Beam Global Q4 FY2022 Earnings Call

Good day, and welcome to the Beam Global Year-End 2022 Financial Results and Corporate Update Conference Call. All participants will be in a listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Kathy McDermott, CFO. Please go ahead.

Great. Thank you very much. Good afternoon, and thank you for participating in Beam Global's 2022 year-end conference call. We appreciate you joining us today to hear an update on our business. Joining me is Desmond Wheatley, President, CEO and Chairman of Beam. Desmond will be providing an update on recent activities at Beam, and also following that will be 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, March 29, 2023. Except as required by law, Beam disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. Next, I would like to provide an overview of our financial results for Beam's fourth quarter and year ended December 31, 2022. Revenues for the fourth fiscal quarter of 2022 set a new record for the company of $7.9 million, a 126% increase over $3.5 million reported in Q4 of 2021. Revenues for the year ended December 31, 2022 were a record $22 million, a 144% increase over $9 million reported in the same period of 2021. The increase in revenue was driven primarily by increased sales to federal, state and local customers, benefiting from federal and state funding programs as well as our GSA contract, which streamlines the contracting process. Revenues have also increased from enterprise customers for fleets and workplace charging, and we recorded revenues of $5.2 million for our energy storage business from our recent acquisition of All Cell Technologies. Gross loss for the quarter ended December 31, 2022 was $0.7 million or 9% of sales compared to $0.3 million or 10% of sales in the same quarter of the prior year. Gross loss for the year ended December 31, 2022 was $1.7 million or 8% of sales compared to $1 million or 11% of sales in the same period of the prior year. As a percentage of sales, the gross loss is improving, primarily due to increased production levels which resulted in favorable fixed overhead absorption and improved labor efficiency despite an increase in material costs for steel and other components due to supply chain shortages and other inflationary pressures, and a $0.8 million increase in non-cash intangible amortization related to purchased assets from the All Cell acquisition. Operating expenses were $7.1 million for the fourth quarter of 2022 compared to $1.7 million for the same period in the prior year. Operating expenses for the year ended December 31, 2022 were $18 million compared to $5.6 million for the same period of the prior year. The 2022 increases were primarily due to a $5.5 million non-cash increase in the fair value of contingent consideration related to the All Cell acquisition; $3.4 million for the addition of All Cell expenses; $1.6 million for non-cash share-based compensation; $0.7 million for employee compensation; $0.6 million for legal and accounting expenses, primarily related to the acquisition; and $0.5 million for sales and marketing costs to support our sales growth. The net loss was $7.8 million or $0.77 per share for the fourth quarter of 2022 compared to $2 million or $0.22 per share for the fourth quarter of 2021. The net loss for the full year 2022 was $19.7 million or $1.99 per share compared to $6.6 million or $0.74 per share for the same period of 2021. At December 31, 2022, we had cash of $1.7 million compared to $21.9 million at December 31, 2021. The cash decrease was primarily from increases in inventory and prepayments to vendors to secure battery cells for production as well as the net loss. Our working capital decreased from $24.6 million to $6.8 million from December 31, 2021 to December 31, 2022. The decrease in working capital includes a $6.8 million increase in current liabilities for the change in fair value of non-cash contingent consideration related to the All Cell acquisition. And with that, I will turn the phone over to Desmond to provide a business update. Desmond?

Thank you, Kathy, and thanks to all of you for dialing in to listen to this 2022 earnings call. I look forward to answering your questions after I make a few comments about the fantastic year that we've just had and what it means for our future. A couple of months ago, someone who I consider to be one of the best-informed analysts in our industry asked me what would be, for a normal company, a very reasonable question, 'Should you expect 30% year-over-year growth from Beam Global?' I laughed and said, 'I bloody well hope not.' We've been growing our revenues consistently for many years. The $9 million of revenue reported in 2021 was 45% higher than the $6 million we generated in 2020. And now we just reported $22 million of revenue for 2022, which is about 145% greater than the $9 million we reported in the prior year. At the beginning of the fourth quarter in 2022, we published a contracted backlog of not far off 300% of the full-year revenues we just reported for 2022. So, said another way, starting back in 2020, we had $6 million in revenue, $9 million in 2021, $22 million in 2022, and about three times that much in reported firm contracted purchase orders as of the beginning of the fourth quarter of last year. The $60-plus million in backlog we reported in the fourth quarter by no means tells the full story of the 2022 growth in sales. Actually, our fantastic sales team secured over $76 million of purchase orders in 2022, which was a 548% year-over-year increase over 2021. And 2021 had already been a 130% increase in new purchase orders over 2020. We sold over 800 EV ARC systems in 2022, which is more than all the EV ARC systems we've sold prior in the 10 years that we've been making the product. In each of 2022's four quarters, the value of the purchase orders we sold was more than 100% greater than the same four quarters in the prior year. In fact, in one of those quarters, we had an increase of 913% over the same period in the prior year. We had a 300% year-over-year increase in purchase orders greater than $1 million per purchase order dollars, that is. We had an across-the-board reduction in the amount of time it took us to go from initial customer inquiry to a closed purchase order, so we're closing these deals faster, with more urgency. In 2022, we made the largest, the second-largest, and the third-largest sales in our history. 367 EV ARC systems to the U.S. Army through our partner TechFlow, 140 systems to the Department of Veterans Affairs, and 71 systems to our largest municipal customer, New York City; this was the fourth or fifth order we received from New York City and by far the largest so far. Our previous largest purchase order was a 52 system order from California's Office of Emergency Services. But then, the fifth largest also came in 2022 as well, a 41 unit order from the Department of Homeland Security. There certainly was a lot of government purchasing activity at Beam Global last year. We received orders across all sectors of government—municipal, county, state, and federal. Interestingly, we received over $7 million worth of purchase orders from extensions of both our federal and California contracts. A word of explanation on this. We have a GSA, or General Services Administration, contract in place with the federal government, and we have a DGS, or Department of General Services, contract in place with the State of California. Normally, when you have a federal contract, only federal entities can take advantage of it, and similarly, if you have a contract with the State of California, it's generally only available to government entities in California. However, because of our EV charging infrastructure products, which continue to operate during blackouts or brownouts, they are designated as disaster preparedness assets. Consequently, the federal government allows its contract to be used by any government entity in the United States that cites emergency preparedness as a reason for acquiring our products. The State of California also allows other government entities to use the contract we renewed with them in 2022. These aspects, which arise from the fantastic value and unique nature of our product offerings, might not seem very impactful at first hearing. But when you consider that just about any government entity across the United States can now buy our products without going through any sort of competitive, time-consuming processes at a time when there's increasing urgency for EV charging infrastructure, you can grasp why we work so hard to put these types of contracts into place. The proof of the pudding is that the Federal and California contract extensions amounted to almost 10% of our sales in 2022. But yes, government contracts were a significant contributor to our fantastic growth during the year; however, only made up 65% of our total revenues. 35% of 2022 revenues came from non-government commercial customers. I would not say that we've seen a full return to pre-COVID revenue percentage mix between government and commercial, but the approximately 1,200% year-over-year growth in commercial sales is certainly getting us back close to where we were before COVID shut down almost all of our commercial business. Don't forget that even with that reduction in opportunities, we still managed to grow our revenues during those very trying periods. I've long been saying that while government tailwinds are important to our business and indeed the electrification of transportation in general, I believe that in the end, this will be a consumer-led revolution. The very rapid return of commercial orders that we saw in 2022 certainly does not dampen my enthusiasm for that conviction. The fact that some of our recent commercial wins are with customers that I believe might one day potentially become sponsors of one of our driving on Sunshine networks makes me even happier to see this return, and further strengthens my belief that we might one day crack that elusive nut. I'm not aware of any other company in our industry or any industry for that matter that can match our sales growth. Yet, two of our last very vocal critics enjoy entertaining me with their doom and gloom predictions about our future. 'Oh, you've grown your sales for five years in a row and received some huge purchase orders from fantastic customers,' they say, 'but you'll probably never sell anything again.' Well, I don't have a crystal ball to combat such fantastical predictions; however, I do have the closest thing that Beam Global has to one, our pipeline report. On January 1, 2022, Beam Global's pipeline was valued at just over $80 million. We then brought in over $76 million of purchase orders in 2022, a fantastic pipeline to backlog conversion ratio by anybody's standards. In 40 years of business, I've never seen anything like it. If you follow all doom and gloom predictions, we ought to have had something less than $5 million in the pipeline at the end of the year. In fact, our pipeline at December 31, 2022 was approximately $120 million. That means that the sales team took an $80 million pipeline, converted $76 million of it into backlog, and built it back up to over $120 million before the end of the year. They're working more effectively and enthusiastically in my opinion than any time in our history. So much for doom and gloom. By any reasonable metric, our sales are growing— not only are they growing, but that growth is accelerating. That's true for the smaller one and two-unit orders, which are actually becoming less and less common, and it's also true for much larger orders with price tags in the millions of dollars. I can see no end in sight to this trend, and in fact, I anticipate it continuing and accelerating further for the next couple of decades. Even our existing large contract vehicles are evolving to further streamline our ability to sell our products. For example, our Federal General Services Administration contract is now accompanied by a Blanket Purchase Authority, or BPA, issued to us in 2022, which adds even more efficiencies in the federal purchasing process. The State of California, with whom we've had a contract in place for many years, issued us a new one in 2022, which expands the scope, adding more of our products. We manufacture an infrastructure product. As with any infrastructure solution, it's inevitable that there will be peaks and troughs in our selling cadence. However, the much larger order book we now have will reduce the choppiness in our revenue because as long as our sales continue to grow at these rates—and I see no end to that—deliveries will be governed by our ability to continue to produce more and more products. We truly now have a supply challenge, not a demand challenge. Can we rise to the supply challenge? In 2021, we manufactured 119 EV ARC systems. In 2022, we manufactured 244 EV ARC systems, a 105% increase. In fact, in the fourth quarter of 2022, we produced 103 EV ARC systems, a 115% increase, more than we've produced in any full year prior to 2021, and it wasn't even far from that full year's production. That's just in the fourth quarter. Just as our ability to sell our product is evolving and accelerating, so too is our ability to produce them. Beam Global's operational team has made excellent advances in adding efficiencies to our processes and streamlining product throughput in our factory. Our engineering team has been in a near-constant process of refining the design to make it easier to build while reducing costs and improving quality. These processes and engineering improvements have not stopped at the factory door; we can also see their impact in the field. In 2020, it took two human beings to deploy a single EV ARC. By 2021, we reduced that to one person. Then, in 2022, we've improved that again. Through the addition of improved equipment, enhanced processes, and better engineering, a single operator can deploy two EV ARC systems, each of which can support as many as six EV chargers. There’s a beautiful and very informative video on the EV ARC product section of our website that shows you exactly how we do this. I encourage you to watch that video. Everyone who does comes away with a greatly enhanced appreciation of the tremendous and unique value that Beam Global brings to the EV charging industry. No competitor can match the speed and elegance with which our products provide infrastructure to support our customers' EV charging needs. We're deploying any quality brand EV charger and offer more in one of them, including popular brands like ChargePoint, Blink, Electrify America, and Enel, in less time than it takes to write a scope of work for a contractor to start digging up your asphalt. Having produced 2.5 times more EV ARCs in 2022 than we did in 2021, we're continuing to enhance our production capabilities dramatically. Of course, as I've already mentioned, we have about three times more units currently under contract than we produced in all of 2022, and our sales team continues to be highly active. More or less since our inception, our gross profits have been negatively impacted by fixed overhead allocations imposed as a result of having facilities capable of producing far more product than we were actually selling. This has been especially true in the last few years since we moved to our 53,000-square-foot facility just north of San Diego. Carrying that overhead burden would have been a very bad idea if we were in a flat or declining business. But as completely the opposite is the case, the fact that we have a great deal of excess capacity in our facility now seems like a very good idea. I always felt it was, and I'm glad to have the growth numbers to support my conviction. Analyzing various constraints or bottlenecks that might impact our full capacity shows us that there are one or two choke points. The most obvious is that we have six final assembly workstations where our teams pull together all the components and subassemblies of an EV ARC into the completed product. Each of those workstations, when sufficiently staffed, can produce an EV ARC in just under a full shift. We're constantly improving upon that, and I believe that we can do much better. But using that cadence, we could do some simple arithmetic to ascertain our maximum throughput in this facility. With all six workstations fully staffed and operating on a single shift five days a week while discounting holidays like Thanksgiving and Christmas, we'd produce about 1,560 units in a year. Multiplying that by our current average sales price (ASP) would generate just under $110 million in annual revenue. That’s only one shift, five days a week. Naturally, as we add shifts, we increase that throughput. Two shifts would yield $220 million, and three shifts would yield about $330 million or 4,680 systems a year. In theory, if we work three shifts, seven days a week, we can produce over 6,500 systems a year. But we don’t live in a theoretical world; we need to be practical, which is why I estimate our full capacity based on producing approximately 4,500 units per year. There are other steps we can take to accelerate our throughput while reducing costs and increasing quality—identifying certain subassemblies and components that we manufacture in-house today but might tomorrow have produced by better-equipped and more automated contract manufacturers, as part of our plan for both reducing costs and increasing throughput without capital expenditure on our part. The whole team at Beam Global believes that the EV ARC product is nearing a level of maturity in its development, which should enable us to take advantage of these opportunities. External supply chain constraints can also impact the amount of product we produce each year. While we can never be entirely certain about what the future will bring in this respect, all of our observations at this point are trending towards reduced risk from supply chain interruptions. We regularly canvass our vendors to hear from them what they're seeing further upstream. We're successfully pushing them for cost reductions and better payment terms, as well as assurances that we'll have access to the components and materials that we incorporate into our final product. What we're hearing across the board is that supply chain risks are reducing and that costs, which we've seen rising consistently over the last two years, are plateauing and starting to trend down for the remainder of 2023. We're already beginning to see some of these cost reductions in steel and transportation, for example. Of all the vital commodities and components essential to the successful operation of our business, none is more vital than cash. I perceive cash in the same manner that I see steel or copper or battery cells or paint or electronic components or even labor. I want to get just the right amount of value and quality I can, and I want to pay as little as I need to. One aspect that should be abundantly clear after reviewing our filings over the years is that I am very disciplined with both cash and equity. Everyone on the team shares this discipline. During our earlier years, we had to manage difficult periods with little to no demand for the product, and sometimes even less cash to support us while we built a company for the future that we felt confident would come. Well, that future has arrived, and we will remain disciplined as we manage these fantastic opportunities. Looking at our balance sheet from December 31, 2022, you'll see that we had cash of about $1.7 million, but we also had $4.5 million in accounts receivable at that time. Importantly, we always get paid. We report total current assets of $20 million made up of cash, accounts receivable, prepaid expenses, and crucially, inventory. These are all items that we convert back into cash in a generally short period. Our total current liabilities were $13 million but included almost $7 million in contingent consideration for an earnout payment necessitated by the excellent performance of the battery company we acquired last month, which is a non-cash item. Performance-based earnout payments are a strong indication of the value of our acquisition decision. To obtain an accurate picture of our finances, it's best to consider the $20 million in current assets discounted by the current liabilities, subtracting the contingent consideration. I’ll perform the arithmetic for you. You take $20 million in cash, accounts receivable, prepaid expenses, and inventory—all of which are quite close to cash for us—and subtract $6 million in current liabilities, derived by excluding the $7 million contingent consideration from the $13 million. That leaves us with approximately $14 million of cash or comparable assets that we are set to convert to cash in the forthcoming months. Quite a different picture. Now, let's consider what this $14 million in cash means to us. Total cash used in operations during 2022 was $18.1 million, as reported. However, that included $8.2 million in increased inventory, $600,000 in increased receivables, and roughly $800,000 in prepaid expenses and other assets, which, as explained, count as cash for us. Again, doing the math shows that the cash we actually burned—i.e., spent on items that won't convert back to cash in the next few months—totaled about $9.5 million during all of 2022, averaging less than $2.5 million a quarter. Remember that we not only closed an acquisition but also integrated a former privately-held company into the Beam Global family during that time. Taking that roughly $14 million in cash and cash-equivalent assets and dividing it by the $2.3 million we actually burned during 2022, we can see that we could operate for at least six more quarters without raising capital or taking any other action. This assumes our cash burn stays unchanged. Also, it assumes we generate no gross margin contribution from our sales. However, we do indeed receive a contribution margin every time we sell an EV ARC. Therefore, the more we sell, the less we should depend on our current assets to cover our overheads. I'll elaborate further in a moment. Maintaining strict discipline regarding cash and equity is, in my view, critical to Beam Global's long-term value creation, which I am ultimately responsible for. Nonetheless, it's possible to be penny-wise but pound-foolish. We are encountering extraordinary growth, and I don’t want anything to hinder our progress. Thus, while disciplined cash management enables us to remain in growth mode for the foreseeable future, I've also taken steps to ensure that we have readily available cash to accelerate our growth. Just last week, we announced a $100 million credit facility to provide the kind of flexibility we may require to prevent cash limitations from impacting our rapid growth. We've researched debt and credit facilities extensively, looking for financing mechanisms that might be available to us. I can confidently assert that I am not aware of any financing arrangement that comes close to the terms offered to us through the OCI Group, based in London. As an investor myself, I am skeptical when reading headlines about financing deals done by others; the devil is in the details, and there always seems to be terms or conditions that, as an investor, I would prefer didn't exist. I can assure you that the OCI $100 million credit facility is as straightforward and uncomplicated as we've described it. What you see is what you get. There are no fees, market discounts, underutilization penalties, equity considerations, or hidden surprises within this deal. If and when we find it appropriate, we can utilize this credit facility for short-term cash needs, and all we pay is the secured overnight financing rate (SOFR) plus 300 basis points. It's that simple. This was not an easy deal to finalize. It took OCI and me four months of reputable negotiations to arrive at a conclusion. Typically, arriving at a simple agreement takes longer than hastily signing any old arrangement earlier in the process. The reason OCI is such an excellent match for us stems from their extensive experience in identifying the true risks associated with the counterparties to the types of sales transactions we will enter into. It is no coincidence that Beam Global has targeted the highest quality and most creditworthy customers in the market. We have an impeccable history of fulfilling our product deliveries and an equally impressive record of securing timely payments. Any typical financing institution would base their underwriting decisions on Beam Global's profile and do everything possible to maximize their profits from us. OCI, however, assessed our technology, our history of delivering our technology, and the credit profiles of our customers. As Oliver Chapman, OCI's CEO, stated in our press release last week, this remarkable combination enables OCI to provide us with a substantial credit facility at pricing and terms typically reserved for blue-chip entities. To emphasize again, we have access to a $100 million line of credit at SOFR plus 300 basis points. There are no hidden fees or mechanisms resulting from this facility. Please feel free to ask questions during the Q&A session if anything about this is unclear. We will continue to manage cash and current assets on our balance sheet with the same high degree of discipline and care that we consistently have. However, we will not allow excessive prudence to slow our growth rate. The OCI facility provides the additional flexibility required to allow our operations teams to execute on the incredible opportunities our sales teams are currently generating. While credit and discipline are significant factors for us, they alone will not make Beam Global the highly profitable company I believe we will evolve into. Achieving profitability is, in many ways, the least enigmatic aspect of our organization. It's quite straightforward: we need to sell enough products to cover our overhead expenses, generating some remainder, ideally more. The first step towards achieving that goal is, of course, gross profitability in accordance with Generally Accepted Accounting Principles (GAAP). However, a crucial factor to get to that important milestone is achieving positive unit economics. If the variable costs associated with producing each of our products are less than the price we receive from our customers who buy them, we receive margin contribution for each unit that leaves our factory. I have repeatedly reported that our unit economics are positive. We are not a company that loses more when we sell more; in fact, the opposite is true. At some point, the margin contribution from the increasing volumes of products we sell will exceed the fixed overhead allocations that must be budgeted into our cost of goods sold. When unit economics are positive, increasing volume will naturally lead to gross profitability, especially as we reduce variable costs such as material prices and labor hours tied to product fabrication, further enhancing gross profitability. We are working on all of these fronts, and the notably positive results of our efforts have led, in the fourth quarter of 2022, our EV ARC product line to reach breakeven at the gross margin level. A significant contributor to managing variable costs for an EV ARC is the fact that we produce our own batteries at our Chicago facilities. If we were still sourcing these from external suppliers, we would have had to absorb all cost increases stemming from inflation and supply chain constraints that have affected the industry, along with their margin pressures. Although we have also faced cost increases because we now manufacture batteries, their impact has not been as severe. Beam Global's approach to battery production, as far as I know, is unique within the industry and plays a significant role in our increasing profitability. Our full-year gross margin for 2022 was approximately negative 7.5%, representing a 3.5% improvement over the gross margin of 2021. Remember, we managed to achieve positive gross profit amidst the most inflationary environment that the United States has encountered in over 40 years without increasing our prices. We faced significant cost increases for almost every material and component we purchase. This holds true for all products in our portfolio, whether they are energy storage or EV charging products. Notably, approximately $839,000 reported in our cost of goods sold pertained to depreciation and amortization of intangible assets related to our acquisition last year, not directly related to the variable costs tied to manufacture our products. Excluding these non-cash items from our cost of goods sold reduces our gross loss from 7.5% to approximately 3.5%. This reduction shows a pro forma gross profit improvement of over 7% when compared to our 2021 results. Recall that this improvement occurred amidst substantial cost increases across the board for materials and components. The improvements in gross profitability have arisen from increased volumes offsetting our fixed overhead, as well as enhanced efficiency and engineering advancements. I monitor revenue per employee and revenue per labor hour and I'm observing notable improvements in these metrics. I can summarize this by affirming that we are becoming much better at operations. Another tangible example of this is that we're currently producing about 10 times more kilowatt hours of batteries to date than the company we acquired managed prior to its integration—while still operating in the same facilities and renting the same space. Although we've expanded our workforce to accommodate growth, we have not done so at a rate commensurate with revenue and productivity increases. Nowhere is this more evident than in the comparison of revenue to overhead employees, where the discrepancy has been even more pronounced, demonstrating the operating leverage we possess. Our actual operating expenses are much lower than reported when we remove about $8.4 million of non-cash items, including contingent consideration for the earnout and certain stock options, among other non-cash factors that were adjusted for comparative purposes. Removing these items leads our operating expenses from 82% of revenue to 44%, showing almost 20% improvement over 2021 results. If you analyze gross and net profits, do so with caution, as the acquisitions we've made have introduced several non-cash items which distort the actual business outcomes. It is imperative to continue analyzing these numbers diligently, as I believe it is highly unlikely that All Cell Technologies will be the last acquisition we make; on the contrary, we are actively seeking additional opportunities to bolster our inorganic growth while we achieve great success through organic growth. Acquiring this battery company and integrating it into Beam Global has proven to be extremely beneficial for various reasons. As discussed, significant savings have arisen from ceasing battery purchases from external providers, but numerous additional positive aspects have emerged from this acquisition. Integration has meant merging our marketing efforts and hiring more energy storage sales personnel. We secured over $8 million in energy storage orders during 2022, and our team performed excellently during a crucial period of growth while enhancing our internal battery supply. Again, they are producing ten times more kilowatt hours than when they were incorporated into Beam. The teams are collaborating effectively, sharing knowledge, experience, and expertise across all our battery and EV charging infrastructure products, leading to noteworthy improvements. Our motivation for acquiring All Cell was to reduce our costs, boost our revenues, strengthen our supply chain, and raise barriers to entry for competitors. We have seen measurable results in each of these areas throughout the past year. I will persist in seeking opportunities to acquire talent, technology, complementary offerings, and notably, geographic expansion. One major benefit of closing the OCI credit facility is that we now have a strong European forward-thinking fund involved in our success. I have mentioned how crucial I believe this credit facility will be for us, and I also feel that having a well-connected ally in Europe will greatly benefit our endeavors. I have visited Europe several times over the past two quarters and remain enthusiastic about our potential for expansion into the world's largest automotive market, where I anticipate our products may enjoy more rapid acceptance than in the United States. I have also engaged in discussions with OCI management that extend beyond the basic details of the credit facility. Additionally, Europe is not the only international market that holds potential for us; I am exploring opportunities in other regions that could yield significant growth. These activities are processes and not one-off events; they require time and careful execution. Some have suggested I should hasten to finalize the first opportunity presented to me, but I will not. Instead, I will continue to pursue only those opportunities and transactions that make the most long-term sense for Beam Global—our shareholders, customers, and employees. The Beam team has consistently demonstrated its ability to achieve even the most ambitious goals it sets for itself, and I am determined to make international expansion another instance of our success. Part of effectively executing future acquisitions will involve balancing cash versus equity usage when negotiating deals. The All Cell transaction was purely stock-based, and I believe it has yielded excellent results for both Beam Global shareholders and the sellers of All Cell. This is how these processes should function, and I will strive to create win-win outcomes for every negotiation I undertake. While there may be cases when cash, equity, or a combination would be appropriate, it's probable that some level of dilution would occur. Our historical discipline regarding equity issuance will certainly be advantageous here. The fact that we have roughly ten times fewer shares outstanding than any public company that could be considered a peer means that we can grow our company using equity, generating market cap, revenues, and geographic expansion while still maintaining a far lower share count than competitors. If you're worried about dilution, don't be. My responsibility is not to maintain or increase your percentage holdings in Beam Global; that's your responsibility. My duty is to enhance the value of the shares you hold. If I and the Board, along with the experts in our field, agree that issuing equity to expedite company growth will create shareholder value, rest assured that I will pursue it. We are entering a period of extraordinary growth within our target industries. The electrification of transportation and energy storage is merely at the beginning stages of what I believe will be decades of expansion. Consider all the impressive new electric vehicles entering the market, the significant regulations and investments made by governments globally, and the increasing number of alarming reports from organizations like the UN and others that are influencing those governments' investments and regulations. Think about the robots, drones, submersibles, micromobility solutions, and other devices requiring safe, energy-dense solutions, like those we now provide. Envision the fact that all of Beam Global's success to date has arisen from a single market; Europe, the Middle East, and the rest of the world could potentially benefit even more from our products than the United States. The growth opportunities ahead of us are awe-inspiring. We will continue to improve our production and delivery capabilities for our current products while introducing future products such as our EV Standard and our UAV ARC, along with ongoing innovations from our battery experts to markets that are desperate for effective, innovative solutions like ours. We will also keep enhancing our profitability, just as we have done even throughout this inflationary period. Now is not the time to shy away from growth; rather, this is when we must invest in our future. We have demonstrated the capability to transform minimal resources into substantial outcomes. We have shown that from humble beginnings, we can establish a significant platform. Now that we stand on that platform, envision where we will take it next. I am thrilled and proud of our achievements thus far, but I know that we are only just beginning. I would be remiss not to acknowledge our short-sellers; this would be an opportune moment for you to pay attention, as I will summarize. We possess outstanding mass-producible patented products addressing a massive and paradigm-shifting global infrastructure build-out. We have a Made-in-America product at a time when state and federal investment is greater than ever and is being directed towards American products. We have seen triple-digit growth in sales and production. We're enhancing our profitability amid rising inflation, and that tide will turn. There is ample room for growth and aggressive expansion plans both in the United States and internationally. We have no debt. We exercise great discipline regarding cash and equity, along with access to a $100 million line of affordable, non-dilutive credit. We are executing well on all fronts, and there is no indication that any of this will slow down; quite the opposite, it is a brilliant time to be Beam Global. I look forward to answering your questions.

Thank you. We will now begin the question-and-answer session. Our first question comes from Christopher Souther from B. Riley. Please go ahead.

Thank you for taking my question. How's it going? I want to start with the revenue visibility and backlog. I believe you mentioned around $60 million. Can you explain the pace of backlog delivery? Is it primarily about how quickly you can produce them? Are there any multiyear orders included? I know some programs span multiple years. I just want to understand if part of the backlog is multiyear. Historically, backlog may have indicated what you would accomplish in a quarter, and I would like to know if you believe you're becoming more of a backlog-driven company, or if it's just increasing and returning to that one or two-quarter visibility based on the backlog.

That's a great question. Frankly, I'm remiss for not addressing that in my remarks. All of the contracted backlog that we have announced is wanted by our customers as soon as we can get it to them. So, there are no multiyear contracts here. The Army orders from us are not saying, 'It's okay; we can take these over the next five years or something.' It's quite the opposite. All the backlog we have announced is wanted immediately. That's why I said in my comments that we are now more supply opportunistic rather than demand opportunistic. The demand is clearly there; we just need to catch up with it. This will be helpful in terms of the previously choppy nature of our revenue; it won't be like that anymore. It's just going to be more and more and more. As fast as we can turn them out, we'll get them to our customers.

Got it. No, that's great to hear. Maybe just comment on supply chain as well as the margin front. We appreciate all the color on the puts and takes from 2021 to 2022. But can you give us a sense or remind us what the component cost inflation headwind was for the year? And we had to offset that to get that 7% year-over-year improvement. I'm trying to get a sense of where your incremental margins are looking as we scale. Maybe what else you’re seeing in terms of component cost moderation improvements and what we can do to improve the supply chain in vast order, I guess?

Yes. The last time I performed a BOM-to-BOM comparison, a bill of materials to bill of materials analysis of the same product, I can inform you that I identified a 27% increase in the costs of the components and materials that we are buying. Granted, I likely would have identified more if I had conducted an in-depth analysis of the hundreds of smaller items on the BOM. So, a 27% increase in costs has occurred over the past couple of years. At the same time, you are correct to note that we have improved our gross profitability by about 7% net of non-cash items over the past year, along with another 3% or 4% from the year before that. You can see how that reflects—although we don't print money, this will come from somewhere. If we have to spend more to produce the product and yet our gross profitability improves, combining those two pieces will reveal a significantly improved gross profit over the last couple of years. I don't take pride in negative gross profit; I invest every waking hour working on it, and so does the entire team. They have performed brilliantly to achieve these types of improvements during such an inflationary period—all without increasing our prices. The trend is decidedly in our favor. Everything we are hearing from our vendors suggests we will see substantial cost reductions in battery cells in the second half of this year. Battery cells are the single largest cost component of our products. Steel prices are decreasing, and transportation costs have certainly reduced from where they were just a year ago. We anticipate opportunities to save more money. We will achieve substantial profitability at the gross margin line and the bottom line. If I didn’t believe that, I wouldn’t be dedicating myself to this endeavor, and I have ample experience to support this belief. But again, the numbers back it up. Our EV ARC product broke even on a gross profit basis in the fourth quarter. Overall GAAP profitability is improving, and certainly, we can see this from a unit economics standpoint. The important takeaway from this call is that our EV ARC product—the product driving most of our revenue—actually reached breakeven in the fourth quarter. We do have other segments of our business outside of that, with seven or eight different products we manufacture, including batteries and EV charging solutions. Naturally, we monitor performance across all of those items, and we know that we’ve made gains in the EV ARC product market.

I appreciate all that color. I'll hop back in the queue. Thanks.

The next question comes from Tate Sullivan with Maxim Group. Please go ahead.

Thank you. Hi, Desmond. You mentioned growing the production of battery packs by 10 times since about March of last year, which is a lot. Are a lot of those battery packs going into your EV ARC units, or can you bifurcate it a little bit?

No, they definitely are. The team over there has done a fantastic job. I'm so proud of them and so glad they are part of the Beam Global family now. They really have completely upped their game since our acquisition. Yes, they are now supplying all of our internal battery requirements. The savings we have realized as a result of that are substantial—an immense amount of money. Remarkably, I believe we will pay off the acquisition simply from gross margin recapture, never mind all the other benefits we’re obtaining from it. So yes, a large portion of what they produced last year was for our internal use, but I should also mention that they also sold over $8 million of battery solutions to external clients. Those are being deployed in drones, robots, and submersibles. I find this side of the business very exciting. I don't want them to focus solely on producing batteries for us; I want Beam Global to expand to these other areas. We have a drone recharging product, EV recharging solutions. I firmly believe there will be a dramatic increase in the use of robots of all kinds, whether they're airborne, submersible, terrestrial, or simply bringing you a beer from your fridge in the future. There will be substantial energy-dense, safe, and well-packaged battery solutions required, and Beam excels at providing those. It's been a tremendous effort from their side, and we will need to expand. We have a 20,000-square-foot facility in Chicago that we know we can't remain in because we will require more space. I fully intend to further our EV charging product manufacturing into the Midwest, as well as expanding the battery manufacturing facility into that location at some point in the future. I also aim to extend battery manufacturing into Southern California, so that we produce the batteries for our EV charging products right here instead of shipping them from Chicago. This is neither dilutive nor subtractive from what Chicago is doing. The good news is that in both of those expansions, I'm led to believe we will receive a great deal of support from local governments—much of it being non-dilutive grant money, which probably won’t even have a repayment term.

Great. Just to clarify on the GSA contracts, are you referring to extensions for contracts with customers through the GSA contracts, or did you mean you extended the actual GSA contract structure? Additionally, how long does the current GSA contract structure last?

Yes. To be clear, when I refer to both the GSA and the California contracts, I mean that, generally, although those contracts are restricted to only federal entities or only to California, in the case of the federal government, they have enabled those contracts to be available to government entities citing disaster preparedness in their procurement processes. This is one of the critical decision factors for organizations such as the Army, Marine Corps, New York City, and numerous others purchasing our products, including a lot of corporations, by the way. They recognize the value of charging vehicles during blackouts and brownouts, which have become increasingly frequent in recent years. Our products serve as contingency solutions. Hence, the federal government permitted its contract to be utilized by any government entity nationwide that cites emergency preparedness as a reason for acquiring our products. The State of California similarly allows other government entities to utilize the contract we renewed in 2022. This is remarkable for us; it exemplifies the electrification of transportation is advancing. Further, at a time when funding is paramount, we have streamlined processes allowing for expedited transactions. When user sites can bypass an extensive, time-consuming Request for Proposal (RFP) process, this enhances our business appeal. Other governmental entities that don't have either the inclination or the budget to engage in the lengthy RFP process can legally purchase through either the California contract or the federal GSA contract. This might be a small rural community or a larger entity that wants to sidestep the complexity involved in the RFP process. They can purchase our products directly through the California and federal contracts, especially when they emphasize disaster preparedness.

Great. Thank you, Desmond.

The next question comes from Craig Irwin with Roth MKM. Please go ahead.

Good evening. Hey, thank you for taking my questions. Much of what I would have asked has already been covered, but there is a particularly interesting angle to your story that you didn’t cover in your prepared remarks: the carbon credit opportunity. Over the next several years, you're anticipated to generate a significant number of carbon credits. Can you share where you stand regarding this? How could this potentially be monetized? What should we look out for? Or is this not really a short-term priority?

I think it's fantastic that you’ve even identified that. You’re absolutely correct. The simple fact is that the cost of carbon—particularly in Europe—has accelerated dramatically. Just two years ago, it was about $21 per ton; it’s over $100 a ton now. Our EV ARC product produces or reduces over 12 metric tons of carbon per annum in its operations. That's a single EV ARC. Therefore, when you take a look at our backlog today, multiply that by 12 metric tons and then multiply that by $100 per metric ton, it’s easy to see how this could be a meaningful revenue stream for anyone who owns our EV ARC product. Of course, the majority of the EV ARCs we produce today are owned by others, and we have enjoyed this business model to date. However, I've been transparent about the likelihood that at some point in the future, we may develop a network of these products ourselves through various models, in which case all the carbon benefits would either accrue directly to us or to whichever party we select. This represents a significant source of recurring revenue that has yet to be recognized in our current discussions and hasn’t been reported to date. The market has not given it due recognition.

Excellent. And as a follow-up, you haven't really mentioned or focused on sponsored deployments in quite a while, at least in your public communications. Are there any updates you can offer us? Or is this something we might need to consider on the back burner while you focus on serving demand that's already quite intense?

Thank you for acknowledging the demand; it is indeed intense. There’s great energy and enthusiasm within our organization. Everyone feels like part of a winning team—and they are. I've been discussing our sponsorship network for a while, and I'm still confident that we will get it done. I have made numerous commitments over the years since I have been managing this company. With the help of our exceptional team, I've met each commitment except for this sponsorship initiative, which remains the one challenge yet to be resolved. I do not want to classify it as being on the back burner; that's simply not the case for me or for our skilled group working on this. They only get performance-based pay; we do not offer any retainer or anything. If they are willing to invest their time in this initiative, they must have a good feeling about its potential. I'm still engaging with interested parties who could become sponsors, but we've not yet finalized anything. I realize that people may be exhausted by hearing me suggest that we will achieve this goal without definitive action yet; however, I remain committed and optimistic about our future success.

I'm not surprised by your tenacity; I wish you success. I look forward to progress. I'll hop back in the queue.

The next question comes from Noel Parks with Tuohy Brothers Investment Research. Please go ahead.

Hi, good afternoon. I just had a couple of things. I noticed that in the past three to six months, several companies have been offering alternative battery technologies—often involving alternative materials. Have you seen any of these emerging technologies that you consider worthy of investment, whether in minority stakes or an acquisition? I'm particularly focused on your long-term storage portfolio.

Absolutely; there is plenty to unpack with that question, Noel. First and foremost, we are an innovation company, and we commend anyone who innovates, especially at the intersection of clean energy and transportation, which is where we focus our efforts. This is an immense area to focus on. For now, however, we believe there are numerous years of lithium battery business growth still ahead of us—likely close to a decade—before any alternatives, such as solid-state or others, become widely available. You don’t have to just take our word; observe the significant investments being made by much larger entities in this space. We will continue to enhance our expertise and add value to lithium-based NMC cells, making them safer and more energy-dense while extending their lifespan. Furthermore, charging and discharging a battery, in principle, produces thermal events; that's physics. It is not dependent on the brand or other factors. Thus, having excellent thermal management solutions, as we do, will serve as a differentiator for us regardless of the technology incorporated. As for investing in other emerging technologies, I won’t take people’s funds to engage in speculative technology investments. My focus remains solely on the growth of Beam Global. I will invest in promising technology or solutions that could expand Beam Global, with guidance from my Board and proven expertise. However, I don't expect to pursue outside investments in technologies for now. We're far too busy scaling our own company.

Sure, fair enough. I wondered if you could address your energy storage sales; I assume 2023 will be the first full year of impact from this business line. Do you estimate there will be a higher overall percentage of total revenues in 2023? Any insights on that?

I'm not going to predict it will be a higher percentage of total revenues, but I strongly believe will lead to higher absolute sales. We’re achieving excellent growth relative to our target markets—not only are we enhancing their sales capabilities, but we are also encouraging the hiring of more sales personnel and marketing, improving product delivery. I anticipate our energy storage sales team will perform significantly better this year. However, I can't assert that the percentage of revenue will increase, as the EV charging side of the business holds a considerable market share.

Right. Actually, once you started discussing this, I realized you are right. The growth on the charging side is likely to outweigh the standalone storage segment, making that sense. Lastly, could you provide greater clarification regarding NEVI rulemaking, alongside guidance surrounding IRA issues? Many parties seem to be waiting for that, especially in the context of the IRA. Are there any upcoming developments on that front?

The simple answer is, I am confident we will see benefits from not only NEVI but also the billions that the federal government is committing to EV charging infrastructure—more so than the $10 billion California is investing. There are specifics in NEVI that I honestly think will be challenging to execute on; for instance, the idea that 600 kilowatts of charging will be established every 50 miles on highways in the United States is a fantasy. The electrical grid simply does not support that implementation. I see tremendous opportunity for us there, notably for our Solar Tree product, a good fit for locations requiring 300 or 450 kilowatts, but not necessarily for the EV ARC product. Our model could provide that last 150 kilowatts if necessary, without needing extensive infrastructure buildout. This won’t likely be a near-term focus, but I envision this being fulfilled as unmet needs arise. With the $2.5 billion in funding set to be allocated, many resources will go toward disadvantaged communities, tribal lands, and similar initiatives. I strongly believe we present an unrivaled solution for these areas—demonstrated through our Electrify America deal, and various authorities indicate our success in providing clean, green “driving on Sunshine” solutions costs to underserved groups. It's evident that a significant portion of funding will be directed accordingly. I also expect to see a continued growth in non-government commercial sales. Many point to this—clients often say, 'You're only a government-focused company.' We're not! 35% of our revenues came from commercial customers last year, and I anticipate that percentage continuing to expand.

Great. Thank you for that detailed response.

The next question comes from Abhi Sinha with Northland. Please go ahead.

Hi, Desmond. Thanks for taking my question. Quickly, can you give us some sense of how or what percentage of your revenue in 2022 or even your backlog is coming from repeat customers?

That's a good question; it constitutes a significant portion. I mean, obviously, New York City is an obvious example to mention. We received a $5.3 million purchase order from New York City. They’ve been buying from us since about 2015. Each order from them has been greater than the last. We have been successful in partnerships such as those with the GSA contract and the California contract. While many orders come through those contracts that make reporting on repeat orders challenging and concentrated, we indeed have significant repeat business, especially among those customers who initially entered our market with one or two units to confirm our reliability during our early days. However, I find quantifying precise percentages difficult due to these contracts and the varying nature of GSA versus California contracts. Nevertheless, we genuinely value repeat orders that are larger than previous ones.

Sure. Given that, I'm trying to understand what's stopping you from providing a revenue number or unit sales guidance that would help in spreading out there?

I won't provide guidance because it would be foolish for me to do so. Imagine if at the beginning of 2022 I stated we would double our revenues, while ending the year with 300% of our contracted backlog. There are too many moving parts we cannot control. We exist within a brand new industry characterized by pioneering technology and novelties. There isn’t any historical framework to refer to. For instance, I would have never predicted we could convert 80% of our pipeline into backlog, which I have witnessed as a first in 40 years of business. The reality is that we do not possess sufficient information to make accurate forecasts, yet I am utterly convinced we will continue to experience dramatic and accelerating growth. Absolutely, I think the key takeaway from this call is the pipeline returning to over $100 million after subtracting the $76 million incurred during the year from an initial $80 million pipeline, points to significant growth. Although I can't predict exact numbers, early indicators support our ongoing success.

Understood. Lastly, could you provide any insight into what dollar revenue number or unit sales kind of threshold you have in mind before reaching breakeven gross margin? Will this happen in 2023?

Yes, I—asked and answered. We indeed reached a breakeven gross profit on EV ARC products in the fourth quarter.

Got it. Thank you very much, Desmond.

Thank you.

The next question comes from James Michalak, an individual investor. Please go ahead.

Hi, Desmond. It’s nice to talk to you again. Just a general comment regarding market opportunity. It seems you’re looking at an easy $1 billion+ market. The challenge, in effect, is for Beam to secure a critical mass for taking advantage of this opportunity. Two earnings calls ago, one of your esteemed private investors suggested you secure a significant credit line or financing for growth—so, congratulations on successfully doing so. Obviously, that was a vital piece...

Thank you!

I had two questions. First, how strong is the patent protection for EV charging systems not connected to the grid? And when do those patents expire?

Yes, thank you for your insightful question. Our patent protection is fundamental to our product. There are multiple patents associated with the EV ARC product, all of which are critical to its operation. Our approach was deliberate; we ensured that competitors who attempt to replicate the EV ARC would inevitably infringe on our patents. These patents have about ten years remaining in their life cycles, and we’ll continue to monitor for any violations aggressively.

I see. Thank you. And my second question was regarding competition. Are there any current competitors on a larger scale that are offering competing systems that are not grid connected?

I’m not aware of any competitor with a format similar to ours—which is rapidly deployed and transportable. There may be small companies attempting to develop similar products, but they are not truly competitive with the EV ARC. For instance, we lost a contract last year to a company offering solutions utilizing 20-foot shipping containers. They affixed solar panels to the containers and integrated battery systems, attaching EV charging to the outside. Although they can compete with our speed to deploy, they still aren't as efficient or elegant as our design, which is engineered to be both highly functional and appealing. Watching the integration of our design into operational deployment through our product video on the website is encouraged; customers rave about the approach we take versus the shipping container method. Our structure does not impede parking and does not require the removal of spaces. Shipping containers, on the other hand, can obstruct, and this has a negative impact on compliance. While we might have lost orders to other companies offering shipping container solutions, their operational energy density fails to match ours; they do not utilize our patented tracking solution to capture the generated solar energy. We're likely to witness customers expressing disappointment with that decision long-term.

Thank you. Lastly, you stated you’re halfway through the life of your first patents; how many years remain for those?

About ten more years.

The conference has now concluded. Thank you for attending today’s presentation. You may all now disconnect.