Beam Global Q1 FY2023 Earnings Call

Good day, and welcome to the Beam Global First Quarter 2023 Financial Results and Corporate Update. 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, everyone, and thank you for participating in Beam Global’s 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 the 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. I will now 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, were $13 million compared to $3.8 million in the same quarter in the prior year. The increase can be attributed to the rise 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, closely managing 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 compared to a loss of $0.3 million or 8.1% 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 costs for steel and other components remain higher than Q1 2022 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 purchased 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. Additionally, 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 three 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 expenses 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 will make some comments and then look forward to answering your questions before we close the meeting. The Beam team excelled 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 the highest revenue of any quarter in our history, approximately three times more than the first quarter of the previous year, and more than 50% more than the prior quarter, reflecting a quarterly revenue rate higher than any full year in our history following 2022. Q1 of 2023 marks our eighth consecutive quarter of revenue growth and continues a trend that dates back much longer than that, with 2022 showcasing a 548% increase in orders over the prior year, which itself experienced significant growth. Clearly, product demand is no longer an issue. The new question is whether we can keep up with this growth. In Q1 2023, the Beam team delivered more EV ARCs and battery systems than in any other quarter in our history, with 150 EV ARCs delivered, up from 103 in the fourth quarter of 2022. This delivery rate was higher than any full year except for 2022, a record year. By the end of 2022, our Chicago team was producing about ten times more kilowatt-hours of batteries than the company we acquired did before our acquisition. This trend has persisted into the first quarter of 2023, enabled without significant capital expenditure on our part. Throughout Q1 2023, our operations and engineering teams have made improvements in our processes, fixtures, equipment, and product engineering, resulting in a daily and weekly production rate far superior to what we had at the beginning of the year. I believe these results will lead to a continued acceleration in production, and in Q2, Q3, and Q4, we aim to further increase our output. Even at our current run rate, we are on course to produce about three times more EV ARCs in 2023 than in 2022—a record year—and 144% more than in 2021. I have consistently asserted that higher volumes would lead to improved gross profitability, and this has been validated in the latest quarter. We recorded a gross loss of 8.1% in the fourth quarter of 2022. However, in the first quarter of 2023, we achieved positive gross profits, albeit minor, and when accounting for noncash amortization related to our acquisition of AllCell, the picture looks even better. We made money on the gross profit line across the entire Beam Global platform. Excluding the accounting treatment from our successful acquisition, our performance was even better by about 2%. We achieved these gross profitability improvements through increased efficiency, enhanced engineering, and a reduction in our per unit fixed overhead allocation that naturally occurs with growth. I have consistently mentioned that our EDR systems contribute positively to margins. The GAAP numbers now clearly reflect this, as our production levels cover all associated overhead costs, enabling us to generate gross profit across the company. I am confident that these profitability improvements will persist as our volumes increase and our processes and manufacturing methods evolve. There will be additional contributors to improved gross profitability that are expected to have even more significant impacts in the next two or three quarters. First, our combined engineering teams on both battery and EV charging products have identified ways to enhance the EV ARC product while simultaneously reducing production costs by $10,000 to $12,000, leading to a margin improvement of 16% to 20%. We anticipate these improvements will be realized modestly starting in Q2 and completed by the end of 2023. Second, due to strong demand for our EV ARC products, we have decided to raise our sale price for the first time by approximately 8.25% on the base model system. While there has been considerable discussion about pricing, our unique product, which has no direct competition, supports this price increase without negatively affecting order flow. We believe that the urgency of demand will not diminish and have introduced this price increase as a response to the current inflationary landscape. Third, we anticipate disinflationary trends impacting the costs of components, commodities, and transportation, which we detected towards the end of 2022. We expect decreased material and transportation costs to manifest throughout 2023. It’s important to note that the gross profitability improvement in Q1 2023 was not aided by this disinflation as we worked through inventories from the hyperinflation period. Consequently, the EV ARCs and batteries sold in Q1 were affected by the highest costs we've incurred. Despite this, we improved gross profitability and achieved positive gross profit. We expect to see the beneficial effects of the disinflationary environment beginning modestly in Q2 and continuing throughout the year. Considering all three contributors to improved gross profitability alongside our ongoing efficiency advancements, we can outline potential improvements. Engineering enhancements might yield a 16% to 20% bump, an 8.25% increase from our price adjustment, and additional unidentified improvements from disinflation could suggest a possibility of about a 24% increase over our current positive gross margins. My goal remains a 50% gross profit on our EV ARCs and other charging products, and with the strategies outlined, we are making steady progress toward that target. Cost improvements are a gradual process, and the benefits will manifest in Q2 but more prominently in Q3 and Q4. To clarify, the price increase became effective on May 1, 2023, and did not impact our first-quarter gross profitability. All improvements in Q1 stemmed from enhanced efficiencies and production volumes, while the price increase will only influence new orders delivered after we clear our current backlog. The other cost savings from the improvements will affect elements of our backlog as we implement changes quickly. We anticipate seeing these advancements begin in this quarter and intensify throughout the year. Our improving gross profitability significantly supports our cash position. We are managing cash with care, currently holding approximately $5 million, up from previous balance sheets as of December 31, 2022, and March 31, 2023. Our liquidity exceeds $100 million, considering our unused $100 million line of credit. This line offers flexibility without fees or equity impacts. While our cash position may raise concerns, our first-quarter results demonstrate our ability to enhance production, boost profitability, and maintain disciplined cash management. Understanding our cash flow also involves recognizing the positive contribution margin from our products, highlighted by our gross profitability in Q1 2023. Increased product volumes, combined with planned cost reductions and pricing increases, will further enhance our contribution margin and improve cash flow. We expect ongoing increases in volume, especially given our highest contracted backlog to date and record sales activity. The Beam Global sales team achieved its strongest first quarter ever, and our pipeline now exceeds $130 million, the highest we’ve seen at this point in the year. Last year, we began with an $80 million pipeline and converted a significant portion into contracts. While we cannot predict exact conversion rates, our historical performance has been strong. The first quarter revealed that most orders came from government entities, with a solid return from the commercial sector. We also received orders from top global automotive OEMs, materials handling sectors, and innovative robotics companies. Our balanced mix of government and commercial business appears sustainable, supported by our more than $130 million pipeline. We see no signs of reduced investment in electric vehicle charging infrastructure, energy storage, or energy security. We will continue expanding our intellectual property portfolio while improving our existing products, focusing on providing greater value at reduced production costs. Ongoing investments in sales, government relations, and R&D are essential for geographical growth, particularly in expansive markets like Europe aligned with our product value proposition. These activities will not detract from our commitment to enhancing gross profitability and managing cash effectively. The results from this quarter make that clear. To summarize, the Beam team delivered more products than ever, tripled revenues compared to last year, generated positive gross profit across our operations, and increased cash reserves without utilizing our credit facility. Recognizable opportunities for significant improvements in gross profitability remain for the year, and we continue to set sales records in a resilient market. Our patent portfolio has grown, increasing barriers for competitors, and we have exciting new products in the pipeline. While our success has largely been in the U.S., we are eager to replicate this progress internationally. The public markets pose challenges for growth stocks, but I believe our share price reflects factors unrelated to our actual performance. We can’t control broader market behavior, but we can continue delivering meaningful improvements, which we have been doing and will keep doing. I will now turn the call back to the operator for any questions you may have.

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.

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. 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 that 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 earlier days, believe we’re heading 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 the business. And at the same time, what we do anticipate is a reduction in costs across the board as a result of a less active economic environment. Transportation prices, 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, 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 a recession would be bad for us; we’ll see no 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 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'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 demand problem, as I said in my comments; 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, there's always a bit of a conversation around that. But 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 with 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 quite complex. We ensure that it's very easy for our customers and users to operate, but there is considerable complexity involved and a significant amount of intellectual property. I won't go into detail about how we're achieving these cost savings, as I don't want to provide a guide for others. However, I can say that we are focusing on areas like batteries and various components, encouraging our engineers and operations teams to reduce costs without compromising quality or safety. They have done a remarkable job in this regard. It's a gradual process since we currently have products in development, and we are integrating new components that have specific lead times. As I mentioned earlier, we anticipate early improvements starting soon, with more significant progress in the third and fourth quarters. I am confident that we will realize all the positive impacts from a cost reduction perspective that I have shared with you before the end of 2023. Regarding the price increase, while it seems straightforward, it's important to note that none of the products delivered this year have been affected by it, as we are not raising prices on already contracted products. The price increases will apply to new orders, and while some of these will be reflected in our current backlog deliveries, the material impact will be seen once we process this backlog.

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

Yes. Let's assume I'm correct about achieving the cost reductions and implementing the price increases as I described. Historically, I've been accurate with my comments on similar matters, and I don't plan to be wrong today. If we are right, we would need to produce around 170 to 180 units in a quarter to cover the net loss reported in the first quarter. As I mentioned, we produced 150 units this quarter, so we are not far off. Without going into too much detail or providing guidance, you can see that with our current production rate and backlog, if we successfully implement the discussed cost reductions, we could potentially reach EBITDA positivity. Other factors may influence this, as we might choose to invest further in sales and government relations, and I still have an interest in acquisitions if opportunities arise. Based on our current business and order pace, we are operating at a level that, after these cost savings, would get us close to EBITDA positive.

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

Desmond, I have a couple of questions. Could you discuss the sales and marketing efforts? It was great to hear about the growth you've experienced with commercial clients and the government. I'm curious about the current trends regarding inbound inquiries versus sales outreach, as well as new versus repeat customers. Can you share your observations on this?

We have a strong base of repeat customers, which is a positive indicator of our product's value, even in challenging environments nationwide. Our sales team is actively pursuing opportunities and has maintained momentum since we announced significant sales last year. Detractors may have thought those sales were a fluke, but that's not the case. We see this as just the beginning and are on the lookout for more aggressive sales talent. We've been receiving numerous inquiries, and our presence at recent trade shows was well received. As awareness about the requirements for deploying grid-tied EV chargers grows, our selling proposition becomes increasingly attractive. We're not in competition with EV charging companies; rather, we're working alongside them by deploying charging points in banks, Electrify America, and other outlets. Those who grasp the complexities of establishing grid-side infrastructure find our offerings much easier to understand. Overall, we're benefiting from healthy incoming inquiries, supported by our strong government and commercial sales teams. We experienced a remarkable growth in orders last year, with a 548% increase year-over-year and around a 1,100% surge in commercial orders, despite starting from a smaller base. This resurgence reflects the return of commercial activity as we emerge from the pandemic. The growth can be attributed to three main factors: repeat customers, website inquiries from new prospects, and our committed sales team, which continues to expand and enhance its skills. We also have high-quality videos on our website that effectively demonstrate the product's value, giving viewers a clear understanding of what they need to know about our offerings.

Terrific. You mentioned the international opportunities that remain largely untapped. Regarding the conversion modifications for the EV ARC, will it be compatible with charging hardware that is not widely available in the U.S.? Is it close to being plug-and-play, or are there just some user interface changes needed? Or is it more of a long-term development project aimed at accommodating another generation of charging in different regions?

So if you make an electric product for the United States markets and then you try and make it and sell it into Europe, you have to make significant modifications because of the difference in cycles and voltages on the European grid. If you make a product that 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 and store sunlight to produce a current at the cycles that are required to operate European EV charging infrastructure. And the answer is resoundingly yes. It is 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. 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 success; 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 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 two reasons. The first one is sometimes at the customer's request. In this instance, the automotive OEM is a household name, and they do not wish to share with their competitors or with the market what they're up to at the moment. We, of course, will respect that because much as we would like to tell everybody who it is, we'd much prefer to have a long and fruitful relationship with them. The second reason that we don't announce orders, and this is actually more true on the back on our energy storage side than it is on the EV ARC side, is it's because, frankly, we don't want to inform our competitors to who they should add to their prospect list, so we have to sell against them in that regard. As I say, that's much less of a concern with the EV ARC because we don't really have any competitors regarding that product. But on the battery side, those are the two 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.

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. Working capital is the best indicator of that. 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, AP, 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. Yes. So broadly speaking, you are right that the Army has a significant amount of funding. You're also when you're looking at the fact that the Army, like every other federal entity, is obliged to convert all of its light-duty vehicles to zero emissions by 2027 and 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 the GSA contract is also made available to nongovernmental entities. So we think there's a great future with the 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; people often say, 'The government won’t pay you.' I don't know what they're talking about; we get paid very well by them.

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

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

Well, the first thing investors 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 ramps, 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. 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 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 pushing out product. We want to do that while keeping profitability very much within our sight. And so that requires a sober approach to growth, but I'm not planning on having anything other than more growth to describe the next time I have this conversation with you.

Okay. You mentioned having $1 million in cash as of March 31 and $5 million in cash now. How do investors reconcile that with the $3.8 million loss you've just reported? That's less than two quarters of cash on hand. I know you've also addressed the line of credit. Could you please clarify this for me one more time?

The key point to understand is that we have not utilized our line of credit. It’s important to focus on our working capital, which includes our inventory position, work in progress, vendor prepayments, and accounts receivable. For example, at the end of December 2022, we reported $1.7 million in cash on the balance sheet, but we also had over $4 million in accounts receivable. We typically receive payments in less than 30 days, so an increase in cash should not come as a surprise. With our inventory and accounts receivable, we will convert inventory into products, sell them, and ensure payment due to the absence of bad debt. As noted in the previous quarter, people should not overly focus on the cash number but rather on inventory, work in progress, accounts receivable, and adjust these for accounts payable to gain a better understanding. Currently, we have around $13 million in working capital, which converts to cash relatively quickly. While the net loss is a contributing factor, its impact decreases as we produce more products, particularly now that we have reached gross profit positive status.

Our next question will come from Daniel Marcelo with Cardona & Company.

Desmond, congratulations on a successful quarter. Can you discuss the plans for increasing production? I understand there’s significant dialogue around this, and you seem to be making progress. What strategies do you have in place for transporting the ARCs across the country, especially with the major orders you've received from New York City and the numerous army bases nationwide?

Yes, that's a great question. We have a couple of different methods to transport EV ARCs. Some of them use our own equipment, which is the most efficient because it also allows for deployment upon arrival. Additionally, we collaborate with third-party logistics companies. For instance, one EV ARC can fit in a 20-foot shipping container, or you can fit two in a 40-foot container, which can then be loaded onto a 40-foot flatbed truck. This area is actually looking positive for us; while it's not great news for truck drivers, transportation costs have significantly decreased. The availability of trucks has improved as well; last year, it was costly and challenging to get trucks, but now they are reaching out to us for loads, leading to more predictable pricing. For example, we do import components from Asia, and currently, it costs about five times less to ship a container across the Pacific than it did last year. We have numerous options for moving our products, and I believe our future includes establishing facilities across the country to meet demand. When we do this, we will choose to deliver from the location closest to the customer.

Got it. 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 look like that now. All EV ARCs pull down 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 deploy with little on-site activity. That's a significant differentiator and therefore, a barrier to entry. We have that protection in the United States. We now have that protection 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 ever. 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 are 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've put together, and 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.