Beam Global Q3 FY2024 Earnings Call

Hello, and welcome to the Beam Global Third Quarter 2024 Operating Results Conference Call. All participants will be in listen-only mode. As a reminder, this conference is being recorded. I would now like to hand the call to Lisa Potok, Chief Financial Officer. Please go ahead.

Hi. Good afternoon and thank you for participating in Beam Global's third quarter ‘24 operating results conference call. We appreciate you joining us today to hear an update on our business. Joining me is Desmond Wheatley, the 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 10-Q and other periodic reports filed with the SEC. The content of this call contains time-sensitive information that is accurate only as of today, November 15, 2024, except as required by law being disclaimed any obligations 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 Beam's third quarter of 2024. Our third quarter revenues are $11.5 million. This is the second highest third quarter revenues in the history of the company, 47.9% of our revenue in the third quarter was derived from commercial customers. This is an increase of 80% over quarter three of 2023. For the nine months into September 30th of ‘24, our revenues were $41 million. We have grown our pipeline of prospective customers to over $200 million, although we cannot be sure of when or if those prospective orders will turn into actual sales. Our backlog is $7 million for the USA and an additional $3.6 million for Europe for a total of $10.6 million as of November 7th. We generated GAAP gross margin of 10.7% compared to 1.7% in 2023, so we have an improvement of 9 percentage points compared to Q3 of ‘23. Our gross profits, non-GAAP included $800,000 for non-cash depreciation and intangible amortization, which negatively impacts our profits. Net of these non-cash items, our gross margin would have been 17.6%, this is non-GAAP. For the nine months ending September 30th of ‘24, our gross profit was 12% of sales, which included a negative impact of $2.8 million for the non-cash depreciation and intangible amortization. Our nine month non-GAAP gross profits net of these non-cash items was 18.3%. The continued improvement in gross margin is primarily because we are able to recognize the engineering design changes to our EV ARC that resulted in cost reductions to our bill of materials and labor efficiencies. Additionally, there were reductions in material costs as a result of purchasing discounts as well as operational improvements and positive margins generated from the acquisition of Amiga. Our operating expenses for Q3 of ‘24 was a credit of $50,000 due to the reversal of the fair value of the contingent consideration for the Amiga acquisition. To be able to compare Q3 of ‘24 to Q3 of ‘23, if we back out the non-cash items, which is non-GAAP, we would back out the $6.1 million related to the non-cash change in the fair value of the contingent consideration for the Amiga acquisition. We offset this by $200,000 for the non-cash warrant amortization and $200,000 for the stock compensation related to the timing of the board grant. We issued those in July of ‘24 this year. This results in a $1.7 million increase in operating expenses quarter-over-quarter, and these are mainly related to $1.2 million in operating expenses for Beam Europe. We have $300,000 in customer service accommodation costs, and we have $100,000 in our facility expansion costs, and then we have $100,000 for consulting for government relations and engineering. Our operating expenses for the nine months ending Q3, '24 was $11.6 million. When you remove the $4.5 million non-cash decrease in fair value of contingent consideration for the Amiga acquisition in '24 and then in '23, we had a $300,000 increase in the fair value of contingent consideration for the All Cell acquisition. The net change in the fair value of the contingent consideration is $4.3 million. This is offset by non-cash increases in warrants and warrants amortization expense of $300,000, stock compensation of $300,000 and a bad debt allowance of $400,000 resulting in $3.3 million increase in operating expenses. So these increases in operating expenses of $3.3 million year-over-year is $2.1 million for Beam Europe, $400,000 in facility expansion costs, $300,000 in commissions due to earned at the time of customer payment. We have $300,000 in customer service accommodation costs and $300,000 related to acquisition costs. The resulting net income was $1.3 million for the third quarter of '24 compared to a net loss of $3.6 million for the same period in '23. Net income included the non-cash $6.1 million for contingent consideration, depreciation, intellectual amortization and the allowance for bad debt. The net loss for the nine months ending September of '24 was $6.7 million. When we back out the non-cash expense items related to depreciation, intellectual property, amortization, the non-cash compensation expense and the allowance for bad debt and the fair value of the contingent consideration, the adjusted non-GAAP net loss was $5.8 million, 14.2% of revenue compared to 2023 non-cash adjusted net loss of $8 million, which is 16.9% of revenue and almost 3 percentage points better. Our cash balance at Q3 of '24 was $4.9 million compared to $10.4 million at the end of Q4 of '23. The cash decrease included our one-time cash outlays for the second tranche payment for the acquisition of Amiga of $2.7 million in early Q1 of '24 and our net outlay of cash for the acquisition of Telcom in Q3 of '24 which was approximately $300,000. Our net cash used for operating activities for the nine months ending September 30, '24 was $3.1 million compared to $13.8 million for the same period in '23. We continue to be debt-free other than our small auto leases and we still have our $100 million line of credit readily available. After adjusting for non-cash contingent consideration, which was a current liability, our Q3 working capital decreased by $3.5 million, 17% from Q2. That is expected to rebound over the following quarters as our sales increase, our margins continue to increase and we continue to manage our expenses. I will now turn this over to Desmond to provide a business update.

Thanks, Lisa. I'm here for the third quarter 2024 Beam Global earnings call and business update. Before I dive into my comments, I want to clarify something regarding the warrants mentioned earlier. All the warrants we issued during our 2019 NASDAQ uplisting have either expired or been converted. I’m currently in Oman and Jordan, where it’s approaching 1 a.m. I'm on this trip across Europe, Africa, and the Middle East to promote Beam Global's products. I'll share more about this trip later, but first, let's discuss our third quarter results and the exciting progress we’re making. If I happen to lose connection during the call, please feel free to chat among yourselves while I dial back in. Despite a reported revenue decline compared to last year, Q3 has actually been one of our most expansive quarters in history. We’ve significantly grown our geographic presence and launched many new products based on feedback from our top customers. Notably, our battery business saw growth during this period. This geographic expansion and introduction of new products position us well to seize larger and more diverse opportunities both in the U.S. and internationally. The revenue for the third quarter came in around $11.5 million, down from the same quarter last year. The question arises: what does this mean for our future? Is it indicative of a fundamental decline, or merely a bump in the road due to the variability in our order flow, which I've mentioned in past earnings calls? I firmly believe the answer is the latter. The global shift towards electrification in transportation is accelerating, along with the need for renewable energy to support this transition and other emerging demands like data centers and AI. My travels confirm that our products are becoming increasingly relevant in the short term in the U.S. This may explain why our pipeline currently exceeds $200 million, marking an all-time high. We're not losing interest; instead, we're experiencing delays in the issuance of purchase orders from some customers. This temporary revenue decline can be attributed to a few factors, which I will outline, along with our strategies to address them. Firstly, there has been a slowdown in orders from federal customers, primarily due to uncertainty surrounding the new administration’s stance on electric vehicles and sustainable energy sources. With conflicting statements coming from Donald Trump, federal purchasers are understandably hesitant, resulting in postponed orders rather than cancellations. This uncertainty seems to have impacted some state and municipal customers as well. The second factor is evolving regulatory demands, particularly regarding the certification of energy and storage solutions. As battery technology becomes more prevalent, regulatory requirements have increased, leading us to undergo a recertification process with UL. Although our products are safe and effective, this re-certification has caused delays, and we've had orders on hold waiting for this latest certified status. We continue to sell to those less sensitive to certification, and we expect that once this certification is obtained, it will unlock significant demand. Thirdly, we are still vulnerable to fluctuations in revenue due to timing or sizes of orders. In recent years, we've experienced considerable growth in EV ARC sales, notably to government customers. While our revenues were $6 million in 2020, they jumped to nearly $70 million in 2023, though we are flat for the first half of 2024. Our previous growth has relied heavily on one product and a concentrated customer base, which inherently brings risks. However, we're optimistic that growth will resume in 2025. To counter these challenges, we have implemented strategies aimed at growing our business and reducing reliance on U.S. federal spending on EV ARC products. Our geographic operations are independent of U.S. Budget cycles, and our new product offerings create additional revenue streams without introducing new cost burdens. We've made significant strides in broadening our sales approach as about 50% of our Q3 revenues came from non-government customers, demonstrating that we’re not solely a government-focused company. We've recently brought on a new VP of Sales in Europe to engage with distributors and resellers, thus expanding our market reach. Historically, our sales were made by a small in-house team, but we're now building a network of outside resources to enhance our reach. These additional selling channels work on a success-only basis, thereby not adding to our operating costs, and they’ll allow us to tap into a broader audience. For instance, we already have a distributor in Europe who placed an order within the first month. My recent trip to Ethiopia involved a new agent team we contracted to explore opportunities in Africa, and I'm currently in Oman with another well-connected reseller to expand our Middle Eastern presence. All our new selling resources operate strictly on success fees, which protects our SG&A expenses while promoting growth. Our strategies are designed to decrease our exposure to revenue fluctuations from individual orders or concentrated customers, generating new growth opportunities across different markets and products. In Europe, we’ve secured a significant order of EV ARCs for the British Army in Cyprus, along with other contracts in the region supporting our endeavors in Africa and the Middle East. I believe we're just scratching the surface of this potential as we continue to grow. Additionally, we've launched several innovative products recently. BeamSpot, our streetlight replacement product, enables curbside charging, tackling a vital need given the future landscape of urban charging solutions. BeamBike offers a grid-independent charging station for electric bikes, which is increasingly popular globally. Following that, BeamWell, which was developed for use in conflict zones, provides essential utilities like clean water and emergency power to NGOs. Lastly, BeamPatrol combines electric motorcycles and the necessary charging infrastructure into a single offering, simplifying procurement for law enforcement. These new products leverage our existing capabilities while creating fresh revenue avenues and reducing dependence on previous core products. Ethiopia poses significant opportunities due to its commitment to transitioning away from fossil fuels and towards electrification. The country has excellent potential for adopting our products, and our recent engagements with government officials indicate strong interest and alignment with our offerings. As I conclude my travels, I also want to mention that we have hired an internal investor relations manager to better communicate our progress and successes. We understand that profitability is key for increasing shareholder value, and effectively sharing our story is crucial to attracting investment. That's all I have for now. I’ll pass it back to the operator to take some questions.

Today's first question comes from Tate Sullivan with Maxim Group.

Congratulations on all the new products. Sounds like all great opportunities to sell. And I'm interested in Europe, what you've seen, is there more government funding available for EV charging infrastructure in Europe going forward than in the U.S. in your opinion?

I mean, look, I don't want to guess at what's going to happen in the U.S. As I said in my comments, I think that uncertainty is the biggest problem that we're facing right now. But there certainly is going to be a tremendous amount of spending in Europe. I met with OZEV, the Office for Zero Emission Vehicles while I was in London, met with people in Paris and all over Europe and this electrification thing is going at a pace. As you know, they've banned the sale of internal combustion in 2035. There's an awful lot of work to do. There's not enough energy on the grid, and it takes a long time to install grid tied charging infrastructure. So the same things that made us successful in the U.S. are going to make us as successful if not much more so, in Europe. And by the way, for anybody that's questioning whether or not EVs are going to happen, it's unbelievable here. Half the cars that are on the road today are electric vehicles already and they're starting to bang up against the same problems, lack of capacity on the grid and taking too long to deploy. So I think we're going to see an awful lot of government spending everywhere, but yes, Europe is the largest market in the world and probably we'll see the most money spent.

And then just to the certification process is just with the UL in the U.S. are there any similar certification challenges that you run into in Europe yet?

Without a doubt, I mean, this is an evolving process. Batteries, stationary storage, the integration of energy storage and renewable sources or grid sources for that matter. All of these are evolving and we are seeing increased regulations and we're seeing evolving certification processes and we're trying to keep up with them. As the biggest challenge that we're facing right now is that the certifying all these have done this before. And so, I want to be careful what I say, but our people are teaching the people who are certifying us in many instances. Same thing in Europe, we've got CE in Europe, but the good news is all the efforts that we put into UL will do this, will solve for the CE thing. So to do anything in Europe, we still have a lot of customer prospects who are not impacted by it, but it's taken a chunk out of our sales. And I just wanted everybody to understand when we're looking at reduction in some of these or the moving right of some of these purchase orders, some of them are explicitly because of these new UL certification requirements. We are going to meet them and the good news is, as is always the case with Beam Global, we use this as forcing opportunities to force us to take further steps to make it the product better and much easier to make and the next sort of evolution of EV ARC that will meet these new certification requirements will be less expensive and faster to produce, but a better product again. So it's onerous, it's time-consuming, it's pushed some of our purchase orders to the right, but we'll come through on the other side of it without losing those opportunities with a better product. And as I said in my comments, I think we'll see a bit of a logjam bursting with a couple of them, when we do get that UL certification, which at the moment we are very hopeful we will get before the end of the first quarter, but I'm not going to make promises that other people have to keep. I have been wrong about that before, but that's what I'm hearing from everybody.

The next question comes from Noel Parks with Tuohy Brothers.

Thanks for all the great information. Just a few things. Interested to hear what you were saying about adding resources and partnerships for international marketing. And I guess, I'm thinking in your overall resource mix right now, if you have one next project or goal that you need to address, whether it's hiring in a particular product or function or manufacturing capacity in a particular region, sort of what's next? What sort of your next things to sort of tackle that kind of keep overall business momentum going?

Yes. From a human resource point of view, it's definitely the addition of resellers, distributors and agents, something we've never had before. I've been keen on doing it for a while, because as I said, all the sales that we've made today have been made by our sales team for that number 6. We sold just under $70 million worth of product. Just imagine what could happen if it wasn't 5 or 6 people, but 50 or 60 people out there telling that, telling the story, because as a fond of telling my sales team that 380 million or some odd people in the United States We've only talked to a few thousand of them. So it's bringing in these distributors, resellers and agents that's the thing that we're really focusing on at the moment. And by the way, some of that was also pushed by Europe. Europe likes to think of itself like a sort of United States, but the truth of the matter is it's a different sale in France than it is in Spain, than it is in Germany etcetera. So we want to try and gauge somewhat local resources, but that do not add overhead costs for us and that's what's great about the people that we're bringing in. They work on success fees only. So we don't end up with SG&A burden. We pay them when we get paid by our customers.

Right, right. That totally makes sense. And I am thinking out of a couple of years. I mean, do you see yourself as in order to sort of handle maybe the next step function of upward and growth? Do you see yourself at any point being capital constrained in terms of just what you need to do to keep up with manufacturing capacity or other needs?

Well, the good news is we still have a great deal of room for expansion both in our U.S. and European facilities. I mean even our busiest, we still had room for about 4x expansion in the U.S. And we have much more room for expansion in Europe, we've got huge facilities 6 acres, 250,000 square feet under roof and a lot of cheap land around us there. So I think we've got a lot of room for expansion. We will invest in growth, we've done a little investment in we've increased our Chicago facilities this year. Lisa mentioned that there was $100,000 or something in our operating expenses which was due to facilities expansion. We've expanded our Chicago facilities this year because we intend to finish out BeamSpot products in that facility. We need more space to do along with the fact that the battery business is back to growth again. Obviously, we're going to fill up our existing capacity, which is as I say got lots and lots of room for growth and then we're going to invest carefully as we need to moving forward. If we do have to use capital for expansion in the future, it will be because we're trying to keep up with tremendous growth, which is the best possible reason to use capital.

Sure, absolutely. And just a question talking about sort of this post-election period. I'm just curious, do you sort of see California's leadership role with decarbonization and EVs as sort of keeping the ball moving in terms of incentives, policy to sort of maybe help offset what might be a period of sort of extended federal uncertainty?

Yeah, I can tell you that what I've heard so far is that anything that the new administration does to reverse the momentum of EVs at the federal level, the states are not having that. I mean the fact is that transportation is going to electrify anyway and as I said in my comments even federal customers know that they cannot afford to lose four years. In four years, we will only have 6 years left before basically everybody electrifies. So it's just this is kind of annoying, but it's not fundamentally going to negatively impact the industry. And I think you'll see the states pushing hard on this and you'll see cities, municipalities pushing and frankly the federal customers have to do it as well. You talk to anybody in the Marine Corps or the Army, they are not electrifying their fleets because they are tree huggers or because Biden or anybody else told them to do it. They are doing it because it's a strategic imperative and so they are going to push forward with it one way or another. I think the problem that we have both from a purchasing point of view and also frankly from a share price point of view.

At this time, we have no further questions. I would now like to turn the call back to Mr. Wheatley for closing remarks.

Okay. Well, listen, thanks everybody again. Thanks for your questions. And if there are any of you that still have questions or that just didn't want to speak up on the call, feel free to get in touch with us directly. Get in touch with Luke Higgins. We're all first name last name beamforall.com and you can always get in touch with me by now. Just please remember that I'm often in odd strange time zones is now one getting on for 1:30 in the morning where I am. But as always, I feel very good about what we're doing. I love the new products we've brought out and it's been very exciting for me to be in these places, East and in Europe and see how much demand there is. And as I say when I compare that to the growth that we've had in the U.S., think about the multiplication effect of that, it's nothing but good news for us. So appreciate your support, appreciate you staying in touch, and we're going to keep our noses to the ground so we're going to keep building a great company. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines.