Beam Global

Good day and welcome to the BEAM Global second quarter 2024 operating results conference call. All participants will be in a 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 your touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Lisa Potok, Chief Financial Officer. Please go ahead.

Hi. Good afternoon, and thank you for participating in BEAM Global's second quarter of 24 Operating Results Conference Call. We appreciate you joining us today to hear an update on our business. Joining me is Desmond Wheatley, our President, CEO, and Chairman of BEAM. Desmond will be providing an update on recent activities at BEAM, followed by a question and answer section. 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 and 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 13, 2024. 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. Next, I would like to provide an overview of our financial results for being second quarter of 24. Our second quarter revenues are 14.8 million. It's increasing 2% over Q1 of 24. 31% of our revenue in second quarter was derived from commercial customers. For the six months ended June 30th of 24, our revenues were 29.4 million. We have a backlog of 11 million, and our pipeline of prospective customers has increased to over 183 million. Although we cannot be sure of when or if those prospective orders will turn into actual sales. We generated a record gross margin for the second quarter in a row with a gross margin of 16%. The margin improved six percentage points compared to Q1 of 24. Our gross profits included a 300,000 for non-cash depreciation and intangible amortization, which negatively impacts our profits. Net of these non-cash items, our gross margin was 18%. For the six months ended June 30th of 24, our gross profit was 3.8 million, or 13% of sales. Our six-month gross profits included a negative impact of 0.6 million for non-cash depreciation and intangible amortization. Our six-month growth profits net of these non-cash items was 15%. The improvement in their gross margin is primarily because we were able to recognize the engineering design changes to our EV arc that resulted in cost reductions to our bill of materials as well as labor efficiencies. Additionally, there were reductions in material costs as well as operational improvements and positive margins generated from the acquisition of Amiga. Our engineering and operations team continue to identify further cost reductions and efficiencies which, along with the support from our Serbian facilities, we believe will improve our gross margins in future quarters. Then for our operating expenses. For Q2 24 with 7.1 million compared to 4.5 million in Q1 of 24. The 2.6 million increase is primarily related to a $1.8 million expense related to the change in the fair value of the contingent consideration, which is non-cash, for the AMEGA acquisition. We also had $300,000 for operating expenses in the quarter for Beam Europe, and then we had $600,000 for commission expenses. Commissions are paid when receivables are collected. Our operating expenses for the six months ending Q2 24 was $11.7 million. These operating expenses included $1.5 million related to the change in the fair value of contingent consideration for the omega acquisition, which again is non-cash, and $900,000 for the operating expenses of Beam Europe. The net loss was $4.9 million for the second quarter of 24. The second quarter net loss included non-cash expense items related to depreciation, intellectual property amortization, non-cash compensation, our allowance for bad debt, and the fair value of the contingent consideration expense of 2.8 million in 2024. Net loss excluding the non-cash items would have been 2.1 million or 14 cents per share for Q2 of 24. The net loss was $8 million for the six months ended June of 24. The net loss includes non-cash expense items of $3.5 million in 24. And the net loss excluding those non-cash items was $4.4 million for the six months ended Q2 of 24. Our cash balance at Q2 of 24 was $8.7 million compared to $5 million at the end of Q1 of 24. And this is mainly related to the increased collections from our customers during the quarter. At the end of December 2023, we had cash of $10.4 million. The cash decrease between Q4 of 23 and Q2 of 24 was primarily due to the cash payments for the acquisition of Omega of $2.7 million that we did in early Q1 of 24. Our net cash used for operating activities for the period ending Q2 of 24 was 100,000. We continue to be debt-free other than some small auto leases and have 100 million line of credit that's readily available. Our working capital of 16 million decreased 7.8 million from Q4 of 23 to Q2 of 24, mainly due to the accrual of the non-cash contingent consideration for the Amiga acquisition of $5.4 million. This moves to current liabilities as of Q2 of 24 from non-current liabilities at Q4 of 23. This contingent consideration is a non-cash earn-out based on revenue targets payable with shares of the company's common stock. Additionally, the decrease was due to the $2.7 million that I've mentioned previously for the cash payment for the Amiga acquisition in early Q1 24, which was in current liabilities at the end of Q4 of 23. Our working capital net of non-cash items was 21.4 million at the end of Q2 of 24. I will now turn the call over to Desmond to provide a business update.

Thank you, Lisa, and thank you to all of the rest of you for joining this call. Q2 has been another very busy quarter for Beam Global with a whole series of new milestones and records. Since our last earnings call, I've personally spent almost half of my time traveling, and most of that time in Europe, although I did have a very eventful couple of weeks in Washington, D.C., meeting with leaders on the Hill. My European travel was largely about meeting new customers and investors, but also very gratifyingly, visiting locations where the first EV arcs produced by Beam Europe have been deployed. Just to give you an idea of the scope of our new reach, during my latest trip, from which I just returned two weeks ago, I visited Washington, D.C., London, Belgrade, Budapest, Vienna, Larnaca and Nicosia on Cyprus, and Valletta and Goza on Malta. I wasn't in any of those locations for fun. although I did have a fantastic time telling the Beam story and promoting our products and our stock to leaders in government, industry, the military, and the investment community. As diverse as that list of locations may sound, what's fascinating is that they all have in common more or less the same challenges and requirements as we've observed and for which we've designed a portfolio of fantastic products here in the United States. They all need EV charging faster than traditional methods can provide it, They all need to save money on construction and utility bills. They all have challenges with lack of capacity on the grid. And they're all very worried about what's going to happen to transportation, communications, and industry during future potentially very prolonged blackouts. Beam Global's products solve for these challenges. And now that we manufacture in the United States and in Europe, we're servicing the largest addressable markets in the world. In the time since I last spoke to you, we've delivered products in the United States to California, Tennessee, Kentucky, Indiana, Maryland, Virginia, Pennsylvania, Puerto Rico, Texas, Ohio, Utah, Hawaii, New York, North Carolina, Minnesota, Wisconsin, Arizona, Colorado, New Mexico, Illinois, Iowa, and Nevada. And in Europe, we ship to Serbia, Slovenia, Croatia, Greece, Romania, Cyprus, Montenegro, and Bosnia. Over half of our new orders in the second quarter came from brand new customers, expanding our ever-growing customer base. They included two major new California public transportation providers, a global supplier of advanced mobility products and systems, the Sacramento Municipal Utility District, or SMUD, the U.S. Federal Railroad Administration, and also, importantly, a leader in U.S. data centers who bought our products primarily for energy security and to relieve their lack of capacity on the grid problem. which is an increasingly important area of business for us. One of the new customers we're most excited about is the British Ministry of Defense. Not surprisingly, they face the same challenges and opportunities experienced by our largest customer, the United States military. Earlier this year, we were awarded a contract by Crown Commercial Services, which is very similar to the General Services Administration contract we have with the U.S. federal government, and that allows the United Kingdom's government to buy our products without having to go through any further competitive process. The British Army immediately made use of that contract and purchased 10 EV Arc systems to be deployed on the island of Cyprus at four separate British sovereign military bases. Those EV Arc systems were shipped from our beam Europe facilities and the deployments were completed just last week. You may have seen the press release this morning or seen some of the other media coverage on this promoted by the British Army. I visited those bases during my trip to Cyprus, and I'm very enthusiastic about the future opportunities to do a lot more with the UK military, not only on Cyprus, but, I hope, at other overseas bases as well. Everyone involved is excited that the commander, British Forces Cyprus, who drives an electric Land Rover, now parks that vehicle on an EV arc every morning when he arrives at work, and all of his driving is now driving on Sunshine, powered by Beam Global Products. We continue to do some really interesting stuff through our battery division. We were awarded a contract to do a custom industrial battery design for a major multinational conglomerate, and we're hopeful that these initial design prototypes will lead to production-level quantities delivered to them at a later date. Our specialized battery technology is being placed in wildfire detection systems, now being placed in vulnerable wilderness areas, and we're also developing prototype batteries for a major automotive OEM's motorsports division. But in my opinion, the most interesting strategic maneuver for Beam Global since we last talked has been the signing of our first distribution agreement with Jesse Group, a Spanish logistics, engineering, and technology firm which focuses on transportation, energy, aviation, and military applications. Jesse will distribute our products throughout Spain, Portugal, and the Spanish-speaking Caribbean. They will also provide after-sales service, expanding not only our selling footprint, but also our ability to provide service to our customers in ever larger geographical environments. As we say in Scotland, the proof is in the pudding. And the pudding, in this case, is that we've just received our first order from Jesse, just one week after putting the distribution agreement in place. This purchase order is for EVR systems, which will be deployed in the Dominican Republic. I can't give any more detail on that on this point, but it is nonetheless a significant validation, not only of our relationship with Jesse, but with a broader strategy of adding sales resources which are not directly employed by Beam Global and therefore do not contribute to our overhead expenses. We intend to expand on this strategy, adding distributors, resellers, and agents across Europe and also across the United States. Until now, all of our sales have been made through our direct sales team, and they've done a fantastic job. But we've matured our product and our sales and marketing collateral to a point now where we can engage third parties, train them, and have them expose our products to a much larger audience, often with whom they already have existing relationships. And we do that without adding to our SG&A burden. Beam Global is performing, and we're executing solidly on our strategic plan. In Q1 of 2024, we generated more revenue than any first quarter in our history, and our second quarter revenues, while not a record for the quarter, were higher again than the first quarters at $14.8 million. Our gross profits in the first quarter were also higher than at any time in our history, but the Beam team solidly broke that record in the second quarter, generating more gross profits than ever before. Excluding non-cash items, as Lisa has already discussed, we generated about 2.7 million in gross profit in the first quarter, or approximately 18% gross margin after non-cash items. That's up from 1.8 million in Q1, or 10.1%. Now, that gross margin did not reflect benefit from the 8.25% price increase that we announced last year on about 80% of the EVR systems we deployed in the quarter. Said another way, we still have a lot of positive impact coming from that price increase, which should contribute to further improvements in our gross profitability as we work through the last of the backlog price before they increase. Our Q2 net losses, excluding non-cash items, were approximately $2.1 million, or around three quarters of our gross profit contribution in the quarter. In the first quarter, the loss was two times our gross. In Q2, it was just three quarters. You can see the trend here. Analyst consensus had us at a 21 cent loss per share for the quarter. Our loss, excluding non-cash items, which were not built into their models, was approximately 14 cents. So, our non-GAAP performance at the bottom line was considerably better than the expectations on the street. This is a result of our laser focus on profitability as we continue to reduce our cost of goods sold through engineering and operational improvements. Of course, as our price increase takes full effect, we believe we'll continue to see further margin improvements and that we're well-positioned to hit that very important milestone. Our models show that if we continue this gross margin improvement on a similar level of revenues and make a few other minor adjustments, we'll generate positive cash flow. Exiting the year with a gross margin that's better than double where it was at the end of Q1 is our goal for 2024. And with operating expenses around where they are right now, that would get us to positive cash flow. Long-term, as we scale, we'll be looking for gross margins that are significantly higher. The eight and a quarter percent price increase, coupled with our further improvements in the second quarter, essentially doubles the 10% growth we reported in the first quarter. And we have further cost improvements identified. So, cash flow is very much on our visible horizon towards the end of 2024, and it's a major area of focus for us. As for sales growth, if you take a look at our quarterly filings over the last couple of years, you'll see that we've reported quarter after quarter of eight-digit sales even though we've not reported a repeat of some of the very large order sales we made in 2022. Clearly, not reporting these sorts of sales doesn't mean that we haven't been selling, nor does it mean that we haven't been delivering record numbers of units to customers all over the United States and now internationally. In fact, the value of our purchase orders in the second quarter of 2024 is about 36% higher than they were in the second quarter of 2023. We continue to work on selling the very large orders too, and I see no reason why we should not be successful in those efforts. though it's hard to pinpoint when because larger sales offer includes more stakeholders and less certainty on timing. While we have seen and continue to see lumpiness in our order cadence, our pipeline, which now stands at over $180 million, is the largest in our history. Aside from government business, we're targeting commercial enterprises such as amusement parks, corporate parks and campuses, sporting events, music, and other entertainment values, and other facilities and corporate entities that accommodate tens of thousands of cars each day. Beyond 2024, we believe that the EV standard, which we intend to rebrand to BeamSpot, is going to be a meaningful contributor to sales, cash flow, and profits as well. Our sales efforts targeting non-government commercial customers bore further fruit in the second quarter with commercial enterprise sales accounting for about 30% of our revenues during that period, up from about 10% in the same period prior year. It's interesting to note that our second quarter revenues included about $5 million less federal government contribution than in the second quarter of 2023. And yet, Beam Global Q2 revenues were up from the first quarter. In other words, we were able to make up for some of the time shifts and lumpiness in federal order cadence caused by budget uncertainties and no doubt the upcoming federal election by adding more commercial sales. This is consistent with our strategy to target both commercial and government sales in both the United States and in Europe, and also to diversify revenue opportunities by adding geographic expansion, but also product offering expansion, as we've done with batteries and the legacy products which Beam Europe creates. We'll have more new revenue opportunities as we add BeamSpot, formerly EV Standard, and a couple of other new products, which I hope to have out before the end of the year. Our strategy of adding distributors, resellers, and agents will, we believe, further enhance our sales efforts as we target EPCs and others involved in the deployment of grid-type EV charting with our rapidly deployed and highly scalable solutions. We give them more ways to say yes to their customers while increasing our sales without increasing our overhead costs. We've made fantastic progress on the integration of our European acquisition, and we won our first million-dollar European order for EV Arc less than five months after we closed on that transaction. a milestone that took over five years to achieve in the United States. The legacy business we acquired is also growing and assisting in our efforts to expand our clean technology sales in what is by far the largest market in the world for our products. But we haven't even begun to realize what I believe will be the tremendous growth in that market. Our European operations should contribute very favorably to our profitability for several reasons. First, our European team is very good at what they do, where the legacy business is concerned. They ran that business profitably prior to the acquisition. Second, we're able to produce EV arc systems much less expensively in Europe than we can in the United States. As we consolidate our financials, those superior gross margins will have a positive effect on our global financials. And there's another exciting impact. Beam Europe can produce certain components and sub-assemblies of EV arcs so inexpensively that it actually makes more sense for us to manufacture there and ship those pieces to the United States for final assembly. further reducing our direct costs and improving our gross profits. For example, we can produce and ship EV arc base plates from our European operations so much less expensively than it costs us to make them in the U.S. that we estimate that one component alone will contribute two to three percent in gross profit improvement. So, our European acquisition is not only providing us access to the largest market in the world for our products with a reduced cost basis, but it's also contributing to cost reductions in our United States operations. Remember that we paid cash and stock value less than the independently appraised value of the real estate and other hard assets that we acquired through that transaction. At the same time, I believe that the sellers, now our very talented European leadership, will do fantastically well as a result of becoming part of Beam Global because of the tremendous growth that we see ahead of us. We have more cash in the bank at the end of the second quarter than we did at the end of the first quarter. And when considering the other components of our working capital balance, I'm confident that we have sufficient cash to provide for what should continue to be our reducing burn as a result of the continuingly increasing gross profit contributions described above. Our ending cash balance was $8.7 million, up from $5 million at the end of the first quarter. This improvement in our cash position is largely due to payments coming in on some of our larger accounts. It's also consistent with something that I've often mentioned during these calls, which is that our working capital balance is actually the most important metric when considering Beam Global's cash shelf because of our ability to convert inventory, work in progress, and AR into cash in a relatively short period of time. But, of course, the most interesting indicator here is that as our gross profits improve, the ratio of cash going out to cash coming in also improves. We'll continue to see a lot of variation in cash on the balance sheet because so much of it is driven by the types of orders we receive and where we are in the process of executing on those orders. Clearly, when we get a large order and we have to produce materials and components to execute on that order, we should see a reduction in cash with a corollary to that being that when those larger orders are delivered, we get paid and our cash goes back up. In the event that we get a very large order and we are always aiming for those, we have our $100 million credit line, which is still untapped. But with all other things being equal, our improving gross profits are reducing the burden on our cash. As I said, working capital is probably the most informative metric on our balance sheet. But when looking at working capital, you also need to be considerate of non-cash impacts. Our Q2 working capital lending balance includes over $5 million of non-cash items related to the contingent consideration for the Amiga acquisition earn out. Excluding that non-cash impact, you can see that our working capital balance was just $600,000 less in the second quarter than it was in the first quarter. This is another very strong indicator that we're taking the right steps to move us towards positive cash flow. We've made tremendous progress on the development of our curbside charging product, the streetlight replacing EV standard or laterally beam spots as it's been rebranded. We've almost all the components in-house now for this new product, and our team in Chicago has completed the assembly of the electronics and batteries in the column of the bean spot. We're preparing the location in San Diego where the first system will be installed, and I expect that we will stand up the first prototypes in the next couple of months, at which time we will start to aggressively market this product globally. We also intend to install in Europe. I believe it has the potential to be our biggest seller. As a result of our excellent recent acquisitions, we're now also looking at some of the largest opportunities we've ever confronted. And though those are not yet closed, I personally believe that we will win one or more of them. We're also working on other new product offerings which, like all of our solutions, are in response to very real prospective customer requirements. I look forward to introducing one or more of these to you in the coming quarters. Shifting gears slightly. There's been a good deal of largely unfounded negativity and uncertainty surrounding EVs this year. The EV charting industry has suffered as a result. There have been one or two bankruptcies and some very public retreats from the deployment of charting infrastructure. We've seen some debate at the regulatory level in an election year, and we've seen the media run with stories about the heat, the cold, and the performance of EV charting stations. I know that I'm not alone in believing that none of this uncertainty or negativity will impact the long-term inevitability of the electrification of transportation, and that solutions like ours are going to continue to attract capital and generate great returns for investors over time and as the business matures and scales. There's a strong case to be made that the automakers will find a way to manufacture EVs more profitably than their current internal combustion engine models. It's also a fact that approximately half of traditional car company employees are paid to make engines and gearboxes Electric vehicles have no engines or gearboxes. The harsh reality is that car companies will be able to operate with half as many employees in the near future making cars, which are like computers on wheels. Just like computers, those cars will get cheaper by leaps and bounds while offering more and more functionality to the consumer. No car company will cling to the old technology in the face of these radical new competitive advantages. Just note Volkswagen's recent $5 billion investment in Rivian. Government tailwinds like Europe's banning of diesel and gasoline vehicles in 2035. By the way, California and many other states have the same or similar bans. And all the other regulations which are making polluting harder and more expensive will continue to play a role. But actually, consumer choice and profitability at the car companies will be the biggest drivers of this revolution. Far from being impossible to make profitably, EVs will become far more profitable for OEMs than gas and diesel vehicles. And it's true that a lack of charting infrastructure and lack of capacity on the utility grids, along with the vulnerability created by blackouts, will continue to present major challenges to the broad electric vehicle ecosystem. So will the electric requirements of artificial intelligence, data centers, and the electrification of industry. But these are not challenges for Beam Global. These are exactly the sort of opportunities that we've developed this fantastic company to exploit. In fact, as it gets harder and harder to deploy traditional grid-tied EV charging infrastructure, as the EV locations and grid capacity are used up, Beam Global's products will become increasingly and more urgently required. Just a quick point on the U.S. election and how it might affect us. I've heard it said that if Trump returns to the presidency, we will see a reversal of the IRA funding and a generally negative environment for electric vehicles. I don't think this is true. More IRA funds are slated for Republican states than Democrat. Just last week, 18 members of the House of Republican delegation sent a letter to Speaker of the House Mike Johnson to prioritize business and market certainty around the Inflation Reduction Act. The group of Republican lawmakers wrote, prematurely repealing energy tax credits, particularly those which are used to justify investments that are already broke ground, would undermine private investments and stop development that's already undergoing. Full repeal would create a worst-case scenario where we would have spent billions of taxpayer dollars and received nothing in return. And again, that's from 18 members of the House Republican delegation to Speaker Mike Johnson. By the way, I've met with 14 of those Republicans during our trips to Washington, D.C., and we find them fully appreciate the value proposition of our products. And we're confident that a Republican-led Congress will not turn its back on energy investments made in the IRA, despite what you may hear on television. EVs are inevitable for reasons which go way beyond the scope of the president, whoever that turns out to be. Energy security and made-in-America products like ours are popular on both sides of the aisle. I know because I often meet with more Republican members of government than Democrat and always get a very positive reception. In summary, we're continuing to sell great products to a market that needs them. We're continuing to improve our gross profits. We have cash flow firmly in our sights. We're expanding our product offerings, our geographic reach, and our selling resources. And we have sufficient cash and other tools to continue executing on this plan without going to the markets to do a raise. 2024, with its elections and wars and other tensions and uncertainties, is going to be a difficult year in one way or another for most companies. But Beam Global is taking the necessary steps to get stronger and better and to continue on our trajectory to become a highly profitable, important, and sustainable global provider of the sorts of products and services that will provide an essential role in all of our futures. Microcaps are trading at 23-year lows. Growth stocks, particularly in the EV and clean technology sectors, have been especially hard hit. However, the inevitability of these industries is no longer in question. We expect that quality companies with quality products and good financial discipline will be rewarded when the cycle turns, as they always have in the past. I believe that Beam Global is just that sort of company, and I'm proud to be part of it. Thank you for your continued support. Our best days are ahead of us. And I'll now return the call to Lisa and the operator to take your questions.