Q3 2023 Beam Global Earnings Call
Good day and welcome to the beam global third quarter 2023 financial results and corporate update all participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero after today's presentation there'll be an opera.
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I would now like to turn the conference over to Kathy Mcdermott CFO. Please go ahead.
Thank you.
Good morning, and thank you for participating and being Blah Blah 2023 third quarter Conference call. This early morning. We appreciate you joining our joining us today to hear an update on our business. Joining me is doesn't Wheatley president CEO and chairman of the board.
Being global that's now will be providing an update on recent activities have been 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 expectations for future performance or operational results.
Forward looking statements involve risks and other factors that may cause actual results could differ materially from those statements for more information about these risks. Please refer to the risk factors described in <unk>. Most recently filed Form 10-K, and other periodic reports filed with the SEC. The content of this call contains time sensitive information.
A nation that is accurate only until only through today November 14th 2023, except as required by law <unk> disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur. After this call.
Next I'd like to provide an overview of our financial results for the third quarter and the first nine months of 2023.
The revenues for the third quarter of 2023 continued strong at $16 5, Million% to 149% increase over $6 6 million revenue reported in the third quarter of 2022.
Revenues for the first nine months of 2023 or $47 3, million% to 236% increase over $14 1 million.
Reported for the same period in 2022, our revenue growth in 2023 is primarily driven by an increase in deliveries to federal agencies.
We also increased our energy storage revenues by $2 5 million year to date compared to the same periods in 2022, 10% of our revenues year to date, our international sales, primarily private energy storage business, but we're looking forward to beginning production of Edr and our new Serbian facility to expand our EV charging thousands of Europe.
Our gross profit for the quarter ended September 30 of 2023, with one 3 million or one 7% of revenues compared to a gross loss of <unk> 3 million or five 1% of sale.
Profit year to date through September 30 of 2023, 1.8 million or one 7% of sales compared to gross loss of $1 million for the same period in the prior year.
As a percentage of sales gross profit year to date improved by 9%.
The improvement in gross margin was primarily due to the increase in production levels compared to our prior year, which resulted in favorable fixed overhead absorption and labor efficiencies. We're also beginning to see some vendor cost reduction and benefit from recent engineering design changes.
Operating expenses for the third quarter of 2023 4 million compared to $6 5 million in the same period in the prior year, an improvement of 73% of revenues year over year.
Operating.
Expenses decreased by two nine now the noncash contingent consideration recorded in Q3 2022, when they enter the Alpha acquisition.
Offset by increases in sales commission and noncash compensation expense.
For the nine months ended September 30 of 2022, we reported operating expenses of $11 9 million or 25% of revenues compared to $10 nine or 78% of revenue.
Same period in 2022, an improvement of 52% as a percentage of revenues.
Year to date 2022, only included seven months of expenses for our energy storage business operation based on the March 2022 acquisition game.
123 cost increases are primarily attributable to noncash compensation expense administrative salaries, and Banca cool sales and marketing expenses, including submission of cool and investment in R&D salaries and expenses.
Increases were partially offset by a decrease of $3 1 million, they're not tasking cashed.
Consideration related to the also acquisition.
Our net loss was $3 6 million or 22% of revenue for the third quarter of 2023 compared to $6 8 million or 103% of revenue for the same period in 2022.
Net loss was 11 million for the nine months ended September 32023, compared to $11 9 million for the first nine months of 2022 a.
The year to date net loss included net cash expense noncash expense items, such as depreciation intellectual property amortization and noncash compensation expense of $3 million in 2023, and $5 2 million in 2022.
On September 30th 2023, we had cash of $14 8 million compared to 1.7 million at December 31 2022.
The cash increase was primarily due to capital raise in June 2023.
By increased accounts receivable due to the increase revenues and operating losses.
Our working capital increased from $6 8 million to $3 4 million from December 31, 2022 to September 30th 2023.
Capital balance.
Is increased by the $25 million that capital raised in June and increased accounts receivable based on increased sale.
With that I will now turn it over to Jasmine can provide a business update that's been.
Okay. Thanks, very much for that.
Thanks also to everybody who's listening in today, particularly those of you who are on the west coast.
We're all aware of the fact that this is the second time in a week of all shake up in the Wee hours to join.
Being global update so thank you for that.
I'm actually speaking to you from Europe, where I spent the last 10 days in our new facilities in Belgrade, and Craveable and.
Serbia.
<unk> spent the last 11 months negotiating the acquisition of the company that was formally known as Amiga and has not been Europe.
Policies, which were forming sitting on opposite sides of the table are all engaged in the creation of a growth engine for being global in the largest market in the world for our products.
And Europe is a reality and as each day goes by we're operating more and more as one company.
It's been an exciting and fantastically busy 10 days.
During which I and the entire management team over here have been totally immersed in the integration of being Europe and Joy Global operations I Hope. Many of you were able to join the live tour of our new six and a half acre facility last week. It was an intention information packed hour during which I tend to just show the scale and capabilities of our operations.
And year over year.
In case, you missed it there was an archived version, which you can find on the Investor Relations section of our website.
I'll return to the subject of our European expansion later on in this call because it's certainly the most significant event and being Global's 2023 and in my opinion after the invention for sales and production of York, It's the most important evolution in our company's history.
It's quite an achievement for any event to be referred to as the most significant in our 2023, a year in which we've seen absolutely phenomenal growth and improvements in every area of our business. None of them were insignificant and always contributed to making being global a Bachelor company than at any time in our history.
We dramatically increased the rates of production of our products.
We dramatically increased our revenues.
We've dramatically improved our gross profitability and we've significantly reduced our operating cost as a percentage of revenues as the year has advanced.
Starting with revenues, we delivered triple digit year over year percentage growth in each quarter of this year.
Our Q3 results were a continuation of the trend 16.
$16 $5 million of revenue, we generated in the third quarter of 2023 represents a 149% year over year increase.
And as I said, that's the third quarter in a row, where we've got triple digit year over year growth.
When looking at our year to date results. We obviously have another record over $47 million in revenue, let's say 200, new stores, two 6% increase over 2022.
To put it into further context.
In absolute numbers, we did $22 million in revenue in 2022, and we're already at $47 million with another quarter left in this year to add to that.
Just as a quick historical reminder.
We did $6 million in revenue in 2000 $29 million in 2021 'twenty $2 million in 2022 and now we're at 47 million just three quarters into 2023, so clearly a phenomenal growth story that continues today.
The acceleration in the pace of our production of both batteries and E V O products is even more impressive.
Production of <unk>. So far in 2023 has increased 295% year over year and our battery manufacturing facility in Chicago produce something in the order of 10 times more kilowatt hours of batteries than they did before we acquired them.
In case, you're wondering how it can be that the 295% year over year growth and you'd be at production is greater than the 236% increase in revenue.
Explanation for this is that we produce more EV auction, we were able to deliver in Q3 in no small part due to the threat and federal government shutdown at the end of that quarter.
Those deliveries won't take place, it's just because there was uncertainty around whether or not federal employees would be at work deliveries have shortened avionics were postponed.
This temporary blip is just that temporary and we believe that as long as there's not another and prolonged federal shutdown, we should catch up back up in the next few months.
We had backlog of over $31 million at September 30th and our sales team continues to convert elements of the over $100 million in pipeline that we have into backlog on a regular basis.
While we continue to see Lumpiness and large order cadence the flow of purchase order wins brought in by the sales team is actually improving over prior years and we have received no indication from any of our existing customers or prospects that they're slowing down their plans for EV charging deployments.
All aware that there have been reports in the media recently about a slowing in the growth of adoption of electric vehicles.
Certain of the large automobile manufacturers have announced reductions in their aggressive growth plans for the electrification of their fleets in coming months.
It's in the context, we need to look at the facts behind the storage.
It is true that there has been a reduction in the speed of electric vehicle adoption as a percentage in August and September is your only.
Absolute numbers continue to grow rapidly and the slowing down that the media is referring to you might be better described as a significant growth instead of a phenomenal growth.
2023, EV sales are 61% higher than they were by this time in 2022.
Interestingly it seems that Tesla has taken the hardest hit with 41% year over year growth, while the combination of all the other brands have seen 98% year over year growth in the same period.
Hello, I view that as a further mainstreaming of Bbs as they move from the niche tassel audience to everyone else.
Anyway, you look at this it's still phenomenal growth and far far higher growth than that which has been experienced by internal combustion engine vehicles or Isis.
The installation of electric vehicle charging infrastructure is not kept pace with EV sales.
Already not enough publicly available charters for the existing fleet of electric vehicles far less in the tremendous growth that we're still seeing.
The two biggest barriers to consumer adoption of electric vehicles continues to be number one perception across a number to lack of available charging infrastructure.
<unk> global is in the business of solving for number two and as I've already said those of us in the EV charging industry are and will be playing catch up and therefore less susceptible to predictable fluctuations in consumer adoption of the ever expanding lineup of new Evs.
By the way, Norway. It gives us a good look at what the future holds for the rest of the world. Their EV sales are 98% of the market.
It's been heavy investment in education, and EV charging infrastructure in Norway, and they've never amass enough data to show that total vehicle ownership cost around 20% less for the consumer.
And that data includes the earlier models of Evs, which are much more expensive than today's offerings. So the argument that evs are more expensive is already false.
When consumers get the hang of that I think we'll see a rapid shift in sentiment between shifting consumer sentiment and continued government tailwind, we anticipate as I've said, nothing but growth for the foreseeable future.
Any fluctuations that we do see an order cadence in 2023 and in the next several quarters will be more likely to do with the sometimes unpredictable pace of federal and state orders brought about by budget, uncertainties and potentially impactful events like threat intellectual government shorten times, but none of this I think will be meaningful in the long term.
Again, I still firmly believe and I think the only evidence confirms this that however, lumpiness order cadence may be the macro trend provides for nothing but sustained growth for the next several decades I'll.
Electric vehicles are not going away on the country government tail winds are continuing to strengthen is the increasing awareness of climate impacts matched by continuing geopolitical uncertainties associated with the global oil industry makes it more difficult not to double down on already aggressive carbon reduction plans. Additionally.
Additionally, while most experts except that there are some short term slowing of the rapid increasing the adoption of electric vehicles, they're equally certain that the widespread electric vehicle adoption is inevitable and that the infrastructure requirements will somehow to keep pace with consumers demand for the products.
All of the reputable studies I've looked at still show the majority of consumers, stating that they are considering an electric vehicle for their next purchase.
In the meantime, I and the rest of the management team at being global or ensuring that we diversify our opportunities for revenue generation said another way, we're widening the top of the funnel.
We're doing that in the United States by adding sales resources and targeting a broader set of customer prospects as well as deepening our government relations I'm, playing a greater role in the formation of policy rather than waiting for that to happen without us.
Of course, absolutely the most significant step that we've taken to broaden our prospects is the opening up of Europe as a market for our products.
Europe is by every measure the largest potential market for our products. So we haven't just widened the top of the funnel marginally with doubled or tripled it.
As we continue to evolve the lumpiness that we experienced in one market should be offset by corresponding lumpiness moving the opposite direction and another.
The fundamental takeaways from these preceding voice is that there continues to be significant growth in our addressable markets significant improvement in our ability to address those markets and a continued growth in urgency and the requirements for the unique attributes delivered by our portfolio of patented products.
We're not just using geographic market expansion and additional segments to widen the moat of our funnel. We're also diversifying our product offering while staying true to our strategic goals.
Up until 2022 E V arc sales provided materially all of our revenues.
In 2022 with the acquisition of all cell technologies, we're adding batteries to our product mix.
Tale of batteries to external customers in other words not that was used in our own products has contributed over $6 million to our revenues in the first three quarters. This year, a significant contributor to our growth and an excellent diversification of revenue opportunities for us.
The acquisition of wholesale technologies has also contributed significantly to our gross margin improvement through a reduction in costs and the batteries, which we've integrated into our products.
We're going to start to see the biggest impact of those cost reductions in the fourth quarter of this year and the fourth and the first quarter of next really significant savings.
No our engineers in San Diego, Chicago, Belgrade, and Cry April are all working on the next and what I believe will be the most significant diversification in our product offering in the Companys history.
We have made more progress in the development of our EV standard products in the last months than in the last four years.
<unk> standards, a streetlight replacement, which will provide renewable and energize the EV charging and energy security infrastructure the card without the requirement for significant civil or electrical projects.
Comprising much of the same technological excellence, which is fine and the E V arc, but in a different form factor it will.
Solve the very real challenges associated with installing electric vehicle charging for on street parking.
Providing charging to vehicles parked on the street is essential for the success of the electrification of transportation.
I know of no more elegant solution to do that then the EV standards.
But the major consideration in the acquisition of Omega was that they were one of the top streetlight manufacturers in Europe and have sold those sorts of products across 17 nations.
They've already manufactured solar powered street lights, and other types of street furniture, with renewable energy and electronics integrated and as a result of the perfect combination of experience and expertise to assist our EV charging and energy storage engineers and the perfection of BB Sander product.
The level of collaboration between our engineering teams in Europe, and those in the United States is really impressive.
In the very near future I believe that diversifying our product offering in this manner should have a significant effect not only on the lumpiness in order cadence, but much more importantly on delivering another tremendous growth engine for being global both in Europe and in the United States.
So we're executing on our multi pronged strategy to increase our opportunities through geographic expansion.
Mentioned in the verticals that we were targeting with any geography.
And through the introduction of new products, which are equally or more unique and compelling.
We're doing all of that while at the same time delivering triple digit growth in revenues, improving our gross profit and reducing our overhead costs as a percentage of revenue.
We continue to generate gross profit during the third quarter about 3% when excluding noncash items.
Year to date gross profitable and we've yet to be passed and we have yet to be positively impacted by the significant cost savings, which our engineering and operations teams have identified and are now putting into effect.
As I told you during our second quarter earnings call. The gross profits, we were generating them and are generating now are as a result of increased efficiencies and volumes of product running through our factory.
Those volumes are sufficient to overcome the fixed overhead burdens, which are previously caused us to report negative gross profits, even though the unit economics on the Edr have been positive since quite early in that products development.
We're better off from a cash point of view every time, an AVR. It leaves the factory not worse off as would be the case, if the economics were not positive.
No we're entering a new era of cost improvements, which are more dramatic than those which we've received simply through increasing volumes.
Engineering and operational improvements should deliver a better than 20% improvement in our cost structure and a similar improvement in our gross profit.
I stated previously, but those cost savings should take effect materially in the fourth quarter and be fully manifested by the end of Q1 2024.
Facts are supporting that prediction and we're now looking at current cost to produce E V R, which are meaningfully lower than at anytime in our history.
Process, which will know edge.
Even though we're going to present significant cost reductions in the next couple of quarters, we do not consider this job done on the country. These cost savings are so next step on a relentless path to improving our gross profitability, while maintaining quality and the unique attribute attributes of our products.
We know that there are further opportunities to generate more significant cost reductions and will continue to develop and invest in those areas, which will enable this evenings.
Beam Europe actually provides a couple are excellent examples of these opportunities.
Our operations over there will benefit immediately from the reduced costs, which are now incumbent in the latest generation of <unk> products, but also from day, one being Europe will have a lower cost structure.
Just because Serbia as a much lower cost environment in which to operate bought because beam Europe is better equipped than our U S operations and as a result able to self perform a couple of activities, which are elevated cost centers due to our outsourcing them in the United States.
B in Europe has its own sand blasting and painting operations, we outsource those activities in the U S Sandblasting and painting and San Diego is already an expensive undertaking because of the highly restrictive compliance environment exists in California.
We then have to add to that the gross profits taken by the company that provides those services to us as well as all the handling and transportation cost, which result from our having to ship heavy steel sections to inform the service provider.
In Europe, we'll have the raw costs labor and materials, though less expensively than in the U S, but not the gross profits on those elevated costs, all the logistical cost of handling and transport.
Europe has its own sand blasting and painting facilities already our future E. B R. E V standard products producer will not need to leave the factory for this important activity.
Nor will the dollars associated with after leave our accounts.
Another expensive process, which we outsourced in the U S is the forming of our engineered ballast subtraction pipes.
This forming is vital to our product and it's an expensive and not without risk process, which also involves logistical challenges.
Europe has in house capabilities to perform this forming task with none of the risk or elevated costs that we're paying to a vendor in the U S.
Incredibly only three weeks after closing on the acquisition are being Europe team is already making engineered bullish subtraction pads really our systems.
That process is arguably the most technically demanding where the structure of UV arc is concerned so it's very encouraging to see being Europe have success with self performing this activity. So soon after becoming part of being global.
If you've seen the tour of in Europe than we did last week either LIBOR on Youtube then you'll have noted my excitement when I saw one of these great big heavy plates being run through the machine that forms at.
Oh, I and the team in Europe. They can perform this task there is nothing else in the production of <unk> that they will not be able to do the single task is responsible for about 2% of our cost structure in the U S.
We're gonna disappear entirely in Europe, but it will become practically immaterial.
In sourcing painting, and Sandblasting will have much more profound effects on our efforts to reduce costs and be in Europe is already there.
Turning to another benefit of this acquisition is that we now have as part of our organization. These European operations with their 30 years of experience in improving their production capabilities and facilities.
In the U S. We've only been seriously producing for a couple of years, we've made tremendous improvements during that time, but we're going to learn a lot from our new European colleagues.
The other significant impact to gross profitability, which is coming but as yet it has not affected our results as the price increase we put into effect this year.
New sales will include this increase in price, which adds about 8% of our base model.
That 8% will go straight to gross profitability, because nothing else has changed where the price raises concerns.
Combining the price increase for the cost savings being realized in the <unk> systems that are coming off the line today will give us an improvement in our gross profitability in the mid to high 20 percentages.
Again, the full impact of this improvement will come when all the current cost improvements are implemented and we work through our current backlog, which was priced before the increase went into effect.
Our backlog to last us through the first quarter. So you should anticipate the full gross profit improvement at or towards the end of that Q.
We generated over a million and a half dollars of gross profit. So far this year net of noncash items.
Had we been operating all year with a lower cost now being integrated into our current products and with a price increase we would we would have generated $8 million to $10 million in gross profits.
Loss of the Euro today is about $11 million. So that you can see with a couple of other tweaks to our model, but those I've just outlined our European operations cash flow is far from a distant and big premise, especially when noncash items removed from that $11 million.
We kind of go back in time, obviously, but this thought experiment looking at 2023 volume, but with gross profit improvements. We expect to in 2024 provides a very useful forecasting methodology for where we're going.
Its simple arithmetic at this point.
Remember also that <unk> core business generates positive cash flow and will be accretive to our overall business.
I'm often asked if we can cash flow in 2024, well you can make your own assessment based upon the factors I've just outlined.
One of the most six mythical results of these improvements to our gross profitability is the reduction of our reliance on the cash in our balance sheet for our day to day operations.
If we improve nothing else and have our first three quarters of 'twenty 'twenty four that's identical to the first three quarters of 2023, except that we're operating with improved gross profitability that I've. Just described we'd only need to dig into our cash for a million dollars.
At September 30th we had approximately $15 million in cash and $15 million and a R and $40 million in air and inventory.
We can offer a R and inventory to cash and generally less than 90 days, giving us over $40 million of firepower to pay our bills.
We are well capitalized have no debt and are looking at a real scenario in which our reliance on investment dollars on the balance sheet is less and less crucial.
In Europe does not require material investment, it's already cash flowing and any amongst that we do invest to start producing E. B R. E V standard in that market should be more than offset by the lower cost inherent in operating in Serbia and with a very well equipped facility, which is much less relying on outsourced services than our U S operations are.
I've been Europe's already featured quite a lot in my comments, because even though it's a brand new to us. It's so important both from a strategic growth point.
And also from the point of view a positive impact to profitability.
A strategically important because it gets us into the largest market in the world for our products and also because it is so important to the development and introduction of our EV standard product, which I believe will be the biggest earner for us not long after we release it.
It's important from a profitability point of view because of the lower cost structure better capabilities and increased opportunities for profitable revenue. It brings along with its long history of discipline, leading to positive cash flows.
We paid 10 million euros for being Europe.
Price was a reasonable even low end valuation for the business that we acquired on its own.
We didn't just get the business, we've got the land the buildings and all the equipment too.
The land has recently been independently appraised at around 7 million euros.
Buying the equipment from scratch would cost between six and 10 million euros or said another way how do we go into Europe and boot straps, we would've had to spent over 13 million just to get the property plant and equipment.
Then we'd have to recruit the 35 engineers and the other 170 or so employees and tried to start building our customer base from zero.
Instead, we have a mature experienced an excellent team.
We have solid customer relationships and 17 nations, we have a history of performance delivering two exactly the same customer profile with whom we're having success in the U S.
We have credibility and in many cases existing contracts.
We have a solid and growing complementary line of business, which generates positive cash flows and we have an excellent management team.
Grow international will be hard to do the judicial Urgence destroyed Amiga is one of the best run companies they've ever seen in Serbia.
We got all of that for less than we would have had to pay for the buildings and the machinery in them.
That's true that this acquisition could cost more it would be in Europe, it's very aggressive earn outs that we put in place for 2024 and 25, but that's exactly the way I'd like to pay for a company our low end valuation for the initial consideration with a great opportunity for the sellers, if and only if they stick around and knock it out of the park with leading global it's only fair.
It's an excellent incentive for all involved to make a tremendous success out of the integration of our organizations I can see that already happening.
Again any of you who watched the tour, we will see how far we've come in an incredibly short time.
Just three weeks after closing the deal being Europe is making EV rpc's employees are working in beam uniforms, and the signage and other branding on site as largely being Europe.
There's a lot more work to do to entirely transformed what wasn't meager and to be in Europe, but the progress. We've made so far is exemplary and fast than I've ever seen with any previous acquisition.
This is certainly an instance of two plus two equals more than four.
How much more remains to be seen but I'm very confident that bringing beam global to Europe, I'm, bringing Europe to being global will provide all of the tremendous growth that we've had in the U S market and in my opinion. It will offer more so the effect will be in my opinion again to far more than double our business with.
We did that using about 110th of our market cap even in this market when growth stocks have been so severely devalued and without taking on any debt in this elevated interest rate environment.
So being global is H very different company than it was last time I reported to you.
370 employees more than a 10% of whom are advanced engineers, we have a whole new set of products and opportunities and we're rapidly advancing new products, which we all believe will be highly impactful to our bottom line.
We're operating the largest market in the world for our products at a time when Europe is committed to zero emission vehicles in 12 years and zero emissions energy by 2050.
This is also the time that Europe is felt least secured its energy infrastructure since the end of the second World War due to the war in Ukraine.
There could not be a better time to add this huge new opportunity to being global business and I don't think we could have done it in a Bachelor manner.
Please do take the time towards at least some of the video tour that we did last week I don't think you'll be disappointed.
So let's sum up.
Record results no debt well capitalized highly differentiated in a growing industry and now with massive new markets open to our products and the ability to capitalize on it.
Share prices 110th of where it was when we had more or less none of these things how long can I go on.
We're doing what we committed to do and the entire beam team is executing across the board.
Firstly I'm very busy in them they'll spend a lot of time with my family, but I'm loving being a part of being global and I believe more than ever that it is a great time to be beam.
With that I'll return the call to the operator I think.
Take your questions. Thank you very much.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone, if you're using a speaker phone. Please pick up your handset before pressing the keys. If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star and then two alright.
First question comes from Tate Sullivan with Maxim Group. Please go ahead.
Okay.
Hi, great good great to hear the update and you mentioned building the foundations for the EV arcs already in Europe. When we saw those last Thursday are those for demo unit are those for orders can you talk about how you're planning to build out our ETR.
Yes.
Im quite comfortable and confident in saying to you that we are not changing our strategy of not making anything unless it sold.
Alright.
And then also on the Amiga legacy business can you can you remind us how much Omega generated recently in revenue and is the will you move employees away from that business to the edr, but or will that business continue to potentially grow.
So that's one of the really exciting things that we've been going over during the last 10 days.
Amiga reported revenues of.
So I think something in order of eight and a half million euros last year.
We haven't noticed any numbers for them this year, but I can tell you that are not doing worse. This year not by any means and what's really interesting about that is that because omega.
Runs that their business is a cash flow business as typical of a sort of smaller business family type run business operations, where they do everything out of their own cash flow. They have certain inefficiencies are by the way they produce products they have to staff or for the peak production.
Like any business, the repeats and troughs in demand.
Also late during the year and so sometimes to have people who are not being fully utilized because.
Again I have to stop those peaks in demand when their customers want the street furniture products whatever those may be they want them pretty quickly and what we discovered last week is that we can.
Help them to kind of flatline that production a little bit.
<unk> more with less people.
And the result of that will be not that we got rid of those excess people, but what it means is that we'll be able to introduce into the production of EV arc and E V standards.
And take advantage of those resources, which because of just improved efficiencies the way we're handling the orders.
We will be able to put them on a V or can he be sound reproduction I do anticipate we'll have to grow the team because I think we're going to do so much E V or can you be standard in Europe.
But for the moment just by being more efficient the way, we're using people, we should be able to do both.
Last one for me is on the revolving credit the $100 million can you use that or Amigos receivables do you have to change your facility and how do you access that facility at all in intra quarter.
As it happens I met with OCR yesterday, there that provided $100 million credit facility and you may remember that when I first mentioned, there's $100 million credit facility OCI is used to doing deals in this are billions in so.
One was why are they why really mucking around with this.
Smaller number the answer was because they were very very interested in our potential to expand into Europe.
Particularly with renewable energized products, you will be aware that many of the large funding institutions over here are.
Are aggressively looking for.
Cleaning technology.
Called Green type funding opportunities and.
So there's a lot of money looking for a home for these types of opportunities in Europe and there is all about meeting with OCR yesterday was confirmation of what I already knew which is that they will be just as interested in just as aggressive.
Our financing our European opportunities as they will be in financing everything that we do in North America.
Alright, thanks, Thank you Doug.
Thank you too.
Our next question comes from Chris Souther with B Riley. Please go ahead.
Hi, Chris.
Hey, Thanks for taking the question here.
Maybe just.
Initial kind of thoughts around.
I mean, you guys kind of traditional customers.
Kind of introducing the edr product.
Could you give us a sense of.
What you think the initial demand is and kind of walk through.
Kind of vacating the building interest with those customers with new customers.
Where do we go from here in Europe I think.
But it would be helpful.
Yeah. So Omega has spent the last 30 years selling street furniture are certainly a big part of that being street lights.
Two municipalities States military's nations.
And corporate customers.
They've also.
<unk> produced a lot of telecommunications products and a lot of energy infrastructure products.
What you find is that the all of the customers to whom they've been selling for the last 30 years are almost identical in their profile to those customers, whom to whom we've had good luck selling our EV.
EV charging infrastructure products in the United States and on top of that we were arriving at this time when all of these municipalities and states and militaries in corporates and everybody else are desperately trying to add electric vehicle charging infrastructure now, it's not easier to do that in Europe, the traditional way.
Connecting to the grid and all that sort of stuff if I just more complicated.
So we now have an opportunity and this is what we're doing right now again this is.
It's easy to see the tremendous progress when you can see beam E. B R components are being manufactured in that facility, perhaps less easy to appreciate the fact that the sales team is now already out and already talking to existing customers with whom we have a.
Good credibility and in many cases existing.
Contracts, and saying, Hey, <unk> been buying solar powered street lights from us you've been buying electronic integrate street furniture and all the other kind of thought well. We now have these renewable energize rapidly deployable very low impact EV charging product are you interested.
And I mean, you know.
I, probably shouldn't have to tell you and I'm sure I don't have.
The response and.
Large number of instances, yes, we are interested.
So there's always seek the sales team if theres no. One gets things interest means nothing done interest is not revenue, but sales come from interested customers, especially when you've got credibility with them in existing contracts and when they have a profile, which is pretty much identical to those people who are buying from us in the in the U S. Both from the government side and the corporate site.
So it's a perfect match.
The sales team really excited about this.
As I said, we've established ways that we can add capacity without dramatically increasing labor costs, there's a little bit more efficiency, basically which make them even more profit when remember that they're already cash flow.
No.
Im.
I mean just.
This is this has been.
Just a perfect match for our requirements this opportunity and it's very hard to find that it's taken many years I've been looking for international expansion opportunity for permit for about five years now.
We found it here I'm really encouraged by the work Theyre doing.
No that's great to hear.
And then maybe just on kind of the overall backlog.
Trajectory, obviously, you've been kind of working through those large orders from the second half of last year.
You talked about kind of government.
Government shutdown was kind of.
An obstacle that we've recently been kind of anything but can you just give us a sense.
The pipeline versus kind of backlogs kind of growth.
You know kind of discussion I think would be helpful for folks.
Thing.
Obviously.
Lumpy you've talked about but.
What.
What can you kind of stay around kind of the overall backlog, where it should be kind of exiting this year to give visibility for for growth next year and how we should think about it overall.
And so we've got we've got purchase orders and I know for pretty much through the end of the first quarter.
I know I know it's given.
Some concern that the.
This now.
Some gigantic federal order ear.
I am aware of that I am not at all concerned about our growth and the reason for that is because the nature of any any time when you get these large orders, particularly when there is.
Lots of other complexities in terms of getting them getting them over the finish line you're going to have this type of lumpiness.
I've been pretty consistent with that.
I'm not I don't view in any way as an indication that there's anything fundamentally wrong with our long term growth on the country.
Everything that we're hearing from all of our prospects federal state local and.
In corporate is that theyre going to be doing more EV charging deployments not less it's only getting harder to do the grid tied ones as the low hanging fruit has been plucked.
Meaning locations, where it's easy to deliver a circuit to a charter where somebody with Parker car. So.
And we're beating up available circuits of capacity and everything else and frankly, the other thing thats encouraging for US is that everybody government and corporate is becoming more aware of capacity and vulnerability issues around it you know as people call up and say Oh, well being is going to solve the disaster preparedness.
To this.
And perhaps nothing else no, it's both where speed where scale, where lower total cost of ownership and we're solving the disaster preparedness and capacity issues. All of these things are becoming more meaningful to people as they deploy more and more chartering. So I'm not concerned by this this lumpiness however, as I said in my comments.
Not being concerned by it doesn't mean that I'm, not taking steps to make things better.
And the way the.
I and the whole team are doing that is by diversifying. These these opportunities for revenue new product offerings, New geographic environment is obviously the biggest of those being Europe.
And then.
Just just different verticals that we're going after the United States, but I I think you'd have to be very very passionate mystic. Indeed to think that with the introduction of this new market in Europe is 405 million cars in United States is $290 million, China 319 million. This is by far the biggest market in the world.
You'd have to be very very pessimistic to suggest that been globe is going to have a worst future and have less growth than we've had up to this date with the steps that we're taking and I'm just not that pessimistic because I'm not getting any of those signals from the broader market or from what we're seeing from our our prospects.
That's good to hear thanks, I'll hop in the queue.
Thanks Krish.
The next question comes from James Mcculloch with private Investor.
Hello, gentlemen.
Jim Mccaughan like how are you thanks for taking my call.
Couple of questions first on the U S operations.
In the prior.
Let's just touch on the backlog.
You had mentioned there was some lumpiness and delays due to.
So the government shutdown.
However, it doesn't look like those delays resulted in any increase in.
Backlog so from last quarter sales were down about half a million dollars.
On a quarterly run rate and the backlog was down about $3 million.
Would have expected maybe any delays in purchase orders to show up in increased backlog.
Is there any seasonality on the order rate.
Or any other factors.
The fourth quarter that might have impacted the incoming order rate.
Yes same answer I, just gave I didn't really it's it's it's all just don't just timing I'm not.
The problem. These things are not very well measured quarter by quarter third quarter or was it was it was up 149% over prior year.
From an order cadence point of view, it's really just the answer I just gave to Chris.
It's going to move around and where we're where we're not going to do a very good job of predicting it in the early days, we don't have a lot of historical data to go on but again all the all the indications are of macro growth across the board, but we will keep working to find other opportunities of course as well not again, not because I'm concerned because it's prudent and I want more and more growth.
Very aggressive about this I'm not looking at treading water here, we're looking at that continue.
Continuing this meteoric growth and we're going to.
Well I think the street would also appreciate the additional growth opportunity reflected in the share price. So.
The other issue was on the gross margins going into next year, I think you'd mentioned that.
In the first quarter, there was about $12000 per unit cost savings through engineering improvements and material improvements as well as that eight 5% price increase which would take effect fully take effect in the first quarter.
Back of the notebook numbers.
Do you have any clarity on gross margins going into next year. It looks like they should improve just on those two factors alone.
Two over 20%. So do you have any clarity for their coupon that.
Yes, Michael.
My comments my prepared comments I, Yeah, I was more aggressive than that I think we got better than 20%.
Improvement in gross profitability and then I went one step further than that and did the back and they're not getting arithmetic oriented.
You can see that with those with that late rates of gross profitability.
Basically.
And we had the same rate of growth possibility that we're anticipating in the first score and moving forward and again, we're not going to stop improving that either but just just on the numbers that we're talking about today, how do we have that same level of gross profitability throughout all of this year.
But we would it would be pretty close to breakeven right now.
Okay.
Question, just on the European operations.
Are there any potential <unk>.
<unk> just on the qualification process either for.
All of Europe, or individual municipalities or countries are you looking at a European standard.
At once.
Or yes.
No no. We will we will we will be putting CE on two of our products over here here's the good news about that again. This is an area. We're being Europe is much better equipped than we are in the United States, just because I've been doing this a lot longer than they have all sorts of ISO certifications and all sorts of other things, which by the way have already been helping force just a just a slight departure.
From the commodity question. We we've recently responded to two a M.
Our F Q that required a certain level of certification that we would not have complied with and we know what made this acquisition.
Fantastic when we realized that my garden on closing we have all these certifications. So that we can qualify for this are a few that we previously would not have been able to go. After so I mean, it's just it's as you can tell I'm very enthusiastic about what we've just done in Europe, I'm really really glad to have them on team there.
Just wonderful hard working well educated English speaking again on cards everybody watched the video that we did last week because I want you to see what this place is all about.
Capabilities, but yes, there will certainly be some European requirement.
Lots of different things that we want to do for Europe as metric the voltage reference here frequencies are different here.
And we will do see certification on our products rather than UL listing.
Those things are processes, but we're talking small number of months, we're not talking about years or anything and we're also not talking about huge sums of money, particularly in light of the fact that again the team over here, it's very very well versed in doing those things and on voltages and frequency isn't having less anybody's worried about that don't be.
Really to an electrical engineer, it's like saying what do we do the <unk> thing or do we do the <unk> thing, it's really not a big deal, but it's a process, but we are very very well qualified well qualified people working on that right now.
Another thing I just want to tell you about the about the European team that I'm also very encouraged about is they actually started working on this stuff before we closed we were all very confident that we're going to close and just to show you how enthusiastic and what a great attitude. They all have.
There's none of that head shaking and people are not feeling negative about this and theyre very excited about the new products and started working on developing them.
Before we even closed the deal, which I think is a great indication of the quality of people we're dealing with.
But that's been in the last two or three years of conference calls I don't think I've ever heard you. When you were not enthusiastic about I love the business I Love the business Jim That's it's important to love what you do and I do love It and are very I'm, very very confident about where we're going.
Two final question is on the European operations.
You mentioned there that you got the assets.
Secondly below market value. However, there's a pay out over the next couple of years or incentive payouts based on performance.
Give us a little clarity on that is it based on profitability on volume and what kind of impact would that have on.
Gross profit to be in Europe.
Yeah and by the way just to go back to your previous comment about my enthusiasm.
That enthusiasm would be rather boring if it wasn't born out by Fox, but again.
295% increase in production this year.
I'm proud of my enthusiasm and I'm proud of the team who's who's who's making it.
It was validating it frankly, we keep doing what we say we're going to do we keep expanding in the way that we say, we're going to keep expanding we keep improving every aspect of the business and that's that's how I.
Part of the reason I remain so enthusiastic I suppose.
But.
I'm sorry.
I lost my train of thought there because.
It was so important to me to say that.
Yeah.
Please go ahead Sir.
Yeah basically yes.
Yeah. So on the Internet, so very quickly because I do want to make sure we get sometimes the other questioners, but very quickly on the earn outs 2024.
The trigger point for the R&R is $13 5 million anything that they do in excess of $13 5 million Youll get $2 worth of shares for every dollar worth of revenue that they do in excess of that and then in 2025, they will have to exceed whatever they do in 2024 by 135% in order to get.
The next trigger and then the same rules will apply and newer bank and they have more than 19, 9% of the shares so it doesn't matter how well they're doing it because we wanted to do incredibly well and we're going to do everything that we can to support them to do incredibly well.
Because it's great for the company, but in no event and they own more than 19, 9% of the shares the shares that they do receive both for an initial consideration and for the earn outs will be restricted one or start with a six month restriction on them when they do if they lift those restrictions. They are further restricted to sell no more than 4% of weekly volume forever.
So there's no danger that the sellers worthy to do this again.
I'll sing continuing to work for us.
And vital to the operation I'm really glad to have them and I'm very glad to have them tied up with these earn out some of these restrictions, but in the event that they did decide to sell their shares they can sell no more than 4% of weekly volume in other words, having no meaningful impact on trading as a result of their adding shares into the marketplace.
I think we need to move to our next question now operator, please because we are going to get some other people some time.
The next question comes from Abi Sinha with Northland Capital. Please go ahead.
Yes, how are you.
Hey, Thanks for taking my question quickly.
And that profitability in fourth quarter, and first quarter next year you'd laid out very clearly, but in fourth quarter, what should we look at sequentially in terms of gross margins.
Yeah. So.
I'm I'm I'm quite encouraged.
Courage by the fact that we are the <unk> that we're now building of most of the cost savings built into them.
So we won't get a full quarter full fourth quarter impact of those cost savings, but we'll certainly get significant impact of it and so you should be looking at materially improved gross profitability in the fourth quarter, but the first quarter of next year, but especially by the end of it we will get all of the cost savings integrated that that will happen early on in the quarter I mean, those that we have.
Identify it again, it's a never ending story for us, we're not going to we're not going to quit but by the end of the first quarter. When we when we've burned through all of our existing backlog and I think you should also anticipate to see that eight 8% or so increase in price starting to join with the cost reductions can you give us even more impactful gross profitability and again as I said in my comments, we're looking at.
Mid to high Twenty's from a percentage point of view just with these savings alone.
Again as I said in my comments, you can see that that would be your point of view when we look at how much money, we're going to save on painting, Sandblasting and forming the base spot.
As well as many other processes those are opportunities for us and things that we've already targeted in the United States to end source as a means to save money.
It took a little bit more time to do that because of course. Unlike me in Europe, we don't have the existing facilities to do that but there's nothing scientific that prevents us from doing it is just the further steps to take.
Sure. Thanks for the earlier comment did you imply are are you implying that you might get.
EBITDA breakeven next year or did I hear it wrong.
I say if people ask me if we can do that and I think that the arithmetic clearly shows that we could do it.
So.
For more than that I'm, not going to say, it's all of that will come of course come down to the decisions, we make about investment and growth and other things, but certainly.
It's easy on the back of a I'm not sure how we could do it.
And the last one I have is for the sales of battery.
Can you comment on like how should we model that the trajectory there and what should we look at the map back in margins versus.
Comparing that with the sales uplift that you'd be at margins.
My charters very much more diversified.
<unk>.
<unk> product.
Margins pretty fixed on it improving but fixed whereas with the bathroom quite a lot of different types of products and the margins are different across the board the big thing for us about the doctors as they are saving the battery business saving us a lot of money on our core business and also bringing US. These other revenues as I said in my comments. This is part of our strategy to diversify our pro.
Communities for revenue because of this lumpiness thing that we know exists.
So getting that extra 6 million boost from the from an acquisition that we made as well as all the production of batteries for our products and all the cost savings and everything else that they deliver it has been really meaningful to us Buck.
Tend to continue to grow the battery business. Unlike any other aspects of our business, we intend to continue to improve the margins where that's concerned.
No different than the rest of what we're doing.
I think that's all I have to think.
Thanks Akshay.
Our next question comes from Noel Parks with Tuohy Brothers investment Research. Please go ahead.
Hello, how are you.
Good how are you.
Alright.
Just a couple of things you know I am thinking about customer so I just wanted to.
Maybe here, but a bit more about the advances in water and wind resiliency.
You announced over the course of the quarter and I am just curious.
Is are those initiatives something that just a matter of continuous improvements or are we going to see future sort of generation of.
Are there other things that you do to sort of harden.
Harden the units and.
Provided the resiliency.
I'm really glad you brought it up because there's just so much to talk about this quarter that did not include those things in my comment in my prepared comments.
It can't be denied that they are very important.
<unk> is now flood proofed Tonight in a heartbeat and just to put that in context for everybody.
In general the kind of flooding that you see in city environments, usually 60 or less it's very rare to see more than that that level of it. So that's basically telling you is that he be ox will survive almost any anticipated flooding and of course, the flooding is greater than nine and obviously, probably got other things to worry about whether or not the EV charges are working.
So that's what that is.
And it's amazing how many because it's Sacramento, California. For example, it was very very far in line you wouldn't really thinking that was a flooding risk, but actually Sacramento floodplain C level in it.
And prone to flooding in that.
So as New York and source. So many other customers. So that's a huge benefit and then also on top of that we made that we improve the products wind rating from 125 miles per hour to 160 miles per hour actually we know it will survive a lot more than that but this is the independent stamp that we are we received from our outsource facility and.
We were able to publish and again, that's not where the vehicle owner or anything I was just sitting on its own 160 mile per hour ratings right. Now. These things are important because we're seeing increasingly violent weather events, we're seeing rising sea levels. We're seeing flooding. We're seeing all these other things and we're becoming more relying on electricity than we've ever been anytime in our history vulnerabilities a very serious problem.
It's not just me, saying that no maybe not in the halls of government in Washington, and city capitals across the country to answer your question, we are not going to stop.
Moving on that point that point of view, either I mean, I think that now that we've reached 160 mile an hour and nine in a heartbeat, probably wind rating and flooding is not going to be an area of major.
Our focus for us, but there are other things that we're integrating into our products, which will make them more reliable, which will make them better to forecast I mean, we still haven't even got into.
AI or learning or any of the other things that are part of our future.
But yes, you can expect to see them get more resilient and again because of that add more value and become more vital to our customer segments.
Great and you know, it's a it's been really.
Really encouraging to hear about just the enthusiasm you have and.
The new European team and I'm, just trying to trying to extrapolate a bit on that.
Of course the.
The easy part.
Our practice is strike.
Striking and of course, the videos you see of deployment and how fast it is and in such small spaces I'm just wondering do you.
How do you prepare for what might be.
And extremely enthusiastic uptake in the acceptance of the product in Europe as you know.
Our capacity expands there.
And again, thank you for pointing out how enthusiastic I am bound to say again, the only thing that is more impressive than my enthusiasm is our results because I have not become almost 300% more enthusiastic.
Since July since we last talked but we certainly produced almost 300% more more products, but yeah look.
A great deal of room for expansion in Europe, six five acres to 220000 square feet under roof.
We're producing what we're producing in North America, and 53000 square feet on a much smaller piece of property. So we've got a huge amount of room for expansion in Europe huge we can get over $300 million in revenue out of our San Diego facility.
Multiply that by several times, that's what the European facility is capable of and again I can't stress as strongly as we own. It you can take a look at our P&L and look at how much rent has an impact on us.
In the United States, So theres no rent in Europe, we own it outright.
We own the land we own the buildings, we will we will not have the ongoing cost of rent or anything or anything else. There to deal with it's also very inexpensive for us to expand the roofed over there as I say, we've got 220000 square feet under roof on six and a half acres, but.
<unk>.
And beam Europe as it now is very capable of self performing much of the what's required to roof over other areas of it.
So.
Listen I believe we are going to see that dramatic increase in requirement much of it will come from the standard product and they've used under product requires a lot less square footage to produce you can also shift a lot more of them and we can do.
We put two E auction aforethought shipping container.
Countless EV standards and of course with shipping container.
So.
I'm happy with where we are and of course, if we are expanding that those type of breathtaking rates and I expect that we will and I intend that we will then we will add more facilities.
We said that to you know in the United States and my belief is that we need four or five are.
Such facilities, we haven't San Diego and Europe will not be fully served by what we now have an in in.
Serbia.
One other thing you should know we're in 17 Nations Serbia.
Several of those are in Africa, and Africa, it's not a huge market for EV right now, but it certainly isn't a huge market renewable energy and that type of infrastructure and we believe that just as Africans went from no telephone straight to wireless telephony. They never did the wired phone thing. We also believe that as they adopt vehicles in the future. They will largely go straight.
Electrification and there will be a massive requirement for our products down there and we've got our sights on that not for next year on year after but as part of our future growth without a doubt.
Africa will be a massive market and actually don't be surprised if you see some wins for early on from that because there's a lot of European and even north American aid money moving into that market looking for products like ours.
Okay.
Great. Thanks, a lot.
Thank you I think we're coming to the end of our time here operator, if you have another question I'm happy to answer it but I'm also mindful of People's time.
Yeah. They they seem to be one last question, Chris peers with Needham and company. Please go ahead, Hello, Chris Hello, Krish, sorry to keep you waiting.
Problem. Good afternoon, just real quick looping on EV standards, you just touched on how quickly could you be manufacturing and selling those products out of Serbia and whats the E. S. P N that product versus the typical cracked in EMEA customers buy them at this point in time.
Great. Good question and as I said in my as I said in my prepared remarks, we've made more progress on Evs underdevelopment in the last month and we have in the last four years, So we're going to stop.
The beta version of it very soon.
I'm not going to put an exact date on it because that's a great way to always get into trouble, but we're very soon we're making tremendous progress on it right now remember the beam Europe makes.
These types of structures all day long everything from the tiniest or things that you might see in a small village all the way up to the massive towers that you see going down the center of a freeway so they do everything and everything in between.
And they are very well equipped to do this so its coming very quickly our asps I'm not going to comment on at all but I will tell you. This the other great thing about being in Europe as they have on <unk>.
Tastic database of what people pay for these things all across Europe, They sold and if you'd been in Miami, you've walked underneath Amiga streetlamps by the way so they're not just sold in Europe, but also in North America. So they have a very good idea of what the market will bear.
And we're also working on some really other interesting things in terms of how we might end up financing these things into the marketplace as part of the reason I've met with OCI again yesterday.
Because there are lots of other opportunities to expand the business and integrate E V standard and with normal land sales.
As part of the mix in a way, which would be a great differentiator for us because our Amiga was already one of the largest EV or one of the largest streetlight lumps under producers in Europe.
They know a great deal about the competition and we do as well and I can tell you that if we start introducing these renewables energize EV charging products and some of the other things we're going to bring to market, we will be alone in the market and our ability to do that amongst all the competition. So that's another just really fantastic area of opportunity for us.
Okay. Thank you.
Great. Thanks, very much. This concludes our question without yeah. So I think we've got to bring it to a close operator. Thank you. This concludes our question and answer session I would now like to turn the conference over to Desmond Wheatley for any closing remarks.
[laughter] claims to sound as dull on board as I can because I feel as though but my enthusiasm perhaps is starting to wear on people, but I'm not going to I'm, sorry, the things I'll change for you, but I'm not going to change that I love The company I Love, what we're doing.
I am more excited than ever why wouldn't I be as I said in my in my comments I don't think we've doubled our opportunity I think we've trebled or maybe quadruple the ear and we've done it very inexpensively.
Very wise manner again no debt.
High interest rate environment.
Very very low dilution to get this done so.
So a great time to be doing what we're doing are very much appreciate your support and your interest.
Obviously, the macro market conditions share prices for growth stocks.
That.
Maybe it's beyond my pay grade I'm going to keep doing what what I do and the <unk> team is going to continue to do what it does which is getting better and better and offer more and more growth because at the end of the day fundamentals are going to win out and we're going to produce them. So thank you. Thank you everybody for your time and I look forward to speaking to you all again in the near future.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.