Beam Global Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 21, 2024

There are 7 speakers on the call.

Operator

Hello and welcome to the Beam Global First Quarter 2024 Operating Results Conference Call. All participants will be in listen only mode. After today's presentation, 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.

Operator

Hi. Good afternoon and thank you for participating in Beam Global's Q1 2024 operating results conference call. We appreciate you joining us today to hear an update on our business. Joining me is Desmond Wheatley, President, CEO and Chairman of Beam. Desmond will be providing an update on recent activities at Beam, followed by our question and answer session.

Operator

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 recent filed Form 10 ks 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 21, 24. 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.

Operator

Next, I would like to provide an overview of our financial results of Beam's Q1 of 2024. We had record first quarter revenues of $14,600,000 increasing 12% over the same period in 2023. The Q1 increase can be attributed to an increase in our federal sales. The timing of our orders overall may continue to be uneven due to the timing of our customer approvals and their budget cycle. We have begun the process of production of our EVRX in our Serbian facility and expect to deliver our first sale to the Ministry of Defense in quarter 2.

Operator

We generated gross profit with a gross margin of 10.2%, the highest margin ever. The improvement in gross margin is primarily because of those cost reductions that we implemented in late 2023 as a result of our engineering improvements to the EV ARC. Our gross profits do include $200,000 for non cash intangible amortization, which negatively impacts our profits. Our operating expenses for Q1 of 'twenty four was 4 point $5,000,000 or 31 percent of revenue compared to $3,800,000 or 30 percent of revenue for the same quarter in 'twenty 3. $700,000 increase is mostly attributable to a $400,000 increase in consultant costs related to the integration of our new ERP accounting software as well as our sales and marketing, government relations and engineering design support.

Operator

We have $300,000 for operating expenses pertaining to our Beam Europe operation. As for our net loss, it was $3,000,000 or 21 percent of revenue for the Q1 of 2024 compared to $3,800,000 or 29 percent of revenue for the same period in 2023, an improvement of 8% year over year. The 1st quarter net loss included non cash expense items such as depreciation, intellectual property amortization and non cash compensation expense of $1,100,000 in $24,900,000 in 2023. 20 4's net loss, excluding these non cash items, was $1,900,000 or 13 percent of revenue. Our cash balance on March of 'twenty four was $5,000,000 compared to $10,400,000 at December of 'twenty 3.

Operator

The cash decrease was primarily due to cash payments for the acquisition of Amiga of $2,700,000 as well as operating cash used to increase inventory at Beam Europe. Accounts receivable at March 24 grew $4,000,000 which all the way to $20,000,000 which of this $10,700,000 of this balance is due from 3 customers. Our working capital decreased from $23,800,000 to $17,800,000 from December 23 to of 'twenty four, and this is mainly due to the accrual of our contingent consideration for the Amiga transaction of 4,300,000 dollars We're moving that to current liabilities as of March of 'twenty four versus non current liability at December of 'twenty 3. This contingent consideration is a non cash earn out based on revenue targets. The payment is all in the company's common stock.

Operator

I will now turn the call over to Desmond to provide a business update.

Speaker 1

Okay. Thank you, Lisa, and thanks everybody for joining Beam Global's 1st quarter earnings call. I'm actually speaking to you today from Abu Dhabi, where I'm spending a week working on growing our business in the Middle Eastern region. There's a great deal of opportunity here and our recent expansion into Europe has enabled us to start taking advantage of opportunities on a far greater scale than anything we've previously been able to address. My comments will be relatively short because of course we've just recently had our earnings call for the full year of 2023 and the 10 ks during which we did a fairly comprehensive update of the business and the various opportunities in front of us.

Speaker 1

Nevertheless, things are happening very quickly at Beam Global. So beyond simply updating you on the numbers, I'll be talking to you about a couple of exciting opportunities in front of us, as well as outlining some highlights from the Q1. Before coming to the Middle East, I spent a week in our Serbian facilities, catching up on our operational expansion there as well as meeting with existing and prospective customers. It was a very productive week. I'm thrilled by the progress we've made in Europe and equally excited by the opportunities which we have in front of us over here.

Speaker 1

Aside from the quality and very high level of business development meetings I attended, thanks to the efforts of our European management team, the greatest impression came through seeing rows of completed EV ARC systems waiting to be delivered to customers and also on seeing sections of the EV standard product waiting to be assembled into the first prototypes of that product, which as you all know, I believe has the potential to be our biggest seller. So now I'm doing this earnings call in the middle of the night from Abu Dhabi reporting on a company whose opportunities are almost unrecognizably greater than they were when I did the Q1 earnings call in 2023. The Q1 of 2024 was yet another record quarter for us in which we produce revenues which were about 12% greater than during the same period in the prior year. And more importantly, which our gross profit showed the most remarked improvement in our history. Our net loss narrowed and we executed the quarter with a healthy cash and working capital position.

Speaker 1

In the Q1 of 2024, we also added some excellent talent to our management team, particularly on the operations side, a move which we're confident will assist us in producing more product less expensively and further enhancing our gross profits. Continue to sell our products to excellent customers both in the United States and in Europe and we saw a significant increase in the percentage of commercial business we do, not at the expense of our government business, but in addition to it. Product development continued apace with important new patents issued to us on both the battery and EV charging infrastructure sides of our business. We made significant progress on our EV standard product and excitingly the first stages of product development on a brand new product, which we hope to bring to market before the end of this year. Returning to the numbers, our revenue for the Q1 of 2024 was $14,600,000 which is $1,500,000 or a 12% increase over the Q1 in 2023, the highest revenue for any Q1 in our history.

Speaker 1

The great majority of that revenue came from EBR deliveries as has been typical over previous quarters, but we did get interesting contributions from our European business and also from our batteries. The Q1 has often been our slowest and that's particularly true of our European operations where historically their revenue and gross profit numbers have been fairly modest in the Q1, but have grown throughout the remainder of the year. But the really big news from Q1 of 2024 is on the gross profit line. During this quarter, we generated more gross profit than in any quarter in our history and the improvement quarter over quarter and year over year far outstripped any such improvement previously. This gross profit improvement has come about as a result of the engineering and operational improvements, which I've described to you in previous quarters.

Speaker 1

This is a perfect example of us doing what we tell you we're going to do and of the team executing on meaningful improvements, which have a profound impact on our financial results. There's still work to do and I anticipate a continuation of improvements as the design enhancements, value engineering and operational improvements are increasingly recognized in coming quarters. As many of you will remember, we've also instituted a price increase for the first time in our history of about 8.25% on our base model. That's very important to point out that this price increase had no material impact on our gross profit improvements during Q1 because more than 96% of the units which we delivered to customers in that quarter were sold prior to the price increase taking effect and therefore at the old reduced sales price. To be clear, the majority of gross profit increase come entirely from engineering and operational improvements, not increasing the price, so far that is.

Speaker 1

Nevertheless, 96% of the units were sold prior to the price increase, which of course means that 4% of them did in fact have the 8.25 percent additional revenue on the base price of an EBR. That's an indication that we're moving into a period where our backlog, which was generated prior to the price increase, is starting to be exhausted and we're moving into new backlog now, which will benefit from that price increase. There are a lot of moving parts, but some pretty basic arithmetic shows you that the combination of gross profit, which we generated in the Q1 without the benefit of the price increase, when added to the increased revenue as a result of the price increase should get us close to around 20% gross profit. And as I said, we got further improvements yet to make. While the percentage improvement in gross profit is significant, it's also important to look at the absolute dollars.

Speaker 1

We reported a net loss of $3,000,000 for Q1, but in fact the cash impact was far lower than that. Fully $1,100,000 of our net loss was non cash, meaning that our actual cash loss for the Q1 was less than $2,000,000 $1,900,000 to be exact. Again, doing some simple arithmetic, you can see that with 10% gross margin, we reported $1,500,000 of gross profit, but that actually included some negative impacts from non cash items as well. In fact, our gross profit net of non cash items was closer to $1,800,000 We need about another $1,900,000 to get to cash flow in an otherwise similar quarter. That's not a giant leap.

Speaker 1

And in fact, the combination of the price increase and the continued improvements to our gross margins should put us on an easy to understand trajectory to cash flow. This is our dominant area of focus. And as I said during the full year 'twenty three earnings call, we're really going to be concentrating on efficiency and gross profitability this year because achieving positive cash flow is arguably one of the most important metrics for any business and particularly an innovator in a brand new industry. By the way, while we're speaking about gross profitability, as I already mentioned, our European operations legacy business is typically slower in the Q1 than during any other period of the year. This is not terribly surprising as they've been producing street lights, communication towers, energy infrastructure and other street furniture, which needs to be deployed in environments which are better suited towards those types of deployments during the summer and autumn months than they are in winter, particularly January February.

Speaker 1

Beam Europe's legacy revenues generally pick up in the second and third quarter and historically they've had a marked improvement in gross profitability during those periods as well, which should further contribute to our company wide profitability profile improvement. One last point on Beam Europe and cash is how that transaction is affecting our working capital. Because we're a very simple company, working capital is generally an excellent proxy for cash as we convert almost everything in working capital that isn't cash into cash so quickly, AR, inventory, work in progress, etcetera. For this period, there's a misleading contributor to our decline in working capital and has to do with the acquisition of Amiga or Beam Europe as it now is. Part of that transaction and a very good transaction it was, don't forget we got the land, the buildings and the purchase price.

Speaker 1

By the way, it's so nice when I visit there. I don't have to think about lease payments, instead think about the wonderful growth opportunities that we have and we don't have to ask a landlord's permission because the land and the buildings are on our balance sheet. But anyway, back to my point, a big part of that transaction are the earn out payments for 2024 2025. We set some pretty high bars for the very excellent Beam Europe management team to hit and if they do that, they get earn out payments. I love crafting deals like that because it keeps everybody concentrating on our joint success.

Speaker 1

They earn out payments are non cash and entirely stock based. Nevertheless, because we believe that they will hit their targets, those are not those are not those earn out payments have become current liabilities for 2024. And as a result, we've taken a $4,300,000 non cash impact to our working capital balance. So if you're looking at our working capital and you see it coming down by $6,000,000 in the period from twelvethirty one to threethirty 1, be absolutely clear that $4,300,000 of that is non cash. It's contingent consideration based upon our assumption that Beam Europe will hit their earn outs, which again are stock only.

Speaker 1

One contributor to our belief that they'll hit their targets is the very good news that the Beam Europe legacy business sales purchase orders are up by about 30% this year over typical years. We should benefit from that in the coming quarters as well. We'll also benefit from the fact that we've leveraged our balance sheet to allow our European operations to do something that they could never do before they became part of Beam Global and that is create inventory for future periods. Previously, Beam Europe was an entirely cash based operation with no debt and without even credit facilities with their vendors. As a result, during periods of slow sales, like the Q1, they produced very little product and yet they counted the overhead of their team members and facilities just the same.

Speaker 1

When sales picked up later in the year, they'd have to rapidly buy materials and rush to complete the products, often resulting in lower efficiency and increased costs due to contributions like overtime. One of the first changes we instituted post acquisition was to use our cash to create stocks of inventory of the most commonly acquired products that beamerit makes themselves. This has allowed us to keep the team working at a steady cadence and fully engaged during periods when they would otherwise be idle. Goldust also allowed us to create an inventory which would enable faster delivery to customers when the orders do pick up in the 2nd and third quarters. So we'll get the combined impact of lower costs to produce the product and more rapid delivery to expected customers.

Speaker 1

It's been an excellent and strategic use of Beam Global's balance sheet. And while it's resulted in a reduction in our cash position, which I know makes some people nervous if they don't look at the combination of cash and inventory, it's been absolutely the right thing to do, it will pay dividends in terms of increased revenue and improved gross profitability as the year progresses and we get all the cash back. Speaking of cash, we ended the quarter with $5,000,000 in the bank and we made the second of 2 cash payments to Omega, which if you remember are combined with already completed equity payments. We also built up our inventory as I've just described and shipped sufficient product at the end of the quarter to have about $20,000,000 in accounts receivable. Of those $20,000,000 about half are due to us from 3 of our largest and most reliable customers.

Speaker 1

We're not worried about collecting from them or from any of the others. In fact, I anticipate collecting most of this money any day now, which will of course have a profound impact on our cash balance in a very positive way. So our cash position is healthy and our rapidly improving gross profits are moving us towards a position where our cash position becomes far less of an existential issue, because as I mentioned earlier, we're on a clear and easy to understand path to cash flow. Our operating expenses were only marginally higher than they were in the Q1 of 2023, even though we had some considerable unusual expenditures. Of course, we've added an overhead operation in Beam Europe, but it's like our American operation is very lean.

Speaker 1

And while we have a massive increase in opportunity, we have a very modest increase in our operating costs as a result of that opportunity. The most significant increase in our operating costs came as a result of our integration of a new ERP. This integration is a significant milestone for the company. It will make us far more efficient with the tangible result of further contributions to improve profitability and an ability to turn orders faster, more efficiently and with less waste. If you remove these extraordinary items, we actually trimmed our operational expenses even in the face of top line growth and the further expansion of the business.

Speaker 1

Sales activity is picking up again with our pipeline increasing to about 100 60,000,000 today and backlog at threethirty 1 of around 20,000,000 During the Q1, we announced new orders from the U. S. Army, from the Department of Homeland Security, from the Federal Railroad Administration, from National Parks and from many other federal entities. Several of these purchase orders were multimillion dollar orders. The most notable of which was a $7,400,000 order from the U.

Speaker 1

S. Army, which adds to the previous $30,000,000 purchase order we received in 2022. We continue to receive orders from other state and municipal entities. And while others talk about budget uncertainty and the impact of the election year, our sales and pipeline are still robust on the government side of the business. Also encouragingly during the Q1, we saw significant increase in commercial orders about 300% actually, which have come about as a result of our efforts to continue to diversify our revenue opportunities across the broadest possible base of customers.

Speaker 1

Probably the most exciting selling activity in the Q1 though was being issued a government contract from the United Kingdom Crown Commercial Services. Several aspects of this are exciting. 1st and foremost, it's our 1st large government contract in Europe and it's very similar to our federal GSA contract and that enables the British government to buy our products without going through any further cumbersome processes. Secondly, and this is really where the rubber meets the road, it resulted almost immediately in a large order from the British Army for EVR products for their overseas bases. This was our first $1,000,000 order in Europe, marking a major milestone for the acquisition and growth there, just a few short months after we closed on that transaction.

Speaker 1

As I've said before, it took us about 5 years to get our 1st $1,000,000 order in the United States less than 5 months to do the same thing in Europe. This is an indication of the rapid evolution in the EV charging space, but also probably more importantly for us, it's a strong indication of the validity of the European market and our investment and moving into that the world's largest market for our products at a time when we're increasingly recognized as an important player in the infrastructure space. We're also actually working on a couple of the largest opportunities we've ever worked on. And interestingly, both of them have been enabled by our acquisitions. They're not inked yet, but the level of serious interest in our offerings from equally serious players is very encouraging.

Speaker 1

You may have read about our recent utility scale battery storage seminar, which we conducted in Belgrade during the Q1. It was attended by 40 or 50 regional leaders from energy and government and the follow-up and level of interest we've received has exceeded my expectations, including some active opportunities which we're working on right now. This is the perfect combination of the expertise and capabilities which we acquired with the AllCell transaction and the relationships and new market opportunities which we acquired with the Amiga transaction, both combined with Beam Global's innovation and product engineering prowess. As I started the call by saying, I've just spent a week in Serbia with Beam Europe and now in Abu Dhabi presenting our rapidly deployed EV charging and energy security products. The level of enthusiasm and serious interest that we're getting from major players is also very encouraging.

Speaker 1

We're playing in a much larger arena. The stakes are much higher and we've done a fantastic job of positioning ourselves to be able to take advantage of opportunities large and small in the most active regions in the world for products like ours. Several of the opportunities that we're working on now are larger than anything that we've ever done before, And I believe that we're well positioned to continue to attract more of that sort of attention in the near future. It was really very gratifying to see completed EVRs waiting to be placed in containers to be shipped to our customers from our European facilities. And it was also very gratifying to see more components of our brand new EV standard product completed and waiting shipment to Chicago where the Beam team will integrate our proprietary batteries, electronics, windmills and solar components which will complete those, so they're ready for demonstration at the beginning of the second half of twenty twenty four.

Speaker 1

Everyone on the sales teams in San Diego, Chicago and Serbia is excited about demonstrating EV Standard to their customers and prospects. There have been some costs associated with these activities and we use some cash to enable them. Is it worth it? Without question. One other interesting sales development in Europe is that we're working to add sales channels to our internal existing sales team.

Speaker 1

We met with 2 very good and highly qualified candidates while I was in Serbia, I'm very much looking forward to advancing our relationship with these quality groups. They will act as a significant force multiplier with local presence in markets which we believe offer significant opportunities. And because they're paid for performance on success, they'll not add to our SG and A and operating costs. It makes a great deal of sense for us to do this in Europe because it's both vast and somewhat dislocated market. But I can tell you that once we've got this model successfully integrated into our European operations, we intend to roll it out in the U.

Speaker 1

S. As well. Those sales channels combined with our new products, new markets and improved ability to execute are all contributing to our being able to fish in a much larger pond. And I believe this is going to put us in a position for continued and sustained growth. So to sum up, we generated record 1st quarter revenue.

Speaker 1

We had by far the highest gross profit in our history. We executed on the engineering and operational improvements we promised. We managed our cash and used it to increase sales and improve gross profits. We continue to win patents and develop new products. We've made tremendous strides in integrating our European acquisition and we're working on the largest and most exciting opportunities we've ever had.

Speaker 1

For the remainder of 2024, we will remain doggedly focused on efficiency and improving gross profitability above all other goals with the ultimate goal of cash flow being our primary objective. I've never felt better about the global Beam team. And I believe that even in the face of market uncertainty and chatter about weakness in EV sales and whatever Elon Musk's latest move has been that we will continue to operate with discipline and attain our goals. Thank you for your attention. And I'll now hand it back to the operator and take whatever questions you have for me.

Speaker 1

Please do limit yourself to one question and one follow-up because I want to make sure that everybody has a chance to have their

Speaker 2

questions answered. Operator?

Operator

Thank you very much. Today's first question comes from Sameer Joshi with H. C. Wainwright. Please go ahead.

Speaker 3

Hi, Samir. Lisa, how are you? Thanks for doing this late night from there. The question I have is about the backlog and the pipeline. How does it what does it comprise of geographically and also between AllCell, EV ARC and Amiga?

Speaker 3

And then for the pipeline, what do you consider pipeline? Are these requests or proposals that you have applied you'll send their proposals or how do you define that?

Speaker 1

Yes. So the backlog is still the majority of the backlog is still comprised of the Beam Global EV Charting Infrastructure products. So the what you would consider more traditional Beam products. Backlog contribution from Beam Europe is about $3,000,000 at 3.31 And they're going to be less of a backlog intensive business anyway because as I mentioned before, historically, they've always made and delivered product as they contracted it. So they have some sort of long standing relationships with existing customers who come back to them and order stuff over and over again, but it doesn't really stay in backlog very long because it's generally produced and shipped off to the customer before too long.

Speaker 1

As far as the question about the pipeline is concerned, we're quite strict about what pipeline is. Basically, this is in order to qualify to be in our pipeline, you need to be a customer who understands the product, has budget for the product, is qualified to make the buying decision and has given us the impression or has indicated to us that you are moving towards a purchase order. So in other words, these are not just people who've expressed an interest, passing interest in our products or think we're cool or anything like that. These are active operating customers with budget, with authority, who've expressed an interest in moving towards a purchase We actually have a pretty high pipeline to backlog conversion ratio. In other words, the actual all those customers who express an interest in the product and have budget, etcetera, Historically, a high proportion of them, in fact, a higher proportion I've ever seen in any other business have moved to backlog.

Speaker 1

And so we have a pretty high degree of confidence that they will do that, not all of them, of course, but we have a pretty high degree of confidence, a large percentage of them will do that. What we have less confidence over is when they'll do that. And I can tell you that historically, we've had some customers who've told us with absolute certainty they're going to give us a purchase order at such and such a day and it's been quite a bit later than we expected for various internal reasons on their own part. And the other side of that coin, which unfortunately doesn't happen as often, is we've had customers who hit us with purchase orders much faster than we expected. But in general, the pipeline is, I think, a good number and fairly conservative, although it's weighted, obviously, all the way from somewhat low percentages all the way up to some that are close to near certainty.

Speaker 3

Understood. Thanks for that color. And just one more. The contribution from Amiga, I'm guessing, I think I heard you say you're expecting 30% increase in purchase or have experienced 30% increase in year over year purchase orders? And if we consider that Amiga probably did around $10 ish million last year, should we expect it to do around 30% over that amount this year?

Speaker 1

Well, what I can certainly say, 2 things. First of all, yes, their actual purchase orders year to date are up about 30% over their historical norm. And there's a lot of contributors to that. And I mentioned a couple of them during the call. Some of them is some of it has to do with the way we're using our balance sheet.

Speaker 1

Some of it has to do with the just increased confidence in them as a result of being part of the U. S. And NASDAQ traded company. And then also that we've been able to allow them to enable them to go out and sell more aggressively, take on more than they would have in the past, because of course in the past they were essentially constrained by their cash flows. So it's a very positive move actually.

Speaker 1

That's been very impactful. The acquisition has been very impactful for them in a really positive way. And I'm delighted by that. That doesn't necessarily tie in a straight line to a 30% increase year over year revenues because these are just the purchase orders that they've received year to date are up 30% over historical. However, the other metric that is very important to note, and I might have sounded like I was belaboring this during my comments because I really want people to understand this was that we have this contingent consideration of that 4,300,000 dollars which again is entirely non cash.

Speaker 1

Please underline that. That will be made in shares of Bing Global stock. And again, this is exactly how I like to do these types of deals. We've got them for a relatively modest initial consideration, particularly in light of the fact that as I say, we've got the buildings and land and everything else as part of that transaction. But they are in a position to do very well with their earn out payments in equity.

Speaker 1

So they're sort of doubly encouraged to pull on the rope the way we want them to because A, they do well with these earn outs and B, the earn outs come in equity and being global. So everything about that encourages them to support the company. By the way, I want to stress, we don't need to encourage them in that way. These are I'm very, very happy with the Beam Europe management team. They're very, very enthusiastic about growing the business.

Speaker 1

And while we have these motivations in place, they're kind of icing on the cake. This is a highly motivated team who is really working hard to grow the business with us. I've been very happy about that. But to go back to your question, the fact that we have that contingent consideration in place is a strong indication that we think that they're going to hit their earn outs and their earn outs are pretty aggressive. They had to get to about 135% actually of what they did prior year to hit their earn out in 2024.

Speaker 1

And in 2025, they have to get to 135% of that again. So we're signaling that we believe that we're going to hit those earn outs, everything we can to help them do that. And I hope a very large percentage of it, and in fact, I'm confident a very large percentage of it will come from selling the new product sets that Beam Global is bringing into that market. While we continue to grow their legacy business, you can feel fairly confident that's going to happen because of course we've already done $1,000,000 in EV ARC sales there. So they're clearly off to a good start with an increase in sales and then the additional revenues coming from the EV ARC sales that we already know are in the bag, we're going to start delivering them at the end of this month.

Speaker 1

But we expect that a whole lot more will come from that this year too. And as I say, I'm looking forward to the earning there are no earn out reliability is the best liability that an acquiring CEO can have. It's far better than writing down your acquisitions, which is not something we do. We pay that on our notes.

Speaker 3

Yes. No, I agree with that. Thanks for that color and good luck.

Speaker 1

Thank you very much.

Operator

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

Speaker 4

Hi, Tate.

Speaker 5

Hi, Tate. Hi, good. Good to hear from you. And I think you just said actually that you're starting to deliver. Is it your first European EV arcs at the end of this month?

Speaker 5

And it sounds like was there any adjustment or inefficiencies at the beginning of making the EV arcs in Europe, please?

Speaker 1

Yes. I mean, I actually saw the units. Yes, I saw the units. They're getting ready to get loaded into shipping containers and head out here at the end of this month. In fact, just to give you more detail and perhaps you won't, we're just waiting for the EBSE from this from the vendor of the actual charter itself.

Speaker 1

As soon as we get those, we will install those and they'll add off to their customer. Was there any inefficiency? Yes. There's nowhere near as efficient as it's going to get in the beginning. These are the first units they made.

Speaker 1

But the quality is very, very good. And the end product is excellent. And I'm thrilled to bid, frankly, that it's happened as quickly as it's happened. And I think there's a couple of things that are really important to point out there. We self performed in Europe some really significant tasks that we have always done through outsourcing in the United States, really expensive significant tasks that we've been outsourcing in United States.

Speaker 1

So the economics, taking out the inefficiencies because these are the first ones that we've done and you're right to point that out. But beyond that, what we're seeing is that the economics for producing EBRs in our Serbian facilities are far superior for the economics of doing it in the United States. And remember, all the gross profit improvement we've just announced has come from our U. S. Operations.

Speaker 1

We didn't see any benefit from the Serbian yet. First of all, because we haven't even recognized the revenue on them. We'll do that obviously when we deliver. But I'm anticipating that those inefficiencies are reduced rapidly. Again, it's a very motivated team with a great history of producing a lot of stuff inexpensively and with a lot of efficiency.

Speaker 1

And then because of these economics improvements, because of the largely due to the self performance of some really expensive outsourced task in the U. S, I'm hoping for a much better gross profile gross profit profile in our European operations than in the U. S. While we'll continue to improve in the U. S, the company wide impact of that will be we should get better gross profitability from those units that we produce in our Serbian facilities in ship all over Europe and further afield than we do with the ones that we make in the U.

Speaker 1

S. And yet, as I said, that the sort of move to cash flow that I described in my earlier comments was based on my U. S. Assumptions. So Europe can only make that better.

Speaker 1

So yes, a little bit of an efficiency in the beginning, but a great product, very well made, very good quality. And as I say, clear opportunities for much better economics moving forward.

Speaker 5

Thank you, Doug.

Speaker 1

Thank you, too.

Operator

Thank you. The next question comes from Chris Pierce with Needham and Company. Please go ahead.

Speaker 6

Hey, good evening, Dave.

Speaker 1

Hi, Chris.

Speaker 6

How are you? I'm doing great. On gross margins, from here, is it as simple as the more EVRx you sell, the higher your gross margins go because you're absorbing fixed costs on top of the price increase that you have? Or are there further engineering kind of efficiencies that you can drive out as far as the San Diego production?

Speaker 1

Both. Definitely both. There's no question the more we produce the better we get from a gross profit point of view because of fixed overhead allocations absorption. And it's not it's more than that. The more than we produce, the more stuff we buy, the better buying we get, the better purchasing we get.

Speaker 1

And that's another reason the European expansion has been helpful because a lot of the stuff that we're buying will be common in both markets coming from common vendors. But yes, there are still further improvements that we can make that we've yet to recognize. And we're going to, as I said, ruthlessly go after that. This year for us is really going to be much more about getting more efficient and reducing our COGS. I mean, we've always had a laser focus on operating costs.

Speaker 1

As everybody is aware, we're an extremely lean company operating side of things. But COGS, we're going to be laser focused on continuing to reduce those, but not the expense of quality. So you're going to get further gross profit improvement contribution from both things. The more we make, the more of that overhead allocations absorbed, but also further engineering enhancements.

Speaker 6

Okay. And what can you share about the EV standard margin profile or the strategy there? Is that going to be some sort of I don't want to use the term loss leader, but it's a new product that you're introducing to the market and it's a new manufacturing product. You're talking about the second half of this year demoing it. Like what's the right way to think about the margin trajectory of that product versus the margin trajectory of the EVR product?

Speaker 1

Yes, definitely do not intend for it to be a loss leader. However, there's no question that the earliest units that we make will be the most expensive that we ever make. And frankly, these first units that we're producing right now, the betas that we're going to use to demonstrate the product, which will be how we'll make our first sales. It's very attractive, very striking looking product. I really can't wait to make it public, having seen it now myself.

Speaker 1

But we've already identified, as you might expect, we've already identified areas that where we can be much more efficient in the future models that we make. But no, I'm pretty confident that the first ones we say will come up with good unit economics and then we'll rapidly do value engineering on the product and widen the gap between our revenue and our costs. I expect that we will actually generate more gross from the EV standard product in the future than from any other product in our lineup that we have to date, because I do think it will be a higher volume product. The sales of it are going to be more complex, because unlike the EBR, it's not something that you can just drop off in an hour and walk away from it and it's ready to operate. And I think that will probably mean that we'll do less of the sort of onesie, twosie type sales with the EV standard.

Speaker 1

I think it's more likely to be deployed in almost in a network fashion. Although there are still good opportunities, shopping malls, airports and other places like that for some smaller volume stuff, but I do think that when we're talking about municipal type deployments that will come in larger volume and the sales cycles will be longer. But at the end of the day, while the sales cycles might be longer, the volume should be, I believe will be larger. And again, I think that's going to be an area that we're going to be able to squeeze a lot of gross profitability.

Speaker 6

Do you envision a distribution model like a sales partner channel model or do you envision direct sales model?

Speaker 1

Certainly direct in the beginning. But as I mentioned in my comments, we are actively pursuing 2 very well qualified channels in Europe right now. And that's model which I'm very much in favor of. We've been a bit hesitant to do that in the United States previously for a whole host of reasons. We just weren't really ready for it.

Speaker 1

And from just a materials wise and history wise and ability to just shift the selling process to outsiders. We weren't really ready for it. But we've got some very motivated partners that we're in the process of negotiating with in Europe right now. One group actually is a group that I've been speaking to for a couple of years already and then another one is a partner that we've picked up as a result of our acquisition of Amiga, which has now been Europe. And that's going to, I think, be profoundly impactful for us because obviously we've had a limited number of salespeople that are selling our product up to now.

Speaker 1

This force multiplication ought to get a lot more people talking about it, much broader audience. And we know people like it when they understand it. So getting it in front of more people is clearly going to be a good thing for us, particularly in light of the fact that, as I said, it will be performance based. We won't be adding to our costs, to our operating costs as a result of this because they'll get paid when they sell. And yes, I intend to do that with the TV standard as well as with the EV ARC and our other products.

Speaker 6

Okay. And just lastly for me, on the $4,300,000 non cash that you mentioned a couple of times, is the right way to think about that as 50% of the dilution is at the end of this year 50% next year? Or like what's the right way to think about the timing of those shares that you're issuing to the Omega shareholders for the Omega company?

Speaker 1

Yes. And listen, I apologize for belaboring this point, but we do end up with an awful lot of questions about cash after these calls and I seem to spend a great year of time explaining to people things that are non cash impactful. So my apologies to those of you who grasp that very quickly. This is I'm speaking to those of you who don't. But no, the $4,300,000 that you've heard about is a current liability.

Speaker 1

So therefore, we believe it's going to be impactful in the next 12 months. And that's why, and as Lisa made in her comment said in her comments, we had moved it into current liabilities within this year because we believe that this is an impact which could take place as a result of the remainder of 2024 earn outs. 2025 will be another matter again. And again, I can't stress strongly enough, I want them to hit their earn outs. If they hit their earn outs, it's because we've had really significant growth in those markets.

Speaker 1

And I'm going to do everything I can to make them successful to do that because if they're successful, it means we're successful and vice versa.

Speaker 6

Okay. Same page. Appreciate the color. Thank you.

Speaker 1

Thank you, guys.

Operator

Thank you. The next question comes from Craig Irwin with Roth Capital. Please go ahead.

Speaker 5

Hello, Craig. Hey, this is Andrew on for Craig. And before I get started here, it's kind of ironic. I saw my first ED arc in the wild in Manhattan today. So maybe a good sign.

Speaker 4

Good to hear, Gabe.

Speaker 1

Welcome to the club.

Speaker 5

Thank you. A lot has been covered here. I think just one more thing I want to touch on Europe. Looks like you've had some really good early progress in the UK. And I was just wanting to see if you could talk about the opportunities there and maybe other specific geographies or countries in EU that you're excited about?

Speaker 1

Yes. So the first element I'm absolutely clear is that while I'm thrilled to bits that the UK Ministry of Defense has acquired our product, I'm thrilled to bits that we have a contract with the British government now, which is like our GSA contract with the federal government. And I'm thrilled to bits that British Army is going to be using our products in their overseas bases. It has nothing to do with my country of national origin. We didn't win this because I'm British.

Speaker 1

We won it actually through the merits of the product. The UK Ministry of Defense and the British Army heard about the product because they know that the U. S. Army is using it and they have very similar needs. So it's a great win for us.

Speaker 1

I think I believe it's just the beginning of what we're going to do with them. They just like all other European countries and just like the U. S. Federal government for that matter have pretty stringent mandates on moving to 0 emission vehicles and in pretty short time frames. In fact, I think the UK government is very similar to the federal government in that by 2027, their light duty vehicles, non tactical light duty vehicles across the government have to be 0 emission vehicles, which essentially means electric.

Speaker 1

There wasn't any other contender, except in a few very, very niche cases where hydrogen will play a role. So it's a I think it's a great first step for us. And oddly enough, we're not deploying in the U. K. We're deploying in overseas basis for them.

Speaker 1

With this product, I do think the EV standard will be a very good solution, which is the streetlight product will be a very good solution for the UK and in fact for all Northern European countries. In fact that was a big sort of background for development of the EV Center product was that I think it's a very good fit for Northern European vertical cities because we have the introduction of light wind now as well to generate electricity as well as solar, also because its profile fits in environments where you don't have large surface parking lots, which we have in the U. S, but you don't really see them in most cities over in Europe. As far as geographical areas of Europe are concerned, Spain and Portugal, the Mediterranean countries definitely. And then the Balkan region has been very fruitful for us in terms of opportunities.

Speaker 1

As I mentioned, we did the utility battery seminar, utility scale battery seminar here in the Q1 brought Doctor. Saeed Al Hallaj, who is our Chief Battery Scientist. He was the former Founder and CEO of AllCell Technologies that we acquired. We brought him over here and we did a presentation to, as I said, 40 or 50 leaders from the energy and government space in the Balkans. And the need is very acute.

Speaker 1

They have a rule, which is if they do any large scale solar or wind or renewables deployments, those now have to be accompanied by large scale utility scale battery storage. And that's an area of expertise that we have and it's going to be a new area of business for us, but we're going after it. And the projects are very meaningful in terms of revenue, very meaningful. So as I said, the response to that seminar was better than I expected and we're actively engaged now. Not inked, it has to be said not inked and as I tell sales team all the time, until there's ink, it stinks.

Speaker 1

But I'm also been doing this sort of stuff for long enough to know that when you get the level of interest that we've got, something tends to drop. So feeling really good about that. So Europe in general is a very large opportunity for us. That's why we came over here. It's fantastic that we were able to buy a company that cash flowed and it was already profitable.

Speaker 1

Fantastic that we've been able to put some great assets on our balance sheet. And fantastic we've been able to have such an impact on them already just by freeing them up to do more business. But the real win here without a doubt is going to be the EV charging and energy storage solutions that we're going to be able to bring to this market. And not just this market, I'm not in Abu Dhabi because I like the weather here. There's a massive opportunity in the Middle East as well and great deal of money is being spent here on sustainability projects.

Speaker 1

And I mean just look up projects like NEOM, look at Masdar Energy, massive amounts of money being spent here on stuff that and our products are very, very well suited for this market as well. And then frankly, that's a gateway to Africa. So when I said in the call that I'm speaking to you today as a CEO of a company that has a much larger arena, much larger opportunity set in front of us, these are not idle words, it's a fact.

Speaker 5

Great. Well, thanks for the color and congrats on the strong margin progress. I'll hop back in the queue.

Speaker 1

Appreciate it. Thanks, Andrew.

Operator

Thank you. The next question comes from Noel Parks with Tuohy Brothers. Please go ahead.

Speaker 1

Hello, Noel.

Speaker 4

Hi, good to talk to you. Just a couple of things. You've touched on it a bit, but the meetings with potential customers that you had in Serbia, I wonder if you could just characterize the customers a little bit more and their priorities?

Speaker 1

Yes. So going to see much detail, it wasn't just Serbia, but certainly was from that base of operations. The customers are very like the profile with whom we've had a great deal of success in the United States. So there are people who are in control of environments where there's a lot of parking, a lot of people with vehicles for one reason or another. And of course, there's a great deal of pressure in Europe to move towards electrification of transportation because the Europeans have passed a law outlawing the sale of all but 0 emission vehicles in 11 years from now.

Speaker 1

I'd say, obviously, a massive undertaking to move from internal combustion engine vehicles to 0 emission vehicles, which again means electric vehicles. There isn't an option, not a serious option in just 11 years of massive amount of infrastructure is going to be required. And people over here, I shouldn't say over here, because I'm not over here, I'm further south right now, but people in that part of the world are under just the same sort of pressures as we are in the United States. Same considerations, lack of capacity, difficulty in connecting to circuits, not enough electricity on the grid for electrification or transportation, risk from blackouts, risk from foreign sources of fuel to make electricity, even more complicated to dig up the streets and go through the permitting and all those things and then interconnection with utility interconnection even more complicated than often is in the United States. So they've all got the same considerations exactly as the customer profiles that we've been dealing with in the United States.

Speaker 1

And it's quite confusing to see the relief on their case when they find out that there's an option, and particularly an option that's going to be produced in market. This is also the same with our battery, the battery side of the business, our ability to be an American company, but that's producing locally in the Balkans is definitely a great benefit for us. And one other thing I just want to point out on that, before I came over to Europe, I was in Washington, D. C. And one of the many meetings out in Washington, D.

Speaker 1

C. Was with the IDFC, which is an International Development Finance Corporation, which is a norm of the federal government, which provides low cost and long term financing for projects, which the U. S. Believes in that is in their interest. Those are typically been for developing markets historically, but one thing that's interesting is that sustainable energy projects in the Balkans is within their remit.

Speaker 1

And so I was able to leave that meeting with an assurance from them that with very large sums of money available to us at low interest rates and long terms to finance these types of projects, large utility scale battery projects, for example, in the Balkans. So one thing that I didn't touch on in my comments is we still have our credit facility available to us. That's very inexpensively priced, so for plus 300 basis points, which is certainly not cheap as it was when I negotiated, but that's still there. Untapped $100,000,000 we haven't used it, but it's there for these types of projects and that shows up. But now we also have IDFC funds in for markets where those are not going to work and develop Western European nations or something like that.

Speaker 1

But certainly in places like the Balkans, if it's a sustainable energy project or any African type project or anything like that, very large sums of money to finance these projects over long terms as well, which is just another tool in our toolbox.

Speaker 4

Terrific. So then I guess the thing I'm trying to get a feel for is that there is the natural appeal of the EV arc and the problems it solves and then that continues on with the EV standard. So Amiga's existing customer base, it's just the same people who were customers for their infrastructure, are the ones who are now going to come over and look at the EVRx. Is that sort of does that translate directly or is it kind of you see converting those?

Speaker 1

Okay. I can state to you categorically that I met with existing Amiga customers for whom Amiga had produced street lights and other types of furniture and presented the new products and I met with very enthusiastic response and that was absolutely part of our strategy when we acquired the company. As I've said before, I had a list of probably 25 bullet points of qualifications I was looking for in an international acquisition.

Speaker 4

Right.

Speaker 1

And we got an awful lot of them. And one of them was definitely that they had credibility and had sold to customers who were at similar profile, if not exactly the same profile, which is the case of Amiga as those with whom we've had S. And so yes, existing customers reintroducing these new products, not reintroducing these new products to them and meeting with a great deal of success as a result of it.

Speaker 4

Great to hear. Thanks.

Speaker 1

Thank you. We're getting close on time here. So I think we have time for 1 or 2 more.

Operator

Okay. The next question comes from Christopher Seller with B. Riley. Please go ahead.

Speaker 1

Hi, Chris.

Speaker 2

Hey, thanks for taking my question here. Maybe just on the margin profile around Amiga and if you can kind of talk through whether that is accretive throughout the year as that ramps up seasonally and some of the other businesses presumably start to ramp up as well?

Speaker 1

Yes. That's a really good question because the Amiga's Q1 on the legacy business we're talking about here, the Q1 margins are gross margins have typically not been good because of the things that I pointed out to you there. It's generally a slow time selling for them. And so we didn't benefit significantly from that in the Q1. Again, I'd keep coming back to this gross margin improvement that you've seen has really come from the things that we promised that we would do in the towards the end of last year and into the Q1 of this year and we've done them.

Speaker 1

We're not finished, but we've clearly done a lot of it. But yes, the good news with the Amiga legacy business is as we move into segment, 3rd and 4th quarters, we'll see the volumes arise. And with that, we should see the margin improvement. And then beyond that, because of what we've done with our balance sheet, because we've enabled them to produce product during those slow periods, that means that they produce product with a lower cost profile more efficiently. And so when we do get into the selling of those things, we should see a further improvement in gross profitability even over and above what they would just normally do as they move into higher volume periods in the year.

Speaker 1

And then finally, I think the biggest part of this is going to be from the fact that, again, I'm very bullish about our ability to sell the new EV charging infrastructure and energy storage products. And because the economics are better in those markets, we should have a further improvement in gross profitability there as well. So all in all, I'm feeling pretty sanguine about gross profit contribution from what was Amiga and has now been Europe.

Speaker 2

Excellent. And then maybe just a follow-up here on the EV standard product, obviously, I think you've talked in the past about Amiga selling street lights. So I'm just curious, sales strategy wise, can you kind of walk through the plan as you develop the final product? And I'm curious whether you think there's going to be more traction initially in Europe or in the U. S.

Speaker 2

For that product? Thanks.

Speaker 1

Yes. So we will definitely be going back to the customers that buy street lights in general because of course one of my ideas, one of my plans is that in the future we're going to be dealing with customers who buy streetlights and saying, hey, every X number of streetlights you should have an EV standard So because you're going to need the charging infrastructure on street. I don't know what X is. In some markets, every 5th and some it might be every 50th. I just don't know what every X is, but we'll go back to those existing customers and say that certainly look at this.

Speaker 1

It is a streetlight product. I mean, if you're looking for streetlights, here's a streetlight that just does a whole lot more for you than that. Similarly, we will also be going back to all of our existing customers who bought EBRs from us and saying, hey, we've got this other thing, which might be a good fit for you and other types of deployments that you want to do. And that's a kind of a direct sales thing. And then we'll be putting the AV standard into these news channels hands as well and showing that to them.

Speaker 1

And honestly, I think one of the things I learned from this trip is there is appetite for both products and we may end up and if I have, I think it's very likely that we'll end up selling EVRX and EV standards to certain customers depending on where they're placed and what the use case is for them. Chris, I hope that answers your question and that's got us 2 minutes over time here. Operator, are we looking for questions? I think we need to wrap up. I'll take another one if there's one there, but otherwise, it might be a good time to wrap.

Operator

There are no further questions in the queue at this time.

Speaker 1

Okay. Excellent. Well, I'm appreciative of that because I need to get some shot at it here because I've got a long day ahead of me tomorrow again. But I'm very grateful for everybody for listening in and for your continued attention and support of the company. I'm very grateful to the Beam team, to Lisa and our team about getting the financials together and getting us filed on time again and feel very enthusiastic.

Speaker 1

A great time to be Beam Global and I'm looking forward to the rest of this year. So thank you all.

Operator

The conference has now concluded. Thank you for your participation. You may now disconnect your lines.

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Earnings Conference Call
Beam Global Q1 2024
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