Prepared remarks
Good day, and welcome to the BEAM Global Second Quarter 2026 Operating Results Conference Call. All participants will be in a listen-only mode. Should you need assistance, after today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Lisa Potok, Chief Financial Officer. Please go ahead.
Good afternoon, and thank you for participating in BEAM Global's Second Quarter 2026 Operating Results Conference Call. We appreciate you joining us today. Desmond Wheatley, President, Chief Executive Officer and Chairman of BEAM Global, is joining me. We are both in San Diego today. Desmond will be giving his thoughts on 2026 and providing an update on recent activities at BEAM Global followed by a question-and-answer session. But first, I would like to remind you that during this call, management will be making forward-looking statements including statements that address BEAM's expectations for future performance or 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 as of today, 08/19/2026. 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. Let me start with a few key highlights. Our revenue in the second quarter was $8.6 million. It is up 21% year over year and 174% over the first quarter, a clear signal that the business is reaccelerating after a slow start to the year. We converted a substantial portion of our backlog into shipments during the quarter and backlog ended June at $5.4 million. We continue to operate with no debt, no going-concern qualification, and an unused $100 million line of credit. Operationally, the quarter was active. We booked more than $500 thousand in drone and autonomous robotics battery orders in a single week. We extended our federal GSA and Sourcewell agreements with repeat EV ARC orders from Stanislaus County and the City of Long Beach. And we completed our relocation of our manufacturing operations to Yuma, Arizona — a move that we expect to generate approximately $2.7 million in rent savings alone over the five-year lease term when compared to what we have historically spent on manufacturing in San Diego. Desmond will take you through the business in more detail in a moment. Turning to the financials. Our second quarter revenue was $8.6 million, an increase of 21% compared to the $7.1 million in the second quarter of 2025, and an increase of 174% over the $3.1 million we reported in the first quarter. On gross profit, we reported $1.5 million or gross margin of 17.8%, compared to $1.4 million or 20.3% in the second quarter of 2025. Both periods included $700 thousand of non-cash depreciation and intangible amortization in cost of revenues. Excluding these items, our adjusted non-GAAP gross margin was 26.2% compared to 29.6% in the prior year period. We expect our margins to improve as our volumes continue to recover, reducing the impact of our fixed overhead on each unit sale and as our cost reduction initiatives take further effect. Our operating expenses were $4.5 million compared to $5.9 million a year ago, which included a $1.4 million stock grant. Excluding that item, our operating expenses were essentially flat year over year. Our first-half results absorbed a $1 million non-cash provision for credit losses related to a single customer balance reserved in accordance with our policy, largely offset by reductions in our compensation, our facilities, and our other G&A expenses. We maintain a positive relationship with that customer and continue to work toward collecting the balance. Our net loss was $3.1 million or $0.14 per share compared to $4.3 million or $0.28 per share a year earlier. The quarter's net loss included $1.1 million of non-cash charges. Excluding these items, our non-GAAP net loss was $2 million compared to $1.8 million in the prior year quarter. For the six months, net loss was $9.9 million or $0.47 per share compared to $19.8 million or $1.30 per share, which included last year's $10.8 million goodwill impairment. We believe the improvement in both our GAAP and non-GAAP results together with our 21% revenue growth over the prior year quarter reflects our initiatives to expand our opportunities, our disciplined cost structure, and a largely fixed nature of our noncash charges, which is indicative of our meaningful operating leverage as our revenue recovers. We remain debt free with an unused $100 million line of credit, and we believe we are well positioned to fund operations and support our growth initiatives. In closing, the second quarter marked a clear reacceleration in our business. Our revenue grew sharply. Our net loss narrowed. Our diversification continued to gain traction, and our cost structure remained disciplined. We believe the actions we are taking are positioning BEAM Global for more stable and scalable growth as market conditions continue to evolve in our favor. I will now turn the call over to Desmond to provide a business update.
Thank you, Lisa. And thank you to all of you for joining us today for this earnings call. At risk of being a little repetitive, I am just going to go back over a couple of those numbers for you. So in the second quarter of 2026, we did return to growth at the top line — a 174% increase in revenue over the prior quarter. Growth at the gross margin level with about a 30% improvement in gross margin over the prior quarter — that is 30 percentage points better gross margin than in the prior quarter — and a simultaneous significant reduction in operating costs: $5 million less in spending in the first half of this year than in the same period in 2025. We are happy about this level of growth, but particularly because it has come from the very deliberate strategic diversifications that we have been focusing on for the last several quarters. Europe is now contributing more or less the same amount of revenue as the United States is. When we first created BEAM Europe, I commented at the time that I thought that the contribution from that largest market in the world for our products would at some point outstrip revenue contributions from the United States — not at the expense of growth in the United States, but accretively. Well, Europe is now producing as much revenue as the United States. I suppose time will tell who will win the race, but of course we will push for growth in both markets and also in the Middle East, where we believe we will see significant activity as soon as things settle down in the Gulf. At any rate, Europe continues to generate significant revenues for us but even more importantly, very large opportunities. No matter which market comes out on top, being global wins the race. I will come back to the European opportunities in a few minutes. Our battery business is also making significant contributions — some of the most exciting technology and solutions that we have ever had. We generated revenues from our diverse set of new products during the quarter, and also continue to bring in recurring revenue through innovative business models that we have uniquely developed. We have continued to grow our intellectual portfolio with two new patents being issued to us during the period: one in Europe for battery solutions and one in the United States for our innovative, robust, and reliable energy generation technology. These new patents expand the moat around BEAM Global and cement our competitive advantage in the most active markets and technologies of the day. The batteries that we are producing for drones, robotics, AI, data centers and weapon systems are state of the art. We continue to make extensive breakthroughs in that area of the business while protecting the intellectual property that we are developing with these patents. While I am on intellectual property, we just recently announced that a breakthrough battery technology which we developed for AI data centers was accepted for a presentation at IEcon '26 in Qatar from among 1,800 submissions. This new technology will allow us to provide large amounts of power very rapidly for certain vital data center applications. Interestingly, it is technology that we developed for defense systems that have similar requirements in terms of rapid discharge capabilities. Batteries generally do not like doing that kind of thing. It is a real testament to the prowess of our battery scientists and engineers that they have come up with a safe, efficient and effective way of doing this. Clearly the intellectual property that we have developed is important enough to those people who understand these things, and they selected us among 1,800 submissions for a presentation at this very esteemed event. We will also present that technology at The Battery Show in the United States this year. There were weeks in the second quarter when we brought in over $500 thousand of orders for batteries for applications like drones. Now drone batteries are not very large, so you can imagine what this means in terms of orders. Also be clear that we do not make cheap commoditized off-the-shelf solutions. We make highly specialized, complex, reliable, energy-dense and robust batteries in form factors which actually suit drone manufacturers. While other companies try to get those manufacturers to build their drones around large squares and rectangles, we are uniquely able to create batteries in a form factor that allows the manufacturers to create specialized airframes without the burden of having to design around a cheap battery solution. Because our batteries are more energy dense, the cost per stored energy is lower. Because of our robust and safe technologies around preventing thermal runaway and generally managing battery cells better than the cheap options do, we are able to provide a highly engineered and complex solution. In the long run, that costs drone manufacturers less but most importantly allows them to execute on their missions with a bespoke solution rather than trying to make something off-the-shelf work. The additional layers of safety that our batteries deliver to these companies are also very important in their decision-making process. You do not have to think very hard to consider how damaging it is for a drone to have one of its systems fail because a battery has caught fire or failed to deliver energy to the motors. That is an expensive error, not just in terms of replacing the drone itself but also in reputational costs and potential risk on the ground. Our battery solutions are complex and highly safe, and so we significantly reduce the risk for the manufacturers and the operators. Our BeamFlight drone recharging platform, which is patented, does for drones what EV ARC does for electric vehicles. We are able to deploy charging for drones in locations without construction and without any connection to the electrical grid. This means that drones can fly their missions and recharge without returning to an operator. That is a very significant advantage in a contested environment where an enemy might follow a drone back to an operator while it needs to be recharged. With BeamFlight, the drone can recharge without ever returning to the operator, thus denying the enemy the opportunity to locate that operator. We also believe that BeamFlight will be very important in terms of the scaling of drone operations around industries like package delivery, where drones with limited range can touch down and refuel en route, thus extending their range and capabilities significantly. It should be apparent that we are increasingly becoming a vital and vertically integrated platform for the drone industry through our ability to provide pieces of the puzzle that are absolutely vital to their success: high quality, energy-dense and safe batteries and innovative, robust and scalable means to recharge. Drones can be more effective on their missions. This is clearly a market with a great deal of growth ahead and BEAM Global is already playing a role in its success. I am confident that we will be reporting more and more significant contributions to the drone industry as we continue to evolve. But it is not only drones. We are also producing batteries for robotic AI-controlled devices and even wildfire detection. Wildfires have been in the news a lot recently. Our ability to provide safe and energy-dense batteries for devices which can be deployed in remote locations and detect fires long before humans might do so is clearly very relevant at a time when wildfires seem to be growing in intensity and destructive nature. Fighting wildfires is an extremely expensive business, and the damage they cause is far more expensive. Providing solutions to an industry that can reduce or prevent that damage is another excellent market vertical for us and it fits very well with our existing technology and superb engineering prowess. Similarly, our ability to generate electricity and deliver it to our customers in a manner which is more reliable and robust than that which you get from the utility grid is another highly current topic and one for which we are continuing to receive new patents and recognition. We have long been recognized for our almost unique ability to create products which deliver rapidly deployed and highly scalable energy generation and storage infrastructure for the electrification of transportation. But the days of our being a single-product, single-country, single-customer company are long over. We are now a vertically integrated platform and a platform for solutions serving the most exciting and vibrant technologies and industries of today. BEAM Global is focused on energy, mobility and intelligence, and we are producing patented products for those verticals and selling them to excellent customers globally. We have often been branded as an electric vehicle charging company. But if you look at what we actually provide to the electrification of transportation, what you will see is that we do not provide charging services or even the appliances which charge the vehicles. What we provide are rapidly deployed, highly scalable, highly robust and very dependable sources of electrical energy for the electrification of transportation. We just do it in really innovative and patent-protected manners without construction, without electrical work, and without the requirement to extend the utility grid. And of course without vulnerability to blackouts and brownouts. Much of what we have learned from manufacturing these products and deploying them in the harshest environments in the world — the hottest, the coldest, the wettest, the windiest places you can imagine — has informed the way we design our other energy infrastructure products and also played a role in advancing our battery technologies. Our off-grid products are adding capacity at a time when data centers, AI, the electrification of industry and the electrification of transportation are making demands on the existing utility grid for which it was never intended. The EV industry is certainly out of favor with public markets at the moment and yet it continues to drive significant amounts of revenue for us. That lack of market favor is primarily in the United States. In Europe and in the Middle East, we are seeing tremendous appetite for products like ours. But even here in the United States, we have seen encouraging new developments in the second quarter. Our GSA, or General Services Administration contract, which is the contract that we have with the U.S. federal government, was recently renewed. Our Sourcewell procurement channel makes it easy for customers like the City of Dallas, Stanislaus County, the City of Long Beach, and many others to make multiple EV ARC acquisitions from us. In Massachusetts, we work with a new community electric vehicle sharing company to provide charging infrastructure to them, most interestingly with no unit cost for the energy. If you are running a car-sharing company and you do not have a unit cost for the energy, that tremendously reduces your operating costs and makes it much more likely that you will be successful in that endeavor. BEAM Global is uniquely able to provide rapidly deployed and highly scalable infrastructure without the need for construction or electrical work and without ever producing a utility bill. That capability becomes very much more exciting when you include our patented and unique off-grid autonomous wireless charging solution, which is absolutely ideal for autonomous vehicles. Our ability to provide highly scalable infrastructure which allows those autonomous vehicles to recharge without any human intervention and without any unit cost for energy is, I believe, a fundamentally important shift for that burgeoning industry. I do not think anybody doubts anymore that autonomous vehicles are here to stay and that there will be very significant growth in their use in the future. We are seeing companies like Waymo and others deploying in cities even as complex as London. They are going to need an awful lot of infrastructure to support that, and an awful lot of electricity. We can provide the infrastructure in innovative ways which are much less disruptive and expensive and we can provide them with the electricity at no unit cost and no impact to the grid or requirement for capacity increases. Most importantly, because of our patented wireless charging autonomous solution, we are able to refuel their vehicles without them having to return somewhere to have a human being do that. That is real autonomy and I think it will be really important to the industry. We are uniquely positioned to provide that solution and we have it well patented. I can assure you that our customers with existing autonomous vehicles are backing that theory up. I have just returned from Europe; I have been working out of our BEAM Europe offices in Belgrade. While I was there, we made several business development trips to governments and commercial entities alike across the region. We have a growing installed base of EV ARC and other products in Europe now. And as we have learned repeatedly through our history, the best way to sell our products is to have them deployed for customers because when other people see them, they want them. The results delivered by those deployments we have done in Spain, Montenegro, Romania, Hungary, Serbia and other places have been staggering. We are seeing more than 90% utilization rates and tremendous amounts of energy generated and delivered to electric vehicles in locations where it would have been either too expensive, too disruptive or even impossible to extend the utility grid. By the way, those are not always remote locations. Quite often our ability to deploy in the middle of cities saves them from the tremendously expensive and disruptive operations of digging up their streets and extending cabling to places where people want to charge their cars. You may be aware that New York City is our largest municipal customer and all of those systems are deployed within highly urbanized areas. In Europe, I met with government ministers and senior executives at very large corporations and in every instance I was encouraged to see that they already knew who we were, and in many cases had already seen our products. We are now going through procurement processes with our BEAM Europe team. All of these countries and companies know that they are going to need a tremendous amount of infrastructure over the next decade. All of them are looking for ways to deploy quickly without disruption and in ways which will not negatively impact their utility grids. They are now seeing our products providing precisely those solutions in the field. They are now seeing our happy customers who are delighted that they elected to use our solutions instead of going through the lengthy, expensive, risky and onerous process of construction and electrical work. Now they have seen it is possible to run large fleets of vehicles on nothing but locally generated and stored electricity without ever paying a utility bill and without being vulnerable to blackouts and brownouts and other capacity-related risks. We may have been ahead of our time for much of our existence but our time certainly seems to be arriving in Europe. Again, this is not about providing EV chargers or EV charging services. We leave that to others. This is about providing highly robust and innovative electrical generation and electrical storage infrastructure in locations which are vital to the operations of these types of organizations. Anybody can buy a charger and get the services behind it, but getting that charger installed and getting electricity to it is a very burdensome project and full of risk. Our products solve for that risk and also provide sources of emergency power which are increasingly recognized as vital by the types of organizations we target. Our products also provide extra capacity to overburdened grids. I cannot find anybody in government or industry who does not recognize that is a serious risk and one that we are solving. These solutions again are derived from the suite of patented technologies that we have developed and evolved into a platform which addresses energy, mobility and intelligence. It is not just innovative technology that we are providing for the electrification of transportation. We have also introduced business models that have upended the normal thinking and have been extremely popular with our customers and their guests. Part of the reason that we are so well known in the Balkans is because of our highly visible deployment at Belgrade International Airport. That is a deployment which is sponsorship-funded, creating a profitable recurring revenue stream for us and providing electric vehicle charging at the airport without construction, disruption or a utility bill. It is making electric vehicle charging free to the visitors of their premium parking. The best part about this model is that Globus Insurance, the company who is sponsoring it, is extremely happy with the results. Like any insurance company they are good at data analysis and crunching numbers. The positive reactions that they are seeing, the cost per impression, and all-around positive impacts of this deployment have made them continually happy and increasingly inclined to renew their agreements with us. We also announced in the second quarter the expansion of our recurring revenue sponsorship model through further deployments in the region. I have long believed that this can be an extremely successful model for us. It creates a profitable recurring revenue stream and it provides a mechanism for us to deploy larger volumes of our products to customers who do not provide the capital for the infrastructure. They see benefits which are far more lucrative for them than simply supplying kilowatt hours. We are expanding this business now and proving it. I am confident that we will see many more such deployments in the future in Europe. I think it is only a matter of time before American entities start to see that they can benefit more by spending their advertising and marketing dollars on this type of infrastructure deployment than the benefit that they receive from billboards or other more traditional advertising media. Off-grid, renewably energized, free electric vehicle charging and energy security infrastructure is far more compelling than a billboard. If you are looking to enhance your brand image, consumers are going to be a lot more impressed by you providing them free fuel than they would be by you putting up another billboard along the freeway. Remember these deployments are not targeted at electric vehicle drivers only; they are targeted to everyone who sees the striking, attractive and highly visible infrastructure which we deploy. Globus Insurance is not solely interested in the number of people who charge their electric vehicles on the branded systems, although that number is growing. They are much more interested in the seven million people a year that transit the airport and walk past their heavily branded systems when exiting or entering — creating highly visible and attractive infrastructure that enhances a corporation's brand image. Dispensing electricity into electric vehicles is secondary in importance. We are also continuing to see success in our smart cities infrastructure solution deployments. During the second quarter, we deployed these sorts of solutions in more than 30 cities across five countries. The revenue from these deployments is important, but from a strategic growth point of view, expanding our footprint and getting more and more of our products in front of customers makes us more stable and also creates a platform from which we can sell our other solutions. We have already seen this working. Much of the revenue that we are now generating is coming from customers to whom we have deployed products before, often quite different products than those most recently sold to them. Our strategy of creating a vertically integrated platform producing unique and intellectual property-protected products for energy, mobility, and intelligence is paying off. While our products are diverse, they are all related and they all have aspects of these three pillars. Most of the customers that we have for one or more of our products can be equally interested in the rest of our portfolio, or at least be very clear on who in their organization would be. Vertical integration is helping us control costs and create further barriers to entry for the competition. For example, I am not aware of anybody in our industry who creates their own batteries. I am not aware of anybody in the drone industry that makes batteries and charging infrastructure products which are able to generate and store their own energy and be deployed anywhere. I am not aware of anybody in the smart cities infrastructure industry who has so much experience around the electrification of mobility as we do. The electrification of mobility is going to be a massive and central pillar in the deployment of future smart cities. I am not aware of anybody in any of the industries that we serve who is able to deploy rapidly scalable autonomous wireless infrastructure for the autonomous vehicles that are coming, in fact already here. Autonomous vehicles are certainly going to play a very important role in the future of mobility and we have a unique, patented, and tried-and-tested solution which is paradigm-shifting for them. In the second quarter, we demonstrated our product platform at the Make It in the Emirates event, which took place in Abu Dhabi. Even during a war when there is a tremendous amount of uncertainty in that region, this event was very well attended. Any reduction in attendees was at the consumer level, which we do not really focus on, while corporate and government leaders were there in abundance. We were extremely busy during the several days that we were there, meeting with the leaders of law enforcement, military, government, energy, transportation, oil and gas and many others from across the Middle East. The unique attributes of our products were not lost on this audience, and our BEAM Middle East team is now following up with senior decision makers in a region that has an abundance of sunshine, an abundance of cash and a powerful ambition to be technology leaders, particularly in the fields of mobility and smart cities infrastructure. We actually sold one of our demonstration units right there and then at the show. It is now deployed and providing charging in Abu Dhabi. The disruption in the Middle East has certainly gone on longer than I think any of us anticipated. Nobody can pretend that business and investments are advancing at the same pace as they were before the war. However, there is a great deal of confidence that this war will come to an end eventually, whatever the outcome. When it does, the entire Gulf region will return to an aggressive investment posture. BEAM Middle East with our highly influential joint venture partner, The Platinum Group, is in the perfect position to take advantage of that return to investment. We are continuing to advance opportunities and relationships and I remain confident that when there is an end to the hostilities and a return to something like normality over there, we will reap the fruits of these efforts. BEAM Global is now truly a global technology platform company providing energy generation, storage and security to vital new industries like AI data centers, drones, robotics, and new and innovative forms of mobility. We are being increasingly recognized for the value of our intellectual property and our ability to provide technology solutions that are vital and add a great deal of value to our customers. Our centers of excellence in the Western United States, the Midwest, Europe, and the Middle East place us firmly where the action is, with a product platform which could not be more relevant for the fastest growing industries and markets of today. We are doing all of this while retaining our tremendous discipline with cash and equity. We still have a far lower number of shares outstanding than any of our near peers — five to ten times fewer than most of the companies that were often bundled with us, incorrectly I must add. We still have no debt and a $100 million line of credit which remains untapped and is dry powder for us in the event that we receive the very large orders which we anticipate and which we continue to work on. I mentioned at the top of the call we have also significantly reduced our operating costs, with $1 million in operating cost reduction in the first half from the same period the prior year. A big and important step in that direction has been our moving our manufacturing facilities from San Diego, California — where it is incredibly expensive and oppressive from a regulatory point of view to operate the type of manufacturing our business requires — to Yuma, Arizona, where more or less exactly the opposite conditions exist. We announced in the quarter that we will save just under $3 million in lease payments alone as a result of this move. Beyond that, labor savings, compliance savings, tax savings and savings on just about every aspect of our business will be realized as a result of this move. You are now looking at BEAM Global which has significantly expanded its presence and technology portfolio and is generating revenues from those new technologies and new geographic locations in a way that we have not previously. You are looking at BEAM Global which grew revenues 174% quarter over quarter, improved gross margins by 30 percentage points quarter over quarter, and significantly reduced operating costs while delivering highly relevant and well-patented products to some of the most highly sought-after customers in the world. You are looking at a BEAM Global that is increasingly becoming a technology platform for drones with our drone battery solutions and recharging solutions. I fully intend that we will continue to increase our presence in that market and the role that we play in it. For the moment at least, we are stuck in a valuation rut with a bunch of EV charging stocks, yet we do not provide EV charging. We provide highly robust and secure energy generation and storage products which, among other things, make EV charging work in more innovative ways than anybody else I know. We intend to break out of that rut because the value of our products and technologies is undeniable. Our ambition to grow the business is matched only by our discipline in how we do it, and our history is one of proving again and again that we have the right products and the right team to build an incredible growth engine for our employees, our customers and above all, our shareholders. I thank you for your time and attention and now I will hand the call back to the operator and take any questions that you may have.
Questions and answers
We will now begin the question-and-answer session. The first question comes from Craig Irwin with ROTH Capital Partners. Please go ahead.
Good evening and thanks for taking my questions. Desmond, I was hoping you could speak a little more about the order book. You have seen some good progress there, particularly around Europe, the Middle East, and your drone-related products in North America. Can you maybe just unpack for us the areas of highest growth in the order book this last quarter? And are you seeing the trends that have played out in your revenue as far as the strong quarter that you just booked? Are you seeing those same trends continue in the backlog and in the overall revenue generation in the current quarter?
Yes. So we have seen increases in orders across the board, but I must say the battery and energy storage business is certainly standing out, at least from a percentage point of view, albeit coming from a lower base in the first place. You are right that particularly the work we are doing for some of these defense applications and drones is playing an increasingly important role for us, and we are playing an increasingly important role for them. As I said in my remarks, you should anticipate that you are going to see us getting a lot more involved in those industries because the platform that we have created over the last several years has positioned us very well and the timing is very good for us now to take advantage of everything we have learned creating energy storage solutions, deploying them in very harsh environments and creating form factors that are unusual and difficult to reproduce for most people in the industry. I think you might remember that a quarter ago we announced we were developing batteries for a company called Ray Systems, which makes an underwater drone where real estate, silence and heat are terribly important. They do not know of anybody else who can do what we can do. That is also true of some of the very high energy density, high energy release battery solutions we are doing for weapon systems and now advancing into the data center market. So the order book is telling us that we are shooting at the right targets. Our order book is also telling us that the investments we made in international expansion were absolutely the right thing to do. I got a lot of flack when I raised money to make the acquisitions to get us into Europe. With hindsight now, that was absolutely the perfect thing to do. It opened massive markets to us, enabled us to get into the Middle East, and the types of orders that we are getting there for products across the board shows that was the right thing to do. So I am enthusiastic about this. I think we are definitely shooting at the right targets and the order book is backing that up. Thank you for that.
Desmond, I also wanted to ask about the gross margin progress. This was another healthy gross margin quarter and there is some blue sky between where you are now and your longer-term gross margin targets. Can you discuss the margins on some of these new business opportunities, particularly in Europe? I know the EV market is very competitive. In defense markets and others, customers want their suppliers to make money. Can you give a little detail on margins and the expected margins from your current book of business?
You are absolutely right that there is still a big gap between where we are and where we want to be. A good deal of that has to do with volume. For instance, the major element of the pickup we saw between the first quarter and the second quarter was simply producing a lot more product, getting it out the door and overcoming our fixed overhead allocations. We have got a lot further to go there. Our non-GAAP margins are around 26% to 27% right now when you back out non-cash items. Unit economics are better than that, which tells us we have a lot of ground to gain in gross margins without changing anything else except increasing volume. Volume will deliver a great deal of this and we are working hard towards that. There is also a lot of opportunity for cost reduction beyond just increased volume. Particularly around the drone industry and other areas where we do difficult stuff that other people cannot do, we have a margin advantage. We do not make commodity products. We make products which are difficult for others to make, and we make them well and robustly. I have often said that I think this is a 50% gross margin business. We are halfway there when you back out the non-cash items, and we are more than halfway there when you look at unit economics. Unit economics on some of our more expensive products have as much as 40% gross margin now. Once you get enough volume to overcome fixed overhead allocations, that 40% becomes what we end up reporting. So we are on track. Am I happy? No. But we are moving in the right direction and the team's doing a great job.
Last question if I may. Are you shooting at any 'elephants'? Is there anything that can make a dramatic impact on your P&L over the course of the next year that we could potentially see booked within the next couple quarters?
Yes. You have known me a long time and the honest answer is yes, I am. I cannot go into details around all of those things, and the thing about shooting at elephants is that even though they are big targets, sometimes you have to shoot a lot of them to bring one down. I have a history of doing what I say I am going to do over years. Sometimes it takes longer. The reduction in acquisitions from government entities after we wound down a federal selling machine has been tough on us, but we are coming out of that quickly. There is never a time when I am not trying to bring down something which will be fundamentally shifting for this company. I have a lot of energy and passion for the business and many members of our team are shooting at very large targets — single signatures away from doing something which could completely change our trajectory. I cannot guarantee we will get there or when, but we have the right products in the right industry shooting at the right targets and a history of performing. Personally, I have a high degree of certainty that we will get there, though that is my personal point of view.
The next question comes from Tate Sullivan with Maxim Group. Please go ahead.
Hi, Tate. How are you?
Good afternoon. Thank you. You ended your prepared remarks with a mention of your intention to actively participate in the drone and robotic markets. Can you comment on your competitive advantages with your customized batteries in those markets? I think you hinted that competitors are less flexible than your solutions.
You cannot have a drone if you do not have a power source for it. We do two things very effectively: we have a way of recharging them without human interaction in remote locations, and we create highly energy-dense, very safe and bespoke form-factor energy storage solutions. That is a major leg up for us. Beyond that, our existing customer base — the U.S. Army still our largest customer, the Marine Corps in the top 10, many law enforcement agencies, border patrols, and European militaries — are aggressively looking toward drones and robotics to improve their operations. We have learned over the last decade to deploy infrastructure in tough environments, create energy storage solutions for tough environments, and marry that with our existing customer base. That puts us in a very interesting position and I intend to capitalize on that.
Can you remind us of the scope of your existing wireless charging patents? Is it integrating the wireless charging pad with your EV ARC design? Do you have patents on the wireless charging itself? Please go into detail.
We remain relatively agnostic on the charging interface itself, as we have with other types of EV chargers. That was a deliberate decision given how competitive that market is and how rapidly it changes. What is really important is our ability to deploy wireless charging rapidly at scale and without construction or electrical work, and to disperse it. If you think about a city environment where a robotaxi is operating, we can put charging no more than two minutes away from every drop-off or pickup point and do it without construction or electrical work, without impact to the grid and without the high electricity costs and demand charges associated with centralizing charging. We can replace that entire model. You do not need super-fast charging that damages vehicles and is costly; you can operate fleets on zero unit cost energy without construction, without human intervention. The wireless charging solution we have is interesting not just for robo-taxis but for drayage, logistics, material handling, drones, robotics and other equipment. Our ability to deploy robustly and dynamically is the major differentiator and we have strong intellectual property protection over those patents.
Last for me: regarding the San Diego transition and the lease move at the end of the quarter, should we forecast any costs in the current quarter related to moving manufacturing to Arizona? Do you have mostly hourly workers in San Diego? Any equipment moving costs?
There were some costs related to the move, but we executed the move carefully. We self-performed much of it because our people are best qualified to move our machines and equipment. There will be some costs related to that, but the real savings kick in moving forward. Tremendous reductions in rent, labor, compliance and other costs. A dollar goes much further in Yuma than it does in San Diego across many categories. Importantly, everyone we wanted to retain moved with us and they are thrilled to be part of the transition, so we are not starting from scratch. We are taking the same equipment, tooling and key people. As we expand our labor force in Yuma, typical labor rates and salaries are about three-quarters of what we pay in San Diego. When burdened with other costs, it is much less expensive again. The move supports our aggressive return to growth and will materially improve operating costs and margins going forward.
And just by the way, before I take the next question, I just want to say for everybody listening to the call, remember San Diego is only one of our facilities.
Manufacturing has now moved to Yuma. We also have a facility in Chicago where we make batteries and we have facilities in Belgrade and Crepaja in Serbia. One in Belgrade and one in Crepaja — we own all the land and buildings there, and we have no lease liability there. What we have is an asset which, while it depreciates on the balance sheet, is in fact getting more valuable every day. As we expand into drones and robotics, our people have the training — electromechanical, structural and otherwise — and the equipment and tooling to perform tasks in these new verticals. That is another reason we are bullish: we have created a technology platform and a manufacturing base that can be transferred into new, exciting areas.
The next question comes from Ryan Pfingst with B. Riley Securities. Please go ahead.
Hi. I will start on the batteries. You mentioned more than half a million in drone and robotics orders in a single week. Can you give us a sense of where that business sits today in terms of revenue and what the pipeline looks like from here? On the data center opportunities, is the 2027 event timeline realistic or are we further out?
We do not segment the business by those product categories in our public reporting, so I cannot break out revenues per segment. We speak in loose terms about geographic revenue breakouts but have to be careful due to accounting rules. What I can tell you is that the battery business is growing and it is growing in the way I want it to — with very high-quality sales and customers. On the data center opportunity, we see power problems and crunches being discussed a lot. Most people talk about utility-scale batteries for data centers, but the missed element is that AI data centers often require very large bursts of energy for short periods of time. Batteries generally do not like that, and it takes a lot of good science and engineering to create battery solutions that can provide those surges. Serendipitously, we spent a lot of time developing that type of capability for weapon systems which require similar capabilities. I believe it will be a very large opportunity for us. Whether it comes in 2027 or later depends on the market, but we are uniquely positioned to take advantage of it.
Thank you for that color. On the recurring revenue EV ARC deployments in Europe — the sponsorship-funded model in Serbia and Spain — how big can that model get and does it change the margin profile?
Yes — it does change the margin profile. We expect it to be highly profitable because it is a recurring revenue model and does not involve us selling the units; they remain on our balance sheet. We are not pricing this based on electricity. We are competing with other forms of outdoor media and we are an attractive solution for sponsors. I have been bullish about the sponsorship model for years, and the difference now is that we are actually doing it and scaling it. I do not know the full potential but it could be very large. The world needs a lot of charging infrastructure, and off-grid, rapidly deployed solutions that are paid for without capital expenditure or per-kilowatt-hour charges are an attractive alternative. We see this as a recurring revenue, high-margin opportunity.
And on the Middle East front, are you seeing any progress in terms of new orders or conversations progressing?
Yes, without a doubt we are seeing progress, though I do not want to create the wrong impression. People in the region are feeling uncertain at the moment given the ongoing hostilities. The situation changes daily. That said, the underlying attributes — sunshine, cash, and an ambition to move to new mobility models — remain. Abu Dhabi and other Gulf markets already use autonomous vehicles and are interested in innovative mobility and smart city solutions. Publicly disclosed plans in the region include massive investment in sustainable infrastructure over the next decade. We have a strong local joint venture partner in The Platinum Group who brings introductions to top ministers and officials and smooths over rough edges. They earned their money at the Make It in the Emirates event. We just need the conflict to end and then we expect to be very well positioned to capitalize on the return to investment in that region.
We are coming to the end of our time, but I will take one more question. The next question comes from Brandon Wickman with Individual Investor. Hello, Brandon. Go ahead.
I appreciate everything you have shared about the quarter. Just one question: looking at your manufacturing around the world — you manufacture in the U.S. and in Europe — with all the facilities you have, what is the maximum amount of revenue roughly you think you could produce worldwide? If you can break it down by continent, that would be helpful, but I understand if you cannot.
I am hesitant to throw an exact number out there because people will react, but it is very significant. We have never come close to maxing out our facility in San Diego. We were capable of producing revenues in the hundreds of millions, not tens of millions, globally, and we never came close to maxing capabilities even in that facility. The Yuma facility will be as capable if not more so. A great thing about Yuma is we intend to insource a good deal of work that we have been outsourcing in San Diego, for example coatings, sandblasting and painting. Insourcing those will improve gross margins and reduce risk. We have another 30,000 square feet in Chicago for batteries and other devices. In Serbia, we have roughly 250,000 square feet under roof and another six acres upon which we can expand. We own the land and buildings there and have an accommodating government. It is not hyperbole to say that we can get to a billion in revenue with our existing facilities, though I want to be careful with that statement because it invites scrutiny. We have loads of room to expand for existing products and for other opportunities, and the best part is we can do a lot of this with relatively little new capital required. Historically our cost structure has been higher than needed for our revenue levels, but that will pay dividends as we scale.
This concludes the question-and-answer session. I would like to turn the conference back over to Desmond Wheatley for any closing remarks. Please go ahead.
Okay. Thanks, everybody, for the excellent questions. Thanks for your attention and time on this call. As always, thanks for caring and supporting this company. We are definitely shooting at the right targets. We are aggressively growing into some very interesting spaces. Stay tuned — we will have more to talk to you about. Thank you.
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