Good day, and welcome to the Beam Global third quarter 2022 financial results and corporate update conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. I would now like to turn the conference over to Kathy McDermott, CFO. Please go ahead.
Thank you, Betsy, and good afternoon, and thank you for participating in Beam Global's conference call for the third quarter of 2022. We appreciate you joining us today to hear an update of 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. First, I'd like to communicate to you that during this call, management will be making forward-looking statements, including statements that address Beam's expectations for future performance or operational results. Forward-looking statements involve risks and other factors that may cause actual results to differ materially from those statements. For more information about these risks, please refer to the risk factors described in Beam's most recently filed Form 10-K and other periodic reports filed with the SEC.
The content of this call contains time-sensitive information that is accurate only as of today, November 10th, 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. Next, I'd like to provide an overview of our financial results for Beam's third quarter ended September 30th, 2022. Revenues for the third fiscal quarter of 2022 set a new record for the company of $6.6 million, a 227% increase over $2 million reported in Q3 of 2021. Revenues for the first three quarters of 2022 were $14.1 million, a 156% increase over $5.5 million reported for the same period of 2021.
The increase in revenue was driven primarily by increased sales to federal customers, primarily for national laboratories, for enterprise customers, for workplace charging as employees are returning to the office and for fleet vehicles, and revenue for our battery business that was acquired in March 2022. Revenues to state agencies, primarily California, has also been strong on a year-to-date basis. We've been investing in sales and marketing over the past three years and specifically targeting federal in the past two years based on available federal funding for EV charging infrastructure. This has proven to be very successful, as Desmond will discuss shortly. Gross loss in the quarter ended September 30th, 2022 was $0.3 million or 5% of sales, compared to $0.2 million or 10% of sales in Q3 2021.
Gross loss for the first three quarters of 2022 was $1 million or 7% of sales, compared to $0.6 million or 11% of sales in the same period of 2021. The gross loss improved by 5 percentage points in the third 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 efficiency 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 $6.5 million for Q3 2022, compared to $1.5 million for Q2 2021. For the first nine months of 2022, we reported $10.9 million for operating expenses compared to $4 million for the same period in 2021.
The increases were primarily due to a non-cash $3.7 million increase in the fair value of contingent consideration year-to-date related to the AllCell acquisition, as well as increased operating expenses related to the AllCell business. The net loss was $6.8 million or $0.67 per share for the third quarter of 2022, compared to $1.7 million or $0.19 per share for the third quarter of 2021. The net loss was $11.9 million or $1.21 per share for the first three quarters of 2022, compared to $4.6 million or $0.52 per share for the same period of 2021. At September 30th, 2022, we had cash of $4.7 million compared to $21.9 million at December 31st, 2021.
The cash decrease was primarily due to an increase in inventory as needed to support our revenue forecast, prepayments to vendors to secure battery cells for production, as well as the net loss. Our working capital decreased from $24.6 million at December 31st, 2021, to $12.8 million at September 30th, 2022. The decrease in working capital includes a $4.9 million increase in current liabilities for the change in fair value of non-cash contingent consideration related to the AllCell acquisition. Based on that, I will now turn it over to Desmond Wheatley for business updates.
Well, thank you for that, Kathy, and thank you to all of you for tuning in here today. In the 10 years since I first put a concept drawing of EV ARC on a whiteboard, I have never once doubted that Beam Global would one day become a fantastically successful company. A very good reason as I talk to you today to feel absolutely vindicated in that belief. I know that not everyone has shared my certainty over the years, and that's clearly evidenced by the still very high short interest in our stock. I've heard the arguments against us, but I've never accepted them. Now, those arguments must surely be dead. During the last three months, we've sold more EV ARC systems than we've sold during our entire 10 years in existence.
Let me say that again. We now have more contracted backlog to deliver in the next 12 months than all the units we've produced since the invention of the EV ARC. All of those sales came in during the last three months. Our investments in sales, marketing, and government relations, combined with a dramatic improvement in the market conditions for our products, by which I mean a significant increase in the urgency and volume of EV charging requirements for both government and enterprise customers, has resulted in an order of magnitude increase in both size and acceleration of our orders over the last three months. For example, since the end of September, we have sold a single order of 367 EV ARC systems to the U.S. Army, through our new and very well-positioned partner, TechFlow Inc. 140 EV ARC systems to the Veterans Administration.
71 EV ARC systems to the City of New York. That's their seventh and largest order- to- date, by the way. 32 EV ARC systems for the Department of Homeland Security. Also in backlog are about 68 other EV ARC systems for various government and enterprise customers across the U.S. Backlog is, of course, a constantly changing number because even as I talk to you now, EV ARC systems are being delivered to customers while still more are being added to our pipeline. We're adding backlog at our battery division too. As of today, that number is around $6.7 million. The total value of all these sales is about $62.2 million, and all of it, with perhaps some immaterial exceptions, is to be deployed within the next 12 months. Our sales team is not stopping, and nor is the demand we're addressing.
I view these sales as simply the tip of an iceberg that we've been steaming towards for the last decade. Unlike the famous ship, we will not founder. This iceberg means nothing but opportunity for us. Governments and enterprises alike are just now starting to wake up to the enormous task of providing a whole new fueling infrastructure. We have the fastest deployed, most scalable, and lowest total cost of ownership infrastructure solution that we know of in the world. These recent orders demonstrate that we're being recognized for that in a way that we have never been before. The makeup of these orders is illuminating as well. I pointed out in the past that prior to COVID, as much as 50% of our revenues were derived from sales to nongovernmental entities.
Of course, during COVID, there was a significant reduction in the deployment of workplace EV charging, and our revenues from nongovernmental entities evaporated almost entirely. Even with the loss of this opportunity, we did not experience a reduction in revenues. In fact, they continued to grow as we replaced enterprise opportunities with those coming from the government. Over the last several months, we've noticed a return to nongovernmental spending on our products. In 2021, government revenues accounted for about 84% of our total, whereas in 2022, that number dropped to 58%, the remainder coming from nongovernmental sources.
Remember, these are percentages taken from a rapidly growing pie, showing that actually our enterprise revenues in terms of absolute dollars have increased dramatically. It's certainly not at the expense of the equally significant growth in government revenues. Another part of the mythology about Beam Global is that all of our revenues are derived from California sales. California is, of course, the largest and most vibrant EV market in the United States, and so it's not surprising that we've sold a significant amount of our product here.
We've had a contract in place with California Department of General Services, after all, since 2016. However, we are by no means reliant upon California for our existence. Again, this is illustrated when you look at a comparison between 2021 and 2022, in which California sales dropped from 56% to 34% of the total, while our actual revenues continued to increase. I bring this up because it's really important to point out that not only are we growing our revenues dramatically, but we're also diversifying the opportunities from which they're derived. The EV charging infrastructure market is a giant opportunity, and we're extending our sales tentacles across its massive and diverse landscape. The battery business we acquired is also addressing a very large and rapidly growing opportunity, and we've diversified revenue generation in that part of the business as well.
We're currently selling our unique battery solutions to companies that provide drones, medical devices, EVs, materials rehandling equipment, personal watercraft, robots, and of course, EV charging products, and not just our own. Of course, getting all these sales doesn't amount to a hill of beans if we can't deliver on them. To demonstrate that we can and also highlight the sort of growth we've already executed upon, you need only look at the last several quarters and years that we've reported. In 2020, we did about $6 million in revenue. In 2021, we did over $9 million. In the first three quarters of this year, we've already generated $14.1 million. That was before all these very large orders came in.
Revenue in Q3 of 2022 was 337% of the same period prior year and 178% of the prior quarter. We're clearly on an accelerating growth curve. While $62.2 million in the next twelve months is a massive increase over what we've ever done, it's simply a continuation of the accelerated growth, which I've often communicated to you I expected to happen. Over the last year or so, I've been telling my operations team that we were a single signature away from a very large order or orders. I've said in the past that I'm often aggressive about when things will happen, but rarely wrong about whether they will happen. The ops team has proved certain of that, and now so do you.
We got those signatures and now have these very large orders to deliver, just as I said we would. Now, the reason I repeatedly made that comment to the ops team is that I wanted them to be ready for the success when it comes. As a result, we've made continuing efforts to improve our efficiencies and our throughput capabilities. You can see evidence of that in our gross profitability, which has actually improved even in spite of the hyperinflationary conditions that we've experienced during the last two years. We've seen about a 27% increase in our bill of material costs since the beginning of COVID. Yet, at the same time, we've improved our gross profitability as a percentage of our revenues with each passing quarter.
In the quarter we're reporting today, you'll note a 5% improvement in gross profitability year-to-date. In spite of the hyperinflationary environment which has been so impactful to the cost of raw materials, components, and transportation of our products, we've continued to reduce our cost per unit. That improvement in gross profitability can only have come from increased efficiencies. Said another way, we're getting better and faster at producing our products every day. These improvements are important because they're essential milestones on our path to gross and net profitability, but also because they create an environment from which we can successfully execute on the very dramatic growth which we're experiencing today and expect to continue to experience for many years to come. Our engineering teams are working ceaselessly to find ways to improve the product and make it easier, less expensive, and faster to produce.
Our operations teams are optimizing our factory layout, making investments in fixtures and machinery, and increasing our headcount with qualified personnel to take on the exciting challenge of this growth towards which we've all worked for the last decade. We will continue to make judicious and disciplined investments in our facilities in San Diego and Chicago, so that they can efficiently and cost-effectively execute on our growing order backlog. For example, in Chicago, we've invested in automation of battery cell sleeving, welding, CNC-driven manufacturing of bespoke battery configurations. From Q2 to Q3 of this year, we grew over 38% increase in kilowatt hours of storage shipped as a result of our improvements and investments. Discussing investment is a good cue to talk about our cash position, which I think sometimes is misunderstood.
When looking at only the cash line on our balance sheet, one might be forgiven for coming to the conclusion that we burned through cash at an alarming rate this year. However, just a few more minutes of analysis, and you will uncover a far different and much more accurate story. We have leveraged our balance sheet this year in what I believe to be a wise and disciplined manner, so that we can be ready for the significant opportunities we're now embracing. We've increased our inventories of items which we believe to be at risk from potential supply chain hurdles. Battery cells are an excellent example of this.
There's a great deal of demand for battery cells, and while I'm very confident that in the future supply will meet that demand, we are at present navigating a course in which access to battery cells in the ever-increasing quantities we require might have presented a risk to our business. In anticipation of this eventuality, we've committed capital to increasing our inventory on-hand and also to prepaying vendors to ensure an adequate supply through the next 12 months or so. We also have historically high numbers of WIP or work-in-progress EV ARC systems, largely as a result of our accelerating production in anticipation of final signatures on some of the large orders we've received during the last month or so. We knew they were coming, but like all good things, they took time.
Working capital is actually a much more useful metric to analyze when considering our cash and cash equivalent status. Even working capital has been skewed in a somewhat misleading manner, potentially, by the impact of the inclusion of a non-cash contingent consideration resulting from the excellent performance of our newly acquired battery company in Chicago. Because they are executing and exceeding the revenue and backlog requirements of the earn-out provisions, which are built into the asset purchase agreement, we've had to revisit the original valuation and recognize that the assets we bought are worth more than we originally reported. There's nothing unusual in this sort of evolution evaluation. In fact, it's standard practice as the ongoing evolution of an acquired entity is assessed quarter- by- quarter.
You might be more used to seeing acquired entities writing down goodwill as the realities of the business fail to live up to the high expectations at the time of acquisition. In this case, we are doing completely the opposite. As a result of this excellent execution, we anticipate that we will in fact make the first of the non-cash earn-out payments, which are tied to performance post-acquisition. Well-negotiated earn-out payments are surely some of the most satisfying liabilities an acquirer can accept because it's proof certain that the acquired entity is meeting or exceeding the performance we expected at the time of acquisition. Nevertheless, there's no cash in. While there is no cash impact on these payments, they are expensed and, therefore, have an impact on P&L, and they also show up on our balance sheet and negatively impact working capital.
The contingent consideration in question is just under $5 million. Adjusting our working capital for this gets us from the $12 million that we have accurately reported according to GAAP to something over $17 million from a non-GAAP, but nevertheless important day-to-day management point of view. Remembering that we'll convert the $12 million in inventory that we're currently carrying over the next 180 days, with perhaps a few insignificant exceptions, it's, as far as I'm concerned, as good to us as cash because we don't run out of money before we do that. To return to the balance sheet and our cash position, you can see that as of December 31st, 2021, we had approximately $24 million. Today, we have cash and inventory amounting to approximately $17 million.
While we've used cash in the manners I just described, we have not burned cash at anywhere near the same rates. In fact, doing the simple arithmetic, you can see that we've burned around $7 million in nine months or just over $2 million a quarter, continuing our fastidious discipline where spending money is concerned. Don't forget that during that time, we had the cost associated with the acquisition and integration of the battery company we bought in March of this year. Anyway, taking that $2 million a quarter and dividing it into the approximately $17 million we have in cash and inventory combined, shows you that properly managed, we could continue to operate for another two years or so without needing to raise capital.
Not needing to raise capital doesn't mean that I would not raise capital were the situation to arise in which it was clearly the right thing to do for our investors. I will continue to be guided by the discipline that has allowed me to appropriately capitalize this company across the years, which is that I never do anything unless I believe it is in the best interest of our shareholders. Never. As we move into 2023, it's our plan to reduce the number of work in progress EV ARC systems we have on hand, and also to reduce the amount of inventory we carry, particularly when viewed as a percentage of the overall business we're doing.
The very dramatic increase in throughput at our factory, which we were required to deliver the new level of production being driven by our sales, will direct us towards a return to just-in-time production, something we were successful at in lower volumes of earlier times. At the same time, we anticipate a reduction in the supply chain bottlenecks, which have driven us to leverage our balance sheet in the defensive ways we have over the last 12-18 months. A significant increase in volume of components and raw materials, which we are acquiring from our vendors, should allow us to negotiate for reduced pricing and improved payment terms. Both of these have an advantageous impact on our cash requirements at any given time. Additionally, the larger customers to whom we'll be delivering product this year generally have an excellent history of timely payments, at least where we're concerned.
The combination of these factors will, I believe, enable an environment in which we will be successful. Just as I've been telling you for a long time that I believe we'd win large orders for our products, so too have I been telling you that increased sales volumes and throughput at our factory facilities are the key to achieving profitability. We are delivering on the first part of that statement, and I'm very confident that we will deliver equally on the second part, profitability. You'll note that we improved year-to-date net profitability by 25% when excluding the non-cash contingent consideration for the earn-out payment I already discussed.
Moving from the 124 EV ARC systems we produced in 2021 to the several hundreds that we will produce in 2023 will clearly have a very significant impact on the fixed overhead allocations to cost per unit. It's quite simple. Our fixed overhead costs, while they will increase, will increase at nowhere near the rates of our revenues. This will be a significant contributor to a reduction in our cost of goods sold. At the same time, these increased volumes will, as I've already stated, allow us to negotiate better pricing with our vendors, further reducing our COGS.
While for the last several months, indeed couple of years, have delivered inflationary pressures not seen in four decades, all the indications that we're now receiving from our vendors and from our own research point to a plateauing of cost increases, leading to the beginning of cost reductions as we move into 2023. Just looking at steel alone, which is the second highest cost contributor to our product, we've absorbed cost increases for some sections which are nearly six times greater than we were paying in 2019. Nothing in the macroeconomic or supply chain environment suggests that these sorts of very high prices will continue into the future. On the contrary, just looking at iron ore prices, we can see that commodity is trading for less than half today what it was fetching just six months ago.
Many people, and I'm one of them, believe that if we're not already in a recession, we're heading towards one. That would normally be very bad news for growing business. Actually, where we're concerned, it's almost certainly the opposite. None of our contracted backlog and almost none of our expanding pipeline will be impacted in any way by a recession. At the same time, the availability of human resources, commodities, components, and materials will increase while the cost for those things should come down. This is especially true where transportation is concerned, and transportation is a significant cost input to our business model. Taking all these things together, I believe that what you're going to see is a dramatic and accelerating growth in our top line. Accompanied by improved efficiency and execution and a reduction of costs in almost everything we pay for.
Put simply, profitability at the gross line and then at the net line. We're certainly going to be very, very busy in the coming days, months, and years, but that will not prevent us from continuing to exploit the other opportunities that we've already nurtured or those new ones which we seek out in the future. We will continue to develop new products which we've already patented, like our EV Standard and our UAV ARC. We will also continue to develop and patent new products as we encounter demands from the market for ever-improving solutions. We have demonstrated that we can identify those opportunities before anyone else and provide marketable solutions for them.
In September, I spent a month in Europe and the Levant seeking and advancing opportunities to expand our business to the largest EV markets in the world, where internal combustion engine vehicles will be banned in a little over 12 years from now. At the end of this month, I return to Europe to continue those efforts, and we'll also travel to the Middle East, where we intend to expand our business in both that and the nascent African market. I remain acquisitive and will continue to seek out opportunities to make acquisitions where those transactions deliver value for our shareholders and conform to our strategic plan. Lastly, I continue to work with Superlative on the sponsored Driving on Sunshine Network opportunities. Like the large orders I previously promised and have now delivered, I'm confident that at some point we will make a success of that opportunity as well.
Although, as I've often said, while I'm very enthusiastic about that opportunity, it's never been vital to our success. I think the orders we've announced today demonstrate that wholeheartedly. It took about 10 years to get the Saturn V rocket of Apollo 11 from the whiteboard to the launch pad. It's taken a similar amount of time for us to take the EV ARC from the whiteboard to the point where we're ready to blast into tremendous success. We delivered a lot of systems and generated a fair bit of revenue during that time, but nothing that we've done over the last 10 years can compare to what we're going to do in the next 10 months and 10 years and all the years after that.
To borrow Alan Shepard's words from an earlier mission that delivered the first American into space, "Let's light this candle." I'll now return the call to the operator and take questions.
We will now begin the question-and-answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Tyler DiMatteo with BTIG. Please go ahead.
Hey, Tyler.
Hi, everyone. Thanks for taking the question. Desmond, I wanted to come back to the prepayments on the battery cells. Would you be able to provide a little bit more color here on how you're thinking about sourcing battery cells, realizing, as you alluded to, demand right now is, you know, extremely high. Just kinda wanted to get a better sense of how you're thinking about it and kind of your approach.
Yeah. Tyler, it was, it's been a nail biter. There's no question about it, especially a year ago, it was a bit of a nail biter. Before I acquired the company that we bought in Chicago, we were looking at the very real potential that we might actually run out of batteries this year. Of course, as all of our products have energy storage on board integrated into them, no batteries means no products. The first thing was absolutely the right thing to do on so many levels as evidenced by the increasing value of that acquisition to make that acquisition. I couldn't be happier about it. We paid right for it, no cash, and got a fantastic valuation.
That said, the seller will make a lot of money too because they hold our equity, and I'm confident we're gonna really boost that. Your specific question about the cells, yes, we have strategically leveraged our balance sheet to ensure that we have access to the cells that we need for the foreseeable future. We've also strengthened, developed, and further developed our relationship with the vendors, particularly in Korea, South Korea, where the majority of our cells come from. In fact, I just had the CEO of the company from whom we buy those cells in our offices here in San Diego. Two or three months ago, he was in our offices in Chicago.
They have become very convinced that this EV charging infrastructure product that we make is going to be very important to the future of electric vehicles. In fact, they want to present EV ARC and our other products in the Asian market for us. Now why that's important is because what I've been able to point out to them is that while they're producing all these batteries for electric vehicles, if there's no charging infrastructure, there'll be no electric vehicle sales. At the end of the day, they cannot preclude us from growth in order only to supply the electric vehicle manufacturers. They accept that argument.
Combination of our using our balance sheet and also articulating our important role in the growth of EV charging infrastructure, which is essential to the growth of EVs, and therefore to the growth of sales of cells into those EVs, has, I think, put us in a position where it's certainly not one of the things that's keeping me awake at night at the moment.
Okay, great. Then what I wanted to also follow up on is I look at the backlog here and kind of the value of the contracts and realizing demand, as you allude to, is strong across the EV charging ecosystem due to all the policy incentives and so forth coming through. Just can you speak to kind of the customer appetite? Because it looks as if like the pricing associated with some of these contracts is you're getting a little bit of a nice benefit there. Just trying to get a sense of the customer appetite further across the different segments here, if you wouldn't mind, please.
As I said in my comments, this is the tip of the tip of the tip of the iceberg. I mean, these numbers are big to us right now, but they are absolutely nothing in comparison to the demand that's coming down the pipe. I can't go into detail about the conversations we're having, but I can tell you that nobody is saying to us, "Oh, this is it." The completely opposite conversations are taking place. I mean, look, the federal government has 675,000 vehicles in its fleet. The light duty fleet has to be electric by 2027, and then the entire fleet by 2035.
They are currently the largest consumer of diesel and gasoline in the world, soon to become the largest consumer of electric vehicle charging infrastructure in the world. It has to happen really, really quickly. 2027 is just, you know, nothing. It's a couple of blinks away where infrastructure is concerned. It's getting harder, more expensive and more complex to deploy grid-tied infrastructure. We're getting better and faster and less complex to make our products. I've never said that we will be the only solution, and we should not be, but we're gonna be a very important player in this. Again, these orders right now, as wonderful as they are for us right now, I don't believe that they're anything other than the beginning of a much larger wave that's coming.
Okay, great. Thank you, Desmond. Really appreciate the time. I'll turn it back to the queue. Thank you.
Thank you, Tyler.
The next question comes from Tate Sullivan with Maxim Group. Please go ahead.
Hello, Tate.
Hi, thank you. Hello, how are you? Well, great news on all the orders and, I mean, executing on that backlog. You gave great detail on the level of inventory you're looking at. Starting there, I mean, are you going to target a specific level of inventory as a percent of that large backlog number? Or, I mean, it sounds like you can manage through it, but how are you looking at managing that inventory level, please?
Yeah, I mean, look, I want my vendors to warehouse and capitalize the inventory that I need to make my products. So the latest I can get it and the latest I can pay for it, the better I like it. I mean, in an ideal world, of course, we're pushing our vendors out to the point where we're getting paid by our customers before we're paying them. That is not an opportunity that we will always be able to leverage, but we'll keep pushing for as we become more and more powerful. This is just a balance of power thing. The more we do, the more we buy, the more power we have to get better pricing and better terms. I, you know, I'm gonna have a busy factory.
The good news is I've got factories. I mentioned in my comments, we do 30 times the volume that I did in 2021. I've got plenty of room for expansion here. We're gonna have to be efficient in the use of space and in the use of cash. That means really working our vendors very hard to have them inventory, warehouse, and capitalize the products that we need. We'll be, as I said, moving back to as close to just in time as we can. The difference is, of course, just in time used to mean a few products. Now, it's just gonna be a constant cycle of trucks rolling in and out of the property, moving products away. It's already starting to look a bit like that.
My ops manager actually said to me this morning, "God, it's terrible that you've got a corner office because I get to see everything that comes on the property and everything that gets off it." Of course, I've got a comment about all of it. But I can tell you there's an increase, just a dramatic increase in the flow of vehicles coming into the property and leaving the property right now. It's very encouraging, but it's gonna get a whole lot busier.
Thank you. I'm looking at TechFlow's press release about how they're managing the EV infrastructure rollout for some of the military branches. I mean, is this a partnership with TechFlow, or did they select you from multiple vendors? Can you give more detail on your arrangement with TechFlow, please?
The good news, Tate, is that when somebody wants a transportable but permanent EV charging infrastructure product that is entirely renewably energized, sits in a parking space but doesn't remove a parking space, tracks and follows the sun and has all the other attributes of our product, there just aren't a lot of people out there that can compete with us. Now, other vendors did try to compete, but the fact is they're showing up with the container solutions and all the other things like that just don't meet specifications or there's something else, some other aspect of what they offer, which is not right. It's not an accident that we've spent 10 years developing by far the best and unique and well-patented product for this industry. Tech will recognize that.
By the way, I am thrilled to bits to be working with them. If you take a look at those guys, you know, we're very good at making EV ARCs and getting them in our customers' parking spaces. They are very good at interfacing with the federal government. They do all sorts of wonderful things. In fact, all of us sort of rely on them one way or another from day to day, particularly if we travel. They're just a great partner to have. We're working very well with them, and we're looking forward to doing a whole lot more with them in the future.
Thank you, Desmond.
Thank you, Tate.
The next question comes from Craig Irwin with Roth Capital Partners. Please go ahead.
Hi, Craig. How are you?
Good evening. Hey, I'm very good. Congratulations on just a very successful couple of months in there. It's really impressive how things have been going.
Thank you.
I wanted to ask a little bit about the implications of volume and what this is gonna do for margins, right? You've been planning for margin improvement for a while. You know, the vertical integration with battery manufacturing has been a key part of that. How does this tremendous backlog and the fact that you're gonna be operating at pretty good capacity utilization impact the margin outlook as we look down the runway in the next couple quarters?
Yeah. I think there are two aspects to that. The first one is just that, the fixed overhead burden that we have to share among the number of products that we put out. Clearly, that's going to be dramatically impacted. Obviously, you know, we've got a facility here that can produce 4,000 units a year. Last year, 124 units carried all the cost burden for that. Next year, several hundreds will. You know, 600 or 700 will carry that. That clearly is going to divide that overhead burden and dramatically reduce it. At the same time, we just are getting a lot more efficient at doing that.
That means less takt time, less labor involvement in each of the products and so on. We get more leverage from that as well. I think the two other major contributors are going to be. We're not easy to deal with as a vendor. I mean, we're great. We pay on time, and we'll buy a lot of stuff from you, but we better be getting the best pricing. We're gonna keep pushing for better and better pricing and better and better terms all the time. We will, I anticipate, get significant reductions in cost for the things that we're paying just because of our volume increases. Also, as I said in my remarks, I believe that we will also be favored by the economic environment that we're moving into in the moment.
I think we're gonna see the end of this sort of supply chain constraints and the hyperinflation. In fact, we're already seeing that being replaced by far better access to components. I've read some of the other public filings from some of the other automotive companies saying the same things that their supply chain is opening up for them right now. We are already seeing the either cost reductions right now or indications that cost reductions are gonna start in the first quarter of next year. You're gonna get a combination of perfect storm of all of those things at a time when we're moving into the highest volume that we've done yet. We can still do four times more through this factory facility.
All of that will go to the gross profitability, which of course eventually leads to net profitability. Just to put that in context, again to go back to my remarks, 27% increase in BOM costs. By the way, we're very BOM heavy. Most of our costs are in BOM, not labor. 27% increase in BOM costs and yet a 5% increase in gross profitability. That means we absorbed all the increase in the cost and still improved by 5% our gross profitability. I believe we'll get back those BOM costs and continue to increase our efficiencies. You can add all those numbers together, that tells you where we get to gross.
At the moment, my back of the napkin, I was gonna say, don't quote me on this. Of course, you're gonna quote me on it. Back of the napkin, we the combination of those things is enough to get us to cash flow.
Excellent. My second question I wanted to ask is about what you feel the bigger impact on success has been with these government and municipal customers. How is it more the fact that you can deliver these very quickly and that they're transportable to new sites if plans change or if you know, priorities change throughout the year on seasonality of certain use of parks and other areas? Or is it more the fact that there's the avoided cost of infrastructure that they don't have to go and procure changes to the utility and power footprint and bring in you know, substantial capacity to allow EV charging in the locations they wanna serve?
Yeah. There are not many people out there that understand this industry better than you do, Craig, and you've just answered your own question. It's all of the above. The simple fact of the matter is, the things that I have been saying for the last decade have not changed. Check any of the statements I've made, check any of the presentations I've put together over the last decade. Now, for the first eight years, everyone who listened to me rolled their eyes and smirked and, "Oh, here comes the mad Scotsman again with his stories about it takes too long and it's too expensive to install grid-tie charging. The grid's vulnerable, the grid doesn't have enough capacity," and all these other things. They've all used to roll their eyes. Now they're saying the same things.
I suppose, or rather, imitation is the highest form of flattery. But the answer to your question is speed to deploy is huge. There's a huge amount of urgency right now. You've got all these people who are actually getting vehicles, either because in the enterprise environment, the employees are starting to drive to work in Mach-E's and F-150s and Rivians and all the other fantastic products that are out there. The corporate environment having to add EV charging at a faster lick than they ever have done before.
Of course, all the government entities who are taking title to electric vehicles who don't have charging infrastructure and are only now just discovering how very long and risky it is to dig all the trenches, go through the permitting environmental impact studies and everything else like that. There's avoided cost of construction electric work. You're absolutely right about that. Certainly, there are inexpensive ways to deploy EV chargers, but once you put those one or two in and now you need 10 or 15 more, now you're out trenching your parking lot, doing switchgear upgrades and electrical upgrades and everything else like that. We all of a sudden start to look like a bargain really quickly. Particularly for our fleet operators, it's about resiliency. People are understanding that.
They're waking up to the fact that electricity is fuel. If you have a blackout or a brownout or something goes wrong, something else goes wrong with the grid, like a hurricane or whatever else comes along, you're grounded. You have no fuel. Our products continue to operate during those environments. If you look at people like Army, Marine Corps, and all the others that we're deploying for right now, they can't afford to ground their vehicle. New York City can't afford to ground their vehicles during a blackout or a brownout, nor can I as an individual, nor can you. Specifically these fleet operators. It's everything that we've been selling and talking about for the last decade. Everything that we've developed into our product to address is becoming a reality.
It's just coming home right now, at a rate that we've never seen before. That it's only going to accelerate.
Understood. If I could sneak another one in to the question list. A few years ago, you put a tremendous amount of effort into developing potential sponsored deployments. Now that we've seen the GSA funding capability sort of drive government adoption, you know, this has to catch the attention of those major consumer brands that, you know, were in conversation with you a few years ago. I know you probably haven't had a lot of spare time in the last couple of months, but what do you think about the potential for the success you've been having to reignite the opportunity to explore that and for that to maybe take some shape a little bit further than where it got to a few years ago?
You know, we have a very talented sales team and Superlative, the company that I'm working with to sell the sponsorship. Again, they're doing that performance-based. They don't get paid. They're going after this because although they're the preeminent experts in the space, they believe heavily that this is gonna be a giant win one day. The truth is, the point you made is exactly right. Talented sales teams, talented Superlative. The fact is nothing sells EV ARC like EV ARC. When people see them, when people use them, when people get around them, they want them.
I absolutely believe that the volumes that we're doing now and that the credibility that we're getting from that and that the just the visibility of the product across the United States, and I hope soon internationally, will certainly help us. I'm as I said in my comments, you know, I'm often a little optimistic about how quickly things will get done because I'm a very impatient person, but I'm rarely wrong about whether or not they get done. You know, I don't believe that this sponsorship thing will be one that I'm gonna be wrong about. I just think it's gonna have taken a lot longer than we want it to. When we get it will be a humdinger.
Excellent. Well, congratulations on the progress. I'm gonna go and hop back in the queue and look forward to catching up with you soon. Thank you.
Thanks, Craig. Hope to see you next week.
The next question comes from Christopher Souther with B. Riley. Please go ahead.
Hello, Chris.
Hey. Hey, how's it going? Thanks for taking my question here, and congrats on the great progress. Maybe just if you could start with a breakdown of battery versus charging business in the quarter. You know, and within the charging piece, you know, the government revenue versus the enterprise, given you called out an uptick in the enterprise. You know, we can see from the orders here that you're, you know, doing a great job on the government side for sure, but wanted to get a sense of what you're seeing with more of the corporate customers kind of returning, especially given, you know, recessionary worries and all that stuff.
The battery revenue was about a fifth of the total revenues that we did in the quarter, which is really great. I mean, there's nothing like buying a company and have it start doing better than we even initially anticipated to do. As I say, you know, no good deed goes unpunished, right? Especially on Wall Street. We the thing's performing better than it was. We've got to take this non-cash hit because we're gonna make the earn-out payments, which I've said from day one, I'm very much looking forward to making those earn-out payments because it means we didn't buy a dud and we did not buy a dud.
They're doing better and better every day and we're helping with that process. As far as the enterprise sales are concerned versus government, there's. I mean, look, I think I mentioned enterprise sales have come back with some drama, frankly. I anticipated that. I mean, obviously during COVID, there was a tremendous lull in the deployment of workplace charging, which had been a big contributor to our prior revenues. It's come back with a vengeance now. I don't think we're gonna see a time when enterprise deployments are the same as government deployments for the next couple of years just because of the massive opportunities that we're seeing from government. At the same time, it's not going away and we're continuing to address on it and it's growing again for us rapidly now exceeding what it was prior to COVID.
Got it. No, that's very helpful. Given the order book visibility, you know, you're likely gonna be scaling up manufacturing pretty nicely. You know, you've talked about having a lot of capacity. But are there any challenges you foresee in the near term as far as, you know, some of the components or, you know, adding labor? And then, you know, maybe just to put a pin on the gross margin kind of break-even point, you know, is there like a targeted, you know, revenue run rate that we should see that, you know, flip to positive given, you know, the balance of inflationary versus, you know, the improvements you've been making, the trajectory and the scale and, you know, that AllCell benefit?
You know, challenges, of course there are. I mean, we're ramping up very dramatically right now. Yeah, human resources. I gotta tell you, yesterday morning I had what was probably one of the most inspiring meetings I've ever had at this company. I had my engineering, ops, battery teams and everybody together in the same room. We were essentially just looking at all of the things that could get in our way. I've just. The energy in the room was magnificent. I've got a lot of very bright, very talented people working for the company now. You know, they've identified hurdles and they've got solutions for those hurdles too.
We are going to have to hire some more people, but the great news is we don't have to hire anywhere near as many more people as we are going to grow the business. That's leverage that we get from that. We're gonna have to work very hard to get the commodities and components and everything else that we need, because while the supply chain environment is repairing, it's by no means fixed or like it was prior to COVID. We still have to work a lot harder to get all of that stuff done. We're gonna have to work really, really hard. Ops manager just walked past the CFO's office yesterday and said, "I guess I'm gonna tell my wife I won't see her for Christmas." You know, and he lives here.
He lives in this town, you know? It's gonna be tough, but look, we've been through worse than this before. Again, the growth rates that we've demonstrated over the last quarters and years, although not quite on the same level, it's the same discipline. We'll keep moving towards that. From gross profitability point of view, you know, we're not very far away from it now, and that's again, in the current environment that we're operating in. The increase in volume and the recessionary impact on the vendors with the stuff that we have coming through, because again, we are not going to be impacted from a top-line point of view by recession. All of those things will help us.
Yeah, I'm not worried about profitability. That is something that we will definitely get our arms around. I'm talking about even at the bottom line. The challenges, yeah, no, yeah , it's gonna be challenging. Again, we've been preparing for this for 10 years, and particularly for the last couple of years, because I've had this on my horizon. None of this has come as a surprise to me. Somebody sent me a very kind text early on saying how fantastic this was, and I wrote back and thanked you very much, but it's just business as usual for me. None of this has come as a surprise to me. I've been expecting this. I've been anticipating it. Has the team been. That does not mean it will be easy, but they're up to the challenge, and they'll get it done.
No, no, that's helpful. I'll hop back in the queue. Thanks. Thank you.
The next question comes from Noel Parks with Tuohy Brothers. Please go ahead.
Hi, Noel.
Hi, good afternoon.
How are you?
Good. Just a few things. You know, one question, speaking of sort of high-class problems to have is, at this point, as the manufacturing capabilities are ramped up, but you still have the backlog in the pipeline, can you talk about the allocation of product, how you prioritize who it goes to with delivery? I don't know if there are, you know, contractual limitations on who you have to service first or just, you know, it's more informal, just having to do with past relationships. Anything on that would be great.
That's an insightful question, I have to say. The answer is you're right on all fronts. Yes, there are certain contractual obligations that we have to meet, and of course, we're gonna prioritize those. Yes, we also have relationships that we need to work through and everything else. As we ramp up, we have a deployment schedule put in place to make sure that we're able to meet the contractual obligations. It's a matter of injecting things into the process which will keep the rest of our relationships happy and understanding of what's going on. That's a really interesting, as I say, insightful question because everybody wants it right now.
Right.
Here's the good news, though, Noel. Any of our customers, even if they have to wait for our product, will still get it before they could put a shovel in the ground to start digging the trenches after they've gone through permitting and environmental impact and planning and engineering and everything else like that to put the grid-tied stuff in the ground. You know, even for those who are upset and I get it, that they're gonna have to wait longer than they wanted to, we're still faster and still more dynamic. Of course, as I said in my comments, one of the things to think about where these numbers are concerned, $62+ million in contracted orders to date to be delivered over the next 12 months.
Not next year, over the next 12 months. As I said in my comments, the sales team hasn't stopped working. We have not told our sales team, "Stop going out and looking for more opportunities, wait for a little while, let us catch up," at all. They are continuing to go after these things, and we will aggressively scale up to take all the new opportunities that come in. Yesterday in the ops meeting, there was a discussion about second shift. You know, we're still working a single shift five days a week right now. We can go to second shift. We can go to seven days a week. We can go to half shifts. We can go to three shifts a day.
I do plan to expand my battery manufacturing business from Chicago into San Diego. That will make us a lot more efficient because we won't be shipping the batteries from Chicago to San Diego. We'll make them where we are. We have room here to do that. Similarly, the next step will be to expand our charging products business into the Chicago area and build up. You're gonna need to grow Chicago anyway that we're already gonna run out of space there just for the battery side of the business. That, by the way, that's one other thing I do wanna make sure is clear to everybody. One of the things that's really exciting about this is that the Chicago team now is producing the batteries for our products. Taken a while.
We had some hiccups and some engineering things to go over because it's very specific how it has to work and everything. Even though we've used their product before, we've improved it dramatically. They're also growing the core business. The earn-out payments are not coming from anything they do for our internal consumption. None of the demand that we're putting on them to produce batteries for our products results in a dime of earn-out payment. They only get paid on the expanding the other business, the drones, the watercraft, the materials we're handling, and everything else like that. That's a very important part of this. I'm not letting my foot off the accelerator pedal for any piece of this business right now, and everyone here knows that, and that's the mandate moving forward.
That was great. That's great. Thanks. You mentioned a little while ago that you were meeting with a South Korean battery vendor and that that company, if I understood right, wants to present the EV ARC in Asia. I thought that was really interesting. I'm wondering, a partnership like that, is that something? Envisioned to be just acting as a distribution partner or at the opposite end, something where they would get involved in the JV or you have some other sort of equity interest in making that happen?
That's a chapter in our book which is yet to be written.
Okay.
There's two things I think that are really very important about this. The first one is it gives you a very, very clear indication of the fact that they have grasped the importance of our role in this industry.
Right.
They could easily have said to us, "Why the hell would we ship you cells? Everything that we make, we can sell to Rivian and to everybody else. And why would we ship you guys cells, right?" They have understood the fact that without charging infrastructure, there's no EV industry. That beyond that, without rapidly deployed and highly scalable and grid independent charging infrastructure, there isn't charging infrastructure. They have grasped that. They've understood that. They've been to our factory, they've toured the factory, they've seen the product in use in the field, and they're recognizing that there's just as good an opportunity for over there as there is over here.
For me, taking things one step at a time, I'm very happy to know that I've now got them locked into this comprehension of our important role in the value chain. The next step will be converting that into some mechanism to monetize that, not just through securing our supply chain, but through selling more of our products in another very important part of the world to us. I can tell you that Asia is the sort of part of the world. It's weird the way I look at things. In the United States, where one can count on rule of law and contract and everything else like that, doing things on your own makes a lot of sense. In Europe, it does too, for the same reasons. In the Middle East.
Mm-hmm.
Asia, places like that, having a strong partner probably makes a whole lot of sense.
Right.
That's probably the philosophy that we'll take into those markets.
Okay, great. Thanks a lot.
Thank you, Noel.
As a reminder, if you would like to ask a question, please press star then one to be joined into the question queue. The next question comes from Stephen Wagner with Integrity Wealth Advisors. Please go ahead.
Hello, Stephen. How are you?
Hey, Desmond. Oh, I'm fantastic. Even more fantastic after having the privilege and honor of listening to this conference call. It's been amazing, and I have no doubt the next one will be even more. Hey, sometimes it's good to have a crazy Scotsman on your side. We absolutely love the hard work that you guys are, you know, your whole team is doing. Most of my questions have been answered. I did wanna follow up on the enterprise side. I mean, I get the fact that, you know, the business from the, you know, obviously governments are gonna by far, in a way, outweigh as they should over the next couple of years.
I am curious as to the increased interest, based on the last press release that you put out, the 72% increase. What kinds of enterprises are contacting you? Are you able to talk about that?
Yeah, in loose terms, I can. A lot of them, frankly, you know, we have to ask their permission to use their names and stuff like that, you know.
Mm-hmm.
We have to say the most drone company or whatever that you've ever heard of, right?
Yeah. Got it.
That kind of thing. Anyway, the simple fact of the matter is, workplace charging is going to be absolutely essential.
Huge. Yeah.
I just wrote an article recently about this idea. You have people thinking that everyone's gonna charge at home. It's a nonsense. Yes, today, 80% of EV drivers charge at home because they're like me, affluent, single-family residents, plenty of electrical circuits.
Sure.
To charge their vehicle. That doesn't describe the general population. Most people don't live in places where they'll be able to charge-
Nope.
Even one vehicle, far less the 2.3 vehicles that the average American owns at home.
Mm-hmm. Mm-hmm.
They're gonna have to charge somewhere else, and that means work. We're really seeing that now. You know, now that all these models are coming out that Americans want to own, pickup trucks, SUVs, and larger cars, and with gas prices where they are and what Mr. Putin is doing and everything else.
Yeah.
We're seeing a dramatic increase in consumer adoption. They go to work, they need to charge there. That's a big piece of it. Workplace charging is definitely a very big piece of it. There are other types of enterprise or non-governmental stuff that we're doing as well, providing charging for other types of either fleet vehicles or other types of applications that are not just workplace charging. We're just seeing growth across the board with all of it. Of course, we are.
Got it.
This is still very much in its nascency. This is very much at the very beginning of something that's gonna be absolutely enormous.
Excellent.
What we've demonstrated that we can stick through the tough times and then produce something that people really want to. Now we're, like I said, let's light the candle.
Yeah. Appreciate that. As I mentioned, most of my questions have been asked and answered by other analysts on the call. I did have one final kinda comment question that I'd like to talk about a little bit, and that is in your preamble, you referenced the short sellers and the 20% short position. You talked about arguments that they've had against the name that they're now dead. I mean, obviously, I couldn't agree more. I've never been able to understand the position. Everybody has a right to invest the way that they choose. I would be curious, what has been the argument for shorting your stock?
I mean, it just seems like even your company as a concept is a difficult thing to short, let alone the fundamentals that are supporting the business right now today, and quite frankly, that have been over the last eight, 10, 12 months. I'd love to hear your take on that. As to what the reasons are.
Let's first of all throw out all the people who are shorting our stock without any thesis at all, right? There's plenty of that going on.
Right. Right.
People look at us and they think we're an EV charging stock. We start with Beam, and we got four letters in our ticker. They short Blink, or they short us or something else, right? I mean, there's no thesis there or thought going on. It's herd mentality.
Mm-hmm.
Let's discount all of them for a second. Then let's go to the next group here. There's really only three legs to the three-legged stool of the short thesis, right? Either we're going to go bankrupt and fail entirely, or we're going to do a massive destructive, dilutive financing, or we're going to fail to execute. I'm gonna tell you right now, and of course, this is my opinion, I have to say that, but I'm gonna tell you right now, I will not deliver on any of those three legs to the stool. I'm clearly gonna execute. I'm certainly not gonna go bankrupt, and I'm certainly not gonna do a massive destructive and dilutive financing, right? I have to quantify that because the lawyers will tell me I have to say I believe. I'm saying I believe.
Mm-hmm.
Those are the things.
Indeed.
Basically, I have nothing to offer the shorters except blood and tears.
That's right.
If you're listening to me and you're shorting this call right now, I'm coming for you.
I love it. I usually feel sorry for people that lose money in the market, but not these folks. Thank you so much.
Listen, Steve. Steve, I'll tell you. Let me just say this. I believe that shorting is an essential part of a healthy market.
Absolutely.
People actually discover something wrong with a company.
That's wrong. Absolutely.
or that it's overpriced or something else like that. When it's-
Yep.
nefarious or ignorant, then
Yep.
I've got no sympathy, and I look forward to taking money out of their pockets.
You got that right. You and me both. Well, look, have a fantastic afternoon. We'll be in touch soon. Take care.
Thank you.
Our last question today comes from Cliff Weinstein, who's a Private Investor. Please go ahead.
Hello, Cliff. How are you?
Hey, Desmond. Good, Desmond. Like the last caller, all my questions were answered. I just wanna say, you know, I've been following this company since you did your uplisting. I just wanna applaud you and your team, with many of whom I've met on my trips to San Diego, and it's a salt of the earth bunch you got there and just kudos to an incredible transformational quarter and landing, you know, nearly $60 million in orders in the past 90 days. I'm proud to be a shareholder. It's probably one of the best calls I've listened to in the past 20 years, so great work. Keep it up. I agree with the shorts. They should be scrambling right now.
Wall Street will wake up, and investors will see what you're doing here. Just great job all around and give my best to the team over there.
I'll do that. By the way, Cliff, it means a great deal to me coming from you. Thank you.
Yeah. Thanks, guys. Bye-bye.
This concludes our question-and-answer session. I would like to turn the conference back over to Desmond Wheatley for any closing remarks.
Well, again, thank you all for your interest and for the supportive comments and the insightful questions. Very insightful questions. Look, it's always everything that's worth doing is difficult. If you have a good idea and you stick to the strategy and you just keep executing, eventually you're gonna be rewarded. We are moving into that period now, with your support and with the support of our team. I'm very appreciative. Thank you very much. We've all got to get back to work now because God knows we're busy.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.