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spk03: Good day, everyone, and welcome to Charge Enterprises' third quarter 2023 financial results webcast. I am Matthew. I'll be the 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' third quarter 2023 financial results webcast. You will find our press release and our 10Q, along with a copy of today's slide presentation, on the Investors section of our website at www.charge.enterprises. If you're following along today with our earnings presentation, please turn to slide two. Joining me for today's discussion are Craig Denson, Interim Chief Executive Officer and Chief Operating Officer, and Leah Schweller, Chief Financial Officer. Craig 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 questions previously 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 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, and 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 will ask you to turn to slide four, and I am pleased to hand over today's webcast to Craig.
spk02: Thank you, Christine, and good morning, everyone. Thank you for joining us to discuss our third quarter 2023 results, and I'm pleased to be speaking with you as Charge Enterprises interim CEO and COO. Before I review our financial and operational performance for the third quarter, I'd like to say a few words about my current role. I'm excited to be the interim CEO, which came effective on August 31st, 2023, and I'm energized by the great team we have in place, as well as the significant opportunities in front of us. Prior to being named the interim CEO, I had roles in various capacities at charge, most recently as the chief operating officer. Before Charge, I was president and CEO of PTGI International, one of Charge's subsidiaries that was acquired back in November 2020. I will remain the interim CEO position throughout the board's search process for a permanent CEO. As Charge's COO, I am very familiar with Charge Enterprises, both our strengths and areas where we can improve. Since assuming the CEO position, the team and I have been keenly focused on our commitment to the three fundamental objectives we outlined in our press release at the end of August. We believe that executing against these objectives will strengthen our business and ultimately benefit our shareholders. I'll review these initiatives shortly, but first I'd like to briefly review the products and services Charge Enterprise offers, where we are focused and where we are going. Today, Charge is a business that connects people everywhere in the communication, infrastructure, and EV charging markets. We provide a suite of services for our clients across EV charging, broadband and wireless, electrical, and with the acquisition of Greenspeed, now commercial lighting, solar, and energy storage solutions, to name a few. Since our humble beginnings in late 2020, We have undergone a rapid transformation from a wholesale telecom provider to an electrical infrastructure company. We aim to be the go-to trusted partner to all of our customers. So with that grounding, I'll now provide an update on our progress against the three fundamental objectives that we committed to at the end of August. First, we are working on a comprehensive strategic plan. This process includes a thorough evaluation of our business segments, competitive analysis of the external environment, alignment of our organic growth and M&A strategy, and an effective allocation of capital. As part of this plan, management and the board are evaluating our talent, succession planning, and corporate governance, making appropriate enhancements accordingly. The assessment remains ongoing. and we are encouraged by our analysis and planning sessions to date. Second, we have advanced our commitment towards instituting a robust communication framework to advance our public communications and branding efforts through our recently announced partnership with Gateway Group. We look forward to utilizing their comprehensive communication and branding services to improve our public communication initiatives and bolster our brand position in the marketplace. And third, In conjunction with our recent acquisition of Greenspeed, we would deploy initiatives that are geared toward integrating all of our products and services across our infrastructure segment, operating subsidiaries, while driving cost synergies across the organization. This strategic objective is aimed at maximizing margin through cross-functional collaboration, driving full utilization of our existing internal capabilities and providing an environment for increased scalability and profitability. We are working together to ensure we leverage the tremendous talent and depth of experience in our businesses to bring all the products and services that Charge subsidiaries offer in one complete product and service offering. We remain completely focused on generating positive adjusted EBITDA in the full year of 2024 and are confident in our ability to achieve this goal. We are very focused on executing against these fundamental objectives, which we will believe will advance the company's future growth and shareholder value. We look forward to discussing our new strategy during our first fiscal quarter of 2024, where we will detail our path forward. Now, let's turn to the third quarter 2023 key highlights, and then Leo will take us through the financials. I am pleased to report another strong quarter of growth for our infrastructure segment as demonstrated by the 32 million of revenue generated in the quarter, a 19% increase compared with the same period last year. The year-over-year increase in revenue was driven by strong project delivery within our electrical services, contracting business, and the acquisition of Greenspeed Energy Solutions on August 1st of this year. The decline in telecommunication revenues as we have previously communicated was expected due to the market conditions and given the economic model of this segment had little impact on profits and cash flow. The Greenspeed acquisition reflects our commitment to expand our infrastructure products and services and allows us to broaden our geographic reach in a more profitable and efficient manner. ChargeNow has the ability to serve our clients with in-house resources in 25 states, thus eliminating the need for more expensive subcontractor alternatives, which we have historically utilized to perform work outside our geographic footprint. The combination of our EV charging business with Greenspeed is already producing significant benefits ranging from best practices with design and engineering, cost efficiencies, and timely execution of our project. We continue to expect Greenspeed to be accretive to both adjusted EBITDA and free cash flow in the full year of ownership. We are excited to welcome the talented individuals at Greenspeed to the charge team. and believe our shared vision will allow us to seize new opportunities in the EV charging, solar, and lighting markets. Incorporating Green Speed products and services into our clients' ecosystem will help them prepare for the future while mitigating future costs. The addition of Green Speed and resulting increase to our in-house ability to execute projects in 25 states will drive increased customer offerings and shareholder value by retained margin and revenue expansion. The timing of the Greenspeed acquisition fits perfectly with our recent announcement that Stellantis selected Charge Enterprises to assist us in US dealerships and with EV charging infrastructure. The new partnership allows us to assist its dealerships with their infrastructure requirements to not only build out the EV charging, but overall power management solutions. This partnership allows Charge to offer tailored end-to-end solutions to over 2,600 Stellantis dealers nationwide. This announcement reaffirms Charge's market position as the trusted go-to resource, underscoring our commitment to supporting auto dealers nationwide with the execution of critical EV charging infrastructure necessary for the future. To date, we have completed or have active projects in 42 states, and as of the third quarter of 2023, have installed 790 chargers. This equates to 445 level two chargers, 225 DC fast chargers, and 120 NEMA receptacles for mobile EV chargers. Before I hand it over to Leah, I want to thank our amazing team at Charge Enterprises for their dedication, in commitment to advance our mission. Thank you, team, and I look forward to pushing ahead together and making progress against our initiatives. With that, I will hand it over to Leah Schweller, our Chief Financial Officer. Leah?
spk04: Thank you, Craig, 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 revenues and gross profit quarterly trend. In the third quarter of 2023, revenues were $132.3 million, reflecting a decrease compared to the same period last year and compared to the five previous quarters. As usual, there are different stories in our two business segments. Revenues in our infrastructure segment increased 19%, to $31.8 million compared to the prior year period, driven by strong organic performance within our electrical services business and through the recent acquisition of Greenspeak. Our telecommunications segment experienced a 37% year-over-year decline, resulting in $100.4 million in revenues. The trend in telecommunications performance aligns with our comments in previous quarters, expecting continued declines in wholesale voice volume affecting our revenues. I would note that our higher margin SMS product within our telecommunications segment is progressing well. We're actively transitioning clients to the new software and scaling our team to support training, marketing, and sales efforts. We anticipate this technology will start making a meaningful contribution in 2024 in the telecommunications segment. Gross profit grew 48% to $9 million versus $6.1 million during the same period last year, primarily driven by continued growth in our infrastructure segment. Consolidated gross margin for the third quarter of 2023 was 6.8% compared to the prior year period of 3.3%. The increase was driven by higher gross margin in both of our business segments, as well as an increasing proportion of revenues coming from our higher margin infrastructure segment. Infrastructure gross margin increased 25.8% in the third quarter, up from 19.2% in the prior year period. The boost in gross margin was primarily attributable to favorable contract composition and successful cost management within our electrical services business in the current year and significant inflationary pressures last year. As we continue to expand our presence in the EV charging business, we are optimistic about the promising opportunities it presents. The electric vehicle market is on a dynamic trajectory with increasing consumer adoption, and infrastructure requirements. In light of this, we firmly believe our commitment to this sector positions us well to harness future opportunities for growth and higher gross margin contribution. Telecommunications gross margin was 0.8%, a slight increase compared to the prior year period. As we look forward, we anticipate continuous improvement in the gross profit profile of this segment as we work on expanding our customer base and volume of our SMS services. This strategic growth initiative is poised to improve our overall profitability in the upcoming quarters. Turning to slide 7, we will discuss the infrastructure segment's revenues and backlog trends. During the third quarter, infrastructure's revenues increased by 19% compared to the same period last year, reaching 31.8 million. The growth can be attributed to the progress within our electrical services and EV businesses, both year over year and sequentially. Our growth path is on the right track. As Craig covered in his remarks, we aim to capitalize on new products and services and customer segments, explore cross-selling opportunities, drive synergies and leverage all of our subsidiaries. With the acquisition of Greenspeed, we see even further opportunities to provide a suite of services to our existing client base, including commercial lighting, solar and energy storage solutions. Management across our subsidiaries is working together to provide a more seamless approach to client engagement and demonstrate our expertise across the array of electrical services we offer. Given the numerous questions we receive about supply chain impacts, we want to address the ongoing challenges we've faced, particularly equipment delays in our EV charging business. Although these delays impacted some projects, we are committed to proactively addressing and finding effective solutions for these challenges. One such solution is our previously announced collaboration with Autel. who offers a full line of high-quality charging solutions in a timely manner. Within our infrastructure segment, backlog represents the remaining project revenues to be recognized in the future. Backlog levels can fluctuate quarter to quarter based on seasonality and completion or booking of large longer-term projects, specifically within our electrical services business, as the duration of its projects can last up to 24 months. Our backlog after considering our recognized revenue in the quarter increased slightly to approximately $139 million at September 30, 2023, compared to $138 million at the end of the second quarter of 2023, which excluded the recent green speed acquisition. The levels of backlog within our electrical services business exhibit some volatility primarily attributable to the size and duration of the contracts. Our EV charging infrastructure business accounted for 42% of the 139 million, showing significant growth compared to the third quarter of last year when our EV backlog was minimal. We anticipate earning approximately 25% of the 139 million backlog within revenues in the fourth quarter of 2023 and most of the remaining in 2024. Let's move to slide eight to discuss adjusted EBITDA. We focus on adjusted EBITDA as the closest measure of our true operating performance. For the third quarter, adjusted EBITDA loss was 0.6 million compared with adjusted EBITDA loss of 1.7 million in the prior year period, mainly driven by improvements within infrastructure. During the third quarter, our infrastructure segments adjusted EBITDA of 3.7 million increased year-over-year and reached the highest point in the last five quarters, primarily due to projects nearing the end of their lifecycle and coming in under budget, as a result of our operational experience and tight project management. In our telecommunications segment, adjusted EBITDA experienced a decrease, primarily attributed to the decline in gross profit due to decreasing voice volumes. Within corporate, adjusted EBITDA loss increased during the third quarter compared to the prior year period, primarily due to approximately 0.5 million of non-recurring legal expenses in the current period. Furthermore, in the third quarter, there was an increase in overall S&B costs to support the growth associated with our transition to a public company structure. We continue to prudently manage our costs while balancing the necessary investments needed to grow the company. In summary, I am pleased with the adjusted EBITDA results we delivered in the third quarter of 2023, which are the best since we joined the NASDAQ in April of 2022. Turning to slide 9, looking at the full P&L for the quarter, we saw strong growth in gross profit and gross margin. Operating expenses, including G&A, S&B, and professional services collectively, were higher year over year, which reflect our investments in technology, people, processes, and capabilities to foster growth across all of our businesses and support the corporate structure. As we have stated previously, over the past 18 months, we were actively hiring for both charge corporate and our EV charging infrastructure business. In thinking about ongoing S&B spend levels, We have established a foundation, and from this point forward, our hiring focus will be targeted on supporting organic growth. We close the third quarter with $57.2 million of cash, cash equivalents, and marketable securities, most of which is expected to be used for operations and debt service. We continue to have active productive discussions with our senior lender to meet our upcoming obligations. As we finish the third quarter and look ahead, I am encouraged by our trends in adjusted EBITDA and backlog, as well as the integration amongst our subsidiaries and the acquisition of Greenspeed. We reiterate our anticipation of positive adjusted EBITDA for the first quarter of 2024, and we believe we will deliver positive adjusted EBITDA for the full year of 2024. At this time, I will turn today's webcast to the operator for our Q&A session.
spk03: As a reminder, today's questions were previously solicited. Our first set of questions comes from Tate Sullivan with Maxim. What other types of electrical contracting jobs does Charge Enterprises work on?
spk02: Good morning, Tate. Charge Enterprises offers a diversified portfolio of services in the electrical area. Some of our largest projects are with local and state government entities, such as the project we did with the restoration of the New Jersey State House, which is nearing completion. We also work with universities, healthcare systems, pharmaceutical facilities, and stadiums, to name a few. The recent acquisition of Greenspeed expanded our service reach to include commercial lighting, solar, and energy storage solutions.
spk03: Can you share how many dealerships you have provided initial EV charging infrastructure designs or proposals to?
spk02: Good question. We're shifting our approach away from publishing our progress on the dealership sector as it does not provide a fulsome metric for evaluating charge. So while dealerships who are early adopters due to mandates continue to be strategic, moving forward we will plan to expand into multiple market segments. We believe the number of installations, the expansion across states and backlog are more relevant today. Going forward, we will focus on these aspects and as necessary, introduce new metrics.
spk03: Can dealerships get government funding to install public EV charging infrastructure?
spk02: If it's a public charging station, the dealer has a chance of getting funding. However, today, What we are seeing is that in over 95% of the cases, the dealer is not installing fast charging that is available to the public.
spk03: We will now move to questions submitted by Amit Doyle with HC Wainwright. Can you expand on the future strategy being put in place under new leadership?
spk02: Thanks, Amit. As we covered in our remarks, as per our August press release, we're undergoing a comprehensive review of our business. There are three fundamental objectives in place that are designed to steer the company's future growth and set the foundation to deliver shareholder value. The first is our focus on developing a comprehensive strategic plan, which includes a thorough evaluation of our business segments, competitive analysis of the external environment, alignment of our organic growth and M&A strategy, and effective allocation of capital. As part of this plan, management and the board will evaluate our talent, succession planning, and corporate governance, making appropriate enhancement and implementing a framework for accountability. Two, we are instituting a robust framework for external communication, fostering transparency, and disseminating updates on our progress towards strategic milestones. And finally, we're focused on deploying initiatives that are geared toward integrating our products and services across our infrastructure operating segments while driving cost synergies across our organization. This strategic objective is aimed at nurturing cross-functional collaboration and facilitating full utilization of our existing internal capabilities propelling us towards scalability and profitability. These efforts are underway. I'm encouraged with our progress to date, and we look forward to sharing more updates as we move forward.
spk03: Any change in outlook with respect to EV charging deployment expectations from interest rate environment?
spk04: Good morning, Amit. So for charge specifically, we are not seeing material impacts to our customers. Most of our clients are not financing their EV charging infrastructure projects, so interest rates are not necessarily a direct factor. That being said, you can't read the business section without hitting on interest rates and the Fed's actions to cool inflation. Higher interest rates, stalling house prices, and the volatile stock market are likely factors causing some hesitation for EV buyers. While recent news reports continue to forecast growth in EV sales, Albeit at a lower rate in the short term, the lack of EV charging infrastructure is one of the challenges, but we see this as an opportunity for charge.
spk03: Is the stock under pressure from any balance sheet related needs?
spk04: Without speculating on our share price, we are managing our balance sheet and we have the proper liquidity to meet our operational needs and service our debt.
spk03: Can you provide a sense of an outlook for the telecommunication segment of your business and the drivers?
spk04: Yes, thanks. We've talked about this for a few quarters now. We anticipate a continued decline in wholesale voice volume with only potential increases due to unforeseen global events. Recognizing this expected decline, we enhanced our product set earlier this year to include SMS capabilities, which offers a more favorable profit margin and market opportunity. While this transition will take time to fully ramp up, we are pleased with the early results. Looking ahead, we view SMS as a contributor to the telecommunications segment in 2024.
spk03: The next set of questions is from Pavel Malkinov with Raymond James. Is there an appetite for splitting the company's infrastructure segment between telecom and EV?
spk02: Thanks. I'd say not at this time. Our infrastructure segment encompasses all of our electrical businesses, which includes EV charging, wireless and broadband, and commercial lighting, solar, and energy storage projects.
spk03: It has been 100 days since the acquisition of Greenspeed. In general terms, how has it been going with this new business?
spk02: I'm pleased with how it's going. Paul Williams, the former owner of Greenspeed, who became the lead of our EV charging infrastructure team, has done an excellent job in integrating the charge EV infrastructure with the business of Greenspeed. We're finding a lot of efficiencies within the now combined EV charging business, and I'm happy with the progress to date. The fact that we've taken our single EV product and added both commercial solar and lighting product sets while increasing our availability to execute projects from 13 to 25 states really demonstrates the value of this deal.
spk03: Thank you for reiterating your commitment to positive adjusted EBITDA in first quarter 2024. To what extent does this target depend on macro conditions such as interest rates, et cetera?
spk04: Thanks for the question. Obviously, no business is immune from macroeconomic challenges. We manage through these challenges every day, but it really comes down to our strong backlog. This, combined with diligently managing our cost structure, gives us confidence in our ability to not only deliver positive adjusted EBITDA for the first quarter of 2024, but for the full year.
spk03: The next question comes from Chris Pierce with Needham. but you're consistently hearing from the dealer community that they have too many EVs versus customer demand. Is this more of a short-term phenomenon within the longer-term adoption curve? How is this impacting Charger's business in any way?
spk02: Great question, Chris. Yes, there has been recent news in the automotive industry regarding this topic. While this is a shift from the initial aggressive stance on EV sales by the OEMs, we view it as a short-term consumer adoption issue. What I want to emphasize is that there remains a lack of EV charging infrastructure, which in part is impacting consumer adoption. We see ourselves as well positioned to be a solution to this problem. It is also important to note that we have a diversified portfolio of revenues. So in the event of a setback or pause in any single area of our business, we have other robust revenue streams that support the company.
spk03: We will now go to questions sent in by Jeff Gramp with Alliance Group. Can you provide an update on the M&A market and discuss whether or not you're actively evaluating opportunities given other recent commentary about an inward focus?
spk02: Our primary focus is on integrating green speed and executing our strategic initiatives. Of course, we remain an optimistic approach when it comes to considering M&A opportunities that present themselves.
spk03: Is there an update you can provide on plans to address the near-term debt maturity?
spk04: Jeff, we are on track to fully pay the outstanding notes, which have an aggregate face value of $27.8 million on or before the maturity date of November 19, 2023.
spk03: Thank you both for the update on the Greenspeed integration. Is there an estimate for when that will be fully integrated?
spk04: The business integration is well underway. We are on track with our internal goal to complete our integration by Q3 of 2024. Paul and his team are fully immersed and are already identifying efficiencies and sales opportunities.
spk03: Ladies and gentlemen, that will conclude the question and answer session and Charge Enterprise's third quarter 2023 financial webcast. We wish you a great day. Goodbye.
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