Beam Global 2022 Q3 Form 10-Q Summary
Business Context and Reporting Period
Beam Global develops and manufactures renewable-energy EV charging infrastructure, energy storage systems, energy-security products and related infrastructure. The company reports one operating segment. This unaudited Form 10-Q covers the three and nine months ended September 30, 2022, compared with the corresponding 2021 periods.
On March 4, 2022, Beam acquired substantially all assets of All Cell Technologies, an energy-storage company. All Cell contributed $1.7 million of revenue in the third quarter and $3.5 million for the nine-month period.
Key Financial Metrics
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Revenue | $6.6 million | $2.0 million | $14.1 million | $5.5 million |
| Gross loss | $(0.3) million | $(0.2) million | $(1.0) million | $(0.6) million |
| Gross margin | (5%) | (10%) | (7%) | (11%) |
| Operating expenses | $6.5 million | $1.5 million | $10.9 million | $4.0 million |
| Loss from operations | $(6.8) million | $(1.7) million | $(11.9) million | $(4.6) million |
| Net loss | $(6.8) million | $(1.7) million | $(11.9) million | $(4.6) million |
| Net loss per share | $(0.67) | $(0.19) | $(1.21) | $(0.52) |
| Net cash used in operating activities | Not provided for quarter | Not provided for quarter | $(15.7) million | $(5.2) million |
Revenue increased 227% year over year in the third quarter and 156% in the first nine months. Product sales were $13.0 million for the nine-month period, compared with $5.2 million in the prior-year period. Beam sold 136 EV ARC units in the first nine months of 2022, compared with 76 units in the prior-year period.
Gross margins improved despite continued gross losses, primarily because of higher production volumes, favorable fixed-cost absorption and improved labor efficiency. Cost pressures included steel, batteries, other components, freight and fuel. The nine-month 2022 gross loss included approximately $0.5 million of noncash intangible amortization.
Operating expenses increased substantially, primarily because of a $3.9 million third-quarter and $3.7 million nine-month increase in the fair value of contingent consideration associated with the All Cell acquisition. Excluding this item, operating expenses increased due to All Cell costs, acquisition-related legal and accounting expenses, and higher sales and marketing spending.
Liquidity, Cash Flow and Capitalization
- Cash was $4.7 million at September 30, 2022, compared with $21.9 million at December 31, 2021.
- Working capital was $12.8 million at September 30, 2022, compared with $24.6 million at year-end 2021.
- Operating cash use increased to $15.7 million from $5.2 million, driven largely by inventory and vendor prepayments. Inventory increased to $12.2 million from $1.6 million, including $8.8 million of raw materials.
- Investing cash use was $1.6 million, including $0.8 million for All Cell working capital, $0.8 million for equipment and $0.1 million for patent costs.
- Financing activities provided $0.1 million, including $0.3 million from warrant exercises, partially offset by $0.2 million of equity-offering costs.
- The filing does not report material traditional debt. Lease liabilities totaled $1.9 million, including current and noncurrent operating lease liabilities.
- Management stated that, under its current operating plan, it believes available resources can fund operations and contractual obligations for at least twelve months from September 30, 2022, although the company expects continued losses and may need additional capital.
Material Changes Versus the Prior Comparable Period
- Revenue growth reflected higher EV ARC demand, increased federal, state and enterprise sales, and the addition of All Cell energy-storage revenue.
- Federal-government revenue increased by $2.3 million for the first nine months, state-agency revenue increased by $1.6 million, and enterprise-customer revenue increased by $1.1 million.
- All Cell added goodwill of $4.6 million and intangible assets of approximately $10.2 million net at September 30, 2022. Beam issued 1.055 million shares valued at $14.4 million and paid $0.8 million in cash for working capital.
- Contingent consideration related to All Cell was carried at $4.9 million at September 30, 2022, including a $3.7 million increase in fair value during the first nine months.
- Shares outstanding increased to approximately 10.1 million from approximately 9.0 million at December 31, 2021, primarily reflecting shares issued for the All Cell acquisition.
- Revenue concentration shifted: government customers represented 58% of nine-month 2022 revenue versus 84% in the prior-year period. California customers represented 34% of nine-month 2022 revenue versus 58% in the prior-year period.
Guidance, Outlook, Risks and Unusual Items
Management expects revenue growth, higher production volumes, manufacturing efficiencies, lower battery costs from All Cell and reduced supply-chain pressures to improve gross margins. Management believes the company may become profitable in the next few years but provided no specific revenue, earnings or profitability timetable and acknowledged that positive cash flow cannot currently be predicted.
Backlog of undelivered purchase orders scheduled for delivery within twelve months was $32.3 million at September 30, 2022. The company reported approximately $46.9 million of federal-related orders awarded from September through November 2022 and a $5.3 million New York City contract awarded in October 2022. These amounts are subsequent orders and are not included in September 30 revenue or backlog unless otherwise stated.
Beam entered into a committed equity facility with B. Riley allowing, subject to conditions, sales of up to $30.0 million or 2.0 million shares over 24 months. No capital was raised under the facility as of September 30, 2022. Outstanding warrants could potentially provide approximately $3.0 million of additional proceeds, depending on market conditions and exercise decisions.
Principal risks include recurring losses and operating cash burn, potential need for additional financing and dilution, dependence on a limited number of battery-cell suppliers, commodity and freight-cost volatility, supply-chain disruptions, customer and government-budget concentration, uneven order timing, acquisition-integration risk, and the uncertain realization of All Cell synergies and earnout obligations.
Management reported a material weakness in internal control over financial reporting related to inventory tracking, valuation and manual processes. A separate business-combination review weakness was identified earlier in 2022; management implemented additional third-party valuation review controls and stated that it believes those controls address that weakness. No material litigation was pending or threatened as of the filing.
Investor Verification Checklist
- Verify conversion of the reported backlog and subsequent federal and New York City orders into recognized revenue and cash collections.
- Assess whether inventory and vendor prepayments normalize as management expects and whether inventory is ultimately saleable without impairment.
- Monitor gross-margin improvement, particularly battery-cost savings from All Cell and the effects of steel, freight and labor costs.
- Reconcile the All Cell contingent consideration liability, earnout milestones and potential future share dilution.
- Evaluate liquidity runway, operating cash burn and the potential use of the B. Riley equity facility or other financing.
- Track remediation of the inventory-related material weakness and the implementation of an ERP or manufacturing-tracking system.
- Consider customer, government-program and supplier concentration when assessing revenue durability and execution risk.