Beam Global

Good afternoon and welcome to the BEAM Global Second Quarter 2022 Financial Results and Corporate Update Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Kathy McDermott, CFO. Please go ahead.

Thank you. Good afternoon, and thank you for participating in BEAM Global's conference call for the second quarter of 2022. We appreciate your time today to join us for this call. Joining me is Desmond Wheatley, President, CEO, and Chairman of the Board. Desmond will be providing an update on the 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 will 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 those 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, August 12, 2022. 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. And next, I'd like to provide an overview of our financial results for being second quarter ended June 30th, 2022. For the second quarter of 2022, we reported record Q2 revenues of 3.7 million, a 75% increase over 2.1 million reported for the second quarter of 2021. We also reported record first half revenues of 7.5 million, a 114% increase over 3.5 million reported in the first half of 2021. During the first half, Of the 4 million increases in revenue, 1.8 million was for a newly acquired battery storage business. 1.8 million was for increased shipments to federal, state, and local governments. And the balance consisted primarily of shipments to enterprise customers for fleet vehicles or workplace charging. Growth slot in the quarter ended June 30th, 2022 was 0.3 million, flat with the same period in 2021. For the first half of 2022, we reported a gross loss of $0.6 million compared to $0.4 million for the first half of 2021. The gross loss improved by 4 percentage points in the second quarter and year-to-date compared to the prior year as a result of the increased production volume resulting in favorable fixed overhead absorption and improved labor efficiencies and utilization. These savings were partially offset by higher material costs for steel and other components due to supply chain shortages and other inflationary pressures. Operating expenses were 2.5 million for Q2 2022, compared to 1.4 million for Q2 2021. For the first half of 2022, we reported 4.5 million for operating expenses, compared to 2.5 million for the first half of 2021, a decrease as a percentage of revenue of 11 percentage points. The increases were primarily due to the addition of our new battery storage business, and increased legal and accounting services partially due to the acquisition. The net loss was $2.3 million or $0.28 per share for the second quarter of 2022 compared to $1.6 million or $0.18 per share for the second quarter of 2021. The net loss for the first half was $5.1 million or $0.52 per share compared to $2.9 million or $0.33 per share for the first half of 2021. At June 30, 2022, we had cash of $13.8 million compared to $21.9 million at December 31, 2021. The cash decrease was primarily from operating activities and the cash payment for working capital for the purchase of all cell technologies. Included in the operating cash usage year to date, we increased inventory purchases and increased prepayment to vendors for inventory. to reduce the risk of potential shortages of cells required for battery manufacturing, as well as an increase in work-in-process inventory of EDR units. These increases are not expected to be ongoing quarterly cash requirements. Our working capital decreased from $24.6 million at December 31, 2021, to $19.4 million at June 30, 2022. And with that, I'm going to turn the call over to Desmond to give you an update on the business. Desmond?

Well, thank you, Cathy, and thank you, everybody else, for joining us today for this call. I'm going to just start out by reminding all of you, or certainly introducing those of you who have not joined us for one of these calls before, that we are in the flight path for the Marine Corps Air Station at Miramar. In fact, we're only about a mile as the crow flies from that airbase. From time to time, we will get flyovers. during this call and it's very loud when that happens. When and if it does happen, just expect me to stop talking and I'll wait for them to fly over for 10 or 15 seconds and then I'll start right back up where I left off. Don't worry if you hear a very loud noise, that's all it is. Well, we've had another very fruitful quarter at Beam Global, setting new records in revenue, sales growth and pipeline growth. We've also increased our efficiencies reduced our cost per unit produced, and improved gross profitability and net profitability in both the second quarter and the first half of this year. We've made significant advances in the integration of our recently acquired battery company in Chicago. And I'm happy to report that in addition to the other good work we're doing there, we're now starting to produce our own proprietary battery systems and installing them in the latest EV arcs, which are currently being shipped to our customers at a greater rate than at any time in our history. The level of attention that Beam Global is now receiving at state governmental levels and also importantly in Washington, D.C., is higher than it's ever been. And that's being matched by a significant increase in attention from the media. I've recently met with congressmen and ranking officials from the Department of Energy and Transportation. Two years ago, I might have had a hard time getting a junior staffer to take my call. Such are the advances that both we and the understanding of what we do and why we do it have made. I've also personally been interviewed by publications like the Wall Street Journal, CNN, Inc. Magazine, Politico, and many other trade and industry publications. Where previously, Beam Global's products might have been viewed as interesting and niche solutions for a small minority of EV charging requirements. The attributes which are embedded in our value proposition, such as rapid and highly scalable deployment, a secure source of energy during grid outages, a low total cost of ownership, and a versatile and flexible means to increase electrical capacity, not afforded by the giant and centralized grid, are now being viewed as essential by regulators, policymakers, and, importantly, purchasers, both governmental and corporate. The EV industry is really taking off, and the general global perception of energy and its instability, along with climate change, exacerbated by the war in Ukraine and the heat waves and fires being experienced all across Europe, Asia, and the United States, tragic as they are, are increasing awareness and acceptance of products which clearly reduce the risk from both energy insecurity and climate change. Beam Global's rapidly deployed and renewably energized portfolio of products are poster children for the new era of increased emphasis on clean, reliable, secure, and domestically produced energy, and as a means to actually provide the massive amount of publicly available electric vehicle charging that will be required over the next couple of decades. Now, let's take a look at some numbers. In Q2, as Cathy said, we generated more revenue than in any second quarter, and actually the second highest revenue of any quarter in our history, a 75% increase over Q2 of 2021. That continued a trend we set in the first quarter of this year, resulting in first half revenues which are 114% greater than that first half prior year. And actually greater than any full year's revenue in our history, except for last year. So at the midpoint of the year, with six months left to go, we'd already generated over 80% of 2021's full year revenue. And that year was 144% of our previous record year. Perhaps you can start to detect a pattern here. I believe that we'll see an increase in momentum during the remainder of this year. So naturally, I'm feeling enthusiastic about our future, both short and long term. We're operating in a period of unprecedented inflation and supply chain challenges. And yet, in the second quarter, and indeed throughout the first half of 2022, we improved our gross profitability by over 4%. Improvements of net profitability were over 14% during the first half. Now, remember that during that period, we closed the acquisition of our Chicago-based battery company and commence the integration of the two entities. Integrating a new acquisition is never easy. It inevitably leads to increases in overhead costs, albeit often one-time increases. That's certainly been our experience this time. And yet, we've actually reduced our net loss as a percentage of revenue while undertaking this challenge. So, looking at gross profitability and net profitability, you can see that we were able to improve both, even in the face of the extraordinary activity of integrating an acquisition and during a period of the most severe inflation and supply chain challenges certainly in the last 40 years. I have consistently committed to improving our gross margins and our bottom line as volumes increase. The Beam Team has consistently made a reality out of the commitments that I've made on their behalf. Our use of cash during Q2 was much higher than in previous quarters, but let's be absolutely clear about what this means and what actually happened. The increase in the use of cash was not the result of excessive and propagated increases in overhead spending. Far from it. Reading our filings, you'll notice that of the 7.4 million of cash we used in Q2, 3.6 million was spent on inventory, work and process products, largely partially completed EVRs, which were already sold. And importantly, the strategic allocation of cash to secure vital battery cells, which are essential to our EV charging product production and to our broader battery manufacturing business. Anybody who reads the newspaper will know that supply chain constraints where battery cells are concerned are real. We used cash to defend against risks associated with these supply chain constraints, and we put ourselves in a position of security for the foreseeable future, even in the face of the significant increase in demand for our products, which we're experiencing. It's important to point out that using cash in this way, it's not the same as burning it on overhead, because any cash we use in this manner will be returned to us as cash when we take revenue on the products reduced as a result of work in progress, inventory, and the prepayments that we've made to vital suppliers. This is not a condition which I anticipate will endure. While there is a supply-demand imbalance today, I'm confident that that imbalance will be corrected in the future. In any event, our use of cash in the second quarter was composed of many non-typical events, and actual cash burn, not related to costs of goods sold, was fairly consistent with our history. We remain highly frugal with, I would say, almost unrivaled discipline where overhead spending is concerned. Any of you who visited my office could happily attest to that. A quick glance at our working capital position should remove any doubt about the veracity of my comments on this matter and demonstrate that we still need not be concerned about running out of money. But if you want more detail or color on this matter, don't hesitate to raise it during the Q&A session, or if you prefer, get in touch with us after the call. I or Kathy would be happy to discuss the merits with you. The BEAN team has worked very hard to mitigate the impacts of the various supply chain challenges which have confronted us during the last 12 months in particular. It's been hard work and required their professionalism and commitment to ensuring that challenging as it is, we do not allow it to prevent us from shipping product and generating revenue. While we've had many eyebrow raising moments, none have been more acute than those we've experienced with the battery supply chain. Any of you who listened to my explanations of the wisdom of making our battery company acquisition will know that one of the significant factors which drove me to execute on that excellent transaction was my determination to insulate us from the battery supply chain constraints I anticipated. Hindsight has more than validated my premonition. We've struggled this year to acquire sufficient battery packs from our supplier to meet the ever-increasing demand for our products. While we managed through this shortfall, our Chicago-based battery team has been working with urgency to engineer and manufacture a new and superior pack for our EVR products. This is a process which is much more complex than many may imagine. Creating a safe, efficient, and cost-effective battery pack system is not the same as popping a few double A's into a flashlight. It's complex and difficult, and it requires a highly experienced team like the one that came with our acquisition. This, of course, is a significant differentiator for us. While there are increasing numbers of traditional electric vehicle charging infrastructure companies who are attempting to integrate battery storage with their grid-tied installations, we're the only company that I'm aware of that has its own proprietary energy storage solutions. The first of our new battery packs have now been shipped from Chicago facility and they're being installed in the latest EV arcs which are shipping to customers. The transition was not seamless and there have been periods during which we've had otherwise completed EV arcs waiting at our San Diego facility for battery packs. This goes some way to explaining the larger than normal work in progress inventory which we've had on hand. The good news is that we're solving these problems, and we fully anticipate that our Chicago team will catch up and keep pace with the increasing velocity at which we're having to produce EV arc systems. We have not lost any orders as a result of these delays, but the revenue did move right. This increased pace of EV arc production is impressive. Our existing team has more or less doubled the number of systems they were able to produce just six months ago. A strong indication of how much more efficient we've become is that our revenue per employee is increased by 34% over Q2 of 2021. And it's almost double what it was in Q2 of 2020. Said another way, while we're dramatically increasing our output, we're doing so without dramatically increasing the headcount. And of course, we're getting even more leverage from our fixed overhead costs. Another area where we've seen skyrocketing inflation is in the cost of transportation. both to deliver our products and also to receive the components and raw materials that go into them. While we cannot impact the cost of incoming transportation, except by increasing our volumes, of course, which we're doing, we've been able to positively impact the way we transport our products to our customers. We now have a beautiful video which shows our latest advance in delivery technology. A single operator transporting not one, but two EV arcs to a customer site and deploying them before returning to the factory. Remember that we can integrate as many as six chargers onto a single EV arc, and then consider Beam Global's impact on an industry that requires teams of contractors, electrical workers, consultants, engineers, and permitting specialists to spend weeks or months deploying a grid-tied charger. This new video shows a single Beam employee deploying two EV arc systems, which are capable of carrying as many as 12 chargers in a couple of hours, with no on-site activity or disruption for our customers. Look for that video soon on our website. It's really fantastic. Our production and revenues are up because, of course, sales are up. And this is probably the most exciting part of the Beam story at the moment. At the end of the second quarter, we had over $10 million in contracted backlog. This is a significant increase over the highest backlog that we've reported or indeed had at any time in our history. It's greater than any four years' revenue we've ever reported. At the same time, our sales pipeline has also increased to a new record of over $120 million. We keep getting more and more conservative about what we consider as active pipeline, and yet the number continues to increase dramatically. The combination of increasing revenue, backlog, and pipeline has never been better. The investments we've made in adding salespeople, increased marketing efforts, and particularly in government relations, has contributed to this growth, but in my mind, more importantly, positioned us for what I believe will be dramatic and accelerating growth for the foreseeable future. Just looking at anticipated federal spending on electric vehicle charging infrastructure and clean energy and remembering that we have a GSA contract in place and a blanket purchase authority that federal agencies can use to acquire our products might give a reasonable person cause to suspect that Beam Global will see significant growth in that area alone. But the fact is that federal spending commitments, while they dramatically increased this year, particularly now that the IRA has passed the Senate, are only one contributing factor to our future growth. We're seeing increased spending across the board at both governmental and corporate levels. There may be a recession coming, and that can be bad news for lots of companies, but it might have the opposite effect for us. Very little, if any, of the pipeline revenue that we have will be impacted by a recession. It might even support it. At the same time, the availability of labor will increase, and commodities, raw materials, and contributing parts will be in reduced demand, which should make them easier for us to secure while possibly reducing their costs as well. Feels good to have a business that should not be impacted by recession. We could end up being one of the few bright spots in an otherwise pretty dim 2023. Europe's commitment to banning the sale of internal combustion engine vehicles in 2035 has been a wake-up call to the entire industry. Automotive OEMs will not be able to produce internal combustion engine vehicles for North America and electric vehicles for Europe, not in this day and age. There are about 1.4 billion cars on the world's roads today, moving to 2 billion by 2030. In the United States, there are about 300 million of them. You need one publicly available charging plug for every five electric vehicles on the road. Simple arithmetic shows that the United States will need something in the order of 60 million plugs in the coming decades. Let's say we have the luxury of four decades to deploy all these plugs. We'd still need to install about one and a half million a year, every year, for 40 years. Beam Global has the most rapidly deployed, scalable, made-in-America infrastructure solution available today and we power any quality brand of charger. There will certainly be a mixture of solutions required to provide all the charging infrastructure and energy required, but with our unique attributes, I do not anticipate any decrease in the velocity of our growth for a long time to come. In fact, I think we're going to be very, very busy. Our sales are not just coming from EV charging solutions. If there's another area of growth which is as exciting, it'd have to be battery systems. Recently, We've sold or delivered batteries to companies that produce or operate drones, medical devices, EV chargers, industrial robots, personal watercraft, electric aircraft, and material rehandling equipment. These organizations and uses are as diverse and broad as the requirement for safe, energy-dense, and long-lived battery solutions. While our battery company acquisition is important to our EV charging infrastructure product business, It's also opening up a whole new universe of strategic revenue opportunities in the energy storage ecosystem. These opportunities are supportive of our renewably energized charging business because just about anybody who integrates batteries into their product needs to have a clever way of charging them. But they also provide another area of what I believe will be significant growth for Beam Global. We continue to pursue the sponsorship opportunity, about which I've said so much in the past. I'll offer you one update, which I believe will help you to understand why I continue to invest time and effort in this initiative. On Monday of this week, I welcomed a team from one of the world's largest companies to our facility in San Diego. They toured the factory, and we discussed the opportunity. This is the third visit by different teams of representatives from this one very large company. The basis of our discussions from day one has been the sponsored driving on Sunshine Network. I cannot guarantee that we'll secure a sponsor for our Driving on Sunshine network, but I can report that we continue to be actively engaged with very large organizations whose primary interest in us is driven by their interest in this initiative. Until that ceases to be the case, I will continue to drive the opportunity forward with the help of our partner, the Superlative Group. I still believe that it offers an excellent future source of highly profitable recurring revenue. As I've said before, As attractive an opportunity as the Driving on Sunshine Network is for us, it has never been essential to our growth or prosperity. The significant and continuing growth in our core business demonstrates that fact. However, as I've also said, I still view it as an excellent and attainable opportunity. Finally, I want to brief you on our continued international expansion plans. In September, I'll travel to Europe and the Middle East for a series of meetings which are intended to create fertile ground for expansion into both markets. Successfully pulling this off will take time and work, and I will not do it unless I'm convinced that we're positioned for success. Nevertheless, Europe is the largest EV market in the world and arguably even more receptive to product solutions which have the attributes we so uniquely possess. We continue to secure patents in that market. The combination of extreme weather events and equally extreme vulnerability to traditional sources of energy has had a significant impact on European receptivity. to rapidly deploying infrastructure to support electrification of transportation and reduce the reliance on traditional utility grid electricity. Beam Global's products solve for both opportunities. The Middle East is far less advanced where the adoption of electric vehicles is concerned. However, there is increasing interest in that part of the world for clean and sustainable solutions, and there's lots of cash to fund them. With the right partners in place who have relationships and credibility where infrastructure is concerned, I believe that we can create some significant growth opportunities in that market. Furthermore, to provide a gateway to the rest of Africa, where large sums of capital are expected to be invested by the rest of the world in the transition to sustainable energy and transportation. It's only days yet where international expansion is concerned for us, but I want you to know that it's an extremely important area of focus for me, and I intend to prosecute it with vigour. We will, of course, provide updates through press releases, filings, and calls like this if and when we make material progress. So to sum up, record revenues, record sales, record backlog, record pipeline, and an improvement in our gross and net profitability during exceptionally challenging times. I've often said that there's never been a better time to be being global, and that's because we continue to break records, provide growth, and improve our execution. So it's simply true. There really never has been a better time to be Beam Global, except the time that's coming. Thank you all for your time and attention. I'll now return the call to the operator and to Kathy and take your questions. Operator?