Beam Global (NASDAQ:BEEM) Q1 2023 Earnings Call Transcript

Beam Global (NASDAQ:BEEM) Q1 2023 Earnings Call Transcript May 15, 2023

Beam Global beats earnings expectations. Reported EPS is $-0.38, expectations were $-0.42.

Operator: Good day, and welcome to the Beam Global First Quarter 2023 Financial Results and Corporate Update. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the call over to the Chief Financial Officer, Kathy McDermott. Please go ahead.

Kathy McDermott: Thanks, Joe. Good afternoon, everyone, and thank you for participating in Beam Global 2023 first quarter conference call. We appreciate you joining us today and hearing 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 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 team’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-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 15, 2023. 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. And next, I will provide you with the financial results for Beam’s first quarter of 2023. Our first quarter revenue started out very strong increasing 245% over the first quarter of 2022 and 65% over the prior fourth quarter of 2022, which is typically our highest quarter. Revenues for the quarter ended March 31, 2023 was $13 million compared to $3.8 million in the same quarter in the prior year.

The increase can be attributed to the increase in federal sales primarily to the U.S. Army as a result of several large federal orders we received in late 2022 that we’ll deliver through the end of 2023. Our manufacturing operations have increased our production capacity by increasing our production team, close management of our supply chain and through improved tooling and design changes to allow us to fulfill this higher demand for our products. After many quarters of reporting a gross loss, we’re happy to report a gross profit for the quarter ended March 31, 2023, our gross profit was $5,000 [ph] compared to a loss of $0.3 million or 8.1% [ph] of sales for the first quarter of 2022. This improvement resulted from the increased production levels, providing favorable fixed overhead absorption and improved labor efficiency.

Our material cost for steel and other components remain higher than Q1 2022 and due to supply chain shortages and other inflationary pressures. Also, our cost of goods sold includes $0.2 million of noncash intangible amortization related to purchase assets from the AllCell acquisition. Operating expenses were $3.8 million or 30% of revenues for the first quarter of 2023 compared to $2 million or 52% of revenues for the same period in the prior year. We acquired AllCell Technologies in March of 2022 and reported one month of expenses in Q1 2022, so $0.5 million of the increase is due to a full quarter of energy storage expenses in Q1 ’23. In addition, we invested $0.4 million for additional resources in R&D, $0.3 million for noncash compensation expense, $0.3 million for audit fees and $0.3 million for admin, salaries and bonus expense.

Our net loss was $3.8 million for the 3 months ended March 31, 2023, compared to $2.3 million in the first quarter of 2022. These quarters included noncash expense items such as depreciation, IP amortization and noncash compensation expense of $0.9 million and $0.4 million, respectively. Net loss, excluding these expenses would have been $2.9 million and $1.9 million, respectively. At March 31, 2023, we had cash of $1 million compared to $1.7 million at December 31, 2022. The cash decrease was primarily from the net loss as well as an increase in accounts receivable partially offset by an increase in accounts payable. Our working capital decreased from $6.8 million to $5.5 million from December 31, 2022 to March 31, 2023. And with that, I will turn it over to Desmond.

Desmond Wheatley: Thank you, Kathy, and thank you to all of you shareholders, followers and analysts who have joined this call to hear our Q1 2023 results. I’m going to make some comments, and then I’m looking forward to answering your questions before we close the meeting. Well, the Beam team really knocked out of the park this quarter, with record revenues and deliveries a positive gross margin and record Q1 sales orders and pipeline. This continues the team’s trend of breaking records quarter-over-quarter and year-over-year. We generated by far the highest revenue of any quarter in our history. In fact, about 3x more revenue than in the first quarter of the previous year, more than half as much again as in the prior quarter and a quarterly revenue rate that was higher than any full year in our history following 2022.

Q1 of 2023 is now our eighth quarter of consecutive revenue growth and continues a trend, which barring a few minor instances goes back to deal longer than that. 2022 was a year in which the beam team generated a 548% increase in orders over the prior year, and the prior year was up significantly over its predecessor. Clearly, demand for the product is no longer a problem. The new question in everybody’s mind was whether or not we could deliver on all this growth. In this first quarter of 2023, the Beam team delivered more EV ARCs, more battery systems than in any other quarter in our history. We delivered 150 EV ARCs, up from 103 in the fourth quarter of 2022. And again, this delivery rate was higher than any full year in our history, except for 2022, which was, of course, a record year.

By the end of 2022, our team in Chicago was producing about 10 times more kilowatt hours of batteries than also the company we acquired, did during the months prior to our acquisition and that trend has continued through the first quarter of 2023 and was enabled without significant capital expenditure on our part. During the first quarter of 2023, the operations and engineering teams at Beam Global have continued to make improvements in our processes, fixtures, equipment and product engineering. These improvements have taken place during the quarter and have resulted in a daily and weekly production rate at the end of the quarter, which is far superior to that, which we began 2023. I believe that the results of these activities will mean a continuation of our accelerating trend of production so that in Q2, Q3 and Q4 of this year, we will continue to increase our output after an unforeseen event, which is outside of our control.

At any rate, even at our current run rate, we’re on track to produce something like 3 times more EV ARCs 2023 than we did in 2022, which, as I’ve already stated, a record year and 144% over 2021. I’ve consistently stated that within these volumes, we would see improvements to our gross profitability and that assertion is certainly being borne out in this latest quarter. We reported a gross loss of 8.1% in the fourth quarter 2022. But in the first quarter of 2023, we generated and reported positive gross profits, albeit minor, and when including noncash amortization of intangible assets resulting from our acquisition AllCell, the picture is actually a couple of percentage points better. I repeat, we made money at the gross profit line across the entire Beam Global platform, GAAP [ph].

And excluding the arcane accounting treatment of our very successful acquisition, we did better than we reported by about 2%. We achieved these improvements in gross profitability through combinations of increased efficiency, improved engineering and the inevitable reduction of our per unit fixed overhead allocation that comes with growth. I’ve long stated that we received positive margin contribution from the sale of EDR systems. The GAAP numbers now show unequivocally that this is correct, as we’ve reached a point in our levels of production where all our overhead costs associated with producing the products have been covered, and we’re now able to produce a gross profit across the company. I’m confident that these improvements in gross profitability will continue as our volumes increase and as we continually improve our processes and methods of manufacturing while upgrading our tooling and fixturing to increase our throughput and reduce labor hours per unit.

But there will be other contributors to improving growth profitability, which I believe will have even more impact during the next 2 or 3 quarters. I’ll describe the three more significant at those to you now. Firstly, our combined engineering team on both the battery and EV charging products side of the business, has identified engineering and component improvements, which we believe will make the EV ARC a better product while at the same time, reducing our cost to produce them by between $10,000 and $12,000. This reduction in cost should equate to approximately 16% to 20% improvement to the margin contribution from a base EV ARC. We expect to see the impact of these improvements starting in a small way in the second quarter but complete by the end of 2023.

Secondly, because of the exceptional demand for our EV ARC products from both governmental and commercial entities, we have decided to increase our sales price for the first time by approximately 8.25% on a base model system. Pricing in EV ARC has over the years been the subject of much discussion and analysis here at being global. On the one hand, because we have a unique and well-patented product with no direct competition in the marketplace, there’s been a strong argument to suggest that increasing our prices make sense. On the other hand, is a competing argument that increasing acceptance of the product and hence, volumes of production was so important or doing anything that might create a hurdle for increased adoption, like for example increasing our prices, might in turn have a negative impact on the overall health of the business.

We have been patient, and we’ve been prepared to learn from the market. And I’m delighted to report, demand for our product is so strong and growing. But after much consultation with our sales and marketing team, we’ve come to the conclusion that we can increase our prices without having a negative impact on the order flow. On the contrary, we believe that the urgency of demand for our products will continue its long-term trend of increasing and accelerating. We’ve introduced this 8.25% increase in our selling price is a line item on our proposals addressing the inflationary environment in which we’re currently operating. We believe that this line item will be well understood and accepted by our prospective customers, and we’re also encouraged by the flexibility that this price increase strategy affords us.

The third contributor to our increasing profitability is the disinflationary impact to the cost that we’re paying for components, commodities and transportation. We first started to detect this trend towards the end of 2022, and we believe that we will see a decrease in the cost of materials and transportation throughout the remainder of 2023. I stress that the improvement of gross profitability in the first quarter of 2023 has not been assisted by this disinflationary trend as we and our vendor work through inventories accumulated during the period of hyperinflation after the end of last year. The result of this is that the EV ARCs and batteries that we sold during the first quarter of 2023 were still negatively impacted by the highest cost that we’ve ever paid.

And yet, we were able to improve our gross profitability and generate positive gross profit in spite of these influences. We should start to see the positive impact of the disinflationary environment on our cost of goods sold starting in a minor way in the second quarter and continuing throughout the rest of 2023. We take the impact of all 3 contributors to improving gross profitability, along with our already demonstrated ongoing improvements resulting from increased volumes and efficiencies. We can do some simple arithmetic. 16% to 20% of improvement through engineering enhancements, 8.25% improvement due to our price increase and as yet unidentifiable improvement as a result of disinflationary activities amounts to potential for approximately 24% improvement over our current positive gross margins.

I’ve stated before that I’m targeting a 50% gross profit on our EV ARCs and other charging products. And I think you can see with outlined improvements I’ve just described that we’re taking the right steps to move towards that goal. Cost improvements are a process, not an event. And as I’ve said, we’ll start to see the benefits of the steps we’re taking in the second quarter, but more dramatically in the third and fourth quarters of this year. In the interest of being abundantly clear, the price increase I just announced became effective on May 1 of this year, and as a result, had no impact on our gross profitability in the first quarter. All of the improvements in gross profitability in Q1 came as a result of increased efficiencies and volumes.

The impact is price increase will be on any new orders which come in and are delivered after we worked our way through our currently priced backlog. The other cost savings that I’ve mentioned above will be impactful to elements of our currently priced backlog because we’ll institute these changes as quickly as we possibly can. And as I’ve already stated, we expect to see these improvements take effect beginning modestly in this quarter and continuing with more vigor during the remainder of the year. Our constantly improving growth profitability provides the best type support for our cash position. We continue to manage cash carefully and with prudence, with approximately $5 million in cash in the bank today which is significantly more than we reported on our balance sheet at 12/31 or 3/31 of 2023.

We have over $100 million of liquidity because in addition to the $5 million we have in the bank, we still have the as yet unused $100 million line of credit issued to us by the OCI Group in London. As a reminder, this $100 million line of credit is liquidity that we can use at our discretion at the cost of SOFR or the secured overnight finance rate plus 300 basis points. There are no other fees all costs associated with using this money, and there is no equity impact whatsoever. I’m aware that the cash position on our balance sheet has sometimes raised a few eyebrows. But as we very clearly demonstrated in the first quarter of this year, we have managed to dramatically increase our production and improve our profitability while maintaining a disciplined approach to managing our cash resources.

Further insight into our cash out comes on looking at our working capital position, which stands at approximately $13 million when excluding noncash items. It’s essential to recognize the positive contribution margin from our products when understanding our cash. This has been made abundantly clear by a positive growth profitability in the first quarter of 2023. As we see increased volumes of products moving to our factory, combined with our planned cost reductions and our pricing increase, we will see an increase in contribution margin, which will have a further positive impact on improving our cash flow. We should continue to see this increase in volume, not only because we started 2023 with the highest contracted backlog in our history, but also because the Beam global sales team has produced a record first quarter of selling while our operations team has produced a record quarter of production.

The sales team saw more product in the first quarter of 2023 and in any first quarter in our history. But perhaps much more importantly, our pipeline now stands at over $130 million, which is the highest pipeline position we’ve ever had at this time of year. And last year, we took a beginning pipeline of $80 million and converted $76 million of it into hard contracts. We now have $130 million in pipeline and while no one can say with certainty what percentage of that pipeline will convert to backlog, our historical performance has certainly been very good. We will undoubtedly still see lumpiness in orders somewhat driven by degrees of seasonality amongst the various strata of customer prospects we target. But this very strong first quarter shows that even with the lumpiness, the general trend continues to grow and indeed accelerate.

The lumpiness in order cadence has replaced what used to be lumpiness in revenues. However, we’re no longer experiencing choppy revenue recognition. That has been replaced by consistent and dramatic growth. A little over half the orders we received in the first quarter came from governments with the remainder coming from commercial entities, continuing a trend of a return from the commercial sector into our sales pipeline. We announced orders from one of the top global automotive OEMs as well as from the materials rehandling sector and a fascinating robotics company. On the government and pseudo-governmental side, we saw interesting growth from corrections and native nations. This healthy mix of government and commercial business looks set to continue and is certainly represented in our greater than $130 million pipeline.

We are seeing no indication of a reduction in investments in electric vehicle charging infrastructure, energy storage or energy security. We will continue to grow our intellectual property portfolio on both the battery and EV charging side of the business. Already in 2023, we’ve announced new patents in Asia and Europe for both sides of the business. We intend to use our EV standard product as resources permit during the remainder of 2023 and our engineering teams will not cease from seeking methods to improve our existing products, making them a greater value for our customers while reducing our cost to produce them. We will continue to invest in sales and government relations activities, as well as R&D, and we will not shy away from opportunities to grow geographically, particularly where massive markets like Europe exists that are so well matched to the fantastic value proposition delivered by our products.

None of these activities will, in any way, reduce our laser focus on continuing to improve our growth profitability and manage our cash. You need not to take my word with this, it’s absolutely clear in this quarter’s results. In summary, the Beam team delivered more products than in any quarter in our history. We tripled our revenues over the same period prior year. We generated a positive gross profit across the company, and we have more cash in the bank today than we had at the end of 2022 without — and I stress this without tapping our as yet unused $100 million credit facility. We have clearly identifiable and achievable opportunities for continued dramatic improvements to our gross profitability to be executed during the remainder of this year.

We continue to break sales records in a market which shows no signs of abating. We have increased our patent portfolio with it and with it, the barrier to entry for the competition, and we have a road map of new and excellent products to bring to market. So far, all of the success has been derived within the United States but we continue to see opportunities to replicate and accelerate the success internationally. The public markets have certainly been a challenging environment for growth stocks like ours. I believe our share price has been impacted by factors which are clearly not linked to our performance. We cannot impact the behavior of the broader markets, but we can continue to deliver material and excellent improvements to our performance.

We have done, are doing and will continue to do exactly that. I’ll now return the call to the operator and take any questions which you may have.

Q&A Session

Operator: [Operator Instructions] At this time, we will take our first question.

Operator: We will take our first question now from Tyler DiMatteo with BTIG.

Operator: And our next question will come from Christopher Souther with B.Riley.

Operator: And our next question will come from Noel Parks with Tuohy Brothers.

Operator: And our next question will come from Abhishek Sinha with Northland Capital.

Operator: And our next question will come from Tate Sullivan with Maxim Group.

Operator: And our next question will come from Chris Pierce with Needham & Company.

Operator: [Operator Instructions] Our next question here will come from Daniel Marcelo with Cardona & Company [ph].

Operator: And this concludes our question-and-answer session. I’d like to turn the conference back over to Desmond Wheatley for any closing remarks.

Desmond Wheatley: Well, I’m going to keep my closing remarks short because I’m going to get back to work here. We’re busier than hell. The team is performing fantastically, and I can tell there’s a lot of enthusiasm around here at the moment because everybody knows that as good as it is, we’re going to be able to do a whole lot better. And that’s where our focus is right now, as I mentioned in my comments, profitability and production, or major areas of focus, and we’ve delivered on that better than 8% improvement quarter-over-quarter from a profitability point of view and positive gross profit. We’re still going to be focused on cash management as well. All the jokes about Scotsman and money are true. Listen to them and believe them.

I’m loving what I’m doing at the moment. I love this company. I love the team of people that we put together and we’re — we’ve got nothing but climbing in growth ahead of us. So, I very much appreciate you being involved. Thank you for your interest and for your questions. And if you hold our stock, thank you for that too. With that, I’ll hand it over to the operator to end the call. Thank you.

Operator: The conference has now concluded. Thank you very much for attending today’s presentation. You may now disconnect your lines, and have a great day.