Earnings Call Transcript - BEEM Q1 2021

Operator, Operator

Ladies and gentlemen, thank you for standing by. Good afternoon. And welcome to the Beam Global First Quarter 2021 Financial Results and Corporate Update Conference Call. At this time, all participants are in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Participants of this call are advised that the audio of this conference call is being broadcast live over the Internet and is also being recorded for playback purposes. A webcast replay of the call will be available approximately one hour after the end of the call through August 22, 2021. I would now like to turn the call over to Kathy McDermott, CFO of Beam Global. Please go ahead.

Kathy McDermott, CFO

Thank you, and good afternoon, and thank you everyone for participating in Beam Global’s conference call for the first quarter of 2021. We appreciate your time today and for joining us for this call. Joining me is Desmond Wheatley, President, CEO and Chairman of Beam. Desmond will be providing an update on the 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, May 24, 2021. Except as required by law, Beam disclaims any obligation to publicly update or revise any information to reflect events or current circumstances that occur after this call. Next, I’d like to provide an overview of our financial results for Beam’s first quarter ended March 31, 2021. For the first quarter of 2021, we reported revenues of $1,372,392, a 4% increase over $1,317,052 reported for the first quarter of 2020. During the recent quarter, we shipped systems to municipalities, as well as into federal, academic, utility and enterprise business segments. We also provided an EV ARC system to Jeep, a Stellantis brand, and one to their partner Electrify America to support the launch of their project to provide renewable charging at off-road trailheads throughout the United States as part of Jeep’s 4xe charging network. As of March 31, 2021, our contracted backlog was approximately $1.2 million. Gross loss in the quarter ended March 31, 2021, was $149,120, compared to a gross loss of $39,641 for the same period in 2020. The increase in gross loss was primarily due to an increase in costs for the new EV ARC 2020 system that was launched at the end of 2019. We expect to reduce these costs over time and also improve our gross margins as we increase our production volume to improve our fixed overhead absorption and improve labor efficiencies. Operating expenses were $1,102,675 for Q1 2021, compared to $902,000 for Q1 2020. The increase in operating expenses was due to an increase in non-cash compensation expense, stock option expense, investing of director shares, increased sales headcount to support revenue growth and increase R&D headcount to help reduce product costs and for product development. The net loss was $1,250,809 for the first quarter of 2021, compared to $942,521 for the first quarter of 2020, due to the increase in gross loss and increased operating expenses. At March 31, 2021, we had cash of $28,214,029, compared to $26,702,804 at December 31, 2020. The increase was primarily due to the exercise of warrants partially offset by operating cash usage. Our working capital also increased to $29,507,478 at March 31, 2021. I will now turn the call over to Desmond to provide the business update. Desmond?

Desmond Wheatley, President, CEO and Chairman

Thank you, Kathy, and thanks to everyone for joining us today and for your continued support and interest in Beam Global. Before I discuss the quarter and the business overall, I want to express my gratitude for your patience and provide a brief explanation for the delay in this call regarding our Q1 results. I want to be clear that there was nothing wrong with our financials. I congratulate and thank Kathy for her relentless efforts in delivering accurate reports, which our auditors have deemed to be of the highest quality. For about a decade, we have worked with Solberg, and they've done an excellent job for us, allowing us to file on time without issues. This year, due to our significant growth expectations and our listing on a national exchange, we chose to engage RSM as our auditor. This marks their first quarter working with us. While we are a straightforward company with clear financials, public companies must navigate complex SEC regulations. It took longer than anticipated for RSM to validate that all our activities met even the most obscure SEC standards, but we have now filed. I want to emphasize that during this delay, we did not make any material changes to our filings, and we are not late in filing our Q1 results. Thank you for your patience during this process. My comments today will be shorter than usual since we held our full-year conference call about a month ago, and not much has changed since then. The most significant update concerns our contracted backlog, which is now much healthier than it was a month ago. We have over $5 million in contracted backlog, all expected to convert to revenue in 2021, with most deliveries anticipated before the end of Q3. When you combine this backlog with our Q1 revenue of $1.3 million, we are confident that we will exceed 2020 revenues in 2021, with over half the year still remaining to sell. We have a growing pipeline and numerous indicators that our opportunities are increasing and accelerating. For those who were on the previous call, I mentioned we were close to securing the largest order in our history, and I didn’t specify the number of deals, but it turns out to be more than I anticipated. We have received an order for 52 units from the California Department of General Services, with whom we have held a contract for several years. This order consists of 27 distinct purchase orders directed at different government offices. Thanks, in part, to the delay, we expect to deliver these units before the end of the third quarter. This order reflects our broader business scope. It was never a matter of if but rather when such a deal would come through. All parties involved recognized the order was coming, but no one could predict the precise timing. I believe the transition towards clean energy and transportation is gaining momentum, and we are well positioned to capitalize on this shift. Recently, President Joe Biden tested the new Ford F-150 Lightning, which has been touted as the most popular consumer product in history and the top-selling vehicle in America. This new model not only matches the payload capacity of its predecessors but accelerates from 0 to 60 miles in about 4 seconds, a considerable improvement over the gasoline models. This signals a major shift in public perception about electric vehicles, moving from the niche appeal of high-end brands to mainstream acceptance. We will see an array of electric vehicles hitting the market, including the Rivian, Lordstown Endurance, and the high-performance Hummer SUV. All these vehicles will require charging infrastructure, and that presents a key opportunity for us. Given the inadequacies of home charging solutions and the grid's inability to handle overwhelming demand, what’s needed is a mobile, rapidly deployable product—an area where Beam Global excels. The electric vehicle landscape is being further solidified by policies such as California's commitment to electrification and mandatory transitions to electric vehicles by rideshare companies by the end of this decade. There's an urgent need for public EV charging infrastructure that far exceeds previous levels. We are uniquely positioned to deliver rapidly deployed and resilient off-grid charging solutions. I’ve also had productive discussions with our new lobbying consultant in Washington, D.C. We are investing in government relations to ensure that our contributions toward the electrification of transportation are recognized. We’re actively connecting our work to funding opportunities and fostering relationships across various governmental sectors. In summary, we have a solid backlog and pipeline and are on track to surpass our 2020 performance. We're well capitalized and debt-free, and we're gearing up for significant momentum in the EV sector. Our products have never been better, and we are focused on improving our margins as volume increases. We anticipate a busy and productive year ahead. Thank you for your attention; I will now turn the call back to Kathy for your questions. Please keep them brief and limit yourself to one follow-up to allow everyone a chance to participate. If I don’t get to you, feel free to reach out directly. Kathy?

Operator, Operator

And our first question comes from Amit Dayal with H.C. Wainwright. Please go ahead.

Amit Dayal, Analyst

Hi, Desmond. Thank you for taking my questions.

Desmond Wheatley, President, CEO and Chairman

Hi, Amit. How are you?

Amit Dayal, Analyst

Just to begin with, the 52 ARCs that the California Government ordered. Is this part of the $5 million backlog or is this different from the backlog number in guidance…

Desmond Wheatley, President, CEO and Chairman

That is in backlog.

Amit Dayal, Analyst

Okay. Understood.

Desmond Wheatley, President, CEO and Chairman

Anything that is contracted will be described as backlog.

Amit Dayal, Analyst

Okay. Got it. Thank you for that clarification. And just one more follow-up from me. So your government orders continue to come through, the outlook on that front remains pretty positive. Are there similar opportunities in your pipeline on the enterprise side, excluding sort of the media model, where you could see orders for 50 units or 100 units at a time from enterprise-type customers?

Desmond Wheatley, President, CEO and Chairman

I think without a doubt, I mean, certainly the Electrify America/Jeep situation that we’ve already discussed during this call is a good example of enterprise spending, and there are so many other similar opportunities like that in the pipeline. This quarter really was not at all about government orders and it’s worth noting that COVID had a significant impact on the enterprise deployment of EV charging infrastructure. We certainly saw that. We had a year where we had record revenues in 2020 without essentially half of our opportunities bearing fruit for us because there wasn’t any workplace charging being deployed. However, we think that changes this year. Post-vaccine and in the second half, I think you’ll see a big increase in return to work, and a lot of workplace EV charging will be required to support that. Beyond that, with all these new fantastic models that I mentioned in my comments, there will be a huge requirement for EV charging infrastructure for consumers. In fact, I think it’s going to happen in a way that nobody is probably anticipating, so I’m very bullish about enterprise. But we won’t turn our back on the government sector.

Amit Dayal, Analyst

Right. Of course not. Thank you. That’s all I have. Thank you.

Desmond Wheatley, President, CEO and Chairman

Thank you, Amit.

Operator, Operator

The next question is from Tate Sullivan with Maxim Group. Please go ahead.

Tate Sullivan, Analyst

Hi. Thank you, Desmond.

Desmond Wheatley, President, CEO and Chairman

Hi, Tate.

Tate Sullivan, Analyst

Hi. We’ll discuss the sponsorship opportunity you mentioned; you pointed out in the 10-Q the addition of a contracted industry expert. Can you share if you have multiple partners in addition to outdoor media or dedicated sales and elaborate on that a bit?

Desmond Wheatley, President, CEO and Chairman

Yeah. So we are not exclusive with anybody. I want to maintain that position; it’s basically it's sort of like flagging a hundred dollars. First one up wins it. But we definitely have engaged a group who does nothing but sell corporate sponsorships with a very particular focus on transportation. They will manage all the buses, trains, and everything that you’ve seen with advertising on them. They also deal with stadiums and just about any kind of those things you can imagine. The benefit of working with them lies in their expertise in this area. They obviously have a very good Rolodex and a great history of making some unusual sponsorships work. I’m really happy to be working with them. It’s important to point out to everybody listening that while we cover their costs, they only get paid when they are successful. So, I think the takeaway from that is they believe it’s an excellent opportunity.

Tate Sullivan, Analyst

Thank you, Desmond. I’ll turn it back.

Desmond Wheatley, President, CEO and Chairman

Thank you.

Operator, Operator

The next question is from Jacob Green with BTIG. Please go ahead.

Jacob Green, Analyst

Thanks, Desmond. Good morning.

Desmond Wheatley, President, CEO and Chairman

Hello, Jacob.

Jacob Green, Analyst

So part of your sales this quarter stemmed from their Wrangler 4xe launch and Moab. Have you had any other conversations with other OEMs? You talked about Ford and their Lightning about sponsorships and the point charges as part of their rollout of their EV offerings.

Desmond Wheatley, President, CEO and Chairman

Yeah. We have announced nothing, and so there’s therefore nothing that I can say about that. But you can imagine, of course, that we believe that as more companies deliver more of these sorts of products, demand will increase. Secondly, the kinds of products being introduced will be very popular with American consumers. We also anticipate that those consumers will demand infrastructure. We know that consumers are very impatient and they don’t like to wait for stuff, so we anticipate that the level of impatience will transfer into the infrastructure space. It’s taking longer and becoming more complicated every day to deploy good site infrastructure due to permitting, construction, and electrical work. We are ideally positioned to take advantage of this. So I can’t go into any detail on that, but our target markets are not hard to identify.

Jacob Green, Analyst

Sure. Great. And then just one more from me, just talking about your supply chain and having some other issues with other EV companies having supply chain issues with batteries and modules; have you had any issues getting solar modules or batteries for your ARCs?

Desmond Wheatley, President, CEO and Chairman

So far, no. It’s something that we pay a lot of attention to, obviously. We’re monitoring all the time. At the moment, we have not had any of those sorts of delays—nothing material—and we are currently not anticipating any such delays. But we monitor the situation closely.

Jacob Green, Analyst

Okay. Great. Thanks. I’ll turn it back.

Desmond Wheatley, President, CEO and Chairman

Thank you.

Operator, Operator

The next question is from Frank Hart with High Capital Funding. Please go ahead.

Frank Hart, Analyst

Hello, Desmond, and congratulations on landing that big order finally.

Desmond Wheatley, President, CEO and Chairman

Thank you.

Frank Hart, Analyst

I have two quick questions for you in that regard. One, are you prepared for the avalanche of orders that you’re clearly going to receive over the next year as a result of all of the mega trends and things that are occurring? Can your production facilities and financial capability handle it in your current facility?

Desmond Wheatley, President, CEO and Chairman

That’s a good question, Frank. In a way I could say I have been preparing for this for 10 years. What I’ll tell you is we have a facility with room for 20x growth. We can get to about 2,200 units a year at our factory moving from one shift five days a week, which is where we currently are, to three shifts, seven days a week, one of them potentially dark or partially dark with automation. We are also in the process now of identifying subassemblies and components which we can start to outsource for contract manufacturing. This will move us away from labor-intensive manufacturing processes that we are not set up to do and reallocate those processes into highly automated environments while our people shift from manufacturing to assembly. A single operator who today does one action will in the future open 50 boxes a day for 50 similar actions. So I think we’re in good shape in that regard. I’ve never kept a secret about my belief that we’ll have to open more of these facilities. Even at 2,200 units a year, we’re not going to scratch the surface of demand—not even close. So I believe we’ll have to open more of these sorts of factories. Fortunately, the footprint is readily available across the United States and even globally, and we’ve done the hard work of creating the IP and figuring out how to make these things. Scaling this up will be a question of cookie-cutter techniques and human resources will always be the most challenging aspect of that. But again, fortunately, we’ve already addressed the intellectually challenging aspects. This will be a matter of finding good personnel to handle manufacturing and assembly as we move forward. I’ve also got aspirations to enter other markets, not just the U.S. opportunity, as it’s definitely a global opportunity. You’ll see us actively exploring both Europe, which is currently the largest EV market in the world, and potentially expanding there before we do something similar in the United States. Some of this will be driven by demand. Just to answer your question about money: we have more operating capital than at any previous time in our history. I believe anyone would agree that we’re very good at managing finances and spending wisely. As I tell everybody, if it doesn't contribute to improving the product or selling the product, we don’t invest in it. That’s our mantra, and it has worked for us so far. So we have plenty of operating capital and no debt at all, which puts us in a position to do what we need to do to scale up. We don’t need to raise any money at the moment, but I certainly would if it appears strategic to grow the business and help our existing shareholders.

Frank Hart, Analyst

None of that is surprising because you’re always ready and ahead of the curve.

Desmond Wheatley, President, CEO and Chairman

Thank you very much.

Frank Hart, Analyst

And as a management CEO and head of your team, which is extraordinary. You are one of the finest CEOs I’ve had the pleasure of encountering in the last 40 years. And I can’t tell you how much I appreciate watching you do this every day, but I have one.

Desmond Wheatley, President, CEO and Chairman

Thank you very much, Frank.

Frank Hart, Analyst

Which is, what’s the story and what is the risk to Beam Global regarding cash flows or other million-mile batteries and what’s going on with that technology worldwide?

Desmond Wheatley, President, CEO and Chairman

It’s great news for us. It’s great news for us; anything that increases the adoption of electric vehicles is great news for us. The key thing to understand, Frank, and everybody else, is that it doesn’t matter how much capacity a battery has in it; you still have to put a certain amount of electricity into the vehicle to achieve the number of miles you’re going to drive. All electric vehicles get between 3.5 miles and 4 miles per kilowatt hour in various environments. Regardless of their battery size, they will still need charging. Charging is our business, and all of those vehicles will require the same amount of charging regardless of how superior their batteries might be. So, it’s nothing but good news for us.

Frank Hart, Analyst

Great. Thanks.

Desmond Wheatley, President, CEO and Chairman

Thank you for your questions.

Operator, Operator

The next question is from Vikram Bagri with Needham. Please go ahead.

Vikram Bagri, Analyst

Good evening, everyone. Desmond, I had a couple of quick questions. First off, is there a way to define how large the Jeep Stellantis opportunity can be long term? Where are these EV ARCs initially being placed? I recognize I’m asking a hard question, but is there any context you can provide in terms of how many trailheads they plan to implement these EV ARCs and do you have plans to place EV ARCs in cities as well longer term?

Desmond Wheatley, President, CEO and Chairman

I think that’s a sort of question that would be much easier answered by Stellantis and Electrify America than by me. The truth is, even if I knew, I wouldn’t be able to disclose that information. However, we think it’s an excellent product and know there are plenty of locations, not just for Jeep; many other companies are introducing these new vehicles which will go off-road and require infrastructure in many locations across the country, especially in areas where the grid doesn’t exist. We view this as an exciting opportunity. But I’d rather not quantify it too much, because I don’t want anyone thinking of us as solely a niche product—we are a solution that provides services everywhere we can reach.

Vikram Bagri, Analyst

Great, understood. And I recognize it’s a hard question to answer and better posed to Stellantis and Jeep. But as a follow-up, I think you indicated in your prepared comments that the pipeline of orders remains extremely robust. Despite these large orders moving from pipeline to backlog, it appears that this pipeline has replenished quite impressively. Two questions on that front: One, it seems like you’re replenishing that pipeline rapidly, and despite these orders moving from pipeline to backlog, there are likely larger orders in that pipeline, so can you comment on how large, on average, these new orders are and if the size of orders has increased over time this year compared to last year? And two, you talked about EV Standard's launch being in the back half of the year. Is there anything related to EV Standard in that project pipeline and/or in backlog? And if yes, could you talk about the performance of the EV Standard, its pricing, margin expectations on there, and how you’re thinking about launching that product in the back half of the year?

Desmond Wheatley, President, CEO and Chairman

Regarding the second part of your question: There is no EV Standard opportunity in our pipeline at the moment. We’ve always been conservative; we build products and prepare them for market before selling. That’s where we are with EV Standard right now. I still believe it could become our highest volume sale product, maybe by far, because of its unique nature designed for curbside charging. However, as of now, the pipeline does not include that product. To your first question, I definitely think we’re seeing a shift from smaller orders of just 1-2 units we’ve had in the past, where clients dip their toes into the market. We’re now starting to see that shift away from 1s, 2s to potentially 4s, 5s, and we believe that will evolve into larger orders, perhaps up to 10s, 15s, and even 20s or 30s and so forth. So, there is definitely a general positive shift in the size of orders we’re receiving.

Vikram Bagri, Analyst

Great, and thanks, Desmond. That’s all I had. I’ll follow up offline for other questions. Thanks again.

Desmond Wheatley, President, CEO and Chairman

Thank you.

Operator, Operator

The next question is from Gabe Daoud with Cowen. Please go ahead.

Gabe Daoud, Analyst

Hi, Desmond. How are you?

Desmond Wheatley, President, CEO and Chairman

All right.

Gabe Daoud, Analyst

Maybe just a follow-up on the pipeline. I think last quarter you indicated it was around $40 million, with a 70% conversion rate, while there were $9 million in agreements with a 70%-99% conversion rate. I’d imagine maybe those figures are lower now, just given that this quarter you announced but is there an update on those two figures?

Desmond Wheatley, President, CEO and Chairman

Actually, looking at the total pipeline, and I don’t have the figures in front of me at the moment, but total pipeline has been around $49 million for a little while, and it finally spiked up above $50 million. Now it’s back down in the sort of $47 million range because we’ve, of course, added $5 million or so after taking that out of the pipeline and putting it into backlog. But pipeline intends to be an increasingly good story for us, aligning with the general trends we’re seeing in the industry.

Gabe Daoud, Analyst

Okay. That’s helpful. I’ll follow up on the margin side. I understand that production levels scaling will follow gross margins, but I’m curious: At what production level do you need to see at your San Diego facility to achieve that 50% gross margin? Does the facility have to be completely maxed out at 2,200 units or so? I’m just trying to evaluate the progression on the gross margin side.

Desmond Wheatley, President, CEO and Chairman

It certainly does not have to be maxed out; some of the gross profit trajectory to that 50% gross profit will come after we reach a certain volume level. We need to absorb the fixed overheads and pass that through gross profit to the bottom line. A significant portion of this will also stem from reductions in the costs of things like batteries, solar modules, and other materials. As you know, Gabe, from following the industry, experts indicate a further decline in our battery costs. It’s challenging to predict when that will happen, but all industry pundits expect battery prices to decrease into the $100 zone. We’re paying quite a bit more than that currently, but we anticipate taking advantage of cost savings when they arrive. So, it’s a combination of factors. We don’t need to be operating at full capacity to reach that level. There are several straightforward steps to reduce our costs, and our engineering team is working on those at the moment.

Gabe Daoud, Analyst

Great, thanks Desmond. Very helpful.

Desmond Wheatley, President, CEO and Chairman

Thank you.

Operator, Operator

The next question is from Richard Batson, a Private Investor. Please go ahead.

Richard Batson, Private Investor

Hey, Desmond.

Desmond Wheatley, President, CEO and Chairman

Hello, Richard.

Richard Batson, Private Investor

My question is, I know from my familiarity with your company that you used to require around $10 million to $11 million in revenues to achieve breakeven. It sounds like you might be profitable this next quarter but has it changed, or is it still around that area?

Desmond Wheatley, President, CEO and Chairman

First of all, we’re not forecasting profitability next quarter. Let me be absolutely clear about that, although of course, we continue to work diligently to execute on that. The breakeven number has gone up, Richard, and I’ve been open about the reasons for that over the past several months and quarters. That’s because we are now investing in lots of things that we believe are really important for our growth. For example, government relations, as I mentioned, we’ve increased sales headcount, we’ve ramped up marketing spend, and now for the first time in our history, we’re investing in government relations. These additional expenses will raise our breakeven number, but I assure you, the increase in that breakeven number will be far outweighed by the benefits that stem from these investments.

Richard Batson, Private Investor

Right, well, hopefully the price of batteries coming down will help offset that as well.

Desmond Wheatley, President, CEO and Chairman

It definitely will.

Richard Batson, Private Investor

Okay, all right, I appreciate it, Desmond.

Desmond Wheatley, President, CEO and Chairman

Thank you.

Operator, Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Desmond Wheatley, President, CEO, and Chairman for any closing remarks.

Desmond Wheatley, President, CEO and Chairman

Thank you, Bob. Thanks very much for your questions and thank you to everybody for your time and attention. Again, I appreciate your patience with this slight delay. Don’t forget, as I mentioned earlier, there was nothing unusual regarding that delay and we didn’t make any changes to our filings. I want to again express my gratitude to Kathy; she worked very hard and produced an excellent product. Beyond that, I’m just grateful for all of you on board, thank you for your support, and I think this is going to be a great year for us. We’re really looking forward to it. So, thank you.

Operator, Operator

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.