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Good day, and thank you for standing by. Welcome to the Berkshire Grey’s Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s prepared remarks, there will be a question-and-answer session. [Operator Instructions]
I would now like to turn the conference call over to David Calusdian, an Investor Relations Representative for Berkshire Grey. Please go ahead, sir.
Thank you, Joe, and thanks to everyone for joining Berkshire Grey’s third quarter 2022 earnings conference call. Earlier today, we issued a news release announcing our financial results. The release is available on our Investor Relations website at ir.berkshiregrey.com.
Leading today’s discussion will be Berkshire Grey’s Founder and Chief Executive Officer, Tom Wagner; and our Chief Financial Officer, Mark Fidler. Following management’s prepared remarks, we will open up the call to your questions.
Before we get started, we would like to inform you that certain statements made during this conference call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Future operating performance and financial results of the business may differ materially from those expressed or implied in any forward-looking statements provided on this conference call due to various uncertainties and risk factors. Information concerning these uncertainties and risk factors is contained in our filings with the SEC, and we refer you to those forward-looking statements disclaimer that accompanied our press release this morning regarding our financial results. Forward-looking statements included in this call are based on information currently available to us and represent the company’s current view as of the date these statements are made. We do not commit to updating these statements.
As a reminder, we will be making – referring to some non-GAAP financial measures during today’s call. A detailed reconciliation of GAAP and non-GAAP measures can be found in our earnings news release issued today, which will be furnished to the SEC and is available now on our IR website. These non-GAAP measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP and should not be considered as an alternative to any performance measures derived in accordance with GAAP.
With that, I’ll turn the call over to CEO, Tom Wagner.
Thank you, Dave, and good morning, everyone. Welcome to our third quarter of 2022 earnings call. Today, Mark and I will update you on our quarterly performance, operational execution, long-term strategic alignment with customers and the continued favorable macro environment driving the long-term demand for automation. We will also provide some real world feedback about how well our systems are performing at customers’ locations.
First, let’s talk about the quarter. We delivered revenue of approximately $24 million, growth of almost $5 million year-over-year. Through early November, we secured over $50 million in new orders, of which approximately $26 million were secured since our last earnings call. We’re pleased with the orders we secured to date. As expected, most of our orders this year represents follow on orders from our existing customers. These orders demonstrate the success of our solutions in operation and quantifiable ROI for our customers. We have a very active sales pipeline of specific opportunities, and we expect more orders to be signed by the end of the year.
On the execution front, we’re rapidly scaling deployments of our solutions and installing them more efficiently than ever before a customer sites in the United States and Canada. The third quarter is historically a very busy time for us, since many customers need to have systems installed prior to their peak season, which occurs mainly between Thanksgiving and Christmas. During the third quarter, we installed 57 of our systems at 16 different sites, making it our busiest quarter ever.
At this point through Q3, we have installed hundreds of our systems and have them running in production at our customers’ facilities. Our systems are picking, sorting, packing and organizing goods to fill e-commerce orders, resupply retail stores, and handle packages at large volumes daily. We hit contracted production rates and demonstrate high performance. For instance, we’ve achieved 100% accuracy, and increased throughput by up to 3 times, while substantially reducing labor costs. Real world quantifiable performance in ROI is why these same customers, many of whom are Fortune 100 companies are ordering more solutions.
The value we’re delivering to customers is just part of how our technology is differentiated. Recall, our technology tackles the hardest, most labor intensive problem in the warehouse distribution industry. The processing of individual items, also known as eaches, or smaller groups of items, such as vendor packs. This handling is the cornerstone of precise modern fulfillment, where the emphasis is on improving operational efficiencies while supporting all of the changes in consumer expectations tied to that mobile phone in your pocket. There are very few advanced automation options that can process these items, and almost none that deliver full solutions like Berkshire Grey.
Our solutions, which incorporate large bodies of proprietary AI software and patented hardware, with over 170 patents issued and more than 325 current filings deliver. We are disrupting the automation market with proven innovative technology that addresses a critical and core need.
Now, I’d like to talk about our perspective on the current macro environment. We’ve all observed that the current economic climate is challenging, marked by increased inflation, rising wages, continued supply chain issues and the like. Certain of our large customers have been impacted by some of these issues, which generally result in increased operating costs.
For some, labor constraints have also contributed to lower than expected revenues. At the same time, our customers continue to be under tremendous pressure to meet consumer expectations and maintain their competitive advantage. This leads to a continued need for automation, because it actually helps to manage and mitigate some of these issues, and we are seeing this.
To illustrate, let’s talk about FedEx for a minute. Earlier this year, we announced an expansion of our strategic relationship with FedEx, which we continue to be very excited about. This expansion includes a strategic new application of our technologies for a critical operation, a corporate-wide master purchase agreement construct, and we issued a warrant to purchase our common stock that fully vest when FedEx purchases $200 million in products and services by the end of 2025.
Now, FedEx is publicly discussed the challenges posed by the global macroeconomic environment. However, just last week, we appreciate our partnership with them; they placed an $11 million order for more of our systems to be deployed in 2023. When it comes to the challenging macros, our technology precisely addresses the challenges by improving operational efficiency, reducing reliance on manual labor, and helping to future proof operations due to the modular and flexible nature of our solutions.
We continue to see tailwinds driven by our customers’ needs to become more efficient in their operations, and above all, maintain their competitive edge in meeting the high expectations of their customers. We remain very bullish on our overall growth opportunity. Our commercial teams are very busy working on over 150 unique opportunities with existing and prospective customers to offer real solutions to real problems. And we are making excellent progress on that front.
In fact, we were recently verbally notified that 2 projects in Europe are expected to be awarded to us. More importantly, these would mark the first projects in EMEA for Berkshire Grey. With a pipeline worth over $6 billion of potential projects, we have strong conviction in our long-term growth prospects.
In summary, we’re delighted with our Q3 performance and recent orders. The macro environment continues to support the robust long-term opportunity for our type of automation, and we are executing well operationally. Our technology continues to prove its value and we look forward to executing on our business plan.
Now, let me turn it over to Mark to give some details on the quarter and our outlook for the year.
Thanks, Tom, and good morning, everyone. I’d like to start by discussing our third quarter results. Net revenue for the quarter was $23.6 million, an increase of over 26% year-over-year. Year-to-date revenues were $52.5 million, an increase of 93% over the prior year. So we continue to make great progress growing revenue. We were very busy installing systems this quarter as expected, given the typical seasonality of the business. In line with that seasonality, we expect the number of installations will decrease somewhat in Q4, and we expect this seasonality in our deployment cycle will continue in future years.
During the third quarter, we realized approximately $350,000 for the provision of common stock warrants, which is recorded as a reduction in revenue. As you may recall, we issued a warrant to purchase Berkshire Grey common stock in conjunction with the expansion of our strategic relationship with FedEx. We will record a provision for common stock warrants as FedEx makes progress towards the vesting of their warrants, and this provision is recorded as a reduction of revenue for U.S. GAAP purposes.
We will continue to clearly communicate the impact of the provision for common stock warrants in order to provide for a better understanding of the progress we’re making revenue. More information regarding the accounting treatment of the FedEx warrant can be found on our 10-Q, which is expected to be filed later today.
Moving to orders, since our last earnings call, we secured new orders of $26 million through early November, which brings total orders this year to over $50 million so far. Our backlog is over $100 million, including the orders received through early November. So far this year, most of the orders represent following orders from existing customers.
As Tom mentioned, our commercial teams continue to be quite busy working on over 150 specific project opportunities, some of which are expected to be finalized by the end of the year. We have consistently communicated that our orders would be heavily weighted in the second half of this year. Our long-term growth prospects remain strong supported by a several billion dollar pipeline. This pipeline is comprised of our strategic customers and over 135 other household name companies, many of which could become long-term strategic customers themselves.
Moving to gross margin, we continue to execute the margin improvement initiatives we have previously outlined, and we are already starting to see substantial progress. Gross margin was negative 5% or negative 3.6%, excluding the impact of the provision for the FedEx warrant for the third quarter of 2022. This is a significant improvement from prior quarters. And please note that prior quarters did not have any provisions for common stock warrant.
In prior quarters, gross margins were negative 22% in Q1, negative 13% in Q2, and negative 15% for the same quarter in 2021. I’ll repeat, Q3 gross margins were negative 3.6%, excluding the impact of the FedEx warrant, and we expect this positive momentum to continue for all of 2023.
There are few key drivers for the margin improvement. First, we continue to be become more efficient with each new project, we’re reducing the time it takes to fully install systems, and our contract manufacturers are becoming increasingly more efficient assembling the system. Second, our revenues are growing, an important driver of margin expansion and long-term profitability of scale. Scale allows us to leverage our overhead and takes advantage of lower unit pricing with our contract manufacturers.
And finally, we’re making great progress and reducing product costs. Our engineering supply chain teams continue to identify and implement updates to our designs, and direct costs that we consider to be low hanging fruit, and are expected to be realized with next year’s deployments. We are encouraged by our efforts today, and we expect that all of our current project orders and anticipate new orders for delivery next year will realize positive margins.
So we’re pleased with the progress we’re making to improve the gross margins. While overall gross margin is still expected to be slightly negative for the full year 2022, we are on plan to achieve overall gross margin for 2023 and beyond. And we remain confident in our ability to achieve our run rate operating metrics of about 50% gross margins in the long-term.
Moving to operating expenses. Total OpEx for the quarter was $26 million, excluding stock-based comp, which is over $2 million lower than second quarter and over $5 million lower than the first quarter. The initiatives we started over the summer to reduce cash burn are starting to be realized.
Adjusted EBITDA, which is defined as loss from operations adjusted primarily for depreciation, stock comp expense, the FedEx warrant provision and changes in the fair value of warrants was negative $26.1 million in the third quarter, an improvement of over $4 million from Q2 and an almost $6 million improvement over the first quarter of this year. A reconciliation of our net loss to adjusted EBITDA is included in our earnings release issued earlier this morning.
On the balance sheet, we ended the quarter with approximately $78 million of cash and no debt. We recently announced that we entered into an equity purchase agreement with Lincoln Park Capital, allowing us to raise up to $75 million in cash from the sale of common stock. This transaction provides us with increased financial flexibility as we continue to execute our business plan.
Looking ahead, we remain confident in our growth trajectory. We’ve secured over $50 million in order so far and have a backlog of over $100 million now with the FedEx order we just received providing good visibility for revenue. While we had the busiest quarter ever in terms of execution, we expect certain customer projects will be slightly delayed for the remainder of this year, and we are, therefore, updating our revenue forecasts for 2022 to be between $65 million and $70 million, excluding any impact of the FedEx warrant. For clarity, our prior guidance did not include any estimates for provisions for common stock warrants.
We have strong conviction in our long-term growth potential, our commercial activity as busy as ever, our pipeline continues to grow, and following orders from customers further bolster our growth prospects. So to reiterate some key points we continue to be in strong position to execute. Our technology is proven in production and driving tangible ROI for Fortune 100 customers.
We continue to expand our commercial relationships; follow on orders from customers validate this point; macro tailwinds continue to drive the long-term need for automation; even in challenging times, customers are making investments in our automation technology. And our backlog, combined with our growing pipeline provides us with greater conviction about our long-term growth prospects.
And, now operator, we’ll turn it over for Q&A.
Thank you. [Operator Instructions] Our first question here will come from Andrew Obin with Bank of America. Please go ahead.
Good morning. This is David Ridley-Lane on for Andrew Obin. I was wondering, are the customer project delays that you’re seeing here a function of supply chain issues, or kind of maybe on the customer side labor availability? Or are you hearing anything about budget-related delays from customers?
No. The answer to that is really these are just updates to construction schedules and timeline schedules that the customer had asked for that we’re accommodating. And it’s really just pushing some of the projects from this year into next year. But it’s not really – it’s not necessarily a result of any broad supply chain issues. These really have to do with the timing of customer projects, which we are accommodating for these particular projects.
And then any update on sort of larger contract negotiation with Target, is that still continuing?
Sure. Hey, David. For Target, we have a deep and wide relationship with them, and we appreciate their partnership. We continue to work with them on their long-term strategy and believe that our systems are a part of that. We’re just – we’re in active discussions now, and then stay tuned.
Okay. Thank you very much.
Okay. Thank you.
Thank you.
[Operator Instructions] Our next question here will come from Greg Palm with Craig-Hallum. Please go ahead.
Yeah, good morning. Thanks for taking the questions. First, I wanted to just follow-up on the previous question in terms of the construction delays. I mean, do you have good visibility into those projects being recognized now in Q1? Or when you talk about some delays could it be further in the next year?
It’s likely going to be later Q1, Q2. It’s really just a function again of meeting the customer needs, and when we’re going to be delivering equipment, et cetera, et cetera. Now, these aren’t necessarily long-term going to be pushed out years and years. But that’s kind of what we’re looking at.
Okay. It makes sense. And if I heard you, right, I think you mentioned the likelihood of still receiving more orders this year. So, I guess, in the next 6 weeks, can you maybe quantify what you might see? Do you expect that orders this year could be an excess of what you saw last year, and then just in terms of that backlog? Do you expect to recognize the majority or the entirety of the current backlog next year, or does some of that push out to future years?
So, generally speaking, we can receive orders, we do expect to receive more orders before the end of the year. And we can actually receive orders as late as Q1 of next year and still be able to realize revenue in 2023 for those orders. So that’s just sort of a general statement. With the backlog now, our expectation is most of that would be realized over the next, call it, 12 to 15 months, obviously, it’s dependent upon customer schedules, and assuming that there are no further supply chain disruptions, which all could happen. But right now, that’s not – we’re not expecting that, but those still could poses risks. So, right now, generally speaking over in the next 12 to 15 months is when we realize the backlog.
Okay. Understood. And then, I thought the comment on the expansion into Europe was interesting. Are those follow on orders from existing customers or are those new customers? And maybe you can just talk about the opportunity or maybe the focus on expansion into new geographies like EMEA?
Greg, we think EMEA is important. These are our first wins in EMEA, and those are with new customers. We think the potential there is quite high, both with these specific customers and in that as a region.
Okay, I look forward to getting more updates there. I’ll hop back in the queue. Thanks.
All right.
Great. Thank you.
This concludes the question-and-answer portion of today’s call. At this time, I would like to turn the conference over to Berkshire Grey CEO, Tom Wagner, for closing remarks.
Thank you all for joining us today. We look forward to talking to you again next quarter. Thank you and have a good rest of your day.
Ladies and gentlemen, this does conclude today’s conference call. You may all disconnect and have a wonderful day.