Beam Global (NASDAQ:BEEM ) Q2 2022 Earnings Conference Call August 12, 2022 4:30 PM ET

Desmond Wheatley - President, Chief Executive Officer and Chairman

Kathy McDermott - Chief Financial Officer

Christopher Souther - B. Riley

Tate Sullivan - Maxim Group

Noel Parks - Tuohy Brothers Investment Research

Joseph Miranda - Private Investor

James McCulloch - Private Investor

Frank Hart - High Capital Funding

Allen Ginsberg - Private Investor

Good afternoon and welcome to the Beam Global Second Quarter 2022 Financial Results and Corporate Update Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Kathy McDermott, CFO. Please go ahead.

Thank you. Good afternoon and thank you for participating in Beam Global’s conference call for the second quarter of 2022. We appreciate your time today to join us for this call. Joining me is Desmond Wheatley, President, CEO and Chairman of the Board. Desmond will be providing an update on the recent activities at Beam followed by a question-and-answer session.

But first, I’d like to communicate to you that during this call, management will be making forward-looking statements, including statements that will address Beam’s expectations for future performance or operational results. Forward-looking statements involve risks and other factors that may cause actual results to differ materially from those statements. For more information about those risks, please refer to the risk factors described in Beam’s most recently filed Form 10-K and other periodic reports filed with the SEC. The content of this call contains time-sensitive information that is accurate only as of today, August 12, 2022. Except as required by law, Beam disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call.

And next, I’d like to provide an overview of our financial results for Beam’s second quarter ended June 30, 2022. For the second quarter of 2022, we reported record Q2 revenues of $3.7 million, a 75% increase over $2.1 million reported to the second quarter of 2021. We also reported record first half revenues of $7.5 million, a 114% increase over $3.5 million reported in the first half of 2021. During the first half, of the $4 million increase in revenue, $1.8 million was for our newly acquired battery storage business. $1.8 million was for increased shipments to federal, state and local governments, and the balance consisted primarily of shipments to enterprise customers for fleet vehicles or workplace charging.

Gross loss in the quarter ended June 30, 2022, was $0.3 million, flat with the same period in 2021. For the first half of 2022, we reported a gross loss of $0.6 million compared to $0.4 million for the first half of 2021. The gross loss improved by 4 percentage points in the second quarter and year-to-date compared to the prior year as a result of the increased production volume, resulting in favorable fixed overhead absorption and improved labor efficiencies and utilization. These savings were partially offset by higher material costs for steel and other components due to supply chain shortages and other inflationary pressures.

Operating expenses were $2.5 million for Q2 2022 compared to $1.4 million for Q2 2021. For the first half of 2022, we reported $4.5 million for operating expenses compared to $2.5 million for the first half of 2021, a decrease as a percentage of revenue of 11 percentage points. The increases were primarily due to the addition of our new battery storage business and increased legal and accounting services partially due to the acquisition. The net loss was $2.3 million or $0.28 per share for the second quarter of 2022 compared to $1.6 million or $0.18 per share for the second quarter of 2021. The net loss for the first half was $5.1 million or $0.52 per share compared to $2.9 million or $0.33 per share for the first half of 2021.

At June 30, 2022, we had cash of $13.8 million compared to $21.9 million at December 31, 2021. The cash decrease was primarily from operating activities and the cash payment for working capital for the purchase of all cell technology. Included in the operating cash usage with year-to-date, we increased inventory purchases and increased prepayment to vendors for inventory to reduce the risk of potential shortages of cells required for battery manufacturing as well as an increase in work in process inventory of EVR ARC units. These increases are not expected to be ongoing quarterly cash requirements. Our working capital decreased from $24.6 million at December 31, 2021, to $19.4 million at June 30, 2022.

And with that, I’m going to turn the call over to Desmond to give you an update on the business. Desmond?

Well, thank you, Kathy and thank you everybody else for joining us today for this call. I am going to just start out by reminding all of you – or certainly introducing those of you who’ve not joined us for one of these calls before that we are in the flight path for the Marine Corps Air Station at Miramar. In fact, we’re only about 1 mile that crew from that air base. From time to time, we will get fly over it during this call, and it’s very loud when that happens. When and if it does happen, just expect me to stop talking and I’ll wait for them to fly over for 10 or 15 seconds and then I will start right back up where left off. Don’t worry if you have a very loud noise, that’s all it is.

Well, we have had another very fruitful quarter at being global, setting new records in revenue sales growth and pipeline growth. We’ve also increased our efficiencies, reduced our cost per unit produced and improved gross profitability and net profitability in both the second quarter and the first half of this year. We’ve made significant advances in the integration of our recently acquired battery company in Chicago. And I’m happy to report that in addition to the other good work we’re doing there, we’re now starting to produce our own proprietary battery systems and installing them in the latest EV ARCs, which are currently being shipped to our customers at a greater rate than any time in our history.

The level of attention that Beam Global is now receiving at state governmental levels and also importantly, in Washington, D.C., is higher than it’s ever been. And that’s being matched by significant increase in attention from the media. I’ve recently met with Congressman and ranking officials from the Department of Energy and Transportation. 2 years ago, I might have had a hard time getting a junior staffer to take my call. Such are the advances that both we and the understanding of what we do and why we do it have made.

I have also personally been interviewed by publications like the Wall Street Journal, CNN, Inc. Magazine, political and many other trade and industry publications, where previously Beam Global’s products might have been viewed as interesting and niche solutions for a minority of EV charging requirements. The attributes which are embedded in our value proposition, such as rapid and highly scalable deployment a secure source of energy during grid outages, a low token cost of ownership and a versatile and flexible means to increase electrical capacity, not afforded by the giant and centralized grid, are now being viewed as essential by regulators, policymakers and importantly purchasers, both governmental and corporate.

The EV industry is really taking off and the general global perception of energy and its instability, along with climate change, exacerbated by the war in Ukraine and the heat waves and fires being experienced all across Europe, Asia and the United States, tragic as they are, are increasing awareness and acceptance of products, which clearly reduced the risk from both energy and security and climate change. Beam Global’s rapidly deployed and renewably energized portfolio of products are poster children the new era of increased emphasis on clean, reliable, secure and domestically produced energy and as a means to actually provide the massive amount of publicly available electric vehicle charging that will be required over the next couple of decades.

Now, let’s take a look at some numbers. In Q2, as Kathy said, we generated more revenue than in any second quarter and actually the second highest revenue of any quarter in our history, a 75% increase over Q2 of 2021. That continued a trend we set in the first quarter of this year, resulting in first half revenues, which are 114% greater than that first half prior year, and actually, greater than any full year’s revenue in our history, except for last year. So at the midpoint of the year, with 6 months left to go, we had already generated over 80% of 2021’s full year revenue. And that year was 144% of our previous record year. Perhaps you can start to detect a pattern here. I believe that we’ll see an increase in momentum during the remainder of this year. So naturally, I’m feeling enthusiastic about our future, both short and long term. We are operating in a period of unprecedented inflation and supply chain challenges. And yet in the second quarter and indeed, throughout the first half of 2022, we improved our gross profitability by over 4%. Improvements of net profitability were over 14% during the first half.

Now remember that during that period, we closed the acquisition of our Chicago-based battery company and commenced the integration of the two entities. Integrating a new acquisition is never easy. It inevitably leads to increases in overhead costs, albeit often onetime increases. That’s certainly been our experience at this time. And yet, we have actually reduced our net loss as a percentage of revenue while undertaking this challenge.

So looking at gross profitability and net profitability, you can see that we were able to improve both even in the face of the extraordinary activity of integrating an acquisition and during a period of the most severe inflation and supply chain challenges certainly in the last 40 years. I have consistently committed to improving our gross margins and our bottom line as volumes increase. The Beam team has consistently made a reality of the commitments that I’ve made on their behalf. Our use of cash during Q2 was much higher than in previous quarters, but let’s be absolutely clear about what this means and what actually happened.

The increase in the use of the cash was not the result of excessive and propagated increases in overhead spending, far from it. Reading our filings, you will notice that of the $7.4 million of cash we used in Q2, $3.6 million was spent on inventory work-in-process products, largely partially completed EVRs, which were already sold and importantly, the strategic allocation of cash to secure vital battery cells, which are essential to our EV chartering product production and to our broader battery manufacturing business.

Anybody who reads the newspaper will know that supply chain constraints where battery cells are concerned from real. We used cash to defend against risks associated with these supply chain constraints and we put ourselves in a position of security for the foreseeable future, even in the face of the significant increase in demand for our products, which we’re experiencing. It’s important to point out that using cash in this way, it’s not the same as burning it on overhead because any cash we use in this manner will be returned to us as cash when we take revenue on the products reduced as a result of work in progress, inventory and the prepayments that we’ve made to vital suppliers.

Now this is not a condition which I anticipate we will endure. While there is a supply-demand imbalance to date, I’m confident that, that imbalance will be corrected in the future. In any event, our use of cash in the second quarter was composed of many non-typical events and actual cash burn not related to cost of goods sold was fairly consistent with history. We remain highly frugal with, I would say, almost unrivaled discipline where overhead spending is concerned. And if you’ve visited my office, can happily attest to that.

A quick glance of our working capital position should remove any doubt about the veracity of my comments on this matter and demonstrate that we still need not be concerned about running out of money. But if you want more detail or color on this matter, don’t hesitate to raise it during the Q&A session, or if you prefer, get in touch with us after the call. I or Kathy would be happy to discuss the merits with you.

The Beam team has worked very hard to mitigate the impacts of the various supply chain challenges, which have confronted us during the last 12 months, in particular. It’s been hard work and required their professionalism and commitment to ensuring that challenging as it is, we do not allow it to prevent us from shipping product and generating revenue. While we had many eye-bow raising moments, none have been more acute than those we have experienced with the battery supply chain. Any of you who listen to my explanations of the wisdom of making our battery company acquisition will know that one of the significant factors which drove me to execute on that excellent transaction was my determination to insulate us from the battery supply chain constraints I anticipated.

Hindsight has more than validated my premonition. We’ve struggled this year to acquire sufficient battery packs from our prior supplier to meet the ever-increasing demand for our products. While we manage through this shortfall, our Chicago-based battery team has been working with urgency to engineer and manufacture a new and superior pack for our EV ARC products. This is a process which is much more complex than many may imagine. Creating a safe, efficient and cost-effective battery pack system is not the same as popping a few AAs into a flashlight. It’s complex and difficult, and it requires a highly experienced team like the one that came with our acquisition. This of course is a significant differentiator for us.

While there are increasing numbers of traditional electric vehicle charging infrastructure companies who are attempting to integrate battery storage with their grid tide installations, we are the only company that I am aware of has its own proprietary energy storage solutions. The first of our new battery packs have now been shipped from Chicago facility and they’re being installed in the latest EV ARCs, which are shipping to customers.

The transition was not seamless and there have been periods during which we had otherwise completed EV ARCS waiting at our San Diego facility for battery packs. This goes some way to explaining the larger-than-normal work-in-progress inventory, which we’ve had on hand. The good news is that we’re solving these problems, and we fully anticipate that our Chicago team will catch up and keep pace with the increasing velocity at which we are having to produce EV ARC systems. They have not lost any orders as a result of these delays, but the revenue did move right. This increased pace of EV ARC production is impressive. Our existing team has more or less doubled the number of systems they were able to produce just 6 months ago. A strong indication of how much more efficient we’ve become is that our revenue per employee increased by 34% over Q2 of 2021 and it’s almost double what it was in Q2 of 2020. Said another way, while we are dramatically increasing our output, we’re doing so without dramatically increasing the headcount. And of course, we’re getting even more leverage from our fixed overhead costs.

Another area where we’ve seen skyrocketing inflation is in the cost of transportation, both to deliver our products and also to receive the components and raw materials that go into them. While we cannot impact the cost of incoming transportation, except by increasing our volumes, of course, which we’re doing, we’ve been able to positively impact the way we transport our products to our customers. We now have a beautiful video, which shows our latest advance and delivery technology, a single operator transporting not one, but 2 EB-Oxtor customer site and deploying them before returning to the factory. Remember that we can integrate as many as 6 charters onto a single EV ARC and then consider Beam Global’s impact on an industry that requires teams of contractors, electrical workers, consultants, engineers and permitting specialists to spend weeks or months deploying a grid-tied charter. This new video shows a single Beam employee deploying 2 EV ARCS systems, which are capable of carrying as many as 12 chargers in a couple of hours with no on-site activity or disruption for our customers. Look for that video soon on our website. It’s really fantastic.

Our production and revenues are up because, of course, sales are up, and this is probably the most exciting part of the Beam story at the moment. At the end of the second quarter, we had over $10 million in contracted backlog. This is a significant increase over the highest backlog that we’ve reported or indeed had at any time in our history. It’s greater than any 4 years revenue we’ve ever reported. At the same time, our sales pipeline has also increased to a new record of over $120 million.

We keep getting more and more conservative about what we consider as active pipeline, and yet the number continues to increase dramatically. The combination of increasing revenue, backlog and pipeline has never been better. Investments we’ve made in adding salespeople, increased marketing efforts and particularly in government relations, has contributed to this growth. But in my mind, more importantly, positioned us for what I believe will be dramatic and accelerating growth for the foreseeable future.

Just looking at anticipated federal spending on electric vehicle charging infrastructure and clean energy and remembering that we have a GSA contract in place and a blanket purchase authority that federal agencies can use to acquire our products might give a reasonable person cause to suspect that Beam Global will see significant growth in that area alone. But the fact is that federal spending commitments, while they dramatically increased this year, particularly now that the IRA has passed the Senate, are only one contributing factor to our future growth. We are seeing increased spending across the board at both governmental and corporate levels. There maybe a recession coming. Enough to be bad news for lots of companies, but it might have the opposite effect for us. Very little, if any of the pipeline revenue that we have will be impacted by a recession might even support it.

At the same time, availability of labor will increase and commodities, raw materials and contributing parts will be in reduced demand, which should make them easier for us to secure or possibly reducing their costs as well, feels good to have a business that should not be impacted by recession. We could end up being one of the few bright spots in an otherwise pretty dim 2023.

Europe’s commitment to banning the sale of internal combustion engine vehicles in 2035 has been a wake-up call to the entire industry. Automotive OEMs will not be able to produce internal combustion engine vehicles for North America and electric vehicles for Europe, not in this day and age. There are about 1.4 billion cars on the world’s roads today, moving to $2 billion by 2030. In the United States, there are about 300 million of them.

You need one publicly available charging plug for every 5 electric vehicles on the road. Simple arithmetic shows that the United States will need something in the order of 16 million plugs in the coming decades. Let’s say we have the luxury of four decades to deploy all these plugs. We still need to install about 1.5 million a year, every year for 40 years. Beam Global has the most rapidly deployed, scalable made in America infrastructure solution available today, and we power any quality brand of charger. There will certainly be a mixture of solutions required to provide all the charging infrastructure and energy required, but with our unique attributes, I do not anticipate any decrease in the velocity of our growth for a long time to come.

In fact, I think we are going to be very, very busy. Our sales are not just coming from EV charging solutions. If there is another area of growth, which is as exciting as it has to be battery systems. Recently, we sold our delivered batteries to companies that produce or operate drones, medical devices, EV chargers, industrial robots, personal watercraft, electric aircraft and material rehandling equipment. These organizations and uses are as diverse and broad as the requirement for say, energy dense and long-lived battery solutions.

While our battery company acquisition is important to our EV charging infrastructure product business, it’s also opening up a whole new universe of strategic revenue opportunities in the energy storage ecosystem. These opportunities are supportive of our renewably energized charging business because just about anybody who integrates batteries into their product needs to have a clever way of charging them. But they also provide another area of what I believe will be significant growth for Beam Global. We continue to pursue the sponsorship opportunity about which I’ve said so much in the past. I’ll offer you one update, which I believe will help you to understand why continue to invest time and effort in this initiative. On Monday of this week, I welcomed a team from one of the world’s largest companies to our facility in San Diego. They toured the factory, and we discussed the opportunity. This is their third visit by different teams of representatives from this one very large company.

The basis of our discussions from Day 1 has been the sponsor driving on Sunshine Network. Now I cannot guarantee that we’ll secure a sponsor for our driving on Sunshine Network, but I can report that we continue to be actively engaged with very large organizations whose primary interest in us is driven by their interest in this initiative. Until that ceases to be the case, I will continue to drive the opportunity forward with the help of our partner, the Superlite Group. We still believe that it offers an excellent future source of highly profitable recurring revenue. As I have said before, as attractive an opportunity as a driving on Sunshine Network is for us, it has never been essential to our growth or prosperity. A significant and continuing growth in our core business demonstrates that fact. However, as I’ve also said, still view it as an excellent and attainable opportunity.

Finally, I want to brief you on our continued international expansion plans. In September, I’ll travel to Europe and the Middle East for a series of meetings, which are intended to create fertile ground for expansion into both markets. Successfully pulling this up will take time and work, and I will not do it unless I am convinced that we are positioned for success. Nevertheless, Europe is the largest EV market in the world and arguably even more receptive to product solutions, which have the attributes we so uniquely possess. We continue to secure patents in that market. The combination of extreme weather events and equally extreme vulnerability to traditional sources of energy has had a significant impact on European receptivity to rapidly deploying infrastructure to support electrification of transportation and reduce the reliance on traditional utility grid electricity. Beam Global’s products solve for both opportunities.

The Middle East, it’s far or less advanced where the adoption of electric vehicles is concerned. However, there is increasing interest in that or work for clean and sustainable solutions, and there’s lots of cash to fund them. With the right partners in place who have relationships and credibility where infrastructure is concerned, I believe that we can create some significant growth opportunities in that market.

Furthermore, we will provide a gateway to the rest of Africa, where large sums of capital are expected to be invested by the rest of the world in the transition to sustainable energy and transportation. It’s early days yet where international expansion is concerned for us, but I want you to know that it’s an extremely important area of focus for me, and I intend to prosecute it with vigor. We will, of course, provide updates through press releases, filings and calls like this if and when we make material progress.

So to sum up, record revenues, record sales, record backlog, record pipeline and an improvement in our gross and net profitability during exceptionally challenging times. I’ve often said that there’s never been a better time to be being global, and that’s because we continue to break records, provide growth and improve our execution. So simply true, there really never has been a better time to be Beam Global, except the time that’s coming.

Thank you all for your time and attention. I’ll now return the call to the operator and to Kathy and take your questions. Operator?

[Operator Instructions] Our first question is from Christopher Souther with B. Riley. Please go ahead.

Thanks for taking my question here. Maybe just on the backlog pipeline, could you maybe breakdown that between traditional Beam products and the storage side and then maybe within traditional Beam, the mix between government and some of the commercial customers? Trying to get a sense of where we are in some of the commercial customers coming back after COVID slowdown and how that backlog and pipeline are starting to broaden out here? Thanks.

Yes. So on the breakdown of backlog, it’s highly transient, of course and I’ve mentioned this on previous calls before, I actually think that backlog is a less useful metric than pipeline and revenue, because of course, as we execute on backlog and convert it to revenue, it might never even show up in the reporting periods. So it’s highly transient. At the moment, it’s probably 50-50 charging products to energy storage products. And we are seeing a significant return and increase to corporate backlog in our mix. During COVID, as you just pointed out, we certainly saw very significant reduction in non-government revenue and backlog. And I have to point out that even during that period we never did reduce our revenues at all, even though having lost more or less all of our enterprise or corporate spending. At the moment, we are seeing that rolling back. But at the same time, look, it’s – we are heading towards the end of the third quarter, federal government spending, a lot of the contracts are signed and closed out before September 30 or have to be done by September 30. So I wouldn’t be at all surprised to see a significant shift in favor of the charging products during that period and a significant increase, obviously, that’s what we are planning for, but that’s the way it breaks down at the moment.

Okay. Maybe the pipeline as well, just given that it’s more meaningful here?

Yes, the pipeline, yes. Sorry, Chris, I didn’t mean to ignore that part of your question. If I have to be honest, I forgot it. The pipeline is actually more – much more heavily weighted to the charging products side. So the stuff that you have been used to seeing Beam selling and that speaks a little bit to some of the comments that I just made. As I’ve said before in previous calls, we are increasingly looking at very much larger orders with very much larger product volumes associated with those orders. And although we weight them heavily, nevertheless, they are extremely impactful. And it doesn’t take more than one or two of those to a dramatic life-altering impact on this company. And of course, that’s what we’re working to effect.

Got it. No, that’s good to hear. And then on the Volvo construction equipment deal, it seems like your product could be very well suited there. Can you just talk about the time where you think that could start to be meaningful? And maybe initial thoughts on how you size that specific opportunity or end market? I understand it’s very early days here.

Yes. So that’s precisely why I didn’t mention it during my comments. I’m very, very enthusiastic about that Volvo partnership. There are several aspects about it, which I really like. The first one, obviously, to have a company like Volvo, include us in their catalog and in their financing, so that customers can bundle their products and ours under that one finance blanket, that’s a – I mean there are many layers of value surrounding that. It’s a significant validation of what they think of our product and the future of the business. It’s also a strong recognition of the fact that electric construction equipment without rapidly deployed EV charging infrastructure that doesn’t rely on the grid. Because remember, folks, when you’re doing a construction site, there is an electricity there most of the time, especially when you’re moving dirt, which is what most of these machines are designed to do. So it’s a strong recognition and validation of the idea that having a transportable and renewably energized product that generates a storeless, all of its own energy in those types of environments and can then be moved to the next construction site. It’s a very important part of our value proposition. So, all of those things are good. Why I did I not mention it in my comments because it’s still a small market in the United States. But I’ll tell you where it isn’t a small market, Europe, increasingly in Europe, between particulate pollution, the sort that you get from diesel and noise pollution, the sort that you get from diesel pollution – diesel engines, it’s becoming increasingly difficult to operate diesel equipment in Europe. And I think that we’re going to see an awful lot of growth in the deployment of that type of infrastructure there.

And as I already mentioned in my comments I think that the European market will be even more receptive to our products than the U.S. market because they are more sort of green, renewably energized minded, but beyond that, because it’s actually much harder to do infrastructure in Europe because the streets are older. There is a lot more antiquated stuff around and everything else than certainly in the western part of the United States. So part of what I’ll be doing when I’m in Europe, asides from looking for or advancing my conversations with partners to expand over there, will be looking at those sorts of opportunities. And I think that’s where it’s going to – we will probably do more there than we will in the United States in the early days. However, I believe it’s inevitable that it will take over here, and it’s a multibillion-dollar industry, and we intend to take a good piece of it.

Got it. I will hop into the queue. Appreciate it.

Your next question is from Tate Sullivan with Maxim Group. Please go ahead.

Hi, good day. Thank you, all. On the – I mean, again, of the backlog, an impressive number, but I mean the backing into the implied orders in the quarter, I think it also implies it’s close to 10. Did you have some customers that didn’t allow you to disclose larger orders or was it just a wide variety of smaller orders within ‘22?

Yes. So this is kind of an interesting question, and it reflects a shift in the way that we are reporting what we do. In the past, when we were getting fewer orders and they were smaller, we tended to report all of them. However, that’s changing now. We’re getting – I mean if I put a press release every time we get purchased or I’ll be putting a press release every day practically. And in fact, I think the numbers for the second quarter bear that out. We certainly had a purchase order every couple of days in the second quarter. And so what we’re trying to do now is do less of that because we don’t want the broader market or the investment community or anybody to think that we’re excited by a 1 or 2-unit order anymore. Look, we love every order that we get. But what we’re trying to do now is reduce the number of pressure leases we put out and maybe bundle stopping them there. So you didn’t see a lot of stuff because of that.

Rest assured that – and even, by the way, if we have a large and meaningful customer, the drone press release that we put out, it’s a perfect example of this. We’d love to have named them, but they asked us not to. And that’s going to happen with the many customers, particularly the really large ones that are very well-known and popular ones that whose brand is so valuable to them, they don’t even want us putting it in our press releases. They quite often brag about what they are doing with us, but we’re not allowed to. So it’s a combination of all those factors. But rest assured, when anything really big hits, we will still identify those with press releases. But yes, you’re going to see more of this. You’re going to see more revenue growth, more order, growth more backlog growth without necessarily being able to add up all the press releases to get to it.

Got it. Thank you. And then on the revenue composition in 2Q, Kathy, you mentioned in the press release $1.4 million from energy storage. But I heard you in your prepared remarks you also broke it down between government customers and commercial. Can you give those numbers again, please?

So that was part of the increase in revenues, $1.8 million that was the Energy business that we didn’t have in the prior year. So that was all growth. And then we had $1.8 million was an increase in the federal state and local government area. So to $4 million, that’s the majority of the growth.

I think what the astute listeners are going to figure out here is that the – and I mentioned it in my comments that we have quite a significant accumulated WIP, work-in-progress group of essentially partially – well, all but complete EV ARC systems that because we had that lack of smoothness in the transition from prior battery vendor who were unable to keep up with our demand and the new engineered packs that we’re bringing over a year, those would otherwise have gone to customers. So said another way, we might have had a much better quarter if it wasn’t for that imbalance. Now the good news is they haven’t gone anywhere. And we are now stopping batteries into them and shipping them out to customers. And so as I said in my comments, that revenue didn’t go away. It just moved right and it will inevitably hit future quarters.

Okay. And last for me – sorry, you went over some of the verticals for wholesale. I heard medical devices, material handling, drones, what are some of the others that you mentioned as well too? And it sounds like drone is just one of the many areas that you can go and sell to.

Tate, I’m not going to keep taking your questions if you keep referring to them as wholesale. We’re going through a lot of trouble and work, so rebrand them as Beam.

As Beam, excuse me. Okay.

Beam Chicago, you can call it, please Yes. No, it’s fantastic. I’m thrilled to deal with it. I mean, we’re, as I said, aircraft, drones, we’re in submersibles. We’re in robots. We’re in material rehandling. We’re in electric vehicles. It’s just – it’s a fantastic broad selection. And if you think of it, it’s not surprising. I don’t think we’ve even begun to scratch the tip of the iceberg on this new generation of small battery-powered devices that people are going to expect to have around in their lives. Robot deliveries of groceries. Something is going to bring your Budweiser from the fridge to you when you’re sitting on the sofa. We’re going to see more and more of the sort of Roomba vacuum cleaner type thing, if you like. And then, yes, personal watercraft, drones and all the other things, like the drone is obviously very interesting to us, particularly in light of the fact that we have our UAV ARC, unmanned aerial vehicle recharging product, which is patented. So it’s very broad, and that’s what I like about it. And I was very clear with the Chicago team when we acquired them that while it’s important to me that they provide us with the best possible and least expensive and most scalable battery storage solution for the products that we were already making at Beam, that could not be at the expense of broadening revenues from the other aspects of their business because I want the revenue the margin, but also because I want the opportunity to get into all of those other businesses in a meaningful way. So I’m really thrilled to bits with it.

Okay, thank you, Desmond. Thank you, Kathy.

The next question is from Amit Dayal with HCW. Please go ahead.

Hi, Amit. How are you?

Hi, good, Desmond, thank you for taking my questions. With respect to the battery business that may take share of all these verticals that you mentioned, do you need to spend more sort of R&D dollars [Technical Difficulty] there are a lot of batteries that can actually make a difference for those types of applications.

Yes. Not so much R&D dollars. Many of the applications that we fulfill and this is part of our differentiator, frankly, are highly specific to the product. I mean, clearly, it’s quite a lot different to make a battery solution for a drone than it is for an electric surf board. By the way, that’s one of the incredibly diverse products that we put batteries into nowadays. That, again, is different from a medical device and all of those are different from stationary applications like ours. So in each instance, there is a degree of bespoke nature to the battery pack, if you like. And that often requires little engineering. And very often, we build for that for the specific customer that comes in. However, that’s not my ambition. I’m not interested in that side of the business. And what we’re addressing much, much better and what’s an area of major focus for us is figuring out how we can mass produce solutions, which are versatile enough to solve a whole variety of different what looked to the customer like bespoke problems. So it’s sort of like Lego, if you like, different number of blocks and maybe different shaped blocks, but all the same underlying technology going to fulfill a whole variety of different opportunities.

And I got to tell you, I think that’s going to be a very, very interesting business moving forward because, as I said, I believe that we’re only at the very beginning of the sort of revolution of all these different types of pieces of equipment and devices that were run on these batteries. And the thing is they are necessarily going to have different form factors. I mean, you cannot make a drone the same shape as you make a robot that’s delivering groceries in Milton Keynes. And real estate and weight, energy density and all those other things are absolutely a premium to all of these companies. So they can’t just lump in whatever all battery packs lying around and hope it works for them.

And then, of course, safety, don’t forget the other big thing that we bring to this, into our thermal management technology is the Goldilock zone. We keep batteries in that nice safe middle temperature, and that does several things for us. It makes them less likely to experience a thermal runaway or fire explosion in common parlance, but also keeping them in the Goldilock zone means, we can make them more energy dense and extend their life, which is another way of saying make them cheaper. So there is a great deal wrapped up in this. And it’s – I really hope that the way we’re going to be able to add a great deal of margin and compete with very large, very well-funded organizations in this space is that we will be able to exceed the safety aspects, but at the same time, provide the kind of bespoke requirements for many of these other applications, which, as I said, I believe, are just at the very beginning of the growth curve.

Understood. Thank you for that. And then with respect to this IRA legislation, I mean, you’re already doing well with the government segment. How much more benefit do you hope to sort of be able to extract based on the provisions in this legislation?

Well, look, there is another $360 billion odd being spent on clean energy and electric vehicle charging infrastructure. There is the extension of the AITC, in fact, returned to the 30% of the AITC and an extension for another decade with it. That’s obviously been a sunsetting. Our products are eligible for. It’s never a decision factor in the purchase of our products. But it nevertheless is a nice shot in the arm you get $300,000 back on $1 million spent on our products. No one’s going to say no to that. So – and then there are other manufacturing. I think it’s four in the manufacturing incentives, etcetera. All of those will benefit us. But I think you’re right to point out, but really what this is all about is identifying the fact that the federal government is very serious about electrification. We know that for a fact because we are in the process of talking to very large federal entities, and about their requirements, which are significant and material. And in fact, it’s a matter of public record. I’m not going to speak to it right now, and I’m not even going to direct you to it right now, but if you dig, you’ll find the RFPs. And I encourage you to read the specifications in them. So it’s not just IRA, it’s a whole host of different things all happening at the federal level right now. We think that we’re just at the beginning of it. And we have very good reason to believe that.

And do you think the legislation could help on our efforts to lock a sponsor deal?

Well, certainly, the extension of the AITC because, of course, that’s a major source of funding for that deal. But there are other aspects of it as well. There is been much ado made about the fact that the IRA legislation restricts the number of electric vehicles, which are compliant with the $7,500 tax credit. But I’ll tell you what, people are completely missing the bus on this. It’s certainly true that expensive vehicles for rich people might be at risk. But what’s really interesting actually is not that. What’s really interesting is the lift on the cap of the 200,000 vehicles. So that was much more alarming. Because when you’re talking about very widespread deployment, it’s not going to be rich people in expensive vehicles. That was always the early adopter niche. The truth of the matter is that the average American consumer is going to be getting into vehicles like the Chevy Bolt, $35,000, $29,000 or wherever they are. And those price – the vehicle caps were much more impactful. So what we’re going to see as a result of this, if they release those caps is that limitless numbers of people can buy those vehicles and get that $7,500, as opposed to only $200,000 per company, not per vehicle. And that will dramatically, in my view, increase the adoption of electric vehicles and accelerate the adoption of electric vehicles.

And the one thing that we’ve learned about describing on Sunshine sponsorship deal is, I was way too early with it. The fact is everybody liked it, but they didn’t really think it was important because they didn’t really think the EVs were much of a deal or anything else like that. That part of what we’ve observed and part of what we’re talking to now tells us the same thing, which is that this EV charging infrastructure thing is becoming a far bigger deal for everyone. And a big part of that’s driven by adoption of EV. So I would say just that one aspect alone, encouraging more people to own these vehicles, and not rich people in elite cars. That’s not who is interesting, that’s – 20 million of the 300 million cars on United States roads, I want the other 280 million. And that’s what that will help with, and yes, that will definitely support our efforts for driving our Sunshine concern, as will the ITC.

Okay, that’s all I have, Desmond. Thank you.

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

Okay. A couple of things. I – actually, you did touch us a minute ago on the fact that all the news recently has even about the Inflation Reduction Act. And sorry, if you discussed this already, but can you talk some more about maybe where things stand or what the status is that you see from the infrastructure build from last year, just the rulemaking process and sort of kind of where you think you are going to – or when you think you are really going to see benefits from that?

Yes. So, the Infrastructure Bill last year have been quite distinct from other or it’s just come out right now. But with the $7.2 billion, I think for electric vehicle charging infrastructure. Obviously, we believe that’s going to be very important to us. There are two buckets of that $5 billion that’s going to go into the NAVY funding, the National Electric Vehicle Infrastructure funding. I encourage you to take a look at the Federal Highway Administration’s guidance document that describes how those funds should be spent. It’s available on just Google yes. If you take a look at that document. What you’re going to find in that document is that there is only one image anywhere in the document. That image is on the front cover of that document, and that image is of our products.

So some – for some reason, the Fed Administration and Department Energy and department transportation, when they were putting the document together to tell people how they should spend the $5 billion selected an image of our products as the front cover of that magazine. Now if I was in sales, I’d say that’s a buying sign. So that’s $5 billion of it. And we can certainly fulfill the requirements of some of that in ways that other people can’t. We don’t agree with all the rule making. We don’t agree with all the standards of the regulations. And I can tell you that I firmly believe that there will be lots of exceptions made lots of exemptions made it because they will have to be. And that’s because one of the requirements is that there should be 600 kilowatts of charging every 50 miles down the United States highways. Nobody imagines for 1 second that, that type of power is available in almost any of these locations. We, of course, can provide that 150-kilowatt charging in those locations without bringing the grid there. And so that’s one of the great strengths that we will bring to bear on that. The other $2 billion plus in that funding is more flexible, and I believe a great deal of it will go to Level 2 charging. A lot of it will go to disadvantaged communities. A lot of it will go to broadly dispersed infrastructure. And in every instance, those will be places where it’s harder to get the grid deployed and harder to scale up everything else. And of course, we are ideally suited for those sorts of deployments and have a demonstrated history of deploying in those types of environments.

So look, as I said in my comments, we’re going to need a shitload of infrastructure here in the next couple of decades, an unimaginable amount 1.5 million charges a year if we take 4 decades to do it. The entire industry has deployed 120,000 chargers in the last decade, publicly available, I’m talking about. It’s going to take a mixture of many, many things to solve for this. We, I believe, are going to get a very, very big piece of that pie from our point of view. I mean, it’s a $6 trillion build-out or whatever in the long run, according to Goldman Sachs. But from our point of view, to get thousands of units deployed in thousands and thousands and thousands have been deployed, won’t have a tiniest bit of impact on the overall demand. But of course, it will be very, very meaningful for us.

Sure, absolutely. And strategically, I was struck to see that there was another deal of a public battery company acquired by an EV OEMs and just earlier...

Yes. Right, exactly. And I was just curious, do you – with your own M&A in that space, is there sort of like a likely drive of continued vertical integration transactions that you foresee kind of near-term, next year or two or is it more a case where there are like specific windows of opportunity when a seller might be reasonable in terms of bid-ask spread, and you can make it happen, you think we will just see a spate of these or do you think they are kind of just really situation-specific?

No, it’s both things. I am aggressively acquisitive I want to control more of what we’re doing. I want to defend my supply chain. I want to bring margin in-house. And beyond that, we work very, very hard to make other people stop work in unique weights. In fact, we are always educating the vendors of various components that we buy off the shelf as to what their ships can do, but they didn’t even know they can do it themselves. And in some instances, had that stuff added to their manuals. Our engineers have figured that out. So I want to control more of that. I want to be – don’t forget, we’re not going to stop with EV ARCs. We’ve got EV Standard coming. We’ve got our UAV ARC coming. We’ve got many other products in the pipeline and between our ears. And so we want to control as much of this as we can so that we can maximize margins, defense supply chain and also make sure that the things that we’re integrating are actually right for our products. So you’ll see me continuing to look for opportunities wherever possible for more vertical integration. But at the same time, the second thing that you said is also true. I’m only going to do that when I can buy it right. And also is a great example of this. I’ve been trying to buy AllCell for a long time. Believe me, it didn’t just start happening last year. I wanted them for a long time, and it wasn’t until we could – a whole series of externalities put us in a position where we were able to affect that transaction, not least of which was the fact that Beam’s growth opportunity is so material and so significant that the funds, don’t forget, they were over the wall. I could disclose stuff to them, and I can’t disclose to other people. And the fund that owned AllCell at that time realized that they were going to make a hell of a lot more money owning 10% of Beam than they would ever make owning 100% of AllCell. I don’t want to put words in their matters, but that didn’t hurt the transaction.

Got it. And when you’re thinking about the lead time for that transaction, I’m just curious, was it sort of your traditional M&A social issues that were – was the thing that extended it so much? Was it just financing concerns? You said the...

No, it was not. Remember, it was an all paper deal. It was all paper deal. So look, there was certainly a very tough negotiation on price. There is no question about that. Very tough at [indiscernible] they were selling that. But also the truth of the matter is, when I said I’ve been asked them for years, I took a run at them a couple of years earlier, and it didn’t work. And I have a discipline about – I’ve done a bit of M&A in my time, and I have a good discipline about not falling a lot with deals and walking away from them if I don’t get what I want. I want fair deals. And I can tell you that the seller, in this case, we feel very much that this was a fair deal that they have already done very well out of it, and they are going to do a whole lot of better out if. That’s how I want it. But I’m not – look, my primary concern has always been with my existing shareholders and an existing company. I’m not going to sell them down the road to enrich somebody else. That’s really important to me. But in fact, when we came back together to attempt to get this done in the second time, it didn’t take a long time. It was spirited. There was no doubt about that. There was a few table thumping sessions and some raised voices. But at the end of the day, we got it done pretty quickly because we were able to fairly early on discovered that we were better off on the same team than we were in proposing teams. And that’s one of the great things about doing an all paper deal. You give somebody cash, that’s your adversary through the transaction at closing and after the transaction. When you give somebody paper, they quickly become your greatest supporter, right? And that’s a great thing. I love being in that position with a seller. They are now valued shareholders and being global. I like them personally. They are very well known and have great experience in the industry, and I’m looking forward to making them a lot of money and staying engaged with them for a long time. But anytime – anybody will tell you as they have been involved in any type of M&A transaction with me or indeed any large deal with me, they probably think I’m a [indiscernible] frankly, because I have a tendency to stick to my guns and I have a firm grasp of what I believe is fair, and I won’t venture away from it.

Absolutely. Understand, fair enough. Thanks very much for that background, that’s all for me.

The next question is from Joseph Miranda, a Private Investor. Please go ahead.

Hello, Desmond. Thank you for taking my questions. You don’t break out either on the press release or the 10-Q, segmented information. So just a more general question, which segments do you foresee as becoming profitable first, Beam San Diego or Beam Chicago?

So really important for me to point out the reason we don’t break out is because we do not operate them in a separate segment. They are fully integrated into our company. And I mean, from an accounting point of view, that’s important to point out, and it’s also philosophically very important to point out. It’s not us and them. It’s just us. And so the simple fact of the matter is they will be crucial to being San Diego’s profitability because, of course, batteries are about 30% of our bill of materials. And so anything that we can do to reduce cost there is going to have a very, very significant impact on our profitability and quickly. They will also do some deals which are very profitable. The gross profitability will be very high on certain deals that they do, and it to be lower and other deals that they do. I think what you’ll find is that San Diego – if we’re going to segment it like that. By the way, we can’t even do that in the future because I’m going to bring battery manufacturing over here, and I intend to expand our charging products manufacturing into the Midwest as well as demand dictates. But just to keep for that, using that Norman Fletcher at the moment, I think what you’ll see is a greater consistency in the product offerings in San Diego because we make a smaller number of products, and they all have very, very fixed prices sometimes minor discounts for large volume purchases for the Feds or State of California or something like that, where the battery products, there is going to be much more variability in the margin sets there. And some of that will be to do with how the spoke they have to be, what kind of volumes we’re looking at and also what the sales and raw material contributions are to them, which are very varied. But I’m not going to tell you which one is going to be more profitable than the other because the fact of the matter is we are all going to be profitable, and we’re going to do it together.

Okay. That’s good news. Secondly, any update on the rollout of the EV standard?

Yes. I – so the EV standard unfortunately is falling victim to our success in the rest of the business right now. We are very, very busy. Engineering is very, very busy. And we are seeing a very significant – I mean obviously, you can see just from the backlog and particularly the pipeline number, we are sort of readying ourselves for what we believe is going to be a significant onslaught here in the remainder of this year and into 2023. And so I have got to be pragmatic about this. At the same time, I love that product and I view it as very important to our future. And so I can tell you what we are doing, I was recruiting. We are recruiting engineers, because we need to – not just engineers, we are recruiting just by everybody can lay our hands on. But we are definitely recruiting engineers because I need to commit a team to that development of the EV standard product so that we can get it out because I love it. And I do believe it will be a very significant seller for us.

Well, that sounds great. And one final question. In terms of you have been controlling and trying to get costs under control in this very tough environment, bringing everything in-house, have you at all been successful at bringing painting – final painting of the EV ARCs in-house?

It’s a bloody good question. It’s definitely an area where we give up a lot of margin. And indeed, we – it adds risk to our business because we are relying on others to do it. And you are absolutely right to identify as something that’s very much in our crosshairs at the moment. We have not done it yet, but I intend to. I have the space, and it’s actually not as expensive as you might think to do that nowadays. The booths and everything like that come to prefabricated, pre-permitted and everything else. We just got – it’s just another one of the things that’s on the list for our operations team to do. And by the way, one of the great attentions that you have running a growing business like this is, on the one hand, you just pump as much product as you can because the growth is significant and only going to get more. So, on the other hand, you have got to have the discipline to get people to stop what they are doing and take the steps necessary to move us to the next level. And that’s always attention. I can tell you if my Operations Manager was in here right now, he is running 100 miles an hour, is just keeping up with producing product and delivering it. And yet, this is one of his responsibilities. And so I know that he feels that he is under attention sometimes. But we will get it done, and it is a very important area of another one of those vertical integration things that we will bring in-house, for sure.

Well, Desmond, thank you very much. That’s great news all around. Keep it going. Thank you.

Thanks Joseph and thanks for being on board.

The next question is from James McCulloch, a Private Investor. Please go ahead.

Yes. Hi Desmond. You commented during your prepared remarks on some of the supply chain challenges and use of cash to pre-purchase sales for Beam Chicago. First question was on the battery cells, are they sourced locally? And do you have – and how long do you feel confident that you have got a source of supply in terms of a year, six months? Any contracts to handle any future growth, at least in the next couple of years?

Yes. So, to answer your first question, if only. There simply isn’t any domestic battery cell supply chain, not in any meaningful way and certainly not within any kind of scales of economies that you could work with. That’s a shame. And I have been very vocal in DC and to the press, frankly, about the fact that we need to start on-shoring a lot more of this stuff for all sorts of different reasons, which we don’t have time to get into today. But it’s going to take a while to do it. And I hope that we can all be growing up enough and have the courage of leadership at governmental level and all other levels to get that done as quickly as possible. I have been to some of the places where these – where the raw materials and components are brought out, and I don’t want it happening anywhere except to here, frankly. And we can do it. Just to be clear, we have plenty of lithium. The U.S. is the fourth largest cobalt reserves in the world. We don’t need to be sending children downholes in Congo to get that stuff. And then the Western, friendly, democracies have everything else that we need as well. So, I don’t – I shouldn’t get off track on that. But as yet, that’s not happening. I hope it will, the other thing that I think you are going to see happening just of all we are on that subject was going to be very impactful, is the tremendous maturation of the recycling industry. You can recycle about 98% of lithium-ion battery. We are already engaging in discussions for second light use of batteries. So, e-batteries come out of EVs and into our products, which should dramatically reduce our costs as well as, of course, fantastically improving that will cycle as well. But at any way, note, they are coming from overseas. We have committed a lot of capital to defending our position for the next sort of 12 months. And also in part and doing that is not only you are depending on your position with committed resources, but also we are putting our money where our mouths are with the – with those overseas vendors, mostly Korea, by the way, to be clear. And that cements our position. And in fact, on the 22nd of this month, I will be in Chicago. I visit there regularly, not surprisingly, and I will be meeting with a very, very senior executive from Korean battery companies to continue that strengthening of the relationship and everything else. But money ultimately is what makes it work, and we have done that. Now, the good news with that is, it looks terrifying when you look at the spend during the quarter, oh, my God, how could they possibly have spent $7.4 million. Look, money is just like copper or battery cells or paint or steel or anything else that would go into our products. When we sell our products, we get the money back. And I am confident that we will get most of – all of that back within the next 12 months and a whole bunch of other money that’s not involved with that. So, it’s not – it’s not a matter for concern. It’s exactly the right thing to do, and it’s the way we should be using our balance sheet.

I would concur, I might have even bought more. So, I just – what I didn’t know was – I was not aware of any domestically sourced sales. I didn’t know if you would pull the rabbit out of your hat. So, I appreciate the clarity on the sourcing, and it’s nice to hear it from Korea anyway. So, the second question was on the European market opportunity. It sounds like you have kind of pushed that opportunity forward in your – on your prioritization for future growth. If you could just maybe comment just a little bit on maybe timing, what you are looking at as far as timing? And if you are – if you have got any approach you are tending towards, whether it’s greenfield JV or a licensing deal?

Yes. So, it’s – I am going there in September, and I am not – these are not cold calls, just to give you an indication of how fast the conversations are. I wouldn’t be – I wouldn’t put my bottom in an airplane seat if I didn’t feel that I had a degree of advancement in the discussions with the people who I am going to go and meet to make it worthwhile making the trip. By the way, I am also meeting with customer prospects while I am over there, and some of them are really cool. So, it is important to me. It’s a very, very important market. And things are moving quickly in this industry. The war in Ukraine and the heat waves and everything have definitely heightened European sensitivity about all this stuff. And they are quite different than the Americans in the way they operate over there. If they decide that they are going to spend government money on something, they just do it. Nimbyism and stuff like that plays a much smaller role. So, I want to make sure that we strike while that iron is hot. Not licensing, I just don’t like that model, I want to control much more of it than that. I think it’s – and it’s unlikely it’s greenfield. I think what you should be thinking about is us finding a worthy and credible partner in that part of the world and then creating some sort of entity in which we have equal share of equity. That’s the way I am going after at the moment. Things – these things always have a way of evolving, and it doesn’t happen overnight, particularly not if you are strict about what you will put up with, and I am. But I believe that we will get a lot of value out of it if we pull it off. And if it was just me, I would say when we pull it off.

Okay. Good. Now, I had a little experience in of my own company and we actually JV-ed with a company that was struggling and a huge investment and built up a fairly large manufacturing facility in [indiscernible] Belgium, as a JV was turned out the way to go. So, it was – so it’s good to hear…

By the way, one thing I want to make clear to you and to everybody else who is listening, and part of the other reason that it might take a little bit longer to get this done is because I want to continue down the path of not using cash or our capital to get these things done. We have got a tremendous amount of IP. We bring a lot of value to the table. And I think I will be trying – I will be working very hard to make sure that the other side brings the capital to the table, not us.

So, I had – that opens up the third question when you mentioned IP. Could you just, Desmond, comment a little bit about the strength of your patent portfolio? And is it a – do you have process protection? Is it product protection? And do you feel that you have got strong enough patent protection to – on any particular products that could successfully be defended in the event of an onslaught from, say, a much better financed company?

One of the things I learned a few years ago in a meeting in New York City with some bankers and a bunch of attorneys, and I know that sounds at the beginning of a bad joke, but in fact, it was a reality. One of the attorneys there was an IP attorney. He had looked at our patent portfolio at the time, which has only been strengthened since then. And he told me that he would write me a check to take on a defense if we were – if somebody big and powerful came after us. He was so confident in the strength of the patents that we have written. We have them in the U.S. We have them in Europe, and we have them in – to some extent, in Asia as well. Of course, we have dramatically increased that patent portfolio with the acquisition of the battery company in Chicago. And we have got lots of life left on the patents that are important to us, and we continue to get more and more of them. And what I will say to you about this is where parents are concerned is, I have a really strong discipline around that. I do not invest in patents to pump up my own ego. The test that we use is, will it create a significant barrier to entry for the competition, and is it something that we can monetize within the next sort of 12 months to 18 months? And if the answer is no to either of those questions, I don’t spend money on it because it’s not cheap, as you know. So, all the patents that we have ever gone after are in products that we have today that are either making money for us right now revenue that is I have to be clear I am saying that because, of course, we are pre-profit or they are just recently patented and we haven’t started producing them yet, and that’s our discipline.

Okay. And then the last question was on the growth opportunity. I believe you mentioned you did about $7 million in sales for the six months this year. Is that correct?

So, we are at $7.5 million for the first six months of the year, which again, for last year, which was a record year of revenue for us is greater than any previous year in our history. And that was for the first six months.

Got it. So, the question was, I would think there is at least a $1 billion sales opportunity available, almost now or at least in the next couple of years, and I know you have sounded very proud on your conference calls on cost containment and the ability to grow while maintaining expenses either – whether it’s cost of goods sold or overhead. It sounds like that the market opportunity, especially with the new legislation that’s been passed is so enormous. So, are there any considerations to – even if it’s a temporary basis to shore up, whether it’s in the sales or engineering or other areas to support a fairly significant increase in sales should occur?

So, I will agree with you on your ideas about the $1 billion in product sales. I actually don’t even consider that to be a very big number where we are concerned. I think there is going to be an awful lot more than that. And so to the second part of your question, without a doubt, we are recruiting. I mean we are careful about money, and we are careful to try to add resources when they are needed or just a little ahead of when they are needed. But at the same time, yes, we are recruiting because I do believe that there is a wave it’s coming.

Okay. Desmond, thank you very much.

The next question is from Frank Hart with High Capital Funding. Please go ahead.

Hello Frank. How are you?

Hello Desmond. I have been so very, very happy to hear this call. I thought when you and I met that you were a master, and you have continued to demonstrate that with what you have done with the company.

Thank you, Frank, for the confidence.

I can’t get how this company does not end up as one of the behemoths in this industry. And I am not even sure what the definition of this industry is because you are in so many different areas. Anyway, that has nothing to do with the questions. A couple of questions. One, what do you see as your two biggest bottlenecks right now?

Yes. So, human beings and potential supply chain stuff. I mean it really – the supply chain stuff, I know everyone is talking about it, but believe me, it has been – we have had to work bloody hard to keep up with this, and we have had to do some pretty clever maneuvering as well. I mean you can – Frank, I think you know me well enough to know what I am like where money is concerned. The fact that I am prepared to park with money, buy cells in advance or prepay vendors, it’s just a strong indication to you about how much of a risk I view supply chain problems in the future. Nevertheless, well, I don’t think it’s going to get a whole lot worse. In fact, I think we are going to start to see things improve and we have managed through this. We definitely had a slowing down of deployments in the second quarter, the quarter could have been better had we not had that imbalance of battery supply at that time. But we are solving that. As I have said, we didn’t lose anything out of it. But who knows what’s coming around the corner next and that’s going to be thing. So, the next thing, of course, is human beings. We without a doubt, to the question – the previous question, same thing, we need to hire the best and the brightest. What I can tell you about that is good news is two things. First of all, labor is actually a fairly small percentage of our cost model. And so the good news where that’s concerned is you can actually afford to pay a little bit more than the next person without really having a major impact on your cost model because unlike lots of businesses where labor is 60% and materials are 40%, in our instance, actual hands-on labor on the product is probably 5%. The rest of it is bond. And so that allows us some latitude there. And then the second thing we have got going for us is – and thank you for making those initial comments, but basically related to your initial comments, which is that this is a fantastic company doing fantastic things in a brand new and very exciting industry and increasing number of people are starting to understand that and get their head around it. And of course they want to come and work for us. So, we will get over it. But it’s all going to require a lot of work and a lot of effort.

Indeed. One other thing on that subject, so you mentioned people, you need more people who have the confidence to move the business in your agenda forward. And clearly, you should be able to attract the right ones. But the next part of my question is actually about money. I remember at one point some time ago, I suggested to you that even though you had convinced me that you had enough money to get through. When anybody looked at your balance sheet, they wouldn’t think that. And I suggested to you that you might want to take in some more money so that no one would even think that because you are behind the eight ball when somebody even raises the question, even if it’s only in their own mind and doesn’t say it to you. So, I am wondering two things. Number one, would it make sense for you to do some sort of non-dilutive financing? I know many companies have done these kind of preferred issues and so on that have no dilution at all. It’s just effectively a dividend rate or an interest rate on the capital. And at the rate that you are going, I wouldn’t think that, that should be a big cost item in terms of your profitability. And yet if you did a $10 million or $25 million non-dilutive deal like that, it would just blow away anybody’s questions about capital. The second question with respect to money is, have you thought about or have you set up a finance company, a captive finance company like General Motors, Credit Corp or Chrysler Credit Corp, because I understand two things on that. One, your systems are relatively expensive to purchase compared to some other systems. Of course, the total cost of ownership is a lot lower, but that’s got to be off-putting to some people with respect to the initial purpose. And I am wondering if two things in that – two sub things in that, one, with respect to government stuff, where some governments only have an annual budget and don’t have the money to spend on the capital, but could you lease it to them over 5 years or rent it to them year-by-year? And if they don’t want to extend it for the next year, you have the ability to just charge them the restocking fee, so to speak, and redeploy the equipment.

Yes, let me – I am conscious of other people’s time on the line. So, let me just go after those. So, as far as the amount of cash we have on our balance sheet is concerned, you are right. I mean, look, I do have the Scottish tendency to be very, very careful and tight with money. You can look at the financings I have done in our history. I have never done anything toxic. Most of the money that I have raised the company has been at market, sometimes even a little premium, sometimes a little discount, but nothing ever of putting from that point of view. And the result of that is that today, we have the, by far, the lowest flow of any company of our size or dimension in anywhere in the industry. I am $8 million in the flow, $11 million fully diluted, $10 million outstanding right now.

And that’s why I am still a shareholder.

Yes. Well, good. So, we will be very careful with that. And that – at the end of the day, this entire game is about earnings per share. We will have a lot less as to divide into that. And as a result, we are going to really give our shareholders a great right for their money because they are just far fewer shares out than anybody else. Nevertheless, the other thing about that is it does give me a lot of dry powder where this is concerned. And so let me just tell you this. While I don’t like raising money, and I don’t like giving up equity, and every dollar matters to me and every share matters to me. At the same time, I am going to be very pragmatic about this. And there are several instances, and I have been clear about this in the past, while I don’t need to raise money, there are several instances where I might. And one of them, for example, would be an acquisition. We are raising some capital, made sense to do that. But the other one, which in many ways are sort of more fun to talk about is if the stock picks up its head significantly, would I throw some more millions onto the balance sheet, you are damn right, I would, under those circumstances. And let me give you one circumstance where that could happen. At the moment, we have got about 21% short interest in our stock, something like 12 days to cover with a miniscule float. And I am very confident that we are off to great things. Now when you short somebody stock, there is only one way of getting out of it, and that’s by buying it, right. And we are being shorted not for any fundamental reason. I am not going to deliver to the shorters. I am not going to bankrupt. I am not going to do a destructive dilutive financing. I am not going to fail. In fact, we are going completely the opposite direction. And so if we get into a situation where there is a short squeeze or the stock runs up for any reason, frankly, I would be very happy to strengthen our balance sheet, taking the money out of those shorter pockets without a doubt. So, I know that I am saying never, and it’s just that I want to make sure that like everything else I do, it’s done at the right time in the right way. And then just quickly on your other question about financing for the customers, yes, we have definitely looked at that. You are right to point that out. And one of the major areas to point out is that many of our customers are government customers and as result, cannot take advantage of the various tax incentives, like ITC that I mentioned, which is 30% is a credit, not a deduction. And so we can put financing together into which we could roll that ITC and other tax equity for cap reduction and offer really a very inexpensive solution. So, yes, that’s definitely on our drawing board as well. And then there are some other more interesting things, too, like batteries as a service. Now, that we are on the battery company, there is nothing to stop us, let’s say, selling an EV ARC, but without the cost of the batteries in it, which is a significant contributor. And then charging people a monthly fee for the batteries, we maintain title and therefore, risk because we understand them better. We would arbitrage fear in that case. So, yes, there are lots of very interesting things that we can do, and I want you to rest assure that we are not ignoring any of those we just need to plow on and put them into effect. But don’t think I won’t raise money if we need to. We don’t need to. But if we did, I would. But mostly, if there is some way that I can do it in a way that’s, as you said, not dilutive, and is really much in the favor of this current shareholder and growing the company, I will do it. I have got to take the next question.

I am just glad to hear your got it on your radar. Well done.

Thank you, Frank. Thank you very much.

The next question is – excuse me, go ahead, sir.

Yes, please do. I think there is one more.

The next question is from Allen Ginsberg, a Private Investor. Please go ahead.

Yes. Hi. Hello. How are you Desmond? With the expansion of your business being so robust, as we hear from this call, and other people asking you about hiring various technical people, do you think you have the depth of management? And are you going to be hiring more management? And also, second part the capacity in your manufacturing operation, do you think you are going to have to expand that as well?

Yes. So, let me answer the second question first. The really good news where that’s concerned, in this 53,000 square foot facility that I am operating in today, my – one of my operations managers just came to me and told me that they were up to two units a day with the current headcount. But we can get to six units a shift that is rather. We can get to six units a shift with the current headcount. We can, of course, go to two shifts and three shifts. And we are currently operating five days a week, we can go to seven days a week. But just put that in perspective for you, that equates to about $105 million a shift. So, if we were to go to three shifts, we could probably pump around $300 million a year out of this facility and very profitably because, of course, the rent doesn’t go up when we do that. This is all about this leveraging these fixed overheads that we have. I have been talking about this for years in low volumes. It’s very expensive to do this, but as volumes go up, lots of things get less expensive materials and particularly faced overhead. So, we have also room for expansion here. But at the same time, as I have already mentioned on the call, I intend to expand into Europe, I am not going to do that from here. So, I will use other people’s money and not our equity or money to make that expansion happen. I will use our IP to make that happen if I am able to pull that off. And then I also mentioned that I want to bring battery manufacturing. I want to expand our battery manufacturing capabilities, not just in Chicago, but bring that here to San Diego because the state will throw lots of money at me to do that. And of course, it makes a lot of sense to make batteries, we are making the charging products. But equally, I want to expand my charging products business into the Midwest because at the moment I am making products in San Diego and shipping them to New York City. And they are heavy, and they are big, and that doesn’t make sense to do that. And so to get to somewhere like Chicago or somewhere else in the Midwest, to expand there as well, that would double our capacity, that would get to $600 million. Another $300 million in Europe, you can see how we are $1 billion pretty bloody quickly, and we haven’t done anything at all to associate the demand.

So can you speak to the depth of management? I mean you can’t be at five places at once. And the senior management, are you going to make that more robust as we go along?

Yes, without a doubt. Kathy and I were just having this discussion the other day because it looks like my travels will keep me out of the country for about a month in September between the Middle East and Europe. And we – yes, we are looking for people. And the other thing is, listen, I am a pretty robust guy. I have got a lot of energy, I am healthy, and I love what I am doing. But I cannot have this company in a position where if something nasty happened to me that it would be hard in any way. So, I want to make sure that we have good succession in place and that we have the depth of management to build out the teams. And we are currently recruiting for high-level people. And the big reason that we are doing that is because from a cost structure point of view, there were some ass hole comment made in some stock magazine last week about how our operating expenses were up. And they are up. But they are not up anywhere near as much as our revenues are up. And so what we are trying to do is balance this, right, as we get in these opportunities and as we get – we scale the business up. I still think there is a lot of opportunity to increase revenue per head. In fact, I know there is. And so as we scale these things up and bring in the opportunities, then we will bring in the headcount. Because I want to be able to keep reporting to you that we are reducing operating costs as a percent of revenue and reducing direct costs as a percent of revenue because that’s where profitability comes from.

Okay. Thank you very much and good luck.

Thanks Allen. We make our own luck.

This concludes our question-and-answer session. I would like to turn the conference back over to Desmond Wheatley for any closing remarks.

Well, I think we have gone a bit over time here. So, I don’t want to hold anybody any longer just to say thank you very much. As always, I am thrilled about what’s going on. And you hear that from every time I do these calls, and I have got a good reason to be. We keep growing this thing and growing it dramatically. And we are in the right place at the right time, and we have the right products. So, thank you for being involved. And I can win to speak to you in a quarter.

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