictable pace of federal and state orders brought about by budget uncertainties and potentially impactful events like threatened or actual government shutdowns. But none of this, I think, will be meaningful in the long term. Again, I still firmly believe, and I think that all the evidence confirms this, that however lumpy this order cadence may be, the macro trend provides for nothing but sustained growth for the next several decades. Electric vehicles are not going away. On the contrary, government tailwinds are continuing to strengthen as the increasing awareness of climate impacts, matched by continuing geopolitical uncertainties associated with the global oil industry, make it more difficult not to double down on already aggressive carbon reduction plans. Additionally, while most experts accept that there is some short-term slowing of the rapid increasing of the adoption of electric vehicles, they're equally certain that the widespread electric vehicle adoption is inevitable and that the infrastructure requirements will somehow have to keep pace with consumers' demand for the products. All of the reputable studies that I've looked at still show the majority of consumers stating that they're considering an electric vehicle for their next purchase. In the meantime, I and the rest of the management team at Beam Global are ensuring that we diversify our opportunities for revenue generation. Said another way, we're widening the top of the funnel. We're doing that in the United States by adding sales resources and targeting a broader set of customer prospects, as well as deepening our government relations and playing a greater role in the formation of policy rather than waiting for that to happen without us. Of course, absolutely the most significant step that we've taken to broaden our prospects is the opening up of Europe as a market for our products. Europe is by every measure the largest potential market for our products. So we haven't just widened the top of the funnel marginally, we've doubled or tripled it. As we continue to evolve, the lumpiness that we experience in one market should be offset by corresponding lumpiness moving the opposite direction in another. The fundamental takeaways from these preceding points is that there continues to be significant growth in our addressable markets, significant improvement in our ability to address those markets, and a continued growth and urgency in the requirements for the unique attributes delivered by our portfolio of patented products. We're not just using geographic market expansion and additional segments to widen the amount of our funnel. We're also diversifying our product offering while staying true to our strategic goals. Up until 2022, EV arc sales provided materially all of our revenues. In 2022, with the acquisition of all cell technologies, we added batteries to our product mix. The sale of batteries to external customers, in other words, not those used in our own products, has contributed over 6 million to our revenues in the first three quarters this year, a significant contributor to our growth and an excellent diversification of revenue opportunities for us. The acquisition of all cell technologies has also contributed significantly to our gross margin improvement through a reduction in costs in the batteries, which we've integrated into our products. We're going to start to see the biggest impact of those cost reductions in the fourth quarter of this year and the first quarter of next. Really significant savings. Now, our engineers in San Diego, Chicago, Belgrade, and Cravo are all working on the next and what I believe will be the most significant diversification in our product offering in the company's history. We have made more progress in the development of our EV standard product in the last month than in the last four years. EV standard is a street light replacement which will provide renewably energised EV charging and energy security infrastructure at the curb without the requirement for significant civil or electrical projects. Comprising much of the same technological excellence which is found in the EV arc, but in a different form factor, it will solve the very real challenges associated with installing electric vehicle charging for on-street parking. Providing charging to vehicles parked on the street is essential to the success of the electrification of transportation. I know of no more elegant solution to do that than the EV standard. But a major consideration in the acquisition of Amiga was that they're one of the top streetlight manufacturers in Europe and have sold those sorts of products across 17 nations. They've already manufactured solar-powered streetlights and other types of street furniture with renewable energy and electronics integrated. And as a result, have the perfect combination of experience and expertise to assist our EV charging and energy storage engineers in the perfection of the EV standard product. The level of collaboration between our engineering teams in Europe and those in the United States is really impressive. In the very near future, I believe that diversifying our product offering in this manner should have a significant effect not only on the lumpiness in order cadence, but much more importantly, on delivering another tremendous growth engine for being global, both in Europe and in the United States. So we're executing on a multi-pronged strategy to increase our opportunities through geographic expansion, expansion of the verticals that we were targeting with any geography, and through the introduction of new products, which are equally or more unique and compelling. And we're doing all of that while at the same time delivering triple-digit growth in revenues, improving our gross profit, and reducing our overhead costs as a percentage of revenue. We continue to generate gross profits during the third quarter, about 3% when excluding non-cash items. Year to date, we're gross profitable and we have yet to be positively impacted by the significant cost savings which our engineering and operations teams have identified and are now putting into effect. As I told you during our second quarter earnings call, the gross profits we were generating then and are generating now are as a result of increased efficiencies and volumes of product running through our factory. Those volumes are sufficient to overcome the fixed overhead burdens which had previously caused us to report negative gross profits, even though the unit economics on the EV arc have been positive since quite early in that product's development. We're better off from a cash point of view every time an EV arc leaves the factory, not worse off, as would be the case if the unit economics were not positive. Now we're entering a new era of cost improvements, which are more dramatic than those which we've received simply through increasing volumes. Engineering and operational improvements should deliver a better than 20% improvement in our cost structure and a similar improvement in our gross profit. I stated previously that those cost savings should take effect materially in the fourth quarter and be fully manifested by the end of Q1 2024. The facts are supporting that prediction, and we're now looking at current costs to produce EVR, which are meaningfully lower than at any time in our history. That's a process which will not end. Even though we're going to present significant cost reductions in the next couple of quarters, we do not consider this job done. On the contrary, these cost savings are simply the next step on our relentless path to improving our gross profitability while maintaining quality and the unique attributes of our products. We know that there are further opportunities to generate more significant cost reductions and will continue to develop and invest in those areas which will enable the savings. Beam Europe actually provides a couple of excellent examples of these opportunities. Our operations over there will benefit immediately from the reduced costs which are now incumbent in the latest generation of EVR products. But also, from day one, Beam Europe will have a lower cost structure. Not just because Serbia is a much lower cost environment in which to operate, but because Beam Europe is better equipped in our U.S. operations and as a result, able to self-perform a couple of activities which are elevated cost centers due to our outsourcing in the United States. Beam Europe has its own sandblasting and painting operations. We outsource those activities in the U.S. Sandblasting and painting in San Diego is already an expensive undertaking because of the highly restricted compliance environment that exists in California. We then have to add to that the gross profits taken by the company that provides those services to us, as well as all the handling and transportation costs which result from our having to ship heavy steel sections to and from the service provider. Europe will have the raw costs, labor and materials, though less expensively than in the U.S., but not the gross profits on those elevated costs or the logistical costs of handling and transport. Beam Europe has its own sandblasting and painting facilities already, and future EV arc and EV standard products produced there will not need to leave the factory for this important activity, nor will the dollars associated with that have to leave our accounts. Another expensive process which we outsource in the US is the forming of our engineered ballast and traction pad. This forming is vital to our product, and it's an expensive and not without risk process, which also involves logistical challenges. Beam Europe has in-house capabilities to perform this forming task with none of the risk or elevated costs that we're paying to a vendor in the US. Incredibly, only three weeks after closing on the acquisition, our Beam Europe team is already making engineered ballast and traction pads for EV Arc systems. That process is arguably the most technically demanding where the structure of EV Arc is concerned. So it's very encouraging to see Beam Europe have success with self-performing this activity so soon after becoming part of Beam Global. If you've seen the tour of Beam Europe that we did last week, either live or on YouTube, then you'll have noted my excitement when I saw one of these great big heavy plates being run through the machine that forms it. I and the team in Europe know that if they can perform this task, there's nothing else in the production of EV arc that they will not be able to do. This single task is responsible for about 2% of our cost structure in the US. It's not going to disappear entirely in Europe, but it will become practically immaterial. Insourcing, painting, and sandblasting will have much more profound effects on our efforts to reduce costs, and Beam Europe's already there. Frankly, another benefit of this acquisition is that we now have, as part of our organization, these European operations with their 30 years of experience in improving their production capabilities and facilities. In the US, we've only been seriously producing for a couple of years. We've made tremendous improvements during that time, but we're going to learn a lot from our new European colleagues. The other significant impact to gross profitability, which is coming, but as yet has not affected our results, is the price increase we put into effect this year. New sales will include this increase in price, which adds about 8% to our base model. That 8% will go straight to gross profitability because nothing else has changed where the price raise is concerned. Combining the price increase with the cost savings now being realized in the EV arc systems that are coming off the line today will give us an improvement in our gross profitability in the mid to high 20s percentages. Again, the full impact of this improvement will come when all the current cost improvements are implemented and we've worked through our current backlog, which was priced before the increase went into effect. We have a backlog to last us through the first quarter, so you should anticipate the full gross profit improvement at or towards the end of that queue. We generated over a million and a half dollars of gross profit so far this year, net of non-cash items. Had we been operating all year with the lower costs now being integrated into our current products and with a price increase, we would have generated 8 to 10 million in gross profits. Our total loss for the year of today is about 11 million. So that you can see with a couple of other tweaks to our model, like those that I've just outlined, our European operations, cash flow is far from a distant and vague premise, especially when non-cash items are removed from that 11 million. We can't go back in time, obviously, but this thought experiment, looking at 2023 volume, but with gross profit improvements we expect in 2024, provides a very useful forecasting methodology for where we're going. It's simple arithmetic at this point. Remember also that BME Europe's core business generates positive cash flow and will be accretive to our overall business. I'm often asked if we can cash flow in 2024. Well, you can make your own assessment based upon the factors I've just outlined. One of the most significant results of these improvements to our gross profitability is the reduction of our reliance on the cash on our balance sheet for our day-to-day operations. If we improve nothing else and have a first three quarters of 2024 that's identical to the first three quarters of 2023, except that we're operating with the improved gross profitability that I just described, we'd only need to dig into our cash for a million dollars. At September 30th, we had approximately 15 million in cash, 15 million in AR, and 14 million in AR, in inventory. We convert AR and inventory to cash in generally less than 90 days, giving us over $40 million of firepower to pay our bills. We're well capitalized, have no debt, and are looking at a real scenario in which our reliance on investment dollars on the balance sheet is less and less crucial. Being Europe does not require material investment, It's already cash flowing and any amounts that we do invest to start producing EV arc and EV standard in that market should be more than offset by the lower costs inherent in operating in Serbia and with a very well equipped facility, which is much less reliant on outsource services than our US operations are. BIM Europe's already featured quite a lot in my comments because even though it's a brand new to us, it's so important both from a strategic growth point and also from the point of view of positive impact profitability. It's strategically important because it gets us into the largest market in the world for our products, and also because it's so important to the development and production of our EV standard product, which I believe will be the biggest earner for us not long after we release it. It's important from a profitability point of view because of the lower cost structure, better capabilities, and increased opportunities for profitable revenue it brings, along with its long history of discipline leading to positive cash flows. We paid 10 million euros for Beam Europe, That price was a reasonable, even low-end valuation for the business that we acquired on its own. But we didn't just get the business. We got the land, the buildings, and all the equipment too. The land has recently been independently appraised at around 7 million euros. Buying the equipment from scratch would cost between 6 and 10 million euros. I said another way, had we gone to Europe and bootstrapped, we would have had to spend over 13 million euros just to get the property, plant, and equipment. Then we'd have to recruit the 35 engineers and the other 170 or so employees and try to start building a customer base from zero. Instead, we have a mature, experienced, and excellent team. We have solid customer relationships in 17 nations. We have a history of performance delivering to exactly the same customer profile with whom we're having success in the US. We have credibility, and in many cases, existing contracts. We have a solid and growing complementary line of business, which generates positive cash flows, and we have an excellent management team. Pro International, who we hired to do the due diligence, described Amiga as one of the best-run companies they've ever seen in Serbia. We got all of that for less than we would have had to pay for the buildings and the machinery in them. It's true that this acquisition could cost more if Beam Europe hits its very aggressive earnouts that we put in place for 2024 and 2025. But that's exactly the way I like to pay for a company. A low-end valuation for the initial consideration with a great opportunity for the sellers if, and only if, they stick around and knock it out of the park for Beam Global. It's not only fair, it's an excellent incentive for all involved to make a tremendous success out of the integration of our organizations. I can see that already happening. Again, any of you who watched the tour will have seen how far we've come in an incredibly short time. Just three weeks after closing the deal, Beam Europe is making EV art pieces, the employees are working in Beam uniforms, and the signage and other branding on site is largely Beam Europe. There's a lot more work to do to entirely transform what was Amiga into Beam Europe, but the progress we've made so far is exemplary and faster than I've ever seen with any previous acquisition. This is certainly an instance of two plus two equals more than four. How much more remains to be seen, but I'm very confident that bringing Beam Global to Europe and bringing Europe to Beam Global will provide all of the tremendous growth that we've had in the U.S. market, and in my opinion, it'll offer more. So the effect will be, in my opinion again, to far more than double our business. We did that using about one-tenth of our market cap, even in this market when growth stocks have been so severely devalued and without taking on any debt in this elevated interest rate environment. So, Beam Global is a very different company than it was last time I reported to you. We now have 370 employees, more than a tenth of whom are advanced engineers. We have a whole new set of products and opportunities, and we're rapidly advancing new products, which we all believe will be highly impactful to our bottom line. We're operating the largest market in the world for our products at a time when Europe has committed to zero emission vehicles in 12 years and zero emissions energy by 2050. This is also the time that Europe has felt least secure in its energy infrastructure since the end of the Second World War due to the war in Ukraine. There could not be a better time to add this huge new opportunity to Beam Global's business. And I don't think we could have done it in a better manner. Please do take the time to watch at least some of the video tour that we did last week. I don't think you'll be disappointed. So let's sum up. Record results. No debt. Well capitalized. Highly differentiated in a growing industry. And now with massive new markets open to our products and the ability to capitalize on it. A share price that's one-tenth of where it was when we had more or less none of these things. How long can that go on? We're doing what we committed to do, and the entire Beam team is executing across the board. Personally, I'm very busy, and I'm not spending a lot of time with my family, but I'm loving being a part of Beam Global, and I believe more than ever that it's a great time to be Beam. With that, I'll return the call to the operator, I think, and take your questions. Thank you very much.