Beam Global (BEEM) Q1 2023 Earnings Report, Transcript and Summary

Good day, and welcome to the Beam Global First Quarter 2023 Financial Results and Corporate Update. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the call over to the Chief Financial Officer, Kathy McDermott. Please go ahead.

Thanks, Joe. Good afternoon, everyone, and thank you for participating in Beam Global 2023 first quarter conference call. We appreciate you joining us today and hearing 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 followed by a question-and-answer session. But first, I'd like to communicate to you that during this call, management will be making forward-looking statements including statements that address team'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 recent 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, May 15, 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. And next, I will provide you with the financial results for Beam's first quarter of 2023. Our first quarter revenue started out very strong increasing 245% over the first quarter of 2022 and 65% over the prior fourth quarter of 2022, which is typically our highest quarter. Revenues for the quarter ended March 31, 2023 was $13 million compared to $3.8 million in the same quarter in the prior year. The increase can be attributed to the increase in federal sales primarily to the U.S. Army as a result of several large federal orders we received in late 2022 that we'll deliver through the end of 2023. Our manufacturing operations have increased our production capacity by increasing our production team, close management of our supply chain and through improved tooling and design changes to allow us to fulfill this higher demand for our products. After many quarters of reporting a gross loss, we're happy to report a gross profit for the quarter ended March 31, 2023, our gross profit was $5,000 [ph] compared to a loss of $0.3 million or 8.1% [ph] of sales for the first quarter of 2022. This improvement resulted from the increased production levels, providing favorable fixed overhead absorption and improved labor efficiency. Our material cost for steel and other components remain higher than Q1 2022 and due to supply chain shortages and other inflationary pressures. Also, our cost of goods sold includes $0.2 million of noncash intangible amortization related to purchase assets from the AllCell acquisition. Operating expenses were $3.8 million or 30% of revenues for the first quarter of 2023 compared to $2 million or 52% of revenues for the same period in the prior year. We acquired AllCell Technologies in March of 2022 and reported one month of expenses in Q1 2022, so $0.5 million of the increase is due to a full quarter of energy storage expenses in Q1 '23. In addition, we invested $0.4 million for additional resources in R&D, $0.3 million for noncash compensation expense, $0.3 million for audit fees and $0.3 million for admin, salaries and bonus expense. Our net loss was $3.8 million for the 3 months ended March 31, 2023, compared to $2.3 million in the first quarter of 2022. These quarters included noncash expense items such as depreciation, IP amortization and noncash compensation expense of $0.9 million and $0.4 million, respectively. Net loss, excluding these expenses would have been $2.9 million and $1.9 million, respectively. At March 31, 2023, we had cash of $1 million compared to $1.7 million at December 31, 2022. The cash decrease was primarily from the net loss as well as an increase in accounts receivable partially offset by an increase in accounts payable. Our working capital decreased from $6.8 million to $5.5 million from December 31, 2022 to March 31, 2023. And with that, I will turn it over to Desmond.

Thank you, Kathy, and thank you to all of you shareholders, followers and analysts who have joined this call to hear our Q1 2023 results. I'm going to make some comments, and then I'm looking forward to answering your questions before we close the meeting. Well, the Beam team really knocked out of the park this quarter, with record revenues and deliveries a positive gross margin and record Q1 sales orders and pipeline. This continues the team's trend of breaking records quarter-over-quarter and year-over-year. We generated by far the highest revenue of any quarter in our history. In fact, about 3x more revenue than in the first quarter of the previous year, more than half as much again as in the prior quarter and a quarterly revenue rate that was higher than any full year in our history following 2022. Q1 of 2023 is now our eighth quarter of consecutive revenue growth and continues a trend, which barring a few minor instances goes back to deal longer than that. 2022 was a year in which the beam team generated a 548% increase in orders over the prior year, and the prior year was up significantly over its predecessor. Clearly, demand for the product is no longer a problem. The new question in everybody's mind was whether or not we could deliver on all this growth. In this first quarter of 2023, the Beam team delivered more EV ARCs, more battery systems than in any other quarter in our history. We delivered 150 EV ARCs, up from 103 in the fourth quarter of 2022. And again, this delivery rate was higher than any full year in our history, except for 2022, which was, of course, a record year. By the end of 2022, our team in Chicago was producing about 10 times more kilowatt hours of batteries than also the company we acquired, did during the months prior to our acquisition and that trend has continued through the first quarter of 2023 and was enabled without significant capital expenditure on our part. During the first quarter of 2023, the operations and engineering teams at Beam Global have continued to make improvements in our processes, fixtures, equipment and product engineering. These improvements have taken place during the quarter and have resulted in a daily and weekly production rate at the end of the quarter, which is far superior to that, which we began 2023. I believe that the results of these activities will mean a continuation of our accelerating trend of production so that in Q2, Q3 and Q4 of this year, we will continue to increase our output after an unforeseen event, which is outside of our control. At any rate, even at our current run rate, we're on track to produce something like 3 times more EV ARCs 2023 than we did in 2022, which, as I've already stated, a record year and 144% over 2021. I've consistently stated that within these volumes, we would see improvements to our gross profitability and that assertion is certainly being borne out in this latest quarter. We reported a gross loss of 8.1% in the fourth quarter 2022. But in the first quarter of 2023, we generated and reported positive gross profits, albeit minor, and when including noncash amortization of intangible assets resulting from our acquisition AllCell, the picture is actually a couple of percentage points better. I repeat, we made money at the gross profit line across the entire Beam Global platform, GAAP [ph]. And excluding the arcane accounting treatment of our very successful acquisition, we did better than we reported by about 2%. We achieved these improvements in gross profitability through combinations of increased efficiency, improved engineering and the inevitable reduction of our per unit fixed overhead allocation that comes with growth. I've long stated that we received positive margin contribution from the sale of EDR systems. The GAAP numbers now show unequivocally that this is correct, as we've reached a point in our levels of production where all our overhead costs associated with producing the products have been covered, and we're now able to produce a gross profit across the company. I'm confident that these improvements in gross profitability will continue as our volumes increase and as we continually improve our processes and methods of manufacturing while upgrading our tooling and fixturing to increase our throughput and reduce labor hours per unit. But there will be other contributors to improving growth profitability, which I believe will have even more impact during the next 2 or 3 quarters. I'll describe the three more significant at those to you now. Firstly, our combined engineering team on both the battery and EV charging products side of the business, has identified engineering and component improvements, which we believe will make the EV ARC a better product while at the same time, reducing our cost to produce them by between $10,000 and $12,000. This reduction in cost should equate to approximately 16% to 20% improvement to the margin contribution from a base EV ARC. We expect to see the impact of these improvements starting in a small way in the second quarter but complete by the end of 2023. Secondly, because of the exceptional demand for our EV ARC products from both governmental and commercial entities, we have decided to increase our sales price for the first time by approximately 8.25% on a base model system. Pricing in EV ARC has over the years been the subject of much discussion and analysis here at being global. On the one hand, because we have a unique and well-patented product with no direct competition in the marketplace, there's been a strong argument to suggest that increasing our prices make sense. On the other hand, is a competing argument that increasing acceptance of the product and hence, volumes of production was so important or doing anything that might create a hurdle for increased adoption, like for example increasing our prices, might in turn have a negative impact on the overall health of the business. We have been patient, and we've been prepared to learn from the market. And I'm delighted to report, demand for our product is so strong and growing. But after much consultation with our sales and marketing team, we've come to the conclusion that we can increase our prices without having a negative impact on the order flow. On the contrary, we believe that the urgency of demand for our products will continue its long-term trend of increasing and accelerating. We've introduced this 8.25% increase in our selling price is a line item on our proposals addressing the inflationary environment in which we're currently operating. We believe that this line item will be well understood and accepted by our prospective customers, and we're also encouraged by the flexibility that this price increase strategy affords us. The third contributor to our increasing profitability is the disinflationary impact to the cost that we're paying for components, commodities and transportation. We first started to detect this trend towards the end of 2022, and we believe that we will see a decrease in the cost of materials and transportation throughout the remainder of 2023. I stress that the improvement of gross profitability in the first quarter of 2023 has not been assisted by this disinflationary trend as we and our vendor work through inventories accumulated during the period of hyperinflation after the end of last year. The result of this is that the EV ARCs and batteries that we sold during the first quarter of 2023 were still negatively impacted by the highest cost that we've ever paid. And yet, we were able to improve our gross profitability and generate positive gross profit in spite of these influences. We should start to see the positive impact of the disinflationary environment on our cost of goods sold starting in a minor way in the second quarter and continuing throughout the rest of 2023. We take the impact of all 3 contributors to improving gross profitability, along with our already demonstrated ongoing improvements resulting from increased volumes and efficiencies. We can do some simple arithmetic. 16% to 20% of improvement through engineering enhancements, 8.25% improvement due to our price increase and as yet unidentifiable improvement as a result of disinflationary activities amounts to potential for approximately 24% improvement over our current positive gross margins. I've stated before that I'm targeting a 50% gross profit on our EV ARCs and other charging products. And I think you can see with outlined improvements I've just described that we're taking the right steps to move towards that goal. Cost improvements are a process, not an event. And as I've said, we'll start to see the benefits of the steps we're taking in the second quarter, but more dramatically in the third and fourth quarters of this year. In the interest of being abundantly clear, the price increase I just announced became effective on May 1 of this year, and as a result, had no impact on our gross profitability in the first quarter. All of the improvements in gross profitability in Q1 came as a result of increased efficiencies and volumes. The impact is price increase will be on any new orders which come in and are delivered after we worked our way through our currently priced backlog. The other cost savings that I've mentioned above will be impactful to elements of our currently priced backlog because we'll institute these changes as quickly as we possibly can. And as I've already stated, we expect to see these improvements take effect beginning modestly in this quarter and continuing with more vigor during the remainder of the year. Our constantly improving growth profitability provides the best type support for our cash position. We continue to manage cash carefully and with prudence, with approximately $5 million in cash in the bank today which is significantly more than we reported on our balance sheet at 12/31 or 3/31 of 2023. We have over $100 million of liquidity because in addition to the $5 million we have in the bank, we still have the as yet unused $100 million line of credit issued to us by the OCI Group in London. As a reminder, this $100 million line of credit is liquidity that we can use at our discretion at the cost of SOFR or the secured overnight finance rate plus 300 basis points. There are no other fees all costs associated with using this money, and there is no equity impact whatsoever. I'm aware that the cash position on our balance sheet has sometimes raised a few eyebrows. But as we very clearly demonstrated in the first quarter of this year, we have managed to dramatically increase our production and improve our profitability while maintaining a disciplined approach to managing our cash resources. Further insight into our cash out comes on looking at our working capital position, which stands at approximately $13 million when excluding noncash items. It's essential to recognize the positive contribution margin from our products when understanding our cash. This has been made abundantly clear by a positive growth profitability in the first quarter of 2023. As we see increased volumes of products moving to our factory, combined with our planned cost reductions and our pricing increase, we will see an increase in contribution margin, which will have a further positive impact on improving our cash flow. We should continue to see this increase in volume, not only because we started 2023 with the highest contracted backlog in our history, but also because the Beam global sales team has produced a record first quarter of selling while our operations team has produced a record quarter of production. The sales team saw more product in the first quarter of 2023 and in any first quarter in our history. But perhaps much more importantly, our pipeline now stands at over $130 million, which is the highest pipeline position we've ever had at this time of year. And last year, we took a beginning pipeline of $80 million and converted $76 million of it into hard contracts. We now have $130 million in pipeline and while no one can say with certainty what percentage of that pipeline will convert to backlog, our historical performance has certainly been very good. We will undoubtedly still see lumpiness in orders somewhat driven by degrees of seasonality amongst the various strata of customer prospects we target. But this very strong first quarter shows that even with the lumpiness, the general trend continues to grow and indeed accelerate. The lumpiness in order cadence has replaced what used to be lumpiness in revenues. However, we're no longer experiencing choppy revenue recognition. That has been replaced by consistent and dramatic growth. A little over half the orders we received in the first quarter came from governments with the remainder coming from commercial entities, continuing a trend of a return from the commercial sector into our sales pipeline. We announced orders from one of the top global automotive OEMs as well as from the materials rehandling sector and a fascinating robotics company. On the government and pseudo-governmental side, we saw interesting growth from corrections and native nations. This healthy mix of government and commercial business looks set to continue and is certainly represented in our greater than $130 million pipeline. We are seeing no indication of a reduction in investments in electric vehicle charging infrastructure, energy storage or energy security. We will continue to grow our intellectual property portfolio on both the battery and EV charging side of the business. Already in 2023, we've announced new patents in Asia and Europe for both sides of the business. We intend to use our EV standard product as resources permit during the remainder of 2023 and our engineering teams will not cease from seeking methods to improve our existing products, making them a greater value for our customers while reducing our cost to produce them. We will continue to invest in sales and government relations activities, as well as R&D, and we will not shy away from opportunities to grow geographically, particularly where massive markets like Europe exists that are so well matched to the fantastic value proposition delivered by our products. None of these activities will, in any way, reduce our laser focus on continuing to improve our growth profitability and manage our cash. You need not to take my word with this, it's absolutely clear in this quarter's results. In summary, the Beam team delivered more products than in any quarter in our history. We tripled our revenues over the same period prior year. We generated a positive gross profit across the company, and we have more cash in the bank today than we had at the end of 2022 without -- and I stress this without tapping our as yet unused $100 million credit facility. We have clearly identifiable and achievable opportunities for continued dramatic improvements to our gross profitability to be executed during the remainder of this year. We continue to break sales records in a market which shows no signs of abating. We have increased our patent portfolio with it and with it, the barrier to entry for the competition, and we have a road map of new and excellent products to bring to market. So far, all of the success has been derived within the United States but we continue to see opportunities to replicate and accelerate the success internationally. The public markets have certainly been a challenging environment for growth stocks like ours. I believe our share price has been impacted by factors which are clearly not linked to our performance. We cannot impact the behavior of the broader markets, but we can continue to deliver material and excellent improvements to our performance. We have done, are doing and will continue to do exactly that. I'll now return the call to the operator and take any questions which you may have.

[Operator Instructions] At this time, we will take our first question.

Just a point of clarity before we take the first question, I am doing follow-up calls with all the analysts after this call. So don't be surprised if you don't hear a lot of analyst questions and analysts if you're listening, feel free to ask me during the following calls or now if you would prefer them. I'll take the questions at either event. Sorry for interrupting it.

We will take our first question now from Tyler DiMatteo with BTIG.

So Desmond, I wanted to start out with a higher level one here. And just how you're thinking about managing the growth of the business and really balancing that with an uncertain macro environment. I know you alluded to how you haven't EV charging demand led up the order book continues to look very good. I was just curious to hear how you're thinking about kind of that balancing act and really growing the business here at a higher level.

Well, Tyler. Well, first of all, we still have a great deal of untapped excess capacity in our factory facility. Even with these growth numbers, we've got a long way to go before we fill this place up which means that we will be able to execute on growth, which we see coming without significant capital expenditures and while managing our cash as it is. But to your broader question, I mean, assuming we're talking about moving into a sort of recessionary environment, we're not already in one, I think, frankly, having an infrastructure product, particularly one that is so key to energy security and so important to the electrification of transportation, which I view as an inevitability is going to be one of the few bright spots in that recessionary environment, which I frankly in my [indiscernible] days believe we're adding into. In fact, there's another side of this for us, which is that we're not seeing any letup whatsoever in demand for our products, either on the EV charging or energy storage side of business. And at the same time, what we do anticipate is reduction in costs across the board as a result of a less active economic environment. Transportation price, we've already seen come down dramatically. I think that's a leading indicator. We believe that we're starting to see an increase in available labor. And then the commodity and component prices that we're paying at the moment, which is as Kathy and I both pointed out, we're still suffering from the backlog of inventory that we have -- for which we paid the highest prices than we've ever paid in our history. We believe all of those things are going to come down and probably even more quickly as a result of the recessionary environment. So I hate to say this, but frankly, I don't believe recession would be bad for us [indiscernible]; we'll see any impact to the top line. Nothing in our pipeline will be impacted by it, but I do believe it will assist our ongoing efforts to improve our profitability.

Okay. Great. And then going off that then Desmond, I guess how are you thinking about kind of prioritizing the order book here? I just given this robust backlog of infrastructure? And just how are you thinking about kind of managing the order book here?

Yes. Frankly, honestly, Tyler, that's one of the biggest challenges that we have at the moment because of the historically high backlog that we've reported, there's not a single customer in there that wouldn't take the product tomorrow. I mean, I'm being somewhat flippant with my words, but let's put it this way. There's no customer there that wants their product later than 2023. There's nothing material. And so what that means is our challenge at the moment, it's not a matter of -- as I said in my comments, it's not a demand problem, it's a supply problem. Now we are just ramping up to execute on the orders and get them out to customers as quickly as possible. Whenever a customer wants something faster than you can deliver it to you, there's always a bit of a conversation around that. But that's just -- we've seen this challenge coming for a long time. I've been anticipating this for us for a long time. We're executing on it. The operations team is doing a fantastic job. They're just getting better and better. And again, we still have a whole lot of capacity left in the factory here. So we'll keep talking to our customers. And any way you look at it, an EV ARC, which is a little bit later than you were hoping to get it as a customer still a hell of a lot sooner than you could dig the trenches and go through the permitting and pull the concrete and everything else that had to do a grid-tied installation. So I think we're in pretty good shape where that's concerned.

And our next question will come from Christopher Souther with B.Riley.

So on that $10,000 to $12,000 in cost down, it's pretty impressive. Can you walk through the magnitude of some of the main items there? And then it started to make time in, I think it's 2, 3 quarters to kind of hit that full magnitude there potentially?

Well, Chris, as you know, our product is fairly complex. We make it very, very simple for our customers and users to operate it, but there's a lot of complexity going on and stay at a lot of intellectual property. I'm not going to go down into detail on exactly where we're getting these cost savings because I'm not going to give anyone an instruction manual to do that. But suffice it to say, across batteries and some of the other components and the way the this thing together. Again, I've been consistent with this over all of our reporting periods that we keep pushing the engineers and the operations teams to find ways to make the product less expensive, but not at the expense of quality or safety. And they have done [indiscernible] work where that is concerned. It is a bit of a process because obviously, we've got product in process right now with working these products. And some of the new pieces and components that we have to integrate to the product have lead times to them. So as I mentioned in my comments, very early beginnings of improvement starting and then towards the end of this quarter with much more activity in the third and fourth quarter, but I fully anticipate that we will have all of the positive impacts from a cost reduction point of view that I have disclosed to you today in effect before the end of 2023. The price increase is going to be -- actually, only enough, you think that be the easiest one to do. But in fact, because as I mentioned, none of the product that we've delivered to date this year has been impacted by that price increase because, of course, we're not increasing the prices on products that we have already contracted. And so the price increases for now new orders that are coming in. Some of those you will inevitably see injected in because we will -- some of those newer orders, we will inject into our current backlog deliveries. But you're not going to see the material impact from that until we work through this backlog. And then -- and so that, again, as I mentioned, everybody wants that by this year, so you should anticipate seeing the really material impact from the price increase I once we work through that backlog.

Okay. That's helpful. Maybe as a follow-up, can you just give us timing of volumes you think in order for us to hit kind of EBITDA positive now that gross margin positive seem like it's here and here to stay.

Yes. So let's assume that I am right and that we will hit these cost reductions and that we will increase our price the way that I've described it. And let's assume I'm right, and I remind you that I have been right about most of -- in fact, not all of the comments that I've made along these lines, historically. I don't intend to start being wrong today. But assuming that we are right about that, then we would need to produce something between sort of 170 and 180 units in a quarter to soak up the net loss, which we reported in the first quarter. Well, as I just told you, we just produced 150 units in this quarter. So we're clearly not very far away from that. So without giving -- going into too much deeds [ph] anything that looks too much like guidance here. What you can clearly see is that with our current cadence and our current backlog in the event that we are successful with the cost reductions that I've described, and we intend to be then we're on a run rate right now that would get us to EBITDA -- possible EBITDA positive. Now that, of course, can also be impacted by other things that we do. We might elect to make further investments in sales and government relations, I've already described our R&D. And I haven't shied away from the fact that I'm still acquisitive if these things come down the pipe. But based on our current book of business and our current order cadence. We're currently operating at about a level that after these cost savings are introduced would get us to EBITDA deposits or thereabouts.

And our next question will come from Noel Parks with Tuohy Brothers.

Desmond, just had a couple. I wonder if you could just talk a bit about the sales and marketing effort, and it was great to hear the detail you had as far as the commercial types of clients that you've had growth with and the government. But I'm just curious, at this point, is as far as sort of inbound inquiries versus sales outreach, new customers versus repeat customers? Just talk a little bit about your -- what you're seeing currently, what the trends look like?

Well, we've certainly got a lot of repeat customers. That's good news and a great validation of the product, even in the harshest environments across the country. Look, the sales team is active and aggressively going after the -- third quarter last year when we announced some extraordinarily large salespeople, I was the less optimistic people out there said, "Oh well, maybe that's one and done." Nonsense. The sales team has been aggressively selling and has not slowed down at all since that time. We don't believe -- we don't view this as an arrival. We view this as a first step. We continue to look for aggressive salespeople. And we got a lot of repeat on this. We do get a lot of incoming inquiries and we also go to the trade shows. We were at a couple of weeks ago, and we're very well received in those environments. And there I say it, the more people understand what's required to deploy grid-tied EV chargers, the easier our selling proposition becomes. Remember that we're not competing with EV charging companies. We're deploying the charge points in the banks and the Electrify America and everybody else. We're not competing with them. We're assisting them. But anyone who starts to understand the complexities of deploying the grid side infrastructure, they become a much easier sell for us. And so it's across the board combination. We've got healthy incomings from the website. We've got aggressive sales team, both government and commercial. I mentioned we had a 548% increase in year-over-year orders last year. I think it was something like 1,100% increase in commercial orders, albeit from a smaller number. So yes, that commercial thing has come back just as I had already alluded in prior quarters to commercial returning post vaccine, post-COVID with a return to the office. But it's a mixture of all 3 things. Repeat customers, incomings from the website or people who have just seen the product and then at the aggressive sales team that we have and that will continue to grow and train and better and better sales force. Well, this is the video we have on the website right now, by far the highest quality videos we've ever produced really good explanation of the value of the product or anything else. You watch one of those videos for 2 minutes and you understand everything you need to know about how you have to own our products.

Terrific. And you touched on the international opportunities and largely untapped to this point. And as far as any conversion modification for the EV ARC to you'll be compatible with charging hardware that you don't say not much an evidence in the U.S. Is that -- is it relatively close to plug-and-play? Or are they just sort of user interface changes that need to be made or is that more of a sort of like a long-term development project for being able to sort of handle another generation and other regions charging?

So if you make an electric product, to the United States markets. And then you try and make it and sell it into Europe, you have to make significant modifications for it into it because of the difference in cycles and voltages nothing else on the European grid. If you make a product which drives all its energy from the sun, you have no such problems. And so then it's just a question of whether or not we can convert sunlight some store sunlight and produce a current the cycles that are required to operate European EV charging infrastructure. And the answer is resoundingly yes. Not technically difficult at all. It will be no hurdle for us whatsoever.

And our next question will come from Abhishek Sinha with Northland Capital.

Congrats for the very good quarter here. I just wanted to make sure I understand this right. So I know Desmond you just when you talked about that you had a very good quarter. All very good number of orders from last quarter that resulted in such [indiscernible]; so is the gross margin here based on the number of units that you have for future quarters? Would that be here for you to stay how would the numbers you still expect to be a little bit more lumpy here and we still see gross margin up and down here. I just want to make sure I understand that right.

Well, we do not anticipate that our gross margins will get worse than they are today. We anticipate that they will continue to improve.

Sure. And then just one as a follow-up here, I wanted to understand. You talked about earlier on basically in terms of the great orders that you got from the automotive company. And I know you did not give any specifics on that. I just wanted to make sure if you could talk about how you get in terms of orders, some kind of in terms of like how long does it take and would you expect more repetitive orders from that company and what the other companies are reacting to that?

Yes. Okay. So first of all, let me just be clear about why we don't name customers and sometimes the magnitude of the orders that we get, there are 2 reasons. The first one is sometimes at the customer's request. And in this instance, the automotive OEM is a household mix and they do not wish to share with their competitors or with the market what they're up to at the moment. And we, of course, will expect that because much as like we'd like to tell everybody who it is, we'd much prefer to have a long and fruitful relationship with that. The second reason that we don't announce orders, and this is actually more true on the back on our energy storage side of that than it is on the EV ARC side of this where there's really no competing product. It's because, frankly, we don't want to inform our competitors to who they should add to their prospect list. And so we have to sell against them in that [indiscernible] as I say, that's much less of a concern when the EV ARC is concerned, because we don't really have any competitors where that product is concerned. But on the battery side [indiscernible]. So those are the 2 reasons why we don't name either to respect the customers' wishes or because we do not wish to inform our competitors as to who they could be adding to their list. But in every instance, I don't think we sell to anybody where we think it's not going to be bigger. And I would say in the case of the automotive OEM, we recognize that as a very, very large opportunity we can never know if it will indeed blossom into one of those things with any certainty, but we certainly will continue to work towards that and we believe that we have a very, very good value proposition for them and some very interesting things to do with them in the future. Does that answer your question? Sorry.

Sure. No. Yes, I understand that. Just wanted to make sure if you could kind of -- how long does it take for you guys to get...

Yes, that's right. That's right. I knew there was something that I've missed Okay. So as far as order, the length of time is concerned, this is frankly the other good news with where our business is concerned. In early days, we used to get small orders, and it used to take a very long time to get from initial inquiry to purchase order. We are getting increasingly large orders, and they are converting the pipeline into backlog increasingly quickly as already mentioned last year, we converted about $80 million of pipeline into $76 million of backlog within the year. So it's accelerating and increasing the size of the orders. But they're still them happen very quickly. Some of them still take a long time to happen. But the good news is they seem to happen with much more reliability now and with more speed than any time in our history.

And our next question will come from Tate Sullivan with Maxim Group.

I think you said earlier you have $5 million in cash today. Is that related to accounts receivable. And I see in the Q that 80% of accounts receivables from the Army does the Army have lump payment terms? Can you go into a bit on the $5 million in cash?

I think if you're interested in looking at our cash position and understanding AR versus AP and all that, all the good news, all of that is outlined in our filings. And so working capital is the best indicator of that. And as I said in my comments and in fact, Kathy mentioned it too, be careful looking at our working capital because it looks smaller than it in fact is because it's negatively impacted by just under $7 million of noncash amortization of a contingent consideration for an earn-out payment based on our acquisition and a couple of other things, which as I've said before, making those earn-out payments is the best thing that we can possibly do. They're not cash, and they are a strong indication of the strong performance of the acquisition that we made. So that's where to look at that. Cash is part of the reason that we mentioned the cash position is because I want people to understand that cash is going to jump around all over the place. It's impacted by AR and AP and vendor prepayments and all sorts of other stuff. And we described that adequately. But I do think it's important to note that while on the balance sheet, we reported a decline in cash position. Part of that is temporal, and that's part of the reason that we thought it was important to let people understand that, in fact, we have more cash in the bank today than we reported at the end of the quarter.

And the U.S. Army as a large customer, do -- can you talk -- where do they -- I think another company, I refer mentioned that the Army has an active decarbonization effort $7 billion in spending through now in 2027. Does it come does the Army order -- do the Army orders come from the GSA contract structure or another budget [ph].

Yes. So broadly speaking, you are right that the Army has a nice, very significant amount of money. You're also when you're looking at the fact that Army like every other federal entity is obliged to convert all of its light-duty vehicles to zero emissions by 2027 and all -- essentially all of its non-tactical vehicles by 2035. So we believe that there will continue to be a significant order stream coming through our GSA contract. It's certainly a very useful vehicle, which allows federal entities to acquire products without having to go through a competitive process, because that's already been done. And remember that GSA contract is also made available to nongovernmental entities. So we think there's a great future with Army and with others. And by the way, to quiet anyone's concerns about this because I've heard this before, they pay, we get paid very well by them, we do not -- people often say, "government won't pay you." I don't know what they're talking about, that we get paid very well by them.

And our next question will come from Chris Pierce with Needham & Company.

Desmond, just 2 questions. Can you confirm the EV ARC delivery numbers you quoted? I got 150 [ph] in the first quarter. I believe you said 103 [ph] in the fourth quarter. That's a pretty big ramp from 3Q to 4Q, then again from 4Q to 1Q, if I have those rate, I just want to think -- how should investors think about the rent from here? Is it more iterative from here? Or could we still see large jumps like we just saw the last 2 quarters?

Well, the first thing investors should think -- should take note of is that we do what we say we're going to do. And I think that's important. And you're right, these are big reps, and I can tell you that people are pulling at the horse here to get this done. But I also want you to know that we still have a lot of excess capacity in our facility. That's the no good details on punishing of having invested in this facility for as long as we have done and taken the negative margin impact on results of the fixed overheads, but we still got a lot of capacity. Look, no business is going to keep producing triple-digit growth after triple-digit growth after triple-digit growth quarter-after-quarter because as the absolute numbers get bigger, that just -- that becomes a much heavier lift. But what I believe you will see is a continuation in our increasing production cadence. And what we're going to do is manage that to make sure that we increase the production cadence in the most economically viable way possible. So in other words, we just go crazy and start poking out product. We want to do that while keeping profitability in -- very much within our sites. And so that requires a sober both to growth, but I'm not planning on having any -- the next time I have this conversation with you, I'm not planning on having anything other than more growth to describe.

Okay. And then, just -- you talked about $1 million in cash as of March 31, $5 million in cash as of today. But how do you -- how do investors square that with the $3.8 million loss that you just reported because that's less than 2 quarters of cash on hand. But I know you've talked about the line of credit as well. I guess you kind of just leave all this together for me one more time, please?

Yes. So the key thing to understand is we have not repeat and underscore not tapped the line of credit. So what you got to look at, again, and I keep going on about this, and people are sick of hearing me talking about it. But what you can look at is, is the working capital that we've described in the past. If you look at our inventory position, if you look at our WIP [ph] if you look at our vendor prepayments, if you look at our AR, for example, to a perfect example, at 12/31 of '22, we announced $1.7 million cash on the balance sheet. But if you look directly below that, there's other $4-plus million in AR and as I say, we get paid, and we often get paid in less than 30 days. So you shouldn't be surprised to see an increase in cash in this way because it's just -- it's -- if we have all our inventory. And if we have all the AR, and we have all those other things like that, we're going to convert inventory into product. We're going to convert WIP [ph] into product. We're going to sell it. We're going to get paid. We don't have any -- I'm looking at catheter on have any bad debt at all; so we're going to get it. So that's what you're looking at there, basically. It's just what we said last quarter that people should not get too hung up on the cash number. They should be looking at our inventory, work in progress, AR and all those other things, obviously, net of AP and other stuff as well to get a fuller understanding. And as I've just announced, we are approximately $13 million in working capital right now. And that, at the end of the day, that converts to cash for us and usually fairly quickly. So that's why we're able to do that. The net loss is another thing. And of course, it does contribute to it, but to a lesser and lesser extent, the more product we produce and certainly now that we're gross profit, profitable.

[Operator Instructions] Our next question here will come from Daniel Marcelo with Cardona & Company [ph].

Desmond, congratulations on the good quarter. Are you able to speak to -- I know there's a lot of conversation about increasing production and clearly, you're doing that. The logistics of transporting or to the other side of the country. You had major orders from New York City. I know there's army bases all over the country? How are you increasing the ability to transport the ARCs?

Yes. That's an excellent question, Daniel, you can no doubt, you might just won this, that gets a lot of attention here. So the truth is we have 2 or 3 different meets that we use to transport EV ARCs. Some of them are on our own equipment that we own here. And frankly, that's -- those are the most efficient ways of transporting them because they don't just transport, but they also deploy the product when it arrives on site. But beyond that, we also use third-party logistics companies. And the -- so EV ARC, for example, you put an in a EV ARC 20-foot shipping container or 2 of them in a 40, you can couple on a back of a 40-foot flat bed. And this is, frankly, an area that's sort of good news for us, not good news to fear a truck driver, but the cost of doing that has very, very dramatically reduced. And also just availability of trucks, this time last year for a lot of more money, we could already get them to show up, and it was very expensive. Now they're calling us and looking for loads and that's having the predictable price on the price that we're paying for that, a predictable impact on the price that we're paying for that. I'll just give you an example. I mean we -- some -- we do still as much as we try not to we do important components from Asia that end up in our products. And it costs about 5x less to get a shipping container across the Pacific today than it did this time last year. So we have a lot of choices in terms of how we move the product around. But I've made me a secret of the fact that I think our future involves us having facilities like this dotted across the country, we certainly have to do that from a demand point of view as far as I believe, and when we do that, obviously, we will select to deliver from the facility closest to the customer.

Got it. And you -- recently, there was an announcement about a more compact arc patent for a more compact ARC. Can you speak about that a little bit?

Yes. Actually, that's a European patent issued to us is something that we already had, which is what we used to refer to as Transformer ARC, but in fact, all EV ARCs like that now. All EV ARCs pulled down in upon themselves well like a satellite for shipping and transportation. We view that as a very significant differentiator for us because that's how we're able to up on the customer side deploying less than an hour with actually no one on-tie -- or very little on-site activity, I should say. That's a significant differentiator and therefore, a barrier to entry. We have that protection in the United States. We now have that protected across the European continent.

And this concludes our question-and-answer session. I'd like to turn the conference back over to Desmond Wheatley for any closing remarks.

Well, I'm going to keep my closing remarks short because I'm going to get back to work here. We're busier than hell. The team is performing fantastically, and I can tell there's a lot of enthusiasm around here at the moment because everybody knows that as good as it is, we're going to be able to do a whole lot better. And that's where our focus is right now, as I mentioned in my comments, profitability and production, or major areas of focus, and we've delivered on that better than 8% improvement quarter-over-quarter from a profitability point of view and positive gross profit. We're still going to be focused on cash management as well. All the jokes about Scotsman and money are true. Listen to them and believe them. I'm loving what I'm doing at the moment. I love this company. I love the team of people that we put together and we're -- we've got nothing but climbing in growth ahead of us. So, I very much appreciate you being involved. Thank you for your interest and for your questions. And if you hold our stock, thank you for that too. With that, I'll hand it over to the operator to end the call. Thank you.

The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect your lines, and have a great day.