Beam Global Q2 FY2021 Earnings Call

Good afternoon, everyone, and welcome to the Beam Global Second Quarter 2021 Financial Results and Corporate Update Conference Call. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please also note, today’s event is being recorded. At this time, I would like to turn the conference call over to Kathy McDermott, Chief Financial Officer. Ma’am, please go ahead.

Thank you. Good afternoon, and thank you for participating in Beam Global’s conference call for the second quarter of 2021. We appreciate your time today and joining us for the call. Joining me is Desmond Wheatley, President, CEO and Chairman of Beam. 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 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 as of today, August 12, 2021. Except as required by law, Beam disclaims any obligation to publicly update or revise any information to reflect events or current circumstances that occur after this call. Next, I’d like to provide an overview of our financial results for Beam’s second quarter ended June 30, 2021. For the second quarter of 2021, we reported revenues of $2,121,098, a 46% increase over $1,455,158 reported for the second quarter of 2020. Revenues for the first six months ended June 30, 2021 were $3,493,490 a 26% increase over $2,772,210 for the same period in the prior year. During the second quarter, we deployed the first seven of 52 units ordered by the State of California, and we shipped two units on the New York City contract. We also shipped the second of our latest generation of Solar Tree products to a customer in California, which will provide charging for full size electric buses and heavy-duty vehicles, primarily for the construction industry. During the second quarter and year-to-date, we continued to have strong sales to municipalities. We increased sales to Federal agencies utilizing our Federal GSA contract, and we believe that trend will continue as a result of increases in Federal funding and grant opportunities for EV infrastructure. We also increased our sales to enterprise customers and expect this to continue as employees return to offices. As of June 30 2021, our contracted backlog was approximately $3.7 million. The gross loss in the quarter ended June 30, 2021 was $273,877 compared to gross income of $55,336 for the same period in 2020. For the first half of 2021, our gross loss was $422,997 compared to gross income of $15,695 for the same period in 2020. The increase in gross loss was primarily due to an increase in costs for the new EV ARC 2020 system that was launched at the end of 2019. We expect to reduce these costs over time. We're also being negatively impacted by increases in steel prices and shipping costs due to high demand. As we increased our production volume, we expect to improve our fixed overhead absorption and improve labor efficiency. Operating expenses were $1,369,010 for Q2, 2021, compared to $888,456 for Q2, 2020. Operating expenses for the first six months of 2021 were $2,471,685 compared to $1,790,456 for the first six months of 2020. The increase in operating expenses was primarily due to an increase in non-cash compensation expense, stock option expense, and vesting of director shares and increased sales and marketing expense to support our revenue growth. The net loss for the second quarter of 2021 was $1,641,788 compared to $833,957 for the second quarter of 2020. The net loss for the first six months ended June 30, 2021 was $2,892,597 compared to $1,776,478 for the same period in 2020. The increase in net loss is due to the increase in gross loss and increased operating expenses. At June 30, 2021, we had cash of $25,308,606 compared to $26,702,804 at December 31, 2020. Cash decreased primarily due to year-to-date operating cash usage, partially offset by the exercise of warrants. Our working capital increased from $28,063,320 at December 31, 2020, to $28,177,437 at June 30, 2021. And with that, I'll now turn the call over to Desmond Wheatley.

Thanks very much, Kathy. And thanks, everybody, for joining us today for your continued support and trust in my favorite company Beam Global. The last few months have been really good for the electrification of transportation and also good for Beam Global. Since the end of Q1, we've received the largest order in our history, seen our pipeline increased dramatically, maintained a healthy backlog, achieved a second world record, been added to the Russell 2000, and grown our business across federal, state, municipal, and enterprise customers, while receiving follow-on orders from two of our most important accounts, among other things. In the second quarter, we generated more revenue than in any second quarter in our history, even as the country was still struggling to recover from the COVID pandemic. Q2 was a record-setting quarter from a revenue point of view, but it's a record that we look forward to breaking again and again. As of June 30, the first half revenue we recorded and the contracts we've signed in the backlog, when combined, equal more than all of full-year 2020 revenues. We expect all of that contracted backlog to be converted to revenue within 2021, with one or two possible and I think immaterial exceptions. Said another way, by midway through the year, we had sufficient revenue and contracted backlog to beat 2020, our previous best year, with six months remaining in 2021 to continue to add to the largest pipeline we've ever had, and convert that pipeline into backlog and of course revenue. I've committed to you for some time that I was confident that we would start to experience an acceleration in the adoption of electric vehicles, and as a result, an increased urgency and the requirements for electric vehicle charging infrastructure. I believe that we're beginning to see that acceleration both in the broader transportation electrification industry and importantly, in the order velocity and size issued to be. Increased urgency and demand for EV charging infrastructure is core to our investment thesis, and to the product portfolio which we've developed. It's because we're confident that there will be increasingly rapid requirements for EV charging infrastructure, and that the traditional methods of deploying and supporting in-ground and utility grid-powered infrastructure will be insufficient, that we've developed the products we have and invested in the future we see coming. Receiving the largest order in our history from California's Department of General Services was, I believe, not an isolated incident, but rather a harbinger of things to come. This certainly seems to be backed up by the realities of our order book. Whereas in the past, we've often seen orders for one or two units, we're now also seeing single purchase orders for multiple units. For example, we recently announced that Ventura County placed an order for 10 units, and the Tennessee Valley Authority ordered four EV ARC 2020s, and two ARC mobility transportation systems, which generally only people with large fleets order. Looking at our pipeline, I can clearly see that these types of orders, rather than being anomalous, are increasingly becoming the norm. Also interesting is to note that while our previous orders were heavily weighted towards municipal governments, we started to see a return to entrance into our pipeline from enterprise customers, as well as growth in state and federal orders. We did expect that as corporate America returns to the office post-vaccine, there would be an increased requirement for workplace charging. I believe that the lack of enterprise orders we saw in 2020 was simply a pause. And as people return to work increasingly in electric vehicles, any opportunities we may have missed in 2020 will return this year and next, and perhaps with an increased level of urgency due to the lack of activity in 2020, and the increasing number of employees driving the fantastic range of new EVs which are now available. Remember that in 2020, we generated more revenue than in any previous year with almost no contribution from corporate workplace charging. In previous years, this source of business was a significant contributor to our top line. We're not seeing any deceleration in government interest for our products. And so I think it's reasonable to suggest that as workplace charging activity returns to pre-pandemic levels, and probably in my opinion, much greater levels of activity, that all of that growth should be further accretive to our top line. Backlog, as of June 30, was approximately $3.6 million. That is a reduction from the $5 million backlog I reported during the last earnings call. But that's not alarming. Backlog doesn't grow the business; revenue does. It's our job to convert backlog into revenue, and we did so during the second quarter at a greater rate than during any previous second quarter in our history. A more useful way of looking at backlog is to recognize that at June 30, we still had a healthy backlog and one which is greater than the delta between the previous backlog I described and the revenue recognized during the period. This, of course, can only be explained by selling and converting pipeline into backlog. During the previous earnings call, I told you that I've been eagerly watching our pipeline report in Salesforce, because it danced around the $50 million mark. We had never in our history had a pipeline that large. It was exciting, and I believe strongly indicative of the thrilling future we have in front of us to push through that significant milestone. Well, push through it we did. And I'm happy to report to you today that our pipeline now exceeds $75 million. It took us our entire history to get to $50 million. And in the last quarter, we've added another $25 million in pipeline; that tells me something. It's too early in our evolution process to be able to have or to accurately forecast when or even how much of our pipeline will convert to backlog. However, as I've mentioned to you in the past, we take a fairly conservative view of the opportunities which we have to pipeline. We have historically had pipeline to backlog conversion rates which are higher than at least I've seen in previous businesses. I do not believe that these conversion rates will deteriorate. On the contrary, I think that we're going to see a growing pipeline and our conversion rates will be at least as good, if not better than they have been in the past. There are several contributing factors which support this belief. Firstly, government tailwinds for our industry have strengthened significantly during 2021. At the federal level, President Biden is committed to electrifying the entire fleet of federally-owned vehicles, some 650,000 in all, and currently the largest consumer of gasoline in the world. The largest consumer of gasoline in the world will become the largest electric fleet in the world. I believe that we're well-positioned to play a significant role in the provision of the charging infrastructure that fleet will certainly need, with our Made in America, rapidly deployed EV charging and disaster preparedness products. We now have a General Services Administration contract in place, which allows federal agencies to purchase our products without having to go through any competitive process and without having to do technology or company vetting. While we've sold to federal agencies in the past, the process has been laborious and time-consuming. We've already received the first orders from federal agencies using our GSA contract and observed that the process has been far easier and far faster, both for us and for our new customers. In the last few days, the Senate has passed a $1 trillion infrastructure bill which includes over $7 billion for the rollout of electric vehicle charging stations. That's more or less been spent by the entire industry in its history. There are other funds selected for the hardening and improving of our electrical infrastructure in general. It's important to remember that our products do not just provide electric vehicle charging infrastructure but also a secure source of emergency power during blackouts and brownouts. If you look at some of our more recent press releases, you'll note that there's an increasing presence of funding from disaster preparedness agencies being directed towards the purchase of our products. It's long been part of our strategy to create EV charging infrastructure products, which are not only the fastest, most saleable, lowest total cost of ownership solutions available but also important disaster preparedness assets, in that they continue to provide EV charging and emergency power during the increasing number of grid outages that Americans are experiencing. The United States has a Strategic Petroleum Reserve, or SPR, which was created in the 1970s during the OPEC oil crisis to ensure that we never run out of oil, diesel, or gasoline. Fuel is such an important part of all of our lives and the broader economy that we simply can't afford to be in a position where we can run out of it. Electricity is the fuel of the future. And yet there's no strategic electric reserve; in fact, we're already at capacity in most markets, which is why New York suffers blackouts during August when people turn on their air conditioning. The same thing happens in California during heat waves. Of course, we're all aware that there are many other reasons why the power goes out, as was amply demonstrated in Texas earlier this year during a cold snap. It's inconvenient, dangerous, and certainly expensive to lose power today, but think how much more impactful it will be when the transportation sector is relying upon electricity as a fuel. Our products are immune to centralized grid failures and continue to operate even during very harsh weather conditions, as was demonstrated when we survived both Hurricane Irma and Maria and their 185-mile per hour category five winds. Our products are forming the beginnings of the strategic electric reserve, which will be vital to keep this nation's transportation fuel security in the future. The 52-unit order we received from the State of California was an excellent example of this. The first of these EV ARC systems are already providing rapidly deployed and renewable energized EV charging infrastructure to multiple state agencies across California, agencies like CAL FIRE and the California Office of Emergency Services. They will also, importantly, provide a source of emergency power to those agencies and to others who need it when the power was cut off due to public safety power shutoffs, wildfires, heat waves, or some other event. Note that the funding for these 52 units came from the California Office of Emergency Services themselves, a clear indication that the state has recognized the value of Beam products not just as a rapidly deployed EV charging infrastructure but also as important disaster preparedness assets. Governor Newsom announced a ban on the sale of internal combustion engine vehicles starting in 2035. This was not a controversial announcement. The State of Washington has already done California with its own ban commencing in 2013. Several other states have announced plans to follow suit. At the same time, almost every major European nation has its own similar bans before 2040, starting less than three and a half years from now in Norway. Ask any automotive manufacturer, and they will tell you that they cannot build internal combustion engine vehicles in the United States and electric vehicles for Europe. We are going to electrify this market; that's no longer in question. Bloomberg recently reported the U.S. will need to deploy something in the order of 120,000 EV chargers every month for the next decade. California alone will need over 200,000 publicly available chargers every year, simply to support Governor Newsom's mandate. To put that in perspective, there are less than 100,000 publicly available charges deployed across the United States today, after a decade of work. It seems obvious to me at least that a rapidly deployed and highly scalable solution which is not reliant upon the utility grid, and which provides so much more than simple EV charging infrastructure, must play a significant role in this gigantic opportunity. But it's not just the increase in government opportunity which leads me to feel so confident our pipeline will continue to increase and so too will our backlog and revenues. The fact is I've always believed that this will be a consumer-led revolution. Henry Ford's Model T transformed the way consumers accessed transportation. Until the Model T, automobiles had been the domain of elitists, people who got foreign handmade and generally rare vehicles. After the Model T, everyone had a car. One could say that during the last few years electric vehicles have also been the domain of elitists than Teslas and environmentally conscious members of society in cars like the Nissan LEAF. I believe that Ford is in 2022, for the second time in its history, going to completely revolutionize the way consumers view personal transportation. The introduction of the Ford F-150 Lightning may be the most pivotal event in the transition from internal combustion engine vehicles to an entirely electrified fleet. The Ford F-150 is already the top-selling vehicle in the United States and the top-selling pickup truck for over 40 years. The new electric Lightning will have all the capabilities of its diesel and gasoline predecessors, but it will accelerate from 0 to 60 in four seconds, and it will never require trips to the gas station or expensive scheduled maintenance. Also priced competitively with other traditional pickups, it's just impossible for me to imagine a future where U.S. and indeed global consumers will continue to go to dealerships and select slower, more expensive, more problem-prone vehicles than the fantastic new selection of electric vehicles, which will be available in a couple of months. So, the combination of significant government tailwinds and investment both in the United States and abroad, combined with an incoming consumer revolution will ensure that there's a massive need for EV charging infrastructure for the next several decades. I do not believe that it will get easier, cheaper, faster, or more reliable to deploy grid-tie charging as the low-hanging fruit opportunities, where sufficient electric circuits are available close to places where people park, are clocked. In fact, I believe it will become more expensive, more complicated, and more time-consuming as the demand and urgency increases, to put the grid-tie stuff in the ground. While it's becoming more complicated and more expensive for the traditional construction and electrical projects required to install a grid-tie charger, it will become less expensive, more efficient, and more rapid for us to deploy our products, which will at the same time become more energy-dense and more capable; it's inevitable. We simply have the right approach at the right time to meet the massive and urgent demand, which all the evidence suggests is coming. So as I've said, I predict that our pipeline will continue to grow, but our conversion rates will strengthen and that our ability to execute on our orders will improve dramatically and profitably, as we exploit both government and consumer-driven demand. With that confidence in our near, mid, and long-term future, we've increased our investments in various aspects of our business, which you've seen reflected in our increased overhead costs. It has to be said that while our overhead costs have increased, they are still very modest and when compared to any of the other publicly traded companies of our size, remarkably low. We continue to have excellent discipline where use of cash is concerned. And as I've often said, if it does not make the product, make the product better, or sell the product, we don't invest in it. Increased investments have been made in sales and marketing, government relations, research and development, and improvements in our factory, which are increasing our efficiency, safety, and ability to respond to the growth, which we're experiencing and anticipating. Our increased investment in sales and marketing is already paying dividends. Since the end of the first quarter, we’ve received orders from our delivered products to California, Georgia, Hawaii, New Mexico, New York City, Pennsylvania, South Carolina, Tennessee, and Washington. As I've already mentioned to you, we’ve received increased orders from federal and state entities as well as corporate enterprises. The new salespeople who we brought on board have the best collateral we've ever produced in our history, along with increasing numbers of quality videos, and other tools which help them sell. We now have the first of our demonstration EV ARC systems, which we’re able to transport to customer sites to demonstrate the magnificent qualities of this product firsthand. I'm sure we'll make more; we're going to need them. A very notable use of this demonstration unit and a couple of others, which we deployed the EV charging infrastructure, was the U.S. Marine Corps electric mobility symposium at Marine Corps Air Station Miramar in the second quarter. And by the way, I'm under the flight line of Marine Corps Air Station Miramar from time to time you may hear a dreadful noise behind me; that's all these magnificent aircraft flying overhead, there's nothing I can do about it, I'll just try and shout over it. But be aware, it sometimes knocks me off my pace a little bit, but I'll be back as soon as I can. The Marine Corps, like all branches of the U.S. military, is beginning to electrify their fleets. Clearly, they will not have the luxury of building grid-tied construction project EV charging infrastructure, and particularly not in tactical environments. At BEMS, we demonstrated that we could rapidly deploy resilient EV charging infrastructure in remote locations during simulated battlefield conditions. We could probably make a very successful business out of doing nothing but supplying the U.S. military for the next several years. I can tell you that our products were very well received by the corps. And of course, now that we have a GSA contract in place, we'll be able to accept orders from them, and more importantly, they'll be able to place them. A Made in America product, which offers rapid deployment and a highly resilient source of fuel, without the requirements for generators or other sorts of infrastructure, which seem to be a very good fit. Those decision-makers I've talked to within the Marine Corps do not disagree. Another exciting use of our demonstration EV ARCs was to set the world record for the longest flight in the production electric aircraft powered purely by locally generated and stored renewable energy. Towards the end of 2020, we conducted the first-ever such test flight to prove that this capability could work. In July, we took our learnings from that test flight and set a new world record. This record-breaking flight took place in California and was covered by four major networks and many other news outlets. We've already received inquiries from Australia and Europe, as well as the United States from people who wish to use electric aircraft, but cannot do so because of the lack of charging infrastructure and the terrible expense and disruption involved in deploying it in airport environments, which are only much more complicated even than typical street and parking environments. There are about 15,000 airports in the United States. I'm certain that they'll all have charging infrastructure in the future because aviation is a major target for carbon reduction. We proved that we can deploy that charging infrastructure rapidly and scalably, without going through any of the expensive, risky, and lengthy permitting construction and electrical processes required to enable in-ground grid-tied charging. One of the most interesting aspects of our setting this new world record was that we were able to demonstrate that we could use our products, originally designed to charge cars, to charge an entirely different mode of transportation, airplanes. In the past, different forms of transportation required different types of liquid fuels; motorcycles and cars use gasoline, buses and trucks use diesel, ships use bunker oil, and airplanes use jet fuel or kerosene. It's fascinating to consider that all these different types of fuel will be replaced by one fuel: electricity. Understanding that, it's important to recognize the vast opportunity ahead of Beam Global. We're not just making EV chargers; our products are providing the future of fuel. Beam Global’s tagline is clean mobility for all. When we say that, we mean everyone globally and every form of transportation. The flying on sunshine world record demonstrated clearly that our products have the capability to deliver our goals. Stay tuned for much more from this exciting space. Government relations has been one of the most significant years of investment for us this year. Obviously, with the vast sums of money being considered and planned by the federal government, as well as all the activity coming in from the various states, it's very important for us to make sure that we're in front of the right audiences and our voices are being heard where decisions are being made about what sort of infrastructure should be deployed. There have been times in the past when we found ourselves excluded from opportunities, because of some inadvertent language governing the deployments of EV charging infrastructure, which includes connections and utility grid. Our government relations team, both internally and through the two consultants we have employed in D.C., have successfully changed or included language in multiple regulations or bills, so that emphasis is placed upon the importance and value of a mix of off-grid and renewable energize EV charging infrastructure. In fact, I think we're doing a very good job of helping those in government understand how risky it will be to have our entire fueling infrastructure aligned upon the utility grid, which we know fails from time to time. And we're hearing free losing power, the importance of having some significant percentage of EV charging infrastructure off-grid with locally generated and stored electricity, which will continue to operate even if there's a centralized, regional, or god forbid national failure of the grid. This has been part of our plan from day one. But it's only been with this investment in government relations that we've been able to put our plan in front of those who hold the purse strings. I'm confident that the dollars we're committing to ensuring our place at this table will be some of the best investments we've ever made. Just this morning, I joined our federal funding consultant on a webinar which we presented the EV charging and disaster preparedness benefits of our products to over 100 registered attendees in federal, state, and local governments. I explained the products, and our consultant described the many sources of funds available, even without the infrastructure bill, so that those prospects can buy our products. The fact that we're Made in America, clean tech, EV charging, and disaster preparedness makes all sorts of buckets of funds available to us, which would not be available if we did not uniquely provide so much value in one product family. Our investments in engineering and R&D are currently heavily focused upon improving our EV ARC product and our ability to produce it efficiently, rapidly, and profitably. We've made several changes to the product, which are not evident to the untrained eye, but which improve it and make it easier and less expensive to manufacture. At the same time, we've invested in improvements in our factory. The amounts are modest, but the impacts are very significant, both in increasing safety and throughput. We're also investing in improving our ability to ship our products to our customers with increased efficiency and reduction in costs. Some of the most significant impacts to our gross profitability in the second quarter came from highly inefficient shipping. We lost $25,000 on shipping EV ARC units to Hawaii; one delivery. Consider that impact on our gross profit for the quarter, discounted. We will not let that happen again. We've already implemented changes to our shipping processes, which should dramatically reduce our costs and increase our ability to deliver to our customers on time. Because of our emphasis on cost reduction, and improving margins, I've directed the engineering and operations teams to focus on improving our ability to produce and deliver our products profitably. I'm excited by what I see them achieving and by the impacts I believe it will have on profitability and throughput. This does not mean that we've taken off new product development or increasing our intellectual property portfolio. During the first half of this year we successfully deployed our new Solar Tree product, which is currently in use in California charging full-size electric buses. This product is capable of charging any large size vehicle, all the way up to class eight trucks, as well as being directed towards significant growth in what we believe will come from both agriculture and construction equipment, as those two industries are called upon to reduce their carbon impact. This is already happening, and we can already see both industry and government focusing on those spaces. The new generation Solar Tree is a new product development for us, and we believe it has a significant opportunity. We also increased our intellectual property portfolio during the period, receiving another patent, this time from China for our transforming EV ARC product. China is the world's second largest EV market after Europe, and it's important that we protect our products and our IP there. Even though I think it's likely that our first international expansion will be a move to Europe. We've nothing specific in the works where that's concerned, but I've made no secret of the fact that I'm looking hard to expand into Europe, where our products will work just as well as they do in the United States, and perhaps be even more popular. The EV standard, the new EVR products are still on our roadmap with emphasis on the EV standard, of course. We still intend to bring that product to market as soon as possible. But I have to focus our current engineering attention on the increasing interest in EVR and our ability to produce it profitably and rapidly. We're currently in the process of seeking new engineering talent so that we can attack more funds at the same time. EV standard will get the attention it deserves, and I look forward to showing it to the world when our priorities permit. Finally, being included in Russell 2000 was an important milestone for this company. We have no debt, $28 million in operating capital, a clean capital structure and balance sheet, and a solid and disciplined management ethos, professional discipline and corporate governance is concerned. In fact, we recently introduced and announced a new corporate governance protocol, which I and many of the banks and institutions I communicate with believe should be more broadly adopted. We have ambitious growth plans and the tools and experience to act upon them. We have a world-class board and a proven ability to close contracts and execute on them. We're continuing to pursue our media funded strategy, and I'm happy to report that our partners who are helping us to sell the driving on sunshine sponsorship and naming rights network are making solid and accelerating progress, and moving us towards success in that space. It's not a minor task. What we're doing is brand new, and requires the buy-in from multiple entities and large corporate organizations. But I think that what we're seeing is that our timing is only getting better as the adoption of electric vehicles, and the emphasis on decarbonizing global economies becomes more mainstream every day. What was an interesting idea just a year or two ago, is becoming an imperative. And we're ideally positioned to take advantage of it. I remain as confident than ever, that we will be highly successful with this business unit. San Diego continues to be our focus city for the business. But we do now have other cities, which are both enthusiastic about the driving on sunshine network themselves, and interesting to potential sponsors with whom we've spoken; the opportunity is broadening, and I've lost none of my confidence that we will get it done. The combination of increased sales, increased pipeline, increased funding both government and enterprise and our increased ability to deliver products either for sale or for recurring revenue models, like our media strategy, is I think very powerful. Throughout our history, there's never been an occasion where I felt that the macro trends do not favor our strategy. What I'm seeing now are clear and tangible indicators that those trends are turning into orders and revenue for us. I believe that this will continue and accelerate. And I'm champing at the bit to get on with it, with the rest of the Beam team. Thank you for your time and your continued support. I've never been more excited or enthusiastic about the industries that we're addressing or our place in them. It's a great time to be doing what we're doing, and I believe that it's only going to get a whole lot better. Now, thank you. And I'll turn it back to Kathy for the moment.

Operator, would you please queue up for questions?

Ladies and gentlemen, at this time we'll begin the question-and-answer session.

Before we begin the question and answer session, I would like to request that you limit yourselves to one or two brief questions at most. This will ensure that everyone who wants to ask a question has the chance to do so. If we happen to run out of questions, I am more than willing to follow up with any of you later, either on this line or in person.

And with that in mind, our first question today comes from Craig Irwin from Roth Capital Partners. Please go ahead with your question.

Hello, Craig. Not actually hearing Craig at the moment on my end.

Mr. Irwin, is it possible that your phone is on mute? We'll move on to our next question. Our next question comes from Noel Parks from Tuohy Brothers Investment Research. Please go ahead with your question.

All right. Good afternoon.

How are you, Noel?

Real good, thanks. Just a couple things. You talked about the GSA contract and how much that has made the process of your federal procurement easier. Can you just talk a little bit about that? And just wondering, is it a shorter series of steps or just the overall faster process?

Yeah, I mean, as I said in my remarks, we've made federal sales in the past, and it was just agony, time-consuming. They need to have some sort of contract vehicle in place, it needs to be competitive, they need to do all sorts of looking at the filters at work. Now that we have the GSA contract in place, all of that vetting, that competitive process, technology process, company vetting, and everything is done. So essentially, we've moved from a very time-consuming, lengthy, and uncomfortable process, which frankly, most federal entities don’t want to put themselves through; they just won't do it. They'll go and find something that is on the GSA contract. We're through that now. They can essentially point and click to buy our product. So again, it's kind of early days. The federal government doesn't move quickly, as I think we're all aware. But we've already received the first orders from it, they do most of their spending sort of towards the end of the year, at the end of the third quarter and during the fourth quarter. What we've seen during the early stages with the first purchase orders that we received through the GSA is that it was practically seamless, and certainly when compared to the previous opportunities. So that makes it much easier for us. But more importantly, maybe it makes it much easier for them to buy from us. And we know that easy is good.

Great. And could you just talk a little bit more about recent product improvements? You did have an announcement during the quarter that you experienced a 12% increase in the EV ARC charging capacity, so interested in that. And also, you mentioned improvements that are being made to make the product easier to manufacture.

Yeah, I think it's absolutely crucial to understand this. It's never going to get easier, or there won't be any improvements to digging trenches, pulling cables, and pouring concrete. It won't. And yet at the same time, our products are getting better. Now this 12% increase in energy density came as a result of our engineering team finding ways to make the product more efficient and just essentially put more sunshine into electricity and into the car. We will never stop doing that. So the product will continue to get better and better, while at the same time that competition, the general contractor, the electrical contractor, the consultant, the zoning specialists, all the disruption, everything, digging up parking lots, that just doesn't get better. In fact, it gets worse and harder to do during the site. So it's fantastic, if you were to grasp this, you would see our product getting faster, more efficient, and more powerful; while at the same time, what you're going to see is increased inefficiencies and difficulties with grid-tied installations. As more code is written, more and more of the low-hanging fruit slots are taken. So that's the 12% efficiency piece. And again, we won't rest on that. The other side of it is that at the same time, I've got the engineering team looking very carefully at how we make the EV ARC, what steps we take, what materials we're using, and essentially, they are tasked with figuring out ways to make it faster, less expensive, but never at the expense of quality. And they've made great strides already. I mean, as you go down the factory floor, and you see the teams putting the products together. I do this every day, and my questions obviously are questions like, are we speeding up, is it getting easier, is it getting better? And the responses I'm getting from the people who are actually making the product daily are, yes, it's getting better, it's getting faster. That will in turn reduce our costs and increase our deployment velocity. And we're going to need that because we, as I said, with a $75 million pipeline, we feel that it's likely that we're going to start to receive a whole lot more orders, and we need to be able to get them out quickly and efficiently, and above all, profitably.

Okay. Thanks a lot.

Thank you.

Our next question comes from Greg Lewis from BTIG. Please go ahead with your question.

Hi, Greg. How are you?

Hey, Desmond, how are you doing? Thanks for taking my question. Desmond, you touched on a little bit around the logistics side of it. You called out Hawaii. Clearly, we're hearing a lot about inflation. As we think about that base price for the EV ARC and delivery, how have those conversations been with customers around potential inflation pressure that you're seeing? And as we think about whether it's in the event that maybe some of this isn't transitory, what has kind of been the message from customers in terms of maybe that $65,000 base price, maybe it's not a little bit higher? Maybe some of your input costs are weak?

Yeah, it's an excellent question, Greg. And it's one obviously, that we're chucking around here all the time. But I got to tell you this, you can tell by the fact that I got specific about a specific loss on the delivery, how frustrated I am by the impact that shipping costs had on us during the quarter, because it really paints a very inaccurate picture about the direction that we're moving in in terms of improving gross profitability. $25,000 on a single delivery, it's just infuriating. However, I've got to tell you something, and with my usual lack of politics, I'm going to tell you this, it was more us than inflation. We just didn't do a good job of efficiently setting up our deliveries; at least, that's where the biggest win is going to come for us. And we've already experienced that. We're getting our hands around this, we're getting better at using our own deployment equipment, not relying on third-party carriers who are reliable. It's not a word you use when you're talking about third-party carriers and the volatility of cost. We can get this under control, and we've already made great strides to do that in this quarter, and we're going to continue to do it. And as I said, I won't let something like that Hawaii incident take place again. So inflation, it exists, we're certainly paying more for steel than we used to, and we don't want to. We're also seeing the cost of components coming down in the longer term, though, important things like batteries and stuff like that. So I will tell you this: I don't think that the answer to gross profitability for us comes from increasing our sales price. I think the answer to profitability comes from continuing to do what we're doing, which is getting better at making the product and just volume. I've said this to you many times before; it's all about volume for us. We pay less when we buy more. Our overhead impacts are less than the product when we do more products. Then we just frankly get better at it, more efficient at it. In this instance, certainly this quarter is concerned, a great deal of the gross profit loss just came out of inefficiency in delivering, not from shipping to us and not inflationary impact. We're shipping the product from us to our customers, and we know what the problems are, and we can solve them, and I'm telling you today we're going to.

Okay, great. One final question, it seems like you're focusing on the military market. I wonder if there's a connection between your recent revenue boost and the military's reliance on you for more equipment than what you're currently able to produce. As you communicate with customers, are they expressing interest in your product but seeking more assurance about your ability to scale up? Has that been a challenge for you?

In the past, yes. There's no doubt about it. In the past, when we didn't have these sort of big customers like New York City and the State of California, CALTRAN, and others. I've no doubt that people had doubts about our ability to perform. However, we're constantly assuaging those doubts. I mean, we're delivering right now to these 52 units at multiple different agencies across California, CAL FIRE, Cal OES, and CALTRANS. These are not early adopters or risk-takers, and they're buying our product. And it's not because we're a California-based company, by the way; they put competitive saw a product that could do what ours can do and selected us. Now where the military is concerned, again, not early adopters. I mean, it's really incredible even talking to them. In fact, I just had a conversation with somebody in the military the other day that said I've got a $1,000 computer in my hand here but I can't use it. I have to use my 1995 Dell whenever I want to do military business, kind of joking and laughing about it, but it's true. Having said that, they are under mandates to clean their fleets up; when we talk about cleanup, federal fleets, includes military, all bought tactical, and even tactical is going to go that way. But in the meantime, they've got massive fleets of other vehicles, which they're going to have to go electric with. If you think about the base environment and the dynamic nature of the way they deploy and all that sort of stuff, as I said in my remarks, they cannot go through the process of constructing and doing all the other things that are required with grid-tied stuff in the ground. So whether or not they have doubts about us from our size and everything else like that, the need that they have is so acute and so immediate, and our ability to fulfill it is so immediate. During this demonstration project EMS, was just a fantastic opportunity for us to get a lot of video and get in front of a lot of people. There were congressional interest in it and everything else too. So I can't speak for how quickly they'll move. But, like a mighty battleship, when they do move, you don't stop them, you don't turn them around. I think as I said, we're very well-positioned, American-made product, energy security, clean tech, EV charging, all rolled into one product that can be rapidly deployed without construction or any of the other risks or variable costs. I just think we're very well-placed to take advantage of it, while I can't forecast how quickly they'll move.

Perfect. Thank you very much for the time, everybody.

Thank you, Greg.

Our next question comes from Tate Sullivan from Maxim Group. Please go with your question.

Hello, Desmond. Following up on shipping and handling, just in the queue and where you break out your revenues. I see you do get some revenue from shipping and handling; is that a negotiation customer by customer? Is it standard that you include a standard shipping fee in the EV ARC so you can just review that? It's more location by location. I mean, we do have certain set rates, particularly when we're using our own transportation system, the ARC mobility system, which is a very good way of delivering product at very low cost of our incremental cost of diesel and the price of the driver, and the amortization of equipment, of course. We build the trailer ourselves, and even sell it to other people. So when we're doing it ourselves, and we control it ourselves, it's a good enterprise. You're right; we get revenue from it. We can do it profitably when we're doing it ourselves. Where we get into trouble is when we're quoting customers to deliver to locations, and sometimes it's a month or two later before we go there. In the case of Hawaii, they just doubled the cost on us without so much as a buy your leave. And we were not able to go back to the customer and impose that cost increase on them. We didn't think it was wise to at this point in our evolution, because we want to evolve into Hawaii and it was important to us to get out there. So there was some sort of decision-making process in that as well. We could have said no, we're not going to do it. But of course, as you know, we're attempting to grow. The bigger the footprint, the more we’re seeing, the more we sell. So there I guess you could say in a way that loss was a marketing expense for us. And we don't classify it that way; of course, it goes as COGS. But in a way, I view it as an SG&A cost. So there's volatility there. The prices have gone up. There's no question about that; we've definitely seen inflation in transportation at the moment. I think there's an element of transitory nature to it, because this course is a launch activity right now, which didn't take place during COVID, which is taking place right now. I think that supply and demand will recover that to a certain extent. But the real opportunity here is within our own control. We need to do more of this ourselves and we need to get better at planning it and better at controlling it. And I'm telling you, we are taking the steps to do that internally right now.

Thank you, Desmond.

Thank you, Tate.

Our next question comes from Gabe Daoud from Cowen. Please go ahead with your question.

Hello, Gabe.

Good afternoon, Desmond. Thanks for taking the time. Thanks for taking the questions. Just curious if you could give us a little more color on the updated pipeline figure. And again, maybe Desmond just help us frame how this is defined, and maybe any kind of color around a customer makeup of that I think $75 million figure that you mentioned?

Yes. So first thing let me tell you, we do not include things in the pipeline that we consider not to be realistic opportunities that can move to purchase order. So as I've mentioned many times before, we have a conservative discipline where that's concerned. But anybody who's in our pipeline knows what the product is, knows how it works, has a need for it, has budget, has all those other sorts of things. We're endeavoring to take them through the process towards purchase order. It's not casual interest or us extrapolating what might happen if we sell to one customer; therefore, 10 other similar customers might drop into place, or any of that sort of stuff. This is real, active, engaged interest. The makeup of it, there's certainly still an awful lot of municipal and local government. But what's interesting is we're also seeing a significant increase in both enterprise and federal, and certainly state governments as well. As you know, during 2020, a very significant amount of our business came from municipal governments, and that's fine. We're in a couple of hundred of them, and there are 19,000 of them across the U.S. So I don't mind taking municipal government business. They all operate fleets, and they're all going to have to electrify, and we solve a lot of problems for them. But at the same time, the federal interest, of course, is huge; the commitments of funding; and again, our pipeline is filling up with those sorts of opportunities. State, same thing. The State of California just renewed their contract with us and interestingly added product, so they put more of our solutions onto the state contract. Furthermore, they made that state contract available to any other state in the union. When I was on my funding webinar this morning, one of the questions I received from one of the entities was, is there some contract that we can use? We don't have a contract with you; is there some other contract that we can use to buy your products? I said yes; you can use our GSA contract if you have a disaster preparedness aspect to it. You can use our State of California contract if you want to, because it's available to any governmental entity across the United States. So we're seeing more of a state as well. And then, as I said, what's really interesting, not interesting, actually, bloody predictable. A lot of that workplace charging that we didn't see last year because no one was going to the office. Now, we're seeing that coming back. Frankly, I don't want to blow my own horn, but I did predict that we would see it come back with a degree of urgency because people who didn't do anything in 2020 are now showing up in their lots with EVs, no EV charging infrastructure. We like urgency; urgency is good for us because people are in a hurry, and we can solve that problem like nobody can. That urgency, by the way, is only going to accelerate. I noticed in one of your reports, Gabe, that I think one of your reports on ChargePoint that you put down they are basically forecasting one plug per vehicle for fleet customers. Well, that's even more aggressive than we've ever said. But we like those kind of numbers, and we think there's going to be an awful lot of urgency. There certainly isn't enough power on the grid, and there isn't enough trench digging and concrete pouring to get anywhere near a couple hundred thousand or 120,000 units a month for the next 10 years out there. We've got that problem solved.

Thanks, Desmond. Very helpful. And then, just the Driving on Sunshine initiative, I know in the prepared remarks, you mentioned it certainly takes time and effort. But just curious if there is anything else you could kind of speak to around timing?

Whenever I do these calls, I know that there are certain things that people want to hear from me. They want to hear that I’ve got a sponsor on the Driving on Sunshine network; before they wanted to hear that I closed the city. It took me a long time to do that. I did it. Now they want to hear that I’ve got a sponsor; it’s taking me a long time to get it done. But I’ll get it done. I’m going to disappoint until I get it done. My apologies. And no one’s more frustrated about that than I am, but I’m going to get it done. What I can tell you is that I’m definitely seeing a change in the reception of the story. Now, as I said earlier, it went from being an interesting concept, something that's becoming more of an imperative. I can't go into a lot of details on that. But the answer is, just as I said in my comments, whoever does this will be a large organization, multifaceted organization. This is something that they haven't done before and touches on many areas of their organization: renewable energy, carbon reduction, marketing, media, facility, all sorts of different things. We need to get buy-in from everybody, and that’s a process. What I can tell you, and everyone else on the call, is no one’s saying to us, this is a trap idea. We’re not interested; we’re not hearing that. In the interest of full disclosure, we have had two or three organizations who have said not for us at this time. But that’s okay, because there are two or three organizations out of several hundred that are available to us. We are advancing this conversation, and I believe as firmly today as I’ve ever believed that we’ll get it done; it’ll never be fast enough for me or for anybody on the call, but we will get it done. The other area where I’m going to get flack, I know, is on EV standard. People want to see us that we’re taking that to the market, and I do too. I love that product. I can’t wait to get the thing out there. But just understand I’m a disciplined human being. And I know that we need to make profitability and efficiency and excellence in the EV ARC product to take advantage of the current opportunities that we have right now happen now. Then we’ll go from that straight into EV standard and we’ll get that out in the market as well. Anyone who was talking to me personally about that, feel free to get in touch with me directly. I never make a secret of how to get in touch with me.

Understood. Thanks, Desmond. Thanks for all that.

Thank you, Gabe.

Our next question comes from Tyler Bailey from Needham. Please go ahead with your question.

Hello, Tyler. Yep, it looks like Tyler has got the same problem Craig Irwin has. Craig, if you can hear this, by the way, I want to hear your question. So if you don't get it right now, call me. Tyler, same to you.

Mr. Bailey, is it possible your phone is on mute?

Hello.

Now we got you.

I apologize. This is Vikram Bagri. No one took my name and I guess I was waiting for my associate to speak. Hey, Desmond, I have two quick questions.

Hi, Vikram, how are you?

Doing well. I have two quick questions. One on the product mix, you talked about the pipeline, you talked about President Biden's infrastructure plan and spending on that side and electrification of bus fleets and municipal fleets. Are you seeing more interest in Solar Tree? Are you seeing that interest increase in discussions? Are you seeing that interest in the pipeline of orders? Could you talk about the product mix in that pipeline?

Yes, definitely. The answer is that it's almost entirely EV ARC at this point. However, we are seeing increased interest in the Solar Tree as well. Although we have had the Solar Tree name registered for a long time, the Solar Trees we deployed this year are completely new for us, utilizing the same technologies as the EV ARC but in a larger form factor. We have just deployed the first of them and haven't officially launched the product yet. Marketing is eager to announce it in a more formal manner, which we will do. Nonetheless, it's deployed and operational. That said, the pipeline is still predominantly driven by the EV ARC products. As for Biden’s spending, we offer level one, level two, and DC fast charging with that product. Additionally, we are agnostic regarding the provider of the EV charging solution; ChargePoint, Blink, and Electrify America are all represented in the field operating with our products. We ensure their products function with our construction and electrical work. We can handle DC fast charging, which may incur significant expenses, and level two charging, which is likely to be the primary charging method in the future. We can also accommodate level one if necessary, as there is demand for that. Regardless of spending methods, we can integrate the chargers without the construction or utility bill risks. However, the current mix is still heavily weighted towards the EV ARC, which is why I am focusing on improving our efficiency, reducing costs, and producing these products profitably, similar to how Model T's were made.

Great. Thank you. And as a follow-up, Desmond, I fully appreciate not disclosing a whole lot of details about EV standard. But as you may realize, we and your customers and the street and investors share your excitement about that product. So is there any more detail you can share on that front in terms of specs, costs, margin longer-term, what you will target? And I fully understand if you cannot, what are the signposts that we should keep in mind and look for on that front? Are you looking to file more patents? And until you file those patents, you won't disclose more details? And when should we expect more announcements on that front? Where are you in the process? Thank you.

Yes, that's a good question. The answer to your question is partially already addressed; most of what you need to know about the EV standard can be found in our existing patents. Generally speaking, my intention is for the EV standard to have performance levels similar to the EV ARC, which delivers exceptional performance for EV charging. The EV ARC can provide up to 265 driving miles a day without needing a grid connection, and we focus on daily range replenishment rather than empty-to-full scenarios, which are rare for EV drivers. From my experience over the last ten years, charging should be approached like charging a cell phone. Our target is daily range replenishment. The average U.S. sedan drives 30.4 miles daily, while most commuters travel less than 24 miles for a round trip. Thus, the design of the EV standard product will cater to that daily range replenishment requirement. We aim to ensure that when people park their cars, they can capture that daily range replenishment, and the EV standard will be equipped to handle multiple vehicles, similar to the EV ARC. Regarding your second question about our patents, this quarter, we received another patent. We will continue to build our intellectual property portfolio with the same disciplined approach as always: first, it must create a barrier to entry for competitors, and second, it must be something we believe we can monetize. We won't create a patent portfolio just for the sake of having one; our goal is to protect the valuable intellectual property that differentiates our excellent products.

Good. Thank you. That's all I have.

Thanks, Vikram.

Our next question is a follow-up from Tate Sullivan from Maxim Group. Please go ahead with your follow-up.

On the patent protection, you mentioned China; do you already have patents in Europe as you consider expanding there? Or is it completely different country-by-country?

Yes, we do. Europe's a difficult animal. The way you get patents in Europe is a difficult animal. You basically get sort of Europe-wide patent and then you select the various nations that you're going to go in with it. So we’re very careful about how we do that, because it's bloody expensive. And so we're constantly treading along tightrope there. But we are, of course, defending our intellectual property in Europe to the extent that we reasonably can. We're defending it in China as well; the reason that Europe is a greater emphasis for me at the moment is because it has replaced China as the top EV market in the world. I’m also more sanguine about our opportunities of developing a new business in Europe than I am in China. Having spent several years, as I think you know, Tate, trying to get a good deal done in China, we were unsuccessful in doing that during the Trump-Z spat. But, we’re confident that we’ll get something done in Europe, as long as it's a good deal and as long as it’s done in a sober and reasonable manner, which is the only way I know how to do it.

Great. Thanks. And a quick follow-up as well, most of the sales efforts, is it direct outreach now or will it shift to more responding to RFPs or with the infrastructure plan? Or how do you see that developing?

There's no question that we anticipate more RFPs with the infrastructure plan. At the moment, most of our sales are direct outreach. But, there's another aspect to our selling too, which is growing. And this is what's very encouraging to me inbounds. In the past, almost every sale that we've made has come as a result of just sweat and blood and tears and shoe leather, going out and beating down on opportunities. We're seeing increasing numbers of inbounds, and of course inbounds are by far the best; we know that there's an appetite and everything else the minute they come to us. So we're getting a lot more of those. We do believe there will be more RFP activity. But here's the good news. We've responded to several RFPs in our history: State of California, City of New York, State of Florida, State of Massachusetts, and many others. I just can't remember off the top my head. In every instance, those RFPs were competitively let and resulted in competitively let contracts. In every instance, we were the only vendor that had a solution, which met the specifications called out in those RFPs. So we love RFPs. I don't want to be sole source; that's a target on your back. I want to win RFPs because what I have is unique and better than anybody else in the market. We've demonstrated our ability to do that with the biggest and best customers out there.

Thank you, Desmond.

Thanks, Tate. Craig Irwin, are you there?

Sir, at this time, I’m showing no additional questions. I’d like to turn the floor back over to you for any closing remarks.

Well, I just want to thank everybody for those questions, and everyone else who was listening who didn't ask a question. And of course, I want to continue to thank everybody for your support in this company, your belief in us. Our shareholders are our number one priority, along with our employees and customers of course. I hope you can hear from me. I am not less enthusiastic about my job than I was yesterday or the last time we talked; on the contrary, I'm having a great time, and I think we're off to a fantastic acceleration in the way the business is running here. So again, thanks for your support. Thanks for your time here today. Stay tuned.

Ladies and gentlemen, at this time, we'll end today's conference call. We do thank you for joining. You may now disconnect your lines.