To OTC Journal Members: 
 

Beacon Enterprise (OTC BB: BEAC) Burns Top Line Rubber

Beacon was out with fiscal Q2 numbers post close today- reflecting the corporate performance in calendar Q1 of '10. Like this race car laying down rubber, the top line was absolutely smoking. However, also like this car, the wheels are spinning thanks to the huge amount of power and torque being applied, but the company just isn't moving forward much at present- BEAC is not delivering the bottom line- yet.

This Formula 1 Honda can go 4 times as fast as any car on the road. Beacon's revenues grew 400% in calendar Q1 over the previous year. But the profits didn't keep pace with the top line growth, hence the current spinning of the wheels.

Once the tires grab, the car takes off. I hope it's the same with Beacon- the tires should grab and the car should take off. It would be a shame for a company like this to spin it's wheels indefinitely.

Diving right into the numbers- BEAC's eye popping top line was 417% better than the same quarter one year ago. Revenues improved to a jaw dropping $11.8 million, up from $2.3 million a year ago. 

The bottom line is where Beacon is spinning its wheels. Let's just set aside all the non cash charges associated with the warrant conversions- that's all one time and not reflective of the health of the business.

BEAC only delivered $143,000 in EBITDA for the quarter. Now, that's up from a loss in the same quarter last year of $581,000, but not nearly commensurate with the giant jump at the top line. The improvement? $724,000 swing to the positive for shareholders. However, against a backdrop of a 400% improvement in the top line, the profits seem a bit thin. So, what gives? 

Gross profit margins improved as well- to 47% from 39% last year- but only in North America. The margins were very weak at the new operations in Europe- Their European margins were only 16% leading to a "blended margin" of only 22.2%- simply not good enough for real profits to develop.

There have been some balance sheet improvements, but not enough. The reason- they are not making any real money- yet. Like the Formula 1 Honda, the company has applied the power, but the wheels are spinning. Lots of smoke, but no forward movement.

So, what's going to happen when the wheels grab the pavement? The car rockets forward and gets where it's going in a hurry. The really good news? The stock is still super cheap relative to where it could be headed. 

The upside here is enormous. BEAC discloses in the news it now has a backlog of $74 million in projects. If the margins improve on those projects, where are we headed? There's now about 30 million shares Issued and Outstanding. Today's closing price of $1.45 suggests the market is valuing the company at $43.5 million. 

The backlog is $74 million, and it's believable thanks to the 400% top line increase to $11 million.

The key to the future of this company is improving margins alongside the improving revenues. Then we'll see what we've really got here- race car or horse drawn buggy? 

Tomorrow morning at 10AM Eastern, 7AM Pacific, Beacon will hold a conference call for interested parties. The CEO needs to address the issue of the margins head on. If he can convince you or I the margins will improve, then the race car will find its footing and rocket off. 

BEAC's chart shows one big extended basing pattern. The stock has been holding its own in the $1.40 range for about 2 months. It might be tough for a real breakout to hold in the current market environment, but it strikes me higher levels are inevitable as this company matures. The $75 million backlog is impressive, and as the company absorbs its initial infrastructure costs, and hopefully improves its margins, the stock becomes worth a lot more. I still think it's inevitable the stock will find its way to $2, and much higher as profits begin to accrue.

I strongly recommend listening to tomorrow's conference call. It will be boring at the beginning as the company reads the disclaimer then regurgitates the numbers. However, once the company really gets into forward looking information and starts discussing the margins, pay close attention. Questions can be informative as well.

After listening, if you're convinced there will be margin improvement, then there's a lot of money to be made as this Formula 1 car's rear wheels get traction.

To catch the call, here are your instructions: The teleconference can be accessed by calling 888-495-3916 and entering conference ID # 72831986. Participants outside of the U.S. and Canada can join by calling 706-634-7530 and entering the same conference ID. Please dial in 15 minutes prior to the beginning of the call.

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