Beam Global Q1 2023 Earnings Call
Good day.
And welcome to the <unk> Global first quarter 2020 financial results and corporate update.
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I would now like to turn the call over to the Chief Financial Officer, Kathy Mcdermott. Please go ahead.
Thanks, Joe.
Good afternoon, everyone and thank you for participating and being global 2023 first quarter conference call.
We appreciate you joining us today and hearing an update on our business. Joining me is definitely Wheatley, president CEO and chairman of being.
Definitely we will be providing an update on recent activities have been followed by a question and answer session.
First I'd like to communicate to you that during this call management will be making forward looking statements, including statements that address beans 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 being 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 15th 2023.
As required by law being 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 the 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 31st.
2023 were $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.
Felt that several large federal orders we received in late 2022 that will 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 to improve 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, I gross profit was 5000 compared to loss of $23 million or $8. One a sale 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 costs for steel and other components remain higher than Q1, 2022, due to supply chain shortages and other inflationary pressures.
So our cost of goods sold includes point 2 million of noncash intangible amortization related to purchase assets also acquisition.
Operating expenses were $3 8 million or 30% of revenue for the first quarter of 2020 compared to 2 million a 52% of revenues, but at the same period in the prior year, we acquired all cell technologies in March of 2022 and reported one wants it expenses in Q1 2022.
One 5 million of the increase is due to a full quarter of energy storage expenses in Q1 'twenty three.
In addition, we invested <unk> 4 million for additional resources in R&D.
One 3 million for noncash compensation expense.
One 3 million for audit fees.
And <unk> 3 million or admin salaries and bonuses.
Our net loss was $3 8 million six months ended March 31, 2023, compared to $2 3 million for the first quarter of 2022.
These quarters included noncash expense items, such as depreciation amortization and noncash compensation expense of.
<unk> 9 billion and point 4 million respectively.
Net loss excluding these expenses.
Have been $2 9 million and one 9 million.
At March 31st 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.
31, 2022 to March 31 2023.
And with that I will turn it over to Deb.
Okay.
Thank you Cathy and thank you to all of you shareholders followers and analysts who have joined this call to hear our Q1 'twenty two 'twenty three 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 BMC really knocked it out of the park this quarter with record revenues and deliveries are positive gross margin a record Q1 sales orders and pipeline.
This continues the team is trying to break in record quarter over quarter and year over year.
We generated by far the highest revenue of any quarter in our history, you talked about three times more revenue than in the fourth quarter of the previous year more than half as much again as in the park Walker on a quarterly revenue rate it was higher than any full year in our history foreign 'twenty to 'twenty two.
Q1 of 2023 is now our eighth quarter of consecutive revenue growth continues a trend, which barring a few minor instances goes back because they are longer than that.
2022.
The beam team generated a 548% increase in orders over the prior year. The prior year was up significantly over its predecessor.
Demand for the product there's no longer a problem the new question on everybody's mind, whether or not we could deliver on all of the school.
And this first quarter of 2023, the BD team delivered more EV auction more battery systems than in any other quarter in our history.
We delivered 150 EPS from 103 in the fourth quarter of 2022.
And again this delivery rate with higher than any full year in our history, except for 2022 which was of course a record year.
By the end of 'twenty talking to our team in Chicago was producing about 10 times more kilowatt hours of batteries and also the company. We acquired did during the month part or acquisition and that trend has continued through the fourth quarter of 2023 and was enabled without significant capital expenditure on our part.
During the first quarter of 2023, the operations and engineering teams are being global have continued to make improvements in our processes fixtures equipment Boardwalk engineering.
These improvements are taking place during the quarter and it resulted in a daily and weekly production rates at the end of the quarter, which was far superior to that which we began in 2023.
I believe that the result of these activities will meet a continuation of our accelerating trying to production. So that in Q2 Q3 and Q4. This year, we will continue to increase our output absent any unforeseen it back which is outside of our control.
At any rate even at our current run rate we're on track to produce something like three times I believe you all through 2023 than we did in 2022, which as I've already stated with a record year and onward and 44% over 2021.
Well I've consistently stated, but with increased volumes, we would see improvements to our gross profitability about assertion is certainly being born in this latest quarter.
We reported a gross loss of eight 1% in the fourth quarter of 2022, but in the first quarter of 'twenty three we generated and reported positive gross profit, albeit a miner and when excluding non cash amortization of intangible assets, resulting from our acquisition of wholesale the picture is actually a couple of percentage points better.
I repeat we made money at the gross profit line across the entire being global platform that.
And excluding the arcane accounting treatment of our very successful acquisition, we did better than we reported by about 2%.
We achieved these improvements of gross profitability through a combination of the increased efficiency improved engineering and the inevitable reduction of our pay per unit fixed overhead allocation that comes with growth.
I have long stated that we received positive margin contribution from the sale of PV systems. The GAAP numbers now show unequivocally that this is correct as we've reached a point in our levels of production, where all of our overhead costs associated with producing the products are being covered and were now able to produce a gross profit across the company.
I'm confident that these improvements in gross real profitability will continue as our volumes increase and as we continually improve our processes and methods of manufacturing, while upgrading our tooling and fixtures to increase our people and reduce labor hours per unit.
But there will be other contributors to improving gross profitability the geography, well have even more impact during the next two or three quarters I'll describe the three most significant you're not.
Firstly, our combined engineering people, both the battery and EV charging product side of the business has identified engineering and component improvements, which we believe will make the easy Orca Bachelor product, while at the same time, reducing our cost to produce them by between 10 and $12000.
This reduction in costs should equate to approximately 15% to 20% improvement to the margin contribution from our base E V O.
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 products from both governmental and commercial entities, we have decided to increase our sales price for the first time by approximately 8% on a base model system.
Pricing in New York has over the years, it's been the subject of much discussion and analysis here being global.
The one hand, because we have a unique and well patented product with no direct competition in the marketplace. What's been a strong argument to suggest the increasing prices make sense.
And the other is the competing argument the increasing acceptance of the product and hence volumes or production was so important we're doing anything that might create some hurdle for increased adoption 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.
I am delighted to report demand for our product is so strong and growing but after much consultation with our sales and marketing teams. We've come to the conclusion that we can increase our crisis without having a negative impact on the order flow.
The country, we believe that the urgency of demand for our products will continue its long term trend of increasing and accelerating.
We've introduced to take in a 4% increase in our selling prices of Linux and Walnut proposals addressing the inflationary environment, which we.
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 contributing to contribute to our increase in profitability is the this inflationary impact to the cost that we're paying for components commodities and transportation.
We first started to detect this trend towards the end of 'twenty to 'twenty, two 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 the disinflationary trend as we enter our vendors have worked through the inventories accumulated during the period of hyper inflation up to the end of last year.
The result of this is at the EBITDA auction batteries that we sold during the first quarter of 2023 were still negatively impacted by the highest cost that we've ever paid.
Yet we were able to improve our gross profitability and generate positive gross profits in spite of these influences.
We should start to see the positive impacts 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.
Taking the impact of all three contributors to a grouping those profitability along with our already demonstrated ongoing improvements, resulting from increased volumes and efficiencies. We can do some simple arithmetic.
She went to 20% of improvement through engineering enhancements, H and a quarter percent improvement due to our price increase and as yet on identifiable improvement as a result of disinflationary activities amongst your potential for approximately 24% improvement over our current positive gross margins.
I stated before that I'm targeting a 50% gross profit on our EV. Another charging products I think you can see without line improvements I've. Just described that we're taking the right steps to move towards that goal.
Cost improvements or a process not an event and as I 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've just.
It became effective on may 1st 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 of this price increase will be on any new orders, which come in and they delivered after we've worked our way through are currently priced backlog.
The other cost savings that I mentioned above will be impactful to elements of our farm backlog because we will 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 continuing with more bigger during the remainder of the year.
Our constantly improving gross profitability provides the best type of support for our cash position, we continue to manage cash carefully and with prudence and approximately $5 million in cash in the bank today, which.
Which is significantly more than we reported on our balance sheet at 12, 31 or restart if you want a 2023.
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 CRE group in London.
As a reminder, this 100 million on our line of credit is liquidity that we can use that hard discretion at a cost of silver or the secured overnight financing 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 at sometimes raise 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 top shelf comes from looking at our working capital position, which stands at approximately 14 million when excluding non cash items.
It's essential to recognize the positive contribution margin from our products weren't understanding our cash. This is be made it abundantly clear by a positive boost profitability in the first quarter of 'twenty to 'twenty three.
How do we see increased volumes of products moving through our factory combined with our planned cost reduction of a pricing increase we will see an increase in contribution margin, which will have a further positive impact on improving our cash flow.
We shouldn't 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 <unk> global sales team produced a record first quarter of selling while our operations team has produced a record quarter production.
The sales team sold more product in the first quarter of 2023 and in any first quarter in our history.
But perhaps 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.
Last year, we took a beginning pipeline of $80 million in broker 76 million of it into hard contracts. We now have 130 million pipeline and while no. One can say with certainty what percentage of that pipeline will convert to backhaul. All historical performance has certainly been very good.
We will undoubtedly still see lumpiness in orders somewhat driven by degrees of seasonality amongst the various charts of customer prospects we target.
But there's very strong fourth quarter. So is that even with the lumpiness. The general trend continues to grow and indeed accelerate.
This lumpiness in order cadence has replaced what used to be Lumpiness in revenues. However were 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 fourth 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, but we see Oh, yes, as well as from the materials handling sector at a fascinating robotics company.
On the government and pseudo governmental side, we saw interesting go some corrections in native nations. This.
This healthy mix of government and commercial business looks set to continue and it 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 pursue our EV Sandra Bullock 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 gross profitability and manage our cash.
Please don't take my word it's absolutely clear in this quarter's results.
In summary, the beam team delivered more products than in any quarter in our history.
Tripled our revenues over the same period prior year, we generated a positive gross profit across the company and we have more cash into buying 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.
The barrier to entry for the competition and we have a roadmap of you an excellent products to bring to market.
So far all of this success has been derived within the United States, but we continue to see opportunities to replicate and accelerate the success internationally.
The public market. So it's 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 market, but we can continue to deliver material and excellent improvements to our performance.
We have done are doing and we will continue to do exactly that.
I'll now return the call to the operator and take any questions that you may have.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
At this time, we will take the first question.
Well I did just for point of clarity before we take the first question I am doing follow up calls with.
All the analysts after this call. So don't be surprised if you don't hear a lot of analysts questions and analysts listening feel free to ask me during the follow up calls or not or if you would prefer I'm I'll take the questions that either at either event.
Sorry for interrupting you.
No problem.
We'll take our first question now from tailored to Matthew with B T. I D. Please go ahead with your question.
Good afternoon, everyone. Thanks for taking the question.
It doesn't I wanted to start out with a higher level, one to hear and just how you're thinking about managing the growth of the business and really balancing that with an uncertain macro environment. I know you alluded to how you havent seen EV charging demand let off you know the order book continues to look very good I would just.
Curious to hear how you're thinking about kind of that balancing act and really growing the business here at a higher level.
Hello, Hello, Tyler well first of all we still have a great deal of untapped a excess capacity in our factory facility, even with these growth numbers, we've still got a long way to go before we felt this place up which means that we will be able to execute on growth, which we see coming without a significant capital expenditures and while managing our cash as is but to your broader.
I mean, assuming we're talking about moving into a sort of recessionary environment. If we're not already in one I think frankly, having an infrastructure product, particularly one that is so key to energy security and so important to the electrification of transportation, which I view as an inevitability is going to be one of the few bright spots in that recessionary.
Which I frankly in my Gummer days believe we're heading into that.
In fact.
There's another side of this for US which is that we're not seeing any let up whatsoever and demand for our products either on the EV charging our energy storage side of the business.
And at the same time, what we do anticipate.
A reduction in cost across the board as a result of Oh.
Yes.
Active economic environment, So transportation pricing, we've already seen come down dramatically I think that's a leading indicator.
We believe that we're starting to see an increase in available labor.
And then the commodity and component prices that we're paying at the moment, which is iced coffee and I. Both pointed out we're still suffering from the backlog of inventory that rebate for which we paid the highest prices than we've ever paid in our history. We believe all of those things are going to come down and probably even more quickly as a result of the recessionary environment. So I hate to say this but frankly.
I don't believe protection was bad for us to see any impact to the top line nothing in our pipeline will be impacted by it but I do believe it will assist our our ongoing efforts to improve our profitability.
Okay, Great and then going off that then does man or I guess, how are you thinking about kind of prioritizing the order book here.
I guess, given this robust backlog of infrastructure and just how are you thinking about kind of managing the order book here.
I'm frankly, I'm honestly trying to that's one of the biggest challenges that we have at the moment because of the hip.
Hi backlog that we've reported and there's not a single customer in there that wouldn't take the product tomorrow, I mean, and I'm being somewhat light.
Somewhat flippant with my words, but let's put it this way there's no customer there that once their product later than 2023 there's nothing material and so what that means is our challenge at the moment, it's not a it's not a matter of as I said in my comments, it's not a demand problem. It's a supply problem that we are just ramping up.
To execute on the orders and get them out to customers as quickly as possible.
Whenever our customer wants something faster than you can deliver it to you there's always a bit of a conversation around that.
But.
That's just the.
We've seen this challenge coming for a long time I've been anticipating this growth for a long time, we are executing on at the operations team doing a fantastic job.
They're just getting better and better and again, we still have a whole lot of capacity left in the factory here.
So we'll keep talking to our customers in any way you look at it.
And <unk>, which is a little bit later than you were hoping to get it as a customer is still a hell of a lot sooner than you could dig the trenches and going through the permitting and pour the concrete and everything else that has to do a grid tied installation. So I think we're in pretty good shape, where that's concerned.
Okay, Great. That's very helpful. Thank you for the time guys really appreciate it I'll turn it back to the queue.
Okay.
And our next question will come from Christopher Silver with B Riley. Please go ahead with your question.
Okay. Thanks for taking my question here.
So I'm not trying to 12000 of cost out that's pretty impressive can you walk through the magnitude of some of the main items there.
And it sounded like on time, and I think it's two or three quarters to hit that full mag.
Magnitude there potentially.
Well of course as you know that our product is fairly complex, we make it very very simple for our customers and end users to operate it but there's a lot of complexity going on.
A lot of intellectual property I'm not going to go into detail on exactly what we're getting these cost savings because I'm not going to give them any one an instruction manual to do that but suffice it to say across batteries and some of the other components in the way that we're putting this thing together.
Again, I've been consistent with this overall of our reporting periods. It would keep pushing the engineers and the operations teams to find ways to make the product a less expensive, but not at the expense of quality or safety and they have done yeoman's work, where that is concerned it is a bit of a process because obviously, we've got product in process right now.
Work in process product and some of the new pieces and components are off to integrate into the product have lead times are for them. So as I mentioned in my in my comments very earliest beginnings of improvements starting and then towards the end of this quarter with much more activity in the third and fourth quarter, but I fully anticipate that we will have all of them.
These positive impacts.
From a cost reduction point of view the I have disclosed to you today and in effect before the end of 2023.
The price increase is it going to be actually oddly enough you'd think that'd be the easiest wanted to do but in fact, because as I mentioned, none of the products that we've delivered to date. This year has been impacted by that price increase because of course, we were not increasing the prices on products that we have already contracted and so the price increases for no new orders are coming in.
Some of those you will inevitably see injected in because we will some of those newer orders, we will inject into our current.
Our backlog of deliveries, but youre not going to see any material impact from that until we work through this backlog and then and so that again as I mentioned everybody wants that by this year. So you should anticipate seem to really material impact from the price increase I once we work through that backlog.
Okay, well that's helpful.
Maybe as a follow up can you just give US you know timing or volume do you think.
Order for us to hit EBITDA positive law that you know of course of course.
Margin positive seemed like it's here and here to stay.
So.
Let's assume that I am right and that we will hit these cost reductions and that we will incur.
Increased our our price the way the way that I've described but let's assume I'm right and I remind you that I have been right about most if not all of the comments I've made along these lines historically and I don't intend to start being wrong today, but assuming that we are right about that then we would need to produce something between instead.
117 to 180 units in a quarter to soak up the net loss, which we reported in the first quarter well I. Just told you. We just produce 150 units in this quarter. So it's really not very far away from that so.
So you know without giving going into too much you can get into anything that looks pretty much like guidance here. What you can clearly see is that with our current cadence in our current backlog in the event that we are successful with the cost reductions that I've described and we intend to be a then we're on a run rate right now that would get us to EBITDA possible EBITDA.
On a positive note that of course can also be impacted by other things that we do we might elect.
Lack to make further investments in sales and government relations I've already described our R&D.
I Havent shied away from the fact that I'm still acquisitive, if these things come down the pipe, but based on our current book of business and our current order cadence, where we're currently operating at a level that after these cost savings are introduced I would get to EBITDA positive or thereabouts.
Okay, No that's really helpful. I'll hop in the queue. Thank you.
Thanks, Chris.
And our next question will come from Noel Parks with Tuohy Brothers. Please go ahead with your question.
Oh no.
Hi, good afternoon.
Just had a couple.
I Wonder if you could just talk a bit about the sales and marketing effort and.
It was a it was great to hear the details you have as far as the commercial types of clients that you've had growth with N V and the government, but I'm just curious at this point.
As far as sort of inbound inquiries versus you know sales outreach new customers versus repeat customers can you talk a little bit about your what you're seeing currently and what the trends look like.
Well, we certainly got a lot of repeat customers, that's good news and a great <unk>.
Allegation of the product even in the harshest environments across the country.
Look our sales teams active in aggressively going after that says when people after the third quarter of last year, when we announced some extraordinarily large salespeople.
I suppose the less optimistic people out there, saying well, maybe not one and done nonsense. The sales team has been aggressively selling.
Not slowed down at all since that time, we we don't believe we don't view this as an arrival we view this as a first step.
We continue to look for for for aggressive salespeople.
We got a lot of repeat orders, we do get a lot of incoming inquiries and we also go to the trade shows we were actually a couple of weeks ago were very well received and those borrowers and I Dare I say it the more people understand what's required to deploy grid tie D. V charters are the easier our selling proposition becomes remembering that we're not competing with.
EV charging companies, where we're deploying the charge points in the blanks and Electrify America and everybody else, we're not competing with them or assisting them, but anyone who starts to understand the complexities of deploying the grid tied infrastructure.
They they they become a much easier sell for us and so it's across the board combination with we've got healthy incoming from the website I would go aggressive sales team both government and commercial that I mentioned, we had a 548% increase in year over year orders last year I think it was something like 1100% increase in commercially.
Orders, albeit from a smaller number so yes that that commercial thing has come back just as much as I had already.
And in prior quarters too.
Returning post vaccine post Covid was a return to the office, but it's a mixture of all three things with repeat customers.
Incoming from the website, where people who have just seen the product.
And then.
The aggressive sales team that we have and will continue to grow in and train and get them back from better sales tools well just what the the videos we have on the website right now by far the highest quality videos, we've ever produced really good explanation of the value of the product or anything else. You you watch one of those videos for two minutes and you understand everything you need to know about why you ought to own our products.
Terrific and you touched on the international opportunities and.
Largely untapped to this point and as far as any conversion or modification for EV art to you'll be compatible with our charging hardware that said you don't see not not much in evidence in the U S.
That is it relatively close to plug and play or are there just sort of a user interface changes that need to be made or is that more of a sort of like a long term development project for being able to sort of handle another another generation of another other regions are charging.
But if you make an electric products to the United States market, and then you try and make it and sell it into Europe , you have to make significant modifications for it into it because of the difference in cycles and voltage is nothing else on the on the European grid. If you make a product which is running all this energy from the Sun you have no such problems and so then it's just a question of whether or not we can.
Convert sunlight in stores online and producing a current.
The cycles that are required to operate European EV charging infrastructure and the answer is resoundingly, yes, not technically difficult at all it'll be no hurdle for us whatsoever.
Great. Thanks, a lot.
Thank you.
And our next question will come from Amit <unk> with Northland Capital. Please go ahead with your question.
Yeah. Thanks for taking my question and congrats on them.
But a really good quarter here.
Wanted to make sure I understand this right. So I know it definitely has talked about that you had a really good quarter a number.
Number of orders from last last quarter in that regard.
Yep.
That's a so so.
Is the gross margin here.
Based on the number of units that you have for future quarters would that be here in Washington State.
How would the numbers, you're still expecting a little bit more lumpy here and we still see gross margin go up and down here and sort of make sure I understand that right.
Well, we do not anticipate that our gross margins will get worse than they are today, we anticipate they will continue to improve.
Sure. Thank you and then and then just one one as a follow up here I wanted to understand you talked about earlier on are basically.
In terms of the grid the order that you got from the automotive company.
And I know you did not give any specifics around that just wanted to make sure. If you could talk about.
You know, how you're getting to in terms of the order some color in terms of like how long does it take and what do you expect more rapid anymore from that company and you know what the other companies are reacting to that.
Yes, okay.
First of all let me just be clear about about why we don't name customers.
Sometimes the magnitude of the orders that we got there are two reasons.
First one is sometimes it's the customer's request and in this instance, the automotive OEM.
A household name.
And they do not wish to share with their competitors or where the market what they're up to at the moment and we of course will respect that because as much as we'd like to tell everybody who is we'd we'd much prefer to have a long and fruitful relationship with that.
Second reason that we don't.
Announced orders and this is actually most of them are on the back on their energy storage side of the artisan isn't maybe outside the us where there's really no competing product is because frankly, we don't want to inform our competitors to.
Who they should add to their prospect list. So that we have to sell against them in that part of it as I say, that's much less of a concern with D. Var cause concern because we don't really have any competitors where that product is concerned but on the battery side. So those are the two reasons why we don't mean either to respect our customers' wishes or because we do not wish to inform our competitors as to who they should be adding to.
They're less.
But in every instance, I don't think we sell to anybody when we think it's not going to be bigger and I would say in the case of the automotive buoy and we recognize that is a very very large opportunity I. We can never know if it will indeed blossom into one of those things without with any certainty, but I, but we certainly.
We will continue to work towards that and we believe that we have a very very good value proposition for them and some very interesting things to do with them in the future.
Does that answer your question sorry.
Sure.
Yeah, just wanted to make sure.
That's what I thought.
I knew there was something that I'd Miss Okay. So as far as the order the length of time is concerned. This is frankly the other good news, where this is where our business is concerned in the early days, we used to get small orders and it just took a very long time to get them from initial inquiry to purchase order. We are getting increasingly large orders and they are they are converting from pipeline.
Into backlog increasingly greatly as already mentioned last year, we converted about $80 million of pipeline into $76 million of backlog and within the year. So it's accelerating and increasing the size of the orders, but theres still some of them.
Very quickly some of them still take a long time to happen, but the good news is they seem to happen with much more.
Reliability, now and with more speed than at anytime in our history.
Sure. Thank you. Thank you that's all I have.
Thank you.
And our next question will come from Tate Sullivan with Maxim Group. Please go ahead with your question.
Okay. Thank you had hello doesn't up I think he said earlier fight you have $5 million in past today is that partly is that related to accounts receivable and I see in the Q that 80% of accounts receivables from the army.
It's just the army have long payment terms can you go into a bit on the 5 million in cash.
So theres a place to be if you're interested in looking at our cash position and understanding a versus b and all that all the good news all of that so outlined in our filings.
Working capital is the best indicator of that and as I said in my in my comments and in fact, Cathy mentioned it too.
Be careful looking at our working capital because it looks smaller than in fact is because it is negatively impacted by just under $7 million of non cash amortization of Oh no doubt about.
About of a contingent consideration for an earn out payment based on our on our on our acquisition in a couple of other things, which as I've said before making those earn out payments is the best thing that we can possibly do they're not cash and they are a strong indication of the strong performance of the acquisition that we made so that's the that's.
That's where to look for that kind of as part of the reason that I mentioned, the cash positions because I want people to understand that cash is going to jump around all over the place.
It's impacted by a RNA P and vendor prepayments and all sorts of other stuff.
We describe that adequately, but I do think it's important to note that while there's.
On the balance sheet, we reported a decline in cash position.
Part of that is is is is temporal and that's part of the reason that we thought it was important to let people understand that in fact, we have more cash in the bank today than we reported at the end of the quarter.
And the U S. Army is a large customer does it can you talk to where do they I think another company I heard mentioned that the army has enacted deep carbonization effort seven delay in spending through now and 2027 does it does the army order due the army orders come from the GSA contract structure or another question.
Yeah. So Brett so broadly speaking you you are right that the army is a nice to have some very significant amount of money you're also right right. When youre looking at the fact that the army like every other federal entity is obliged to convert all of its light duty vehicles to zero emissions by 2027, and all essentially all of its known tactical vehicles by 'twenty.
Sorry, five so we believe that there will continue to be a significant order stream coming through our GSA contract. It's certainly a very useful vehicle, which allows federal entities to acquire products without having to go through a competitive process because that's already been done and remember that GSA contract was also made available to non governmental entities. So we think there.
A great future with the army and with others.
And by the way to quiet anyone's concerned about this because I've heard this before they pay we get paid very well by them. We do know if people often say Oh your government won't pay you I don't know what they're talking about that we get paid very well by them.
Okay. Thank you.
Thank you too.
And our next question will come from Chris Pierce with Needham <unk> Company. Please go ahead with your question.
Hi, Chris.
It doesn't how are you doing just two questions can you confirm the E delivery numbers you quoted I got 150 in the first quarter. I believe you said 103 in the fourth quarter, that's a pretty big ramp from Q2 to four key then again from four key to one key or if it happens is right I just wanted to think how should investors think about the ramp from here is it more internet from here or could we still see.
Large jumps like we just saw the last two quarters.
Well the first thing investors should think should take note of is that we do what we say we're going to do.
And that's I think that's important and you're right. These are big ramps and I can tell you that people are or you know pulling the oars here to get this done but I also want you to know that we still have a lot of excess capacity in the <unk>.
Our facility that that said you know the no. Good deed goes unpunished thing of having invested in this facility for as long as we have done and taken the negative margin impacts are the result of the fixed overheads.
But we still got a lot of capacity look no business is going to keep producing triple digit growth after a triple digit growth after triple digit growth quarter after quarter, because the absolute numbers get bigger now that just that becomes a much heavier lift but what you. What I believe you will see is a continuation and are increasing.
Production cadence and what we're gonna do is manage that to make sure that we increase the production cadence and the most economically viable way possible. So in other words, if it was just crazy and start puking up product, we want to do that while keeping profitability.
And very much within our sites and so that requires a sober approach to growth, but you, but I'm not planning on having any next time I have this conversation with you I'm not planning on having anything out of the more growth to describe.
Okay, and then just you talked about 1 million in cash as of March 31st $5 million in cash today, but how do you. How do you know how do investors square that with the $3 8 million dollar loss.
Can you just reported cause that's you know less than two quarters of cash on hand, but I know you've talked about the.
Atlanta creditor as well I guess, you kind of just we've all of this together for me one more time please.
Yeah. So the key thing to understand is we have not.
Pete and underscore not tapped the line of credit.
So what would be what you got to look at again I keep going on about this when people are sick of hearing me talking about it but what are you going to look at is where is it working capital that we've described in the past if you looked at our inventory positions. If you go to our web if you looked at our vendor prepayments.
We look to our a R. For example, a perfect.
Perfect example, at 12 31 of 22 were $91 seven cash on the balance sheet, but if you look to directly below that there's another four plus million and they are and as I say, we get paid and we often get paid in less than 30 days. So you shouldn't be surprised to see an increase in cash.
In this way because it's just it's a you know.
If we have all our inventory and if we have all that.
And we have all of a sudden things like that we're going to convert inventory into product, we're going to convert weapons brought up we're going to sell it and we're going to get paid we don't have any but I'm looking at kind of theory I don't know of any bad debt at all.
We're going to get paid.
That's you know that's what you're looking at there basically it's just what we said last quarter.
You know people should not get too hung up on the cash number that they should be looking at our inventory work in progress and all those other things, obviously that have a pea and other stuff as well to get Fuller understanding and as I've just unknowns we are.
<unk> 13 million in working capital right now.
At the end of the day that converts to cash for us and usually fairly quickly. So that's why we're able to do that the net loss is it's another thing.
Of course, it does contribute to it but to a lesser and lesser extent the more product, we produce and certainly know that we're going to profit profitable.
Okay. Thank you.
Thank you Chris.
As a reminder, do you have a question you may join the queue by pressing Star then one on your telephone keypad.
Our next question here will come from Daniel Marcello <unk> Cardona and company. Please go ahead with your question.
Hey, good afternoon, how are you congratulations on the good quarter.
Thank you Daniel Thank you.
Are you able to speak to I know, there's a lot of conversation about increasing production and clearly you're doing that.
Logistics of transporting arcs to the other side of the country.
Big Major orders from New York City I know there's.
Army bases all over the country, how are you increasing the ability to transport the arcs.
Yes, that's an excellent question Daniel and Juan you can you can do it I guess.
I guess a lot of attention here. So the truth is we have two or three different methods that we use to transport <unk> some of them are.
On our own equipment that we own here and frankly, that's the those are the most efficient ways of deploying or transporting them because they don't just transport, but they also deploy the product.
Arrives on site.
But beyond that we also use third party logistics companies.
And the what's so Sony VR for example, you put an E arc and a 20 foot shipping container or two of them in a 40 or you could go a couple of them on the back of a 40 foot flatbed.
And this.
This is frankly, an area that's sort of good news for US not good news. If you are a truck driver, but the cost of doing that is very very dramatically reduced.
And also just availability of trucks. This time last year for loving their money, we can already get them to show up and it was very expensive.
But no, they're calling us and looking for loads and that's having a predictable price on the on the price that were paying for a predictable impact on the price we're paying for that or just give me. An example, I mean, we do some we do still as much as we try not to we do important components from Asia. They end up in a product and it costs about five times less.
To get shipping container across the Pacific today than it did this time last year. So we have a lot of choices in terms of how do we move the product around them, but I've I've made no secret of the fact that I think our future involves us having facilities like this adopted across the country. We're spending enough to do that from a demand point of view as far as I'm as far as I believe.
And when we do that obviously, we will select to deliver from the facility closest to the customer.
Got it. Thank you and you are recently there was a announcement about.
More compact arc.
Patent for a more compact or speak about a little bit.
Yes, actually that's a that's in a European patent issued to us for something that we that we already had which is what we used to refer to as transformer rock, but I put all of your auction like that now I'll leave you are full done and then upon themselves rather like a satellite.
Shipping and transportation, we view that as a very significant differentiator for us because that's how we're able to show up on a customer site and deploy in less than an hour with absolutely no one site or very little on site activity I should say, that's a significant differentiator and therefore, a barrier to entry we have that protection in United States. We now have that protected across the European continent.
Great. Thank you very much.
Thank you.
And this concludes our question and answer session I'd like to turn the conference back over Desmond Wheatley for any closing remarks.
Well I'm going to keep my closing remarks short because they're 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 Thats, where our focus is right now as I mentioned in my comments profitability and production major major areas of focus and we delivered on that better than 8% improved.
Quarter over quarter from a profitability point of view impulsive gross profit, we're still going to be laser focused on cash management as well you.
You know all the jokes about Scotsman and money are true listen to them and believe them.
I'm I'm I'm loving what I'm doing at the moment I Love. This company I love the team of people that we've put together and where were we.
We've got nothing, but but claiming and growth ahead of us. So I very much appreciate you being involved.
And for your interest and for your questions and if you hold ourselves. Thank you for that too.
With that I'll hand, it over to Oh, operator to end the call I think.
The conference has now concluded.
Very much for attending today's presentation. You may now disconnect your lines and have a great day.