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spk03: Good day, everyone, and welcome to the Charge Enterprises first quarter 2023 financial results webcast. I am Matthew. I'll be your operator for today's webcast. Today's webcast is being broadcast over the Internet and is also recorded for playback purposes. After the speaker's remarks, there will 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.
spk01: Thank you, Matthew. Good morning, everyone. I'm Christine Cannella, Vice President of Investor Relations with Charge Enterprises. 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.investor.com. charge 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 Fox, founder, chairman, and CEO, and Leah Schweller, chief financial officer. Andrew will give a review of our key business highlights from the quarter. Leah will then walk you through a review of our financial performance. And then we will answer your questions. We are conducting a moderated Q&A session, answering the questions you have submitted. We thank you for your questions. 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 give in response to questions, may include forward-looking statements within the provisions of the Federal Security 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 and filed with the SEC on Form 8-K. Please note that our press release and our 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 with today's webcast. which are provided on the company's website. With that, I am pleased to turn today's webcast over to Andrew.
spk04: Thank you, Christine, and welcome to CHARGE's 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 factors that have led to our achievements during the first quarter of 2023. At 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 Light segments, our infrastructure segment, which includes A&S, our wireless 5G infrastructure and smart monitoring business, BW Electrical Services, our electrical contracting services business, EV Depot, our real estate solution for commercial and fleet operators, and Charge Infrastructure, our EV charging infrastructure business, also known as CI, 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 were 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 these strong tailwinds to drive positive adjusted EBITDA in the first quarter of 2024. We are incredibly pleased to have surpassed a milestone for our infrastructure segment, booking approximately $107 million in backlog at the end of the first quarter of 2023. demonstrating growing demand for our product offerings while 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 EVSEs, jointly 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 18,000 franchise dealerships. We have initial stated goal to win project engagements with a thousand of these dealerships by the end of 2025. To the end of the first quarter, we've engaged with 15% of our targeted goal. Experience so far indicates that the average project size for dealership is approximately $365,000, which could also vary depending on the size of the dealership, type of charges to be installed and transmission needs. If we capture and provide full solution for 1,000 dealerships, we could achieve 365 million in aggregate revenue and 65 to 80 million in gross profits on the initial installation services on auto dealers alone over the next three years. It's 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 Oktel Energy. and continue to actively evaluate opportunity with first movers and conformers in the electric vehicle industry as the adoption of EV advances. For example, Eaton and Ochtel Energy, global manufacturers of EV SE and energy storage, together with Charge, will 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 grids 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 and strategically pursued 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 and veterans and have built a foundation for growth by creating a high touch multi-phase process offering to customers within our EV charging infrastructure business. We viewed dealerships as a platform to create and grow a diversified future revenue streams as various products and services develop in the years ahead. We are planting the seeds for future growth by investing in software development, establishing partnerships, and adding monitoring and maintenance services. These investments position us to expand into other customer segments beyond the dealer network, including fleets, 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 nation's 18,000 franchised auto dealers, to whom the auto manufacturers have articulated a significant mandated spend for onsite EV charging infrastructure to support the transition from 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 has 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. The current political, economic, and technological climate are all key macro drivers favoring the demand for electric vehicles. The 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 IRA EV tax credit, and the recent EPA proposal for more aggressive guidelines to reduce emissions. In addition, there are aggressive investment plans by the major auto OEMs that are propelling the EV industry into the forefront and Charge, 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, positioning us to lead, succeed, and help create a more sustainable future. Building and continually maintaining the infrastructure to EVs is paramount to electric vehicle adoption, which is the cornerstone to Charge's mission. Now I'd like to turn today's webcast over to Leah to go over our financial performance.
spk02: Thank you, Andrew, and good morning, everyone. Today, 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 a segment basis. Let's begin on slide six, charge revenue and gross profit quarterly trends. 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 a few weeks to 24 months and include 5G tower installations, in-building wireless networks, electric vehicle charging solutions, and complete social 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 in the 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 has 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 due to partnerships. Consolidated gross profit margin was 3.5% for the first quarter of 2023, down slightly versus the prior year period, which was 3.8%, due to mild margin pressure in both segments, partially offset by an increasing proportion of revenues coming from our higher margin infrastructure segment. We continue to experience margin pressure on voice business within our telecommunications segment, which decreased to 0.4% this quarter from 1% in the prior year period. We are expecting to enhance the gross profit profile over time 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 costs that began in the second and third quarters of 2022. The 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 experience slightly lower margins within our nascent CI 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 CI 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 ANS and BW businesses are able to leverage the union and non-union workforce in a combined customer base to create more opportunities. Turning to slide seven, we will discuss the infrastructure segment's 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 A&S, BW, and CI businesses. A&S and BW 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 ANS, tend to have seasonality, resulting in sequential declines from Q4 to Q1. While we are not yet breaking out revenues for CI, the business gathered revenue momentum in the second half of 2022 and nearly doubled sequentially from the fourth quarter of 2022 to the first quarter of 2023. Within our infrastructure segment, we report the remaining project revenue to be completed in the future as backlog. As we announced a few weeks ago, we reported record backlog of approximately $107 million as of March 31, 2023. CI 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 or booking of 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 31st, we have achieved approximately 15% of our stated goal of engaging with 1,000 U.S. auto dealerships. The combination of the significant growth in CI backlogs and new customer acquisition across diversified automotive brands demonstrates that we are doing what we said we would do, build our CI team, develop white glove services, acquire 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 non-cash 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 within CI 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 associated revenues. Corporate segment expenses were $3.9 million for the quarter, which is lower than three of the four quarters in 2022. We continue to implement cost-cutting measures in order to allow further investment across our segments where necessary to grow our business. While we experience losses on an adjusted EBITDA basis, we see 2023 as a 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 has powerful earnings potential within the vast and ever-growing addressable market of EV charging and the critical infrastructure needed to support it. And I want to emphasize this for everyone today. We have made the necessary investments up front to build a team, both at CI and 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 for recognizing stock-based compensation expense. Effective January 1, 2023, we elected to change from a graded vesting attribution method to a 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 attribution method is the predominant method used in our industry, more accurately reflects how our awards are earned, and better align 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 are now allocating the expense to the segment level. We will file an 8K 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 within It's the 8K. 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 where our 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 acquisitions. 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 as 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. growth within 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 within CI as an endorsement of our business model and the foundation we have built to support future growth. Andrew?
spk04: Thank you, Leah. This is an exciting time for Charge Enterprises as we set the foundation for future growth. We'll continue to adhere to our strategy and operate to the very best of our ability as we continue to build every day. Operator, we are ready for Q&A.
spk03: As a reminder, today's questions were previously solicited. The first set of questions is from Pavel Malkinov with Raymond James. In recent months, you announced charging-related partnerships with Autel and Eaton. Can you clarify how these partnerships are different? Are you purely sourcing equipment from each supplier?
spk04: 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 for various industry segments that need the infrastructure to transition from ICE to BEVS. This amplifies charges service offering, while providing Eaton and Ochtel with a 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.
spk03: The consultancy Dil Oro Group recently forecasted that North America Wireless KPEX will be down 10 to 20% in 2023. Is this decline matching up with what you are seeing on the markets?
spk02: Hello, Pavel. Several of the major carriers alluded to lower CapEx spend in 2023 in their recently filed 10-Ks. Our team members who have been in the industry for over 20 years believe the height of 5G spending was last year, with less CapEx spend expected in 23 and 24, followed by maintenance mode in 2025. This is considered a standard cycle for the industry when new technology is rolled out. However, based on our conversations with our long-tenured, large customers, We expect to see continued growth in this area of our business.
spk03: Next will be questions submitted by Amit Dial with HC Wainwright. How much of the infrastructure segment backlog will be recognized or delivered in 2023?
spk02: Thanks for your question, Amit. 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 ANS business has projects that range from as short as a few weeks to over six months. Our CI business has projects that can take three to 12 months. And our BW business has some short-term projects, but overall tends 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 disclose externally.
spk03: In regard to your EV charging infrastructure business, I understand you are focusing on contracts with dealerships. Help me to understand how to look at the recently announced partnerships. Are you obtaining contracts through these partners?
spk04: We are in the early days, but the goal of signing these partnerships is to benefit both parties. One example is mutually referring customers. Charge's point of difference is customized charging solutions. Our relationships and partnership with major EDSEs, including Eaton Noctil, provide the necessary capabilities to meet our customers' needs.
spk03: Thank you for providing insight for gross marginal improvement in the infrastructure segment. Can you give me a sense of what to expect year-over-year for gross margin for the telecommunications segment in 2023?
spk02: Amit, we don't give guidance, but I'll 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 SMS, which should increase gross margin over time. The gross profit dollars we anticipate from SMS 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.
spk03: Can you provide an outlook on operating expense expectations for 2023?
spk02: There are two things that I point out. First, the majority of our investment in people in CI and corporate occurred during the middle and end of 2022. And so, for 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 on operating expenses to help deliver positive adjusted EBITDA in the first quarter of 2024.
spk03: The next question comes from Chris Pierce with NeedM. Can you walk us through the sales cycle for a dealership client? Where are the pain points? What can charge do to ease those pain points and keep the process moving forward? Hello, Chris.
spk04: A few of the pain points are lack of knowledge. understanding total cost of ownership, along with speed and certainty for what has been promised. Charges sales cycle is based on a three-phased approach. First is our on-site 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 finally, construction, installation, and commissioning. The entire sales cycle is supported by our internal client engagement, design, engineering, and dedicated technical project management team. The results is a very customized solution for every client that address their pain points and prepares them for the future.
spk03: We will now go to questions sent by Tate Sullivan with Maxim. Are any of your broadband telecommunication customers transitioning fleet to electric? Might some of these customers need EV charging installations and maintenance and monitoring work?
spk04: Hello, Tate. We are 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 who have the mandate to upgrade their infrastructure now.
spk03: Andrew, how did CRGE develop its goal to work with at least 1,000 of the automotive dealerships in the US by the end of 2025? Does this number represent a portion of auto dealers you have talked to?
spk04: There are approximately 18,000 retail auto dealers in the US. The initial target is based on approximately 10% of the 10,000 major market dealers, and that's those who sell at least 1,000 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. We are pacing nicely to achieve this target. Furthermore, let's not forget this is a sliver of the total addressable market that we could service.
spk03: The next set of questions are from Poe Fratt with Alliance Global Partners. Will the revenue mix change over the remainder of the year? How about the margin profile?
spk02: Thanks for the question, Poe. We expect the mix of revenue to continue to shift to our infrastructure business over time as the strong momentum in CI continues and ANS and VW continue their growth as well. As I mentioned in my prepared remarks, we have seen the infrastructure segment grow at a faster pace than telecommunications segment, and we expect that trend to continue.
spk03: Any meaningful impact from the Lumeo partnership in the first quarter?
spk04: Po, we have not experienced any financial impact yet. We are developing software with Lumio that will be used to help capture customers interested in home charging or solar panels as they buy electric vehicles at dealerships. We are optimistic that this deal and deals like this can have meaningful financial impact in 2024 and beyond. We see the ecosystem that we are building around the dealership community as a platform for future revenue opportunities.
spk03: Will it make sense at some point to split the company into two different companies, for example, telecom and infrastructure?
spk04: At some point in time, it might make sense to split the company in two different businesses. However, today, we believe keeping the company as one is the best interest of our shareholders. We'll continue to carefully evaluate the potential benefits and drawbacks.
spk03: What are one or two things that investors are missing? Poe, why limit me to two?
spk04: Let me give you a few. We are a capital-like company in a high-growth area. We have a foundational business such as A&S and 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 1,000 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 fleets, churches, multi-unit real estate, and other destinations. Additionally, our EV 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. Ho, I couldn't be more excited about the opportunities ahead.
spk03: Ladies and gentlemen, this concludes the question and answer portion of today's webcast. At this time, I'll turn the webcast back to Andrew Fox for closing remarks.
spk04: Thank you for participating in today's call. We look forward to your continued support.
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