Q3 2023 Beam Global Earnings Call

Participants

Kathy McDermott; CFO; Beam Global

Desmond Wheatley; CEO; Beam Global

Tate Sullivan; Analyst; Maxim Group

Chris Souther; Analyst; B. Riley Securities

James McCollin

Abhi Sinha; Analyst; Northland Securities

Noel Parks; Analyst; Tuohy Brothers Investment Research

Chris Pierce; Analyst; Needham & Company

Presentation

Operator

Good day and welcome to the Beam Global third-quarter 2023 financial results and corporate update. (Operator Instructions) I would now like to turn the conference over to Kathy McDermott, CFO.

Kathy McDermott

Thank you. Good morning and thank you for participating in Beam Global's 2023 third-quarter conference call this early morning. We appreciate you joining us today to hear an update on our business. Joining me is Desmond Wheatley, President, CEO, and Chairman of the Board of Beam Global. Desmond will be providing an update on recent activities at Beam, followed by a question-and-answer session.
But first, I'd like to communicate to you that during this call, management will be making forward-looking statements, including statements that address Beam's expectations for future performance or operational results. Forward-looking statements involve risks and other factors that may cause actual results to differ materially from those statements. For more information about these risks, please refer to the risk factors described in Beam's most recently filed Form 10-K and other periodic reports filed with the SEC. The content of this call contains time-sensitive information that is accurate only through today, November 14, 2023. Except as required by law, Beam disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call.
Next, I'd like to provide an overview of our financial results for Beam's third quarter and the first nine months of 2023. The revenues for the third quarter of 2023 continued strong at $16.5 million, a 149% increase over $6.6 million revenue reported in Q3 of 2022. Revenue to the first nine months of 2023 were $47.3 million, a 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 period in 2022. 10% of our revenues year to date are international sales, primarily for our energy storage business. But we're looking forward to beginning production of EV ARCs at our new Serbian facility to expand our EV charging sales into Europe.
Our gross profit for the quarter ended September 30, 2023, was $0.3 million or 1.7% of revenues compared to a gross loss of $0.3 million or 5.1% of sales. Gross profit year to date through September 30, 2023, was $0.8 million or 1.7% of sales compared to gross loss of $1 million for the same period in the prior year. As a percentage of sales, our 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 reductions and benefit from recent engineering design changes.
Operating expenses for the third quarter of 2023 were $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 $3.9 million for non-cash contingent consideration recorded in Q3 2022 related to the All Cell acquisition, partially offset by increases for sales commission and non-cash compensation expense.
For the nine months ended September 30, 2023, we reported operating expenses of $11.9 million or 25% of revenues compared to $10.9 million or 78% of revenues for the same period in 2022, an improvement of 52% as a percentage of revenues. Year to date 2022 only included seven months of expenses for energy storage business operations based on the March 2022 acquisition date. 2023 cost increases are primarily attributable to non-cash compensation expense, administrative salaries and bonus accruals, sales and marketing expenses including commission accrual, and investment in R&D, salaries, and expenses. These increases were partially offset by a decrease of $2.4 million for non-cash and cash contingent consideration related to the All Cell 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 30, 2023, compared to $11.9 million for the first nine months of 2022. The year-to-date net loss included non-cash expense items such as depreciation, intellectual property amortization, and non-cash compensation expense of $3 million in 2023 and $5.2 million in 2022.
On September 30, 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, offset by increased accounts receivable due to the increased revenues and operating losses. Our working capital increased from $6.8 million to $3.4 million from December 31, 2022, to September 30, 2023. The working capital balance is increased by the $25 million net capital raise in June and increased accounts receivable based on increased sales.
With that, I will now turn it over to Desmond to provide a business update. Desmond?

Desmond Wheatley

Kathy, thanks very much for that, and thanks also to everybody who's listening in today, particularly those of you who are on the West Coast. I'm well aware of the fact that this is the second time in a week of actually a gap in the wee hours to join these exciting being global updates 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 Kraljevo in Serbia. Having spent the last 11 months negotiating the acquisition of the company that was formerly known as Amiga and is now Beam Europe, the parties which were formerly sitting on opposite sides of the table are now all engaged in the creation of a growth engine for Beam Global in the largest market in the world for our products.
Beam 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 Beam Europe into our global operations. I hope the many of you were able to join the live tour of our new 6.5-acre facility last week. It was an intense and information-packed hour during which I tend to show the scale and capabilities of our operations over here. In case you missed it, there's 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 in Beam Global in 2023. And in my opinion, after the invention for our sales and production of EV ARC, 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 are insignificant and all have contributed to making Beam Global a better company than at any time in our history.
We've dramatically increased the rate of production of our products. We've dramatically increased our revenues. We've dramatically improved our gross profitability, and we've significantly reduced our operating costs 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. $16.5 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 had triple-digit year-over-year growth. We're looking at our year-to-date results. We obviously have another record of over $47 million in revenue. That's a 236% increase over 2022. And to put it into further context, just looking at 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.
This is a quick historical reminder. We did $6 million in revenue in 2020, $9 million in 2021, $22 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 EV ARC products is even more impressive. Production of EV ARC so far in 2023 has increased 295% year over year, and our battery manufacturing facility in Chicago produced 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 in EV ARC production is greater than the 236% increase in revenue. The main explanation for this is that we produce more EV ARCs than we were able to deliver in Q3, in no small part due to the threatened federal government shutdown at the end of that quarter. It's not that those deliveries won't take place. It's just because there was uncertainty around whether or not federal employees would be at work, deliveries of certain EV ARCs 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 30, 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 in large order cadence, the flow of purchase order wins brought in by the sales team is actually improving over prior years, and we've received no indication from any of our existing customers or prospects that they're slowing down their plans for EV charging deployments.
We're 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.
To put this into context, we need to look at the facts behind the stories. While it's true that there's been a reduction in the speed of electric vehicle adoption as a percentage in August and September this year only, the absolute numbers continue to grow rapidly. And the slowing down that the media is referring to 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. And I view that as a further mainstreaming of EVs as they move from the niche Tesla audience to everyone else. Any way 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 ICEVs.
The installation of electric vehicle charging infrastructure has not kept pace with EV sales, and there was already not enough publicly available chargers for the existing fleet of electric vehicles. Far less than the tremendous growth that we're still seeing. The two biggest barriers to consumer adoption of electric vehicles continue to be number one, perception of their costs; and number two, lack of available charging infrastructure. Beam 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 gives us a good look at what the future holds for the rest of the world. There, EV sales are 98% of the market. There's been heavy investment in education and EV charging infrastructure in Norway and they've now amassed enough data to show that total vehicle ownership costs are around 20% less for the consumer. And that data includes the earlier models of EVs, which are much more expensive in 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 tailwinds, we anticipate, as I've said, nothing but growth for the foreseeable future. Any fluctuations that we do see in 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 threatened or actual government shutdowns. But none of this, I think, will be meaningful in the long term.
Again, I still firmly believe, and I think that all the evidence confirms this, but however lumpy this order cadence may be, the macro trend provides for nothing but sustained growth for the next several decades. Electric vehicles are not going away. On the contrary, government tailwinds are continuing to strengthen as the increasing awareness of climate impacts matched by continuing geopolitical uncertainties associated with the global oil industry make it more difficult not to double down on already aggressive carbon reduction plants.
Additionally, while most experts accept that there is 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 have to keep pace with consumers' demand for the products. All of the reputable studies that I've looked at still show the majority of consumers stating that they're considering an electric vehicle for their next purchase.
In the meantime, I and the rest of the management team at Beam Global are 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 and 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. We 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 in another.
The fundamental takeaways from these preceding points 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 and urgency in 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, EV 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. The sale of batteries to external customers, in other words, not those used in our own products, has contributed over $6 million to our revenues in the first three quarters of this year, a significant contributor to our growth and an excellent diversification of revenue opportunities for us.
The acquisition of All Cell Technologies has also contributed significantly to our gross margin improvement through a reduction in costs in 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.
Now, our engineers in San Diego, Chicago, Belgrade, and Kraljevo are all working on the next and what I believe will be the most significant diversification in our product offering in the company's history. We have made more progress in the development of our EV Standard product in the last months than in the last four years. EV Standard is a street light replacement, which will provide renewed and energized EV charging and energy security infrastructure at the curb without the requirement for significant stable and electrical projects.
Comprising much of the same technological excellence, which is found in the EV 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 to the success of the electrification of transportation. I know of no more elegant solution to do that than the EV Standard.
But the major consideration in the acquisition of Amiga 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 streetlights and other types of street furniture with renewable energy and electronics integrated. And as a result, have the perfect combination of experience and expertise to assist our EV charging and energy storage engineers in the perfection of the EV Standard 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 Beam Global, both in Europe and in the United States.
So we're executing on a multipronged strategy to increase our opportunities through geographic expansion, expansion of the verticals that we were targeting within the geography, and through the introduction of new products, which are equally or more unique and compelling. And 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 continued to generate gross profits during the third quarter, about 3% when excluding non-cash items. Year to date were gross profitable 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 then 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 had previously caused us to report negative gross profits, even though the unit economics on the EV ARC have been positive since quite early in that product's development.
We're better off from a cash point of view every time an EV ARC leaves the factory, not worse off as would be the case if the unit economics were not positive. Now 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 that those cost savings should take effect material in the fourth quarter and be fully manifested by the end of Q1 2024. The facts are supporting that prediction, and we're now looking at current costs to reduce EV ARC, which are meaningfully lower than at any time in our history. That's a process which will not end.
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 contrary, these cost savings are simply the next step on our relentless path to improving our gross profitability while maintaining quality and the unique attributes of our products. We know that there are further opportunities to generate more significant cost reductions, and we'll continue to develop and invest in those areas which will enable the savings.
Beam Europe actually provides a couple of 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 EV ARC products. But also from day one, Beam Europe will have a lower cost structure, not just because Serbia has a much lower cost environment in which to operate, but because Beam Europe is better equipped than our US operations. And as a result, able to self-perform a couple of activities which are elevated cost centers due to outsourcing in the United States.
Beam Europe has its own sandblasting and painting operations. We outsource those activities in the US. Sand blasting and painting in San Diego is already an expensive undertaking because of the highly restrictive compliance environment that 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 costs, which result from our having to ship heavy steel sections to and from the service provider.
Europe will have the raw costs, labor and materials, though less expensively than in the US, but not the gross profits on those elevated costs or the logistical costs of handling and transport. Beam Europe has its own sandblasting and painting facilities already. And future EV ARC and EV Standard products produced there will not need to leave the factory for this important activity, nor will the dollars associated with that have to leave our accounts.
Another expensive process, which we outsource in the US is the forming of our engineered ballasts and traction pad. This forming is vital to our product and it's an expensive and not without risk process, which also involves logistical challenges. Beam Europe has in-house capabilities to perform this forming task with none of the risks are elevated costs that we're paying to a vendor in the US. Incredibly, only three weeks after closing on the acquisition, our Beam Europe team is already making engineered ballasts and traction pads for EV ARC systems. That process is arguably the most technically demanding where the structure of EV ARC is concerned. So it's very encouraging to see Beam Europe have success with self-performing this activity so soon after becoming part of Beam Global.
If you've seen the tour of Beam Europe that we did last week, either live or 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 it. I and the team in Europe know that if they can perform this task, there's nothing else in the production of EV ARC that they will not be able to do. This single task is responsible for about 2% of our cost structure in the US. It's not going to disappear entirely in Europe, but it will become practically immaterial. Insourcing, painting, and sandblasting will have much more profound effects on our efforts to reduce costs, and Beam Europe's already there.
Frankly, 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 US, we've only been seriously producing for a couple of years. And 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 has not affected our results is the price increase we put into effect this year. New sales will include this increase in price, which adds about 8% to our base model. That 8% will go straight to gross profitability because nothing else has changed where the price raises concerned.
Combining the price increase with the cost savings now being realized in the EV ARC systems that are coming off the line today will give us an improvement in our gross profitability in the mid to high 20s percentages. Again, the full impact of this improvement will come when all the current cost improvements are implemented and we've worked through our current backlog, which was priced before the increase went into effect. A 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 $1.5 million of gross profit so far this year, net of non-cash items. Had we been operating all year with a lower cost now being integrated into our current products and with the price increase, we would have generated $8 million to $10 million in gross profits. Our total loss for the year to date is about $11 million. So that you can see with a couple of other tweaks to our model like those that I just outlined, our European operations, cash flow is far from a distant and very premise, especially when non-cash items are removed from that $11 million.
We can't go back in time, obviously. But this thought experiment looking at 2023 volume, but with gross profit improvements, we expect in 2024 provides a very useful forecasting methodology for where we're going. It's simple arithmetic at this point. Remember also that Beam Europe's core business generates a 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 significant results of these improvements to our gross profitability is the reduction of our reliance on the cash on our balance sheet through our day-to-day operations. If we improve nothing else and have a first three quarters of 2024 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 need to dig into our cash per $1 million.
At September 30, we had approximately $15 million in cash, $15 million in AR, and $14 million in inventory. We convert AR and inventory to cash in generally less than 90 days, giving us over $40 million of firepower to pay our bills. We're 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. Beam Europe does not require a material investment. It's already cash flowing and any amounts that we do invest to start producing EV ARC and EV Standard in that market should be more than offset by the lower costs inherent in operating in Serbia and with a very well-equipped facility, which is much less reliant on outsourced services than our US operations are.
Beam 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 of positive impact to profitability. It's strategically important because it gets us into the largest market in the world for our products and also because it's so important to the development and production 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 at banks, along with its long history of discipline, leading to positive cash flows. We paid EUR10 million for Beam Europe. That price was reasonable, even low-end valuation for the business that we acquired on its own. But 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 around EUR7 million. Buying the equipment from scratch would cost between EUR6 million and EUR10 million.
I said another way, had we gone to Europe and bootstrapped, we would have had to spend over EUR13 million just to get the property plant and equipment. Then we have to recruit the 35 engineers and the other 170s or so employees and try to start building a customer base from zero. Instead, we have a mature, experienced, an excellent team. We have solid customer relationships in 17 nations. We have a history of performance delivering to exactly the same customer profile with whom we're having success in the US. 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.
[Pro International], who we hired to do the due diligence, described Amiga as 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. It's true that this acquisition could cost more if Beam Europe hits its very aggressive earnouts that we put in place for 2024 and '25. But that's exactly the way I like to pay for a company, a 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 for Beam Global. It's not 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 will have seen how far we've come in an incredibly short time. Just three weeks after closing the deal, Beam Europe is making EV ARC pieces, the employees are working in Beam uniforms, and signage and other branding on-site has largely Beam Europe. There's a lot more work to do to entirely transform what was Amiga into Beam Europe, but the progress we've made so far is exemplary and faster than I've ever seen with any previous acquisition.
This is certainly an instance of two plus two equals more than four. Much more remains to be seen, but I'm very confident that bringing Beam Global to Europe and bringing Europe to Beam Global will provide all of the tremendous growth that we've had in the US 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. We did that using about one-tenth 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 Beam Global is a very different company than it was last time I reported to you. We now have 370 employees, more than a tenth 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 has committed to zero-emission vehicles in 12 years and zero emissions energy by 2050. This is also the time that Europe has felt least secure in 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 be Beam Global's business, and I don't think we could have done it in a better manner. Please do take the time to watch at least some of the video material that we did last week. I don't think you'll be disappointed.
So let's sum up. Record results. No doubt, well capitalized, highly differentiated in a growing industry, and now with massive new markets opened to our products and the ability to capitalize on them. Our share price is one-tenth 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. Personally, I'm very busy, and I must spend a lot of time with my family, but I'm loving being a part of Beam Global. And I believe more than ever that it's a great time to be Beam.
With that, I'll return the call to the operator, I think, and take your questions. Thank you very much.

Question and Answer Session

Operator

(Operator Instructions) Tate Sullivan, Maxim Group.

Tate Sullivan

Hi, Desmond. 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 demo units? Are those for orders? Can you talk about how you're planning to build out the EV ARCs?

Desmond Wheatley

Yes. I'm quite comfortable and confident in saying to you that we are not changing our strategy of not making anything unless it sold.

Tate Sullivan

All right. And then also on the Amiga legacy business, can you remind us how much Amiga generated recently in revenue? And will you move employees away from that business to the EV ARCs or will that business continue to potentially grow?

Desmond Wheatley

So that's one of the really exciting things that we've been going over during the last 10 days. Amiga reported revenues of, I think something north of EUR8.5 million last year. We haven't announced any numbers for them this year. But I can tell you, they're not doing worse this year. Not by any means.
And what's really interesting about that is that because Amiga runs their business as a cash flow business, typical of a sort of the smaller business, family-type-run business operations where they do everything out of their own cash flow. They have certain inefficiencies by the way they produce products. They have to staff for the peak production. And like any business, there are peaks and troughs in demand also late during the year. And so sometimes they have people who are not being fully utilized because again, they have to stop those peaks in demand when their customers want their 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, produce more with less people. And the result of that will be not that we get rid of those excess people. But what it means is that we'll be able to introduce into the production of EV ARC and EV Standards, and take advantage of those resources, which because of just improved efficiencies, the way we're handling the orders, we will split them on EV ARCs and EV Standard production.
I do anticipate we'll have to grow the team because I think we're going to do so much in EV ARC and EV Standard in Europe. But for the moment, just by being more efficient in the way we're using people, we should be able to do both.

Tate Sullivan

And the last one for me is on the revolving credit, the $100 million. Can you use that for Amiga's receivables? Do you have the change of facility, and have you access that facility at all into the quarter?

Desmond Wheatley

As it happens, I met with [OCI] yesterday. They're the provider of $100 million credit facility. And you may remember that when I first mentioned this $100 million credit facility, OCI is used to doing deals in the sort of billions. And so the question was why were they mucking around with this smaller number? The answer was because they were very, very interested in our potential to expand into Europe, particularly with renewably energized products.
You will be aware that many of the large funding institutions over here are aggressively looking for clean technology, so-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 the result of my meeting with OCI yesterday was confirmation of what I already knew, which is that they will be just as interested and just as aggressive in financing our European opportunities as they will be in financing anything that we do in North America.

Operator

Chris Souther, B. Riley.

Chris Souther

Hey, Des. Thanks for taking questions here. Maybe just initial kind of thoughts around Amiga's kind of traditional customers, introducing the EV ARC products. Could you give us a sense of what you think the initial demand is and walkthrough kind of the cadence of building interest with those customers, with new customers. Where do we go from here in Europe, I think, would be helpful.

Desmond Wheatley

Yeah. So Amiga has spent the last 30 years selling street furniture, certainly a big part of that being streetlights, to municipalities, states, militaries, nations, and corporate customers. They've also produced a lot of telecommunications products and a lot of energy infrastructure products.
What you find is that all of the customers to whom they've been selling for the last 30 years are almost identical in their profile, to those customers to whom we've had good luck selling our EV charging infrastructure products in the United States. And on top of that, we're arriving at this at a time when all of these municipalities and states and militaries and 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. In fact, it's more complicated. So we now have an opportunity, and this is what we're doing right now. Again, it's easy to see the tremendous progress when you can see EV ARC components being manufactured in the 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 good credibility and, in many cases, existing contracts and saying, hey, you've been buying solar-powered streetlights from us. You've been buying electronic integrated street furniture and all that other kind of stuff. Well, we now have these renewably energized, rapidly deployable, very low-impact EV charging product.
Are you interested? And I mean, I shouldn't have to tell you, and I'm sure I don't. The response in a very large number of instances, yes, we are interested. So as I always say to the sales team, if there's no ink, it stinks. Interest means nothing. 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 US, both from a government side and a corporate side.
So it's a perfect match. The sales team is really excited about this. And as I said, we've established ways that we can add capacity without dramatically increasing labor costs there. So a bit more efficiency, basically, which will make them even more profitable. And remember, they're already cash flow. So, I mean, this has been just a perfect match for our requirements, this opportunity. And it's very hard to find that. It's taken me years. I've been looking for international expansion opportunity for about five years now, and we found it here. I'm really encouraged by the work they're doing.

Chris Souther

That's great to hear. And then maybe just on the overall backlog trajectory. Obviously, we've been kind of working through those large orders from the second half of last year. You talked about government shutdown as an obstacle that we've recently been facing. But can you just give us a sense of the pipeline versus backlogs, growth, discussion. I think would be helpful for folks in framing. Obviously, it's lumpy. You've talked about. What can you kind of say around the overall backlog, where it should be exiting this year to give visibility for growth next year, and how we should think about it overall?

Desmond Wheatley

So we've got purchase orders in hand now for pretty much through the end of the first quarter. I know it's given people some concern that we haven't announced some gigantic federal order here. I'm aware of that. I am not though concerned about our growth. And the reason for that is because the nature of any time when you get these large orders, particularly when there's lots of other complexities in terms of getting them over the finish line, you're going to have this type of lumpiness, and I've been pretty consistent with that.
I don't view it in any way as an indication that there's anything fundamentally wrong with our long-term growth. On the contrary, it's just that everything that we're hearing from all of our prospects, federal state, local, and corporate, is that they're 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 is being plucked, meaning locations where it's easy to deliver a circuit to a charger where somebody would park their car.
And we're eating up available circuits and capacity and everything else. And frankly, the other thing that's encouraging for us is that everybody, government and corporate, is becoming more aware of capacity and vulnerability issues around it. People quite often say, oh well, Beam's going to solve the disaster preparedness side of this, and perhaps nothing else. No, it's both. We're speed, we're scale, we're lower total cost of ownership, and we're solving the disaster preparedness and capacity issues. So all of these things are becoming more meaningful to people as they deploy more and more charging.
So I am 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 I am. And the way that I and the whole team are doing that is by diversifying these opportunities for revenue. New product offerings, new geographic environments, obviously the biggest of those being Europe. And then just different verticals that we're going after in the United States.
But I think you'd have to be very, very pessimistic indeed to think that with the introduction of this new market -- Europe has 405 million cars, the United States has 290 million, China has 319 million. This is by far the biggest market in the world. I think you'd have to be very, very pessimistic to suggest that Beam Global 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 prospects.

Operator

[James McCollin], Private Investor.

James McCollin

Jim McCollin. How are you? Thanks for taking my call. A couple of questions. First on the US operations and the prior analysts just touched on the backlog. You mentioned there was some lumpiness and delays due to 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 $0.5 million on a quarterly run rate and the backlog was down about $3 million. So I would have expected maybe any delays in purchase orders to show up in an increased backlog. Is there any seasonality on the order rate or any other factors in the fourth quarter that might have impacted the incoming order rate?

Desmond Wheatley

Yes, same answer I just gave, Jim, really. It's all just down to timing. I'm not -- the problem, these things are not very well measured quarter by quarter. Third quarter was up 149% over prior year. And from an order cadence point of view, it's really just the answer I just gave to Chris. It's lumpy. It's going to move around and 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 indications are of macro growth across the board. But we'll keep working to find other opportunities, of course, as well.
Again, not because I'm concerned, but because it's prudent and I want more and more growth. I'm very aggressive about this. I'm not looking at treading water here. We're looking at continuing this meteoric growth and we're going to.

James McCollin

Well, I think that's great. We'd also the additional growth opportunities reflected in the share price. So the other issue was on the growth margins going into next year. I think you'd mentioned that in the first quarter, there's about a $12,000 per unit cost savings through engineering improvements, material improvements, as well as that 8.5% price increase, which would take effect -- fully take effect in the first quarter.
Back of the no-foot numbers, do you have any clarity on growth margins going into next year? It looks like they should improve just on those two factors alone to over 20%. So do you have any clarity for the group on that?

Desmond Wheatley

Yes. In fact, in my comments, my prepared comments, I was more aggressive than that. I think we'd get better than 20% improvement in growth profitability. And then I went one step further than that and did the back-of-the-napkin arithmetic for you. And you can see that with that rate of growth profitability, we would basically -- had we had the same rate of growth possibility that we're anticipating in the first quarter and moving forward.
And again, we're not going to stop improving either. But just on the numbers that we we're talking about today, had we had that same level of gross profitability throughout all of this year, we would be pretty close to breakeven right now.

James McCollin

And then a set of questions from the European operations. Are there any potential delays just on the qualification process either for all of Europe or individual municipalities or countries? Are you looking at a European standard that want to sell --

Desmond Wheatley

We will be putting CE on two of our products over here. Here's the good news about that. Again, this is an area where Beam Europe is much better equipped than we are in the United States just because we've been doing this a lot longer. They have all sorts of ISO certifications and all sorts of elements, which by the way, have already been healthy for us. Just a slight departure from answering your question, we recently responded to an RFQ that required a certain level of certification that we would not have complied with had we not made this acquisition. It's fantastic.
And when we realize that my god, on closing, we have all these certifications that we can qualify for this RFQ that we previously would not have been able to go after. I mean, as you can no doubt tell, I'm very enthusiastic by what we've just done in Europe. I'm really, really glad to have them on team there. Just wonderful, hardworking, well educated, English speaking. Again, I encourage everybody watched the video that we did last week because I want you to see what this place is all about and its capabilities.
But yes, there will certainly be some European requirement. A lot of different things that we have to do for Europe. Its metric, their voltage is different here, frequencies are different here. And we will do CE certification on our products rather than UL listing. And 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 is very, very well versed in doing those things.
And on voltages and frequencies, unless anybody's worried about that, don't be. That really to an electrical engineer, it's like saying do we do the A thing or do we do the B thing? It's really not a big deal. But it's a process. But we have very, very well-qualified people working on that right now.
Another thing I just want to tell you about on 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 were 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 they're very excited about the new products and started working on developing them before we can close the deal, which I think is a great indication of the quality of people we're dealing with.

James McCollin

All right, Desmond. The last two or three years of conference calls, I don't think I've ever heard you when you were not enthusiastic about demand.

Desmond Wheatley

I love the business. I love the business, Jim. It's important to love what you do and I do love it. And I'm very, very confident about where we're going.

James McCollin

And two final questions on the Europe operations. You mentioned there's -- that you get the assets significantly below market value. However, there's a payout over the next couple of years or incentive payouts based on performance. Could you give us a little clarity on that? Is it based on profitability, on volume, and what kind of impact would that have on the gross profits of Beam Europe?

Desmond Wheatley

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 borne out by facts. But again, 295% increase in production this year. I'm proud of my enthusiasm, and I'm proud of the team who's 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 part of the reason I remain so enthusiastic, I suppose.
But I'm sorry, Jim. I lost my train of thought there because it was so important to me to say that. Go ahead. Oh yeah, on the earnouts. Yes, on the earnouts. So very quickly, because I do want to make sure we give some time to other questioners.
But very quickly on the earnouts, 2024, the trigger point for the earnout is $13.5 million. Anything that they do in excess of $13.5 million, they'll get $2 worth of shares for every $1 worth of revenue that they do in excess of that. And then in 2025, they'll have to exceed whatever they do in 2024 by 135% in order to get the next trigger, and then the same rules will apply. In no event can they have more than 19.9% of the shares, so it doesn't matter how well they do. And of course, we want 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 can they own more than 19.9% of the shares.
The shares that they do receive, both for the initial consideration and for the earnouts, will be restricted [144 stock] 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 seller is worthy to do this. And again, they're all staying, 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 earnouts and with 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 the next question now, Operator, please. Because I've got to give some other people some time.

Operator

Abhi Sinha, Northland Capital.

Abhi Sinha

Thanks for taking my question. Quickly, I want to understand that profitability in fourth quarter. I know in first quarter next year, you laid out very clearly. But in fourth quarter, what should we look at sequentially in terms of gross margins?

Desmond Wheatley

Yeah, so I'm quite encouraged by the fact that EV ARCs that we are now building have most of the cost savings built into them. So we won't get a full quarter, full fourth quarter impact to those cost savings, but we'll certainly get a significant impact of it. And so you should be looking at materially improved gross profitability in the fourth quarter.
But the first quarter next year, especially by the end of it, we'll get all of the cost savings integrated. That will happen early on in the quarter. I mean, those that we've identified -- again, it's a never-ending story for us. We're not going to quit. But by the end of the first quarter, when we've burned through all of our existing backlog, then I think you should also anticipate to see that 8% or so increase in price starting to join with the cost reductions to give us even more impactful gross profitability.
And again, as I said in my comments, we're looking at mid to high 20s from a percentage point of view, just with these savings alone. And again, as I said in my comments, you can see that from a Beam Europe point of view, when we look at how much money we're going to save on painting and sandblasting and forming the base pad, as well as many other processes, those are opportunities for us and things that we've already targeted in the United States to insource as a means to save money.
That'll take a little bit more time to do that because, of course, unlike Beam Europe, we don't have the existing facilities to do that. But there's nothing scientific that prevents us from doing it, it's just the further steps to take.

Abhi Sinha

Sure. Thanks. And from the earlier comment, did you imply or are you implying that you might get [ABW] in Q1 next year or did I hear it wrong?

Desmond Wheatley

I said people asked 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. Some of that will, of course, come down to decisions we make about investment and growth and other things. But certainly, it's easy on the back of a napkin to show how we could do it.

Abhi Sinha

The last one I have is for the sales of battery. Can you comment on how should we model that trajectory there? And what should we look at the battery margins versus comparing that with the sales of the EV ARC margins?

Desmond Wheatley

Much harder. Very much more diversified. The EV ARC is a single product. Margin is pretty fixed on it, improving but fixed. Whereas with the batteries, you've got quite a lot of different types of products and margins are different across the board. The big thing for us about the batteries is they're 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 opportunities for revenue because of this lumpiness thing that we know exists.
So getting that extra $6 million boost from the 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've delivered has been really meaningful to us. But we intend to continue to grow the battery business. And like any other aspect 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.

Operator

Noel Parks, Tuohy Brothers Investment Research.

Noel Parks

Just a couple of things. I think you might have touched on this, but I just wanted to maybe hear a bit more about the advances in water and wind resiliency that you announced over the course of the quarter. And I'm just curious, are those initiatives something that's just a matter of continuous improvements or are we going to see future generations of just other things that you do to sort of harden the units and provide the resiliency?

Desmond Wheatley

I'm really glad you brought that up because there's just so much to talk about this quarter that I did not include those things in my prepared comments. But it can't be denied that they're very important. EV ARC is now flood proof to 9.5 feet. 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 level. So what that's basically telling you is that EV ARC will survive almost any anticipatable flooding.
And of course, the flooding is greater than 9.5 feet, probably got other things to worry about than whether or not the EV chargers are working. And so that is it. And it's just amazing how many places. Sacramento, California, for example, is very, very far inland. You wouldn't really think that was a flooding risk, but actually Sacramento is in a flood plain. It's at sea level and prone to flooding and that, so is New York and so are so many other customers. So that's a huge benefit.
Then also on top of that, we improved the products wind rating for 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 stance that we received from an outsourced facility and are able to publish. And again, that's not with the vehicle owner or anything. that's just sitting it's 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 reliant on electricity than we've ever been at any time in our history. Vulnerability is a very serious problem. It's not just me that's saying that now. Now you're hearing that in the halls of government in Washington and in city capitals across the country.
To answer your question, we are not going to stop improving on that point that point of view either. I mean I think that now we've reached 160 mile an hour, 9.5 feet, probably win rating and flooding is not going to be an area of major 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 a AI or learning or any other things that are part of our future. But yeah, expect to see them get more resilient. And again, because of that, add more value and become more vital to our customer segments.

Noel Parks

Great. And it's been really encouraging to hear about just the enthusiasm you have for the new European team. And I'm just sort of trying to extrapolate a bit on that. Of course, the EV ARC progress is striking in the course of the videos you see of deployment and how fast it is in such small spaces. I'm just wondering, how do you prepare for what might be an extremely enthusiastic uptake in the acceptance of the product in Europe as your capacity expands there?

Desmond Wheatley

And again, thank you for pointing out how enthusiastic I am. I'm bound to say again, the only thing that's more impressive than my enthusiasm is our results, because I have not become almost 300% more enthusiastic since we last talked. But we certainly produce almost 300% more product.
But yeah, look, we've got a great deal of room for expansion in Europe. We've got 6.5 acres, 220,000 square feet under roof. We're producing what we're producing in North America in 53,000 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 this strong enough. We own it. You take a look at our P&L, look at how much rent is an impact on us in the United States. There's no rent in Europe. We own it outright. We own the land. We own the buildings. We will not have the ongoing cost of rent or anything else there to deal with. It's also very inexpensive for us to expand the roofed over others. I say we've got 220,000 square feet under roof on 6.5 acres. And Beam Europe as it now is, very capable of self-performing much of 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 EV Standard product, and the EV Standard product requires a lot less square footage to produce. You can also ship a lot more. We can only put two EV ARCs in a 40-foot shipping container. We can put countless EV Standards in a 40-foot shipping container.
So I'm happy with where we are. And of course, if we are expanding at those type of breathtaking rates, and I expect that we will, and I intend that we will, then we will add more facilities. I've always said that too. In the United States, my belief is that we need four or five such facilities we have in San Diego, and Europe will not be fully served by what we now have in Serbia.
One other thing you should know, we're in 17 nations out of Serbia, and several of those are in Africa. And Africa is not a huge market for EV right now, but it certainly is a huge market for 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 to 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 or the 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 pretty 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.

Noel Parks

Great. Thanks a lot.

Desmond Wheatley

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.

Operator

Chris Pierce, Needham & Company.

Chris Pierce

Good afternoon. Just real quick, looping on EV Standard you just touched on. How quickly could you be manufacturing and selling those products out of Serbia? And what's the ASP on that product versus the typical product that Amiga customers buy at this point in time?

Desmond Wheatley

Great question. And as I said in my prepared remarks, we have made more progress on EV Standard development in the last month than we have in the last four years. So we're going to have a stand-up 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 very soon. We're making tremendous progress on it right now.
Remember that Beam Europe makes these types of structures all day long, everything from the tiniest ornate 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're very well-equipped to do this. So it's coming very quickly.
ASP, I'm not going to comment on at all. But I will tell you this, the other great thing about Beam Europe is they have a fantastic database of what people pay for these things all across Europe. They've sold them. If you've 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.
It's part of the reason I met with those OCI again yesterday, because there are lots of other opportunities to expand that business and integrate EV Standard in with normal lamp sales as part of the mix in a way which will be a great differentiator for us, because Amiga was already one of the largest EV or one of the largest streetlight, lamp standard producers in Europe. They know a great deal about their competition. We do as well. And I can tell you that if we start introducing these renewably energized EV charging products and some of the other products we're going to bring to market, we will be alone in the market in our ability to do that amongst all the competition. So that's another just really fantastic area of opportunity for us.

Chris Pierce

Okay. Thank you.

Desmond Wheatley

Quadruple that year, and we've done it very inexpensively in a very wise manner. Again, no debt, high interest rate environment, and very, very low dilution to get this done. So a great time to be doing what we're doing. I very much appreciate your support and your interest.
Obviously, the macro market conditions, share prices for growth stocks, something that maybe is beyond my pay grade. I'm going to keep doing what I do. And Beam team is going to continue to do what it does, which is get 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.

Operator

The conference has now concluded. Thank you.