Q1 2023 Charge Enterprises Inc Earnings Call
Good day, everyone and welcome to the charge Enterprises' first quarter 2023 financial results webcast.
I am Matthew will be your operator for todays webcast.
Today's webcast is being broadcast over the Internet and is also recorded for playback purposes.
After the Speakers' remarks, there'll be a previously solicited question and answer session.
For opening remarks, and introductions I would like to turn today's webcast over to Vice President Investor Relations with charge enterprises Christine Cannella.
Please go ahead Ms Cannella.
Thank you Matthew good morning, everyone, I'm, Christine Cannella, Vice President of Investor Relations Recharge enterprise.
Welcome to charge Enterprises' first quarter 2023 financial results webcast.
You will find our press release, and our 10-Q, along with a copy of today's slide presentation on the investors section of our website at Www Dot chart Dot enterprises.
If you're following along today with our earnings presentation. Please turn to slide two.
Joining me for today's discussion are Andrew Clark founder Chairman and CEO .
<unk> Chief Financial Officer.
Andrew will give a review of our key business highlights from the quarter. Leo will then walk you through a review of our financial performance and then we will answer your question.
We are conducting a moderated Q&A session answering the questions you have submitted.
Thank you for your question.
Moving on to slide three.
We would like to remind you that much of the information we will be speaking to you about today, including the answers we get them in response to questions May include forward looking statements within the provisions of the Federal Securities Safe Harbor law.
In today's press release and in our SEC filings, we detail material risks and uncertainties many of which are beyond our control and could cause our actual results to differ materially from our expectations.
These forward looking statements apply as of today and we undertake no obligation to update these statements after the call.
For a more detailed description of certain factors that could cause actual results to differ.
Please refer to our Form 10-Q filed with the SEC and our earnings release posted on our website.
<unk> with the SEC on form 8-K.
Please note that our press release and a webcast today include non-GAAP financial measures.
Reconciliations of these non-GAAP financial measures are set forth in the press release, we issued today.
And the slide presentation for today's webcast, which were provided on the company's website.
With that I am pleased to turn today's webcast over to Andrew.
Thank you Christine and welcome to charges first quarter 2023 earnings webcast.
Starting on slide four.
For those of you who are new to our story I'd like to begin by providing an overview of our business I will then outline our business accomplishments along with the factors that have led to our achievements during the first quarter of 2023.
A charge enterprises, we make it easy for our customers and their clients to go electric we offer turnkey scalable one stop solutions and services, we design engineer install and maintain critical infrastructure for both EV charging and broadband.
We have two capital white segments.
Infrastructure segment, which includes a N S a wireless fiber infrastructure and smart monitoring business.
BW electrical services or electrical contracting services business.
V Depot, a real estate solution for commercial and fleet operators and charging infrastructure or EV charging infrastructure business also known as C. I.
And our telecommunications segment, which provides connection of voice calls SMS and data service to global carriers.
I'd like now to discuss our accomplishments during the first quarter of 2023.
Revenues for the quarter was 19% higher year over year at $194 million.
We benefited from strong underlying trends in our EV charging broadband and electrical infrastructure businesses.
We expect a strong tailwind to.
Drive positive adjusted EBITDA in the first quarter of 2024.
We are incredibly pleased to have surpassed the milestone for our infrastructure segment bookings.
Booking approximately $107 million in backlog at the end of the first quarter 2023, demonstrating growing demand for our product offerings.
Establishing a reputation for delivering to our clients in the industry.
During the first quarter, we continued to add and scale partnerships with top electric vehicle supply equipment or E V S East.
Lately pursuing opportunities to become a preferred vendor for several automotive Oems and large retail groups.
Let me elaborate on just one segment of the entire EV infrastructure market. The automotive retail industry, which has about 18000 franchise dealerships. We have initial stated goal to win project engagements with a thousand of these dealerships by the end of 2025.
Through the end of the first quarter, we've engaged with 15% of our targeted goal.
It's been so far indicates that the average project size for dealership.
<unk> $365000, which could also vary depending on the size of the dealership type.
Type of charges to be installed and transmission needs.
If we capture and provide full solution for 1000 dealerships, we could achieve $365 million and average revenue.
And 65 to 80 million in gross profits on the initial installation services on auto dealers alone over the next three years. It is important to note. This is just one customer segment and only their initial investment.
We also continue to develop strategic alliances during the quarter, including our recently announced partnership with Eaton and Alcatel energy and continue to actively evaluate opportunity with first movers and can formers, new electric vehicle industry as the adoption of <unk> advances.
For example, eating and Octel energy global manufacturers of E V. S E on energy storage together with charge would be able to provide complete EV charging infrastructure solutions for fleet electrification energy storage and charging as a service and in the future, possibly much more complex solutions such as micro grid.
Yeah.
Moving on I wanted to take a few minutes to give an update on our Ci business in the second half of 2021, we formed our Ci business unit that focuses on EV charging infrastructure and is capitalizing on the unprecedented opportunity to facilitate the nationwide transition to electric vehicles.
During 2022, we accomplished a meaningful build out of our Ci team.
Typically pursuit of our customer base.
We were able to make these investments with profits generated by our other subsidiaries.
We have recruited an experienced team of auto industry veterans and have built the foundation for growth by creating a high touch multi phase process offering to customers within our EV charging infrastructure business we.
We view dealerships as a platform to create and grow a diversified future revenue streams as various products and services developed in the years ahead.
We are planting the seeds for future growth by investing in software development, establishing partnerships, an adder in monitoring and maintenance services.
These investments position us to expand into other customer segments beyond the dealer network, including suites depots malls churches multifamily and commercial office space and other destinations.
We are currently focusing on what we believe are the first movers of the critical EV charging infrastructure requirements. The.
The nation's 18000 franchised auto dealers to whom the auto manufacturers have articulated a significant mandated spend for onsite EV charging infrastructure to support the transition co combustion to electric vehicles.
Our goal is to capture a significant portion of this market beginning with the automotive industry needs.
Today, our infrastructure segment as both completed and active projects in 39 states with our Ci business currently working on projects in 28 states and engaging with approximately 24 automotive Oems.
Today, the environment supporting EV charging infrastructure has never been stronger.
Current political economic and technological climate.
All key macro drivers favorite in the demand for electric vehicles.
Tailwind for EV adoption are being supported by the many recent mandates of the federal government such as the infrastructure investment and jobs Act the <unk> tax credit and the recent EPA proposal for more aggressive guidelines to reduce admissions in.
In addition, there are aggressive investment plans by the major auto Oems that are propelling the EV industry into the forefront and charged with its scalable white glove solutions is well positioned to service this essential EV infrastructure need.
While we are committed to developing this business, becoming a long term partner for our customers and strategically investing in our fast growing EV charging infrastructure operations. We are laying the foundation that will enable us to diversify our customer base and allow for future growth as EV adoption proliferates.
This is only the beginning the lack of adequate charging infrastructure is one of the greatest roadblocks to EV adoption.
We at charge are excited to deliver our services to clients to further enable electric vehicle adoption throughout the country. We believe that charge is at the forefront of overcoming this hurdle.
Needless to lead succeed and help create a more sustainable future Bill.
Building and continuing to maintain the infrastructure the evs is paramount to electric vehicle adoption.
Which is the cornerstone to charges mission now.
Now I'd like to turn today's webcast over to Leah to go over our financial performance.
Thank you Andrew and good morning, everyone.
I will walk you through our financial results, including our key financial measures, which are revenue gross profit and adjusted EBITDA on a consolidated and segment basis.
Let's begin on slide six charge revenue and gross profit quarterly trend.
As a reminder, our infrastructure segment contains our high speed broadband EV charging electrical contracting and fleet parking businesses.
Revenues are derived from projects that can range from <unk> to 24 months and include <unk> tower installation in building wireless networks.
Electric vehicle charging solutions and complete electrical services.
Revenues within our telecommunications segment are generated via the routing of voice data and SMS text messages and can vary quarter to quarter. As a result of volume mix with different partners as well as macro trends and global events.
Looking at our results for the first quarter of 2023 and five quarter trend.
Revenues increased by 31 million or 19% to $194 million this quarter compared to the first quarter of 2022.
The 19% increase in revenue was driven by increases in both of our business segments, but consistent with the last five quarters, our infrastructure segment pro forma revenue growth outpaced that of our telecommunications segment.
In the first quarter of 2023, our infrastructure segment revenues grew 40% year over year, while in comparison, our telecommunications segment grew 16% year over year.
Gross profit rose, 9% to $6 7 million versus $6 2 million last year for the same period driven by growth in our infrastructure segment, partially offset by lower gross profit from telecommunications need a partner in it.
Consolidated gross profit margin was three 5% for the first quarter of 2023 down slightly versus the prior year period, which was three 8% due to mild margin pressure in both segments, partially offset by an increasing proportion of revenue coming from our higher margin.
Segment.
We continue to experience margin pressure on voice business within our telecommunications segment decreased two 4% this quarter from 1% in the prior year period.
We're expecting to enhance the gross profit profile overtime in telecommunications by increasing SMS text message volume, which carries a higher gross margin.
Our infrastructure segment gross profit margin decreased to 21, 9% in the current quarter from 24, 2% in the prior year period.
Primarily due to higher labor cost that began in the second third quarters of 2022.
Escalations in labor costs, we experienced in 2022, driven by high levels of inflation. We believe are now stabilized for the most part.
We also experienced slightly lower margins within our <unk> business. As we are currently heavily weighted to the earlier phases of customers, which carry a lower profit margin.
Our goal is to increase margins over time, as we grow the business to scale integrate monitoring and maintenance services and expand on the dealer platform to create opportunities that will drive margin expansion in the future.
We also have plans to benefit from efficiencies and opportunities through collaboration across business lines. For example, our E&S and BW businesses are able to leverage the union and nonunion workforce and our combined customer base to create more opportunity.
Turning to slide seven we will discuss the infrastructure segments revenue and backlog trends.
In our infrastructure segment revenues for the quarter increased $8 million or 40% to 27 million. The increase was driven by growth within our Ana BW MTI businesses.
And F&B GW have experienced significant double digit growth year over year in each period presented including the first quarter of 2023.
Both have also grown sequentially from the second through the fourth quarter.
As I mentioned on our last earnings call our infrastructure businesses, specifically Anna tend to have seasonality, resulting in a sequential decline from Q4 to Q1.
While we are not yet breaking out revenues for Ci business gathered revenue momentum in the second half of 2022 and nearly doubled sequentially from the fourth quarter of 2020 to the first quarter of 2023.
Within our infrastructure segment. We report the remaining project revenue can be completed in the future as backlog and we announced a few weeks ago. We reported record backlog of approximately 170 million as of March 31 2023.
See I accounted for over 20% of this figure and was minimal last year at this time.
Backlog levels can fluctuate quarter to quarter based on seasonality and completion of booking a large longer term projects specifically within VW as the duration of its projects can last up to 24 months.
We also recently announced that as of March 31, we have achieved approximately 15% of our stated goal of engaging with a thousand U S auto dealerships.
The combination of the significant growth in C&I backlog and new customer acquisition across diversified automotive brand demonstrates that we are doing what we said we would do.
Build our Ci team developed white glove services.
Are your customers expand our backlog and ultimately drive revenues.
Let's move to slide eight to discuss adjusted EBITDA.
We focus on adjusted EBITDA as the closest measure of our true operating performance. It removes the impact of noncash items, such as stock compensation depreciation and amortization.
For the first quarter adjusted EBITDA loss was $2 5 million compared with adjusted EBITDA loss of $1 8 million in the prior year period.
As expected infrastructure adjusted EBITDA declined sequentially from Q4, due to seasonality and year over year from Q1 2022 due to investment in people and processes with NCI to build our EV charging infrastructure business.
Telecommunications adjusted EBITDA dropped sequentially and year over year in part due to investments made in SMS text capabilities in advance of recognizing the associated revenue.
Corporate segment expenses were $3 9 million for the quarter, which is lower than three of the four quarters in 2020 view we continue.
To implement cost cutting measures in order to allow further investment across your segments, where necessary to grow our business.
While we experienced losses on an adjusted EBITDA basis, we see 2023 of the pivotal year for charge, we expect to deliver positive adjusted EBITDA in the first quarter of 2024 as Andrew laid out earlier, we believe our Ci business have powerful earnings potential within the vast and ever growing address.
The full market of EV charging and the critical infrastructure needed to support it.
I want to emphasize this for everyone. Today, we have made the necessary investments upfront to build a team both at Ti in the corporate level in advance of revenues to support the company for decades to come and deliver for our customers.
Turning to slide nine.
Before we go into the full P&L I would like to take a moment to talk about a change in accounting principle, recognizing stock based compensation expense.
Effective January one 2023, we elected to change from a graded vesting attribution method to straight line attribution method.
This change resulted in a recognition of a cumulative benefit to stock based compensation of approximately $18 million net of tax.
We believe the straight line attributions method is the predominant method used in our industry more accurately reflect how our rewards are on and better aligns our stock based compensation expense with that of our peers.
The effects of the change in accounting principle will be retrospectively applied to all periods in 2022.
In addition, starting in the first quarter of 2023, we're now allocating expenses to the segment level.
We will file an 8-K with the SEC today, describing the change in accounting principle and reflect this change to all periods presented.
There are no other changes to our financials with them.
Okay.
Looking at the full P&L for the quarter, we saw strong growth in revenues and gross profit I would point to the increases in G&A and salaries and benefits were upfront investments in people processes and capabilities that I. Just spoke about are reflected to grow all of our businesses and support the corporate structure.
Depreciation and amortization grew year over year due to intangibles established in conjunction with the acquisition.
We finished the first quarter with a strong balance sheet with positive networking capital and $40 million of cash and marketable securities.
I would like to reiterate we see 2023 is a pivotal year for charge, we expect to deliver positive adjusted EBITDA in the first quarter of 2024.
We plan to do this through continued strong growth and solid fundamentals within our broadband and electrical services businesses.
And our EV charging infrastructure business materializing on the heels of our investments in our team and service capabilities and continued close management of operating expenses.
We are proud of our performance in the first quarter and view the sustained revenue growth record level infrastructure backlog and customer engagement with NCI as an endorsement of our business model and the foundation, we have built to support future growth Andrew.
Andrew.
Thank you Leah this is an exciting time for charge enterprises as we set the foundation for future growth.
We will continue to adhere to our strategy and operate the very best of our ability as we continue to build every day.
Operator, we are ready for Q&A.
As a reminder, today's questions where previously solicited.
The first set of questions is from Pavel <unk> with Raymond James.
In recent months, you announced charging related partnerships with auto and Eaton can.
Can you clarify how these partnerships are different are you purely sourcing equipment from each supplier.
Thank you for the question Pavel.
These are strategic alliances that in addition to providing high quality hardware and energy storage options for our customers also deliver new business development channels with various industry segments that need the infrastructure of the transition from ice to beds.
This amplifies charges service offering while providing eaten in octel with the trusted alliance to service customers. These relationships will allow us to present clients with solutions that have specific needs depending on the business use case.
The consultancy deal oral group recently forecasted that North America wireless Capex will be down 10% to 20% in 2023.
Is this decline matching up with what you were seeing in the markets.
Hello, Pavel somehow.
Several of the major carriers alluded to lower Capex spend in 2023, and our recently filed 10-K.
Our team members, who have been in the industry for over 20 years believed the height of Friday spending with last year with less capex spend expected in 'twenty, three and 'twenty four followed by maintenance mode in 2025.
This is considered a standard cycle for the industry when new technologies rolled out however, based on our conversations with our long tenured large customers do you expect to see continued growth in this area of our business.
Next will be questions submitted by Amit Dayal with H C Wainwright.
How much of the infrastructure segment backlog will be recognized or delivered in 2023.
Thanks for your question on it when it comes to the recognition of our backlog it's important to remember that the timing is impacted by the mix of projects that we have at any given time, our E&S business has projects that range from as short as a few weeks to over six months, our Ci business have projects that can take three years.
<unk> months, and our BW business had some short term projects, but overall tend to have larger projects that can last up to two years.
With the mix of our backlog as it stands at the end of the first quarter, we expect to recognize a significant portion of that backlog during the remainder of 2023.
It is also important to note that some projects may come into backlog and are either partially or completely recognized into revenue within the same quarter and therefore never show in the backlog number we disclosed externally.
In regard to your EV charging infrastructure business I understand you were focusing on contracts with dealerships.
Help me to understand how to look at the recently announced partnerships.
Obtaining contracts do these partners.
We are in the early days, but the goal of signing these partnerships is to benefit both parties. One example is mutually referring customer.
Charges point of differences customized charging solution.
Our relationships and partnership with major <unk>, including Knoxville provide the necessary capabilities to meet our customers' needs.
Thank you for providing insight for gross margin improvement in the infrastructure segment can you give me a sense of what should we expect year over year for gross margin for the telecommunications segment in 2023.
Amit, we don't give guidance, but I will point out that we have experienced increased margin pressure in our voice volumes in the middle of 2022, and we're still lapping impact during the first quarter as we move forward in 2023, the pressure from a year over year perspective should lessen.
Earlier, we announced our investment in Fms, which should increase gross margin over time. The gross profit dollars. We anticipate from Fms will begin this year. However, due to the high revenue base within telecommunications, it'll take a little longer for a meaningful improvement in gross margin percentage.
Can you provide an outlook on operating expense expectations for 2023.
Yeah.
There are two things that I'd point out first the majority of our investment in people in Ci and corporate occurred during the middle and end of 2022, and so on a full year basis that will drive upward pressure on operating expense.
Second as I mentioned earlier, we continue to implement cost cutting measures to allow us to selectively invest in areas to grow our business.
Ultimately our focus is to keep tight management of operating expenses to help deliver positive adjusted EBITDA in the first quarter of 2024.
The next question comes from Chris Pierce with Needham.
Can you walk us through the sales cycle for dealership client.
Where are the pain points, what can charge due to ease those pain points and keep the process moving forward.
Hello, Chris a few of the pain points, our lack of knowledge understanding total cost of ownership.
Along with speed and certainty for what has been promised.
Charter sales cycles based on a three phased approach burst as our onsite assessment to analyze the cost and power availability at the site.
Second design and engineering, which provides a plan set for permitting submission and approval and.
And finally construction installation and commissioning.
The entire sales cycle supported by our internal client engagement design engineering and dedicated technical project management team.
The result is a very customized solution for every client that address their pain points and prepares them for the future.
We will now go to questions sent by Tate Sullivan with Maxim.
Are any of your broadband telecommunications customers transitioning fleets to electric.
Some of these customers need EV charging installations and maintenance and monitoring work.
Hello tape, we're poised and ready to partner with our customers when they are ready to ship their fleet to electric and when the fleet inventory is available.
We will be there for them.
The shift to fleet is in the early stages. So that's why we're focused on dealerships because they have the mandate to upgrade their infrastructure now.
Andrew how did see RGA develop at school to work with at least 1000 of the automotive dealerships in the U S. By the end of 2025.
Does this number represent a portion of auto dealers you have talked to.
There are approximately 18000 retail auto dealers in the U S. The initial target is based on approximately 10% of the 10000 major market dealers.
And that those who sell at least 1000 cars a year charge believes this to be a reasonable target keeping in mind. The current challenges on extended lead times for utility service upgrades.
Pacing nicely to achieve this target. Furthermore, let's not forget this is a sliver of the total addressable market that we could service.
The next set of questions are from Poe <unk> with Alliance Global partners.
While the revenue mix change over the remainder of the year.
The margin profile.
Thanks for the question, Paul we expect the mix of revenue to continue.
Two our infrastructure business over time as the strong momentum in Ci continues in E&S and VW continue their growth as well as I mentioned in my prepared remarks, we.
We have seen the infrastructure segment grow at a faster pace than telecommunications segment, and we expect that trying to continue.
Any meaningful impact from the Illumina partnership in the first quarter.
We have not experienced any financial impact yet we're developing software with Romeo there'll be used to help capture customers interested in home charging or solar panels as they buy electric vehicles at dealerships. We're optimistic that this deal and deals like this can have meaningful financial impact in 2024 and beyond we see.
The ecosystem that we're building around the dealership community as a platform for future revenue opportunities.
Will it make sense at some point to split the company into two different companies for example, telecom and infrastructure.
At some point in time, it might make sense to split the company into different businesses. However, today, we believe keeping the company is one is the best interest of our shareholders. We will continue to carefully evaluate the potential benefits and drawbacks.
What are one or two things that investors are missing.
Paul why limit needed to let me give you a few.
We are a capital light company and a high growth area.
We have a foundational business such as a N S. VW with solid fundamentals, we have delivered double digit revenue growth.
We've grown our backlog to $107 million and we've made meaningful progress towards our goal of 1000 dealerships today. Our initial focus is on dealership with a significant mandate spending next we will move to a broader cross section of EV customers, such as bleached churches, Multiunit real estate and other destinations. Additionally, R E D.
Charging infrastructure business is expected to provide new revenue streams beyond installation, such as maintenance monitoring and service contracts. Most importantly, we expect to deliver positive adjusted EBITDA in the first quarter of 2024.
I couldn't be more excited about the opportunities ahead.
Ladies and gentlemen, this concludes the question and answer portion of todays webcast.
At this time I will turn the webcast back to Andrew Fox for closing remarks.
Thank you for participating in today's call. We look forward to your continued support.
Operator.
Ladies and gentlemen that will conclude charge enterprises' first quarter 2023 financial results webcast and we wish you a great day Goodbye.
Okay.