Charge Enterprises, Inc. (NASDAQ:CRGE) Q4 2022 Earnings Call Transcript

Charge Enterprises, Inc. (NASDAQ:CRGE) Q4 2022 Earnings Call Transcript March 15, 2023

Operator: Good day, everyone, and welcome to the Charge Enterprises Fourth Quarter and Full Year 2022 Financial Results Webcast. I am Matthew, and I’ll be your operator for today’s webcast. Today’s webcast is being broadcast over the internet and 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 call over to Vice President Investor Relations with Charge Enterprises, Christine Cannella. Please go ahead, Ms. Cannella.

Christine Cannella : Thank you, Matthew. Good morning, everyone. I’m Christine Cannella, Vice President of Investor Relations with Charge Enterprises. Welcome to Charge Enterprises fourth quarter and full year 2022 financial results webcast. You will find our press release along with a copy of today’s slide presentation on the investor 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 Andrew Fox, Founder, Chairman, and CEO; and Leah Schweller, Chief Financial Officer. Andrew will kick this off with a review of our key takeaways for today’s webcast. Leah, will then walk you through a review of our financials, and then we will answer your questions.

As this is our first earnings call, 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 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-K filed with the SEC and our earnings released posted on our website and filed with the SEC on Form 8-K. Please note that our press release and our call today include non-GAAP financial measures, reconciliations of these non-GAAP financial measures are set forth in the press release we issued today. The slide presentation with today’s webcast and on the company’s website. With that, I am pleased to turn today’s webcast over to Andrew.

Andrew Fox : Thank you, Christine, and welcome to Charges inaugural earnings conference call. We’re excited to share the accomplishments of our recently completed fiscal year and help you understand our vision and our strategy for 2023 and beyond. As this is our first conference call, I’d like to provide an overview of our business, an outline, what we hope you take away from our prepared marks on Slide 4. In 2022, Charge enterprises reported 698 million of revenue, including 106 million from our infrastructure segment. Infrastructure also notably finished the year with a backlog or signed customer contracts or unstarted or unfinished projects of $82 million. The federal government has committed more than $70 billion to broadband an EV charging infrastructure and large automotive OEMs have committed to invest over $1 trillion in electrification over the next decade.

Building and maintaining the infrastructure for these vehicles is paramount for vehicle, electric vehicle adoption, which is central to charges mission. We anticipate significant growth in the EV and broadband industries during 2023 and beyond, leading to a surge in strategic infrastructure development. This is the backbone of charges future and industry participants are increasingly committed to getting this done. Now let’s move to Slide 5 to discuss Charge today. Charge enterprises at its core is an enabler. Our installation services are essential by prioritizing white glove service, expertise, education, and creative design. We deliver a premium service in an emerging industry. We have built a team of industry veterans and worked hard to build a foundation for growth within our EV charging infrastructure business.

In 2022, we integrated our acquisitions of A&S, BW and EV depot, and we delivered strong revenue growth across our businesses. Leah Schweller, our CFO, will go into more details on this shortly. For 2023, our priorities are to continue to develop our business overall and invest in our fast-growing EV charging infrastructure operation. Now moving to Slide 6. Our aim is to make it easy for our customers and their clients to go electric. We design, install, operate, maintain infrastructure for electric vehicles and high-speed broadband. We have two segments, infrastructure and telecommunication. In infrastructure, our subsidiaries are our newly created charge infrastructure business unit or CI, which focuses on EV charging infrastructure, where we have steadily been building our partnership with retail auto dealerships with active projects currently going on in 24 states.

Our leadership team boasts over 150 years of collective experience in the automotive space from companies like Ford, GM, Electrify America, and Volvo. Our experience and the knowledge of our team gives us a deep understanding of auto dealership priorities and needs, and our services are designed to help them build the infrastructure they need for their businesses to thrive in the future. We’re also developing software solutions that enable us to monitor and maintain the even charging infrastructure we help install. This will give us valuable insights into the evolving EV ecosystem. Our relationships and our meaningful progress working with our auto dealership clients also positions charge to participate in future opportunities as they arise.

EV Depot, we acquired a real estate solution called EV Depot to support the future shift towards electric vehicles for large commercial and fleet operators. We expect as more fleets switched to electric vehicles, charging depots will become the modern-day equipment of gas stations. This will create new opportunities for EV Depot to grow and expand its operations. Now to our recently acquired infrastructure business, ANS and BW Electrical Services. They specialize in providing wireless and broadband infrastructure, as well as providing complete commercial electrical services. Our services cover everything from planning and design to construction, installation, and ongoing monitoring and maintenance. We have a highly skilled and experienced workforce providing top quality services to blue chip customers.

In our telecommunication segment, we provide services to some of the biggest telecommunication companies in the world. This business has several strengths, including deep, longstanding relationships with Tier 1 telecommunication providers. It also has favorable working capital dynamics and a public company backbone with experienced leadership and personnel. In just over three years, Charge Enterprises has gone to nearly 700 million in revenue to 385 team members, including a Detroit based team with extensive automotive experience, and transitioned from an OTC traded company to a NASDAQ listed company. So this is Charge Enterprises. We accomplished great things in 2022, and believe our experience, positioning, and value proposition sets us up to execute on growth strategy in 2023.

Now, I’d like to turn today’s webcast over to Leah to go over our financial performance.

Leah Schweller: Thank you, Andrew, and good morning, everyone. It is exciting to be speaking to you 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. As a reminder, I will focus my comments on proforma results, which includes results for all of our operations, including acquisitions as of the first day of the respective period, and therefore provides greater comparability of our results. Let’s begin on slide eight, charge revenue and gross profit quarterly trend. These charts depict how our revenue and gross profit mix have changed over the past five quarters as our infrastructure business which carries higher gross margins, captures its significant growth opportunity, and contributes a growing proportion of our revenue and profit basis.

Since this is our first earnings call, I’d like to take a few minutes to discuss the nature of our revenues. Our infrastructure segment contains our high-speed broadband, EV charging, electrical contracting, and fleet parking businesses. Our revenues within infrastructure are derived in a few ways. From projects, which can range from a few weeks up to 18 to 24 months. We recognize revenue over the life of the project under a percentage completion model. Typical projects include 5G tower installation in building wireless networks, electric vehicle charging solutions, and complete commercial electrical services. In late 2021, we launched a monitoring maintenance offering within our wireless network and broadband business. During 2022, we were already able to recognize approximately 1.2 million in these recurring type revenues.

We can digitally monitor equipment remotely, fix issues, or dispatch maintenance when needed. It was the natural next step in offering solutions to our customers beyond installation and building even longer-term relationships. Finally, we generate monthly rental revenue from our fleet parking business EV Depot. Revenues within our telecommunications segment are generated via the routing of voice, data, and SMS text messages, process albeit at lower margins, have provided us some necessary fuel to help build a strong public company foundation and launch our EV charging infrastructure business. Looking at our results for fourth quarter in the five quarter trend, first, our infrastructure segment contributed on average 15% to 20% of total revenues while providing 85% to 90% of gross profits with an average gross margin of approximately 23%.

It was our goal and we are pleased to see both revenue and profit contributions from infrastructure increasing on average and over time. Fourth quarter 2022 proforma revenue of 168 million grew 31% from the fourth quarter of 2021. Within that increase, infrastructure grew 73% and telecommunications grew 24% year over year. Telecommunication revenues can vary quarter to quarter and depend on volume mix with different partners as well as macro trends and events around the globe. Periods of unrest or major events can cause voice call volume to increase, especially in the Middle East Africa and Asia. Fourth quarter 2022 proforma gross profit of 8.5 million grew 32% from the fourth quarter of 2021 and 29% sequentially, driven by higher relative growth and contribution from our infrastructure segment, partially offset by lower gross profit from telecommunications due to partner mix.

While we were not immune to the challenges that most companies faced in 2022, including supply chain disruptions, labor shortages and inflation, we were able to mitigate some of those impacts through tight project management and enhanced bidding processes. Fourth quarter 2022 gross profit within infrastructure benefited from sequential revenue growth combined with flattening into some degree lessening inflationary, and labor pressures. Turning to Slide 9, we will discuss the infrastructure segments revenue and backlog trends. Proforma revenues within infrastructure grew sequentially in each quarter of 2022 with second quarter growth coming in at 28% and the fourth quarter at 26%. This organic growth has been driven by our A&A and BW subsidiary, expanding their market penetration, as well as our nascent EV charging infrastructure business starting to gain traction.

A&S and BW experienced record revenue growth. BW’s full year revenues increased 72% compared to 2021 as a result of the hiring of project managers allowing us to bid on and win a number of new projects. A&S’s full year revenue growth of 44% year over year was particularly strong due to peak client spend within 5G rollout. Our charge infrastructure business, which only formed in the second half of 2021, gathered revenue momentum in 2022 and is poised for rapid revenue growth in 2023. Our infrastructure segment experiences some natural quarterly seasonality that arises primarily from our A&S subsidiary, which performs much of its cell tower work outdoors and tends to see its lowest volumes during the first quarter when the winter months are the harshest.

Therefore, sequential growth has historically been minimal from fourth quarter to first quarter, and we would expect this pattern to continue. As I mentioned, the majority of our revenue is project based within infrastructure, and we report projects to be completed in the future as backlogs. We define backlog as signed contracts, purchase orders, or other legally binding arrangements on unstarted projects, as well as the remaining portion of jobs. Throughout 2022, we maintained a very healthy backlog for infrastructure segment and entered 2023 at 82 million. Relative to 2022, full year reported revenue, this represents more than nine months of revenue already contracted with customers. While the forward-looking metric backlog is not the sole indicator or direct measure of our future revenue.

We look at backlog on average and over time to help assess future growth. Let’s move to side 10. 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 stop compensation, depreciation, and amortization. The story is consistent throughout 2022 as we laid the foundation for Charge Enterprises, as a publicly traded company. We invested in talent, systems, and processes to successfully uplift to the NASDAQ global market. We began reporting with the SEC and paved the way for our future. Fourth quarter 2022 adjusted EBITDA loss of 1 million improved compared to the prior four quarters. While this was a favorable end of 2022, when thinking ahead to 2023, I would remind you of the seasonality within infrastructure during the first quarter we just spoke about.

Turning to slide 11, to look at our full year performance on a proforma basis, 2022 revenue increased 34% to just over 698 million, driven by growth in both segments, particularly in the infrastructure segment, which grew 55% year-over-year. As I mentioned earlier, both ANS and BW delivered record revenue growth in 2022, while telecommunications grew 31% year-over-year. 2022 growth profit grew 26% to just over 28 million driven by a 43% year-over-year increase in our higher margin infrastructure segment following record revenues and a mix of higher margin projects within BW specifically within our operating expenses, we made significant investments in 2022 to build our team processes and technology, primarily within corporate and our EV charging infrastructure business.

We also incurred amortization from newly established intangibles related to our recent acquisitions. This all resulted in an adjusted EBITDA loss of 6.1 million for the full year. To summarize, I would characterize 2022 as an investment year. We expect our adjusted EBITDA for 2023 to improve driven by corporate expense reductions and continued profit growth within our infrastructure segment businesses. With a strong performance in 2022, 82 million in infrastructure backlog and strong tailwind supporting growth in the EV charging infrastructure space. We believe we are well positioned for 2023. Andrew?

Andrew Fox: Thank you, Leah. I want to thank our entire team for all we’ve built and accomplished in 2022. We are very excited about our momentum in €˜23 and entirely focused on execution, making it easy to go electric for our customers, and driving results for our stakeholders. Operator, we are ready for Q&A.

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Q&A Session

Operator: As a reminder, today’s questions were previously solicited. The first set of questions is from Pavel Molchanov with Raymond James.

Pavel Molchanov : What percentage of the company’s infrastructure segment revenue currently comes from the EV charging space? Is there a target for how high this percentage can become over time?

Leah Schweller: We don’t break out revenues by business within the infrastructure segment, but let me share with you how we think about our businesses for context. Our EV charging infrastructure business just started at the end of 2021 and revenues began in 2022, whereas our well-established A&S and BW businesses experienced record revenue growth this year. We’re investing in our EV charging infrastructure business and we expect it to be a larger contributor over time as it grows. With the pace of EV adoption OEM mandates for dealerships in the tailwinds in this entire space, we see our EV charging infrastructure business as having tremendous growth potential in 2023 and beyond.

Pavel Molchanov : Other than the obvious examples of California and the Northeast, and what other parts of the US are you seeing good traction in regard to EV charging?

Jerry Guo: As we shared in our January 9th press release, our EV charging infrastructure business charge infrastructure is already servicing retail dealership locations, representing more than 20 automotive brands, which span across 24 states. The heavier states as you could imagine, include California, Texas, Arizona, Colorado, Florida, and Michigan.

Pavel Molchanov : Looking more broadly, is there interest to enter the European market given how much more advanced Europe’s EV adoption curve is?

Jerry Guo: Yes. We won’t put a timeframe around when, but we’re definitely looking at Europe.

Pavel Molchanov : Beyond organic growth, is there an appetite for using m and a to bolster the presence in EV charging?

Jerry Guo: Yes. If the pass is any indication of the future, we plan to continue evaluating strategic opportunities.

Operator: Next will be questions submitted by Amit Dayal with H.C. Wainwright.

Amit Dayal : With the charging business expected to grow at faster pace, how should investors think about the quarterly cadence of revenues going forward?

Leah Schweller: In our infrastructure segment, while we expect revenues will continue to grow, I would remind everyone that we experienced record revenue growth in 2022 within A&S and BW, so we’re up against some tough grow over in 2023. Our EV charging infrastructure business gained momentum in the fourth quarter of 2022, and since it’s in early days, we expect revenues in our EV infrastructure business to grow at a faster rate than our mature businesses. Therefore, we would expect infrastructure’s overall growth rate to be a blend of what we anticipate will be fast growth at CI weighted with somewhat tempered growth at A&S and BW versus 2022.

Amit Dayal : Can you set some expectations around operating costs and margins for 2023, gross margins have been around 25% with the third quarter of 2022 coming in lower at 22%. How should we expect these to improve over the next few quarters as the proportion of EV infrastructure revenues increase?

Leah Schweller: Our exit rate within the infrastructure segment of around 23% gross margin is a fairly good indicator going forward. This will vary in the future due to mix within our various businesses as well as how much we utilize subcontractors as we continue to build our ED infrastructure business. If project opportunities present themselves in locations where we will need to staff with subcontractors. The gross margin percentage could come down, but that’s still a win. We will balance the goals of driving top-line and margins. As we continue to integrate our acquisitions. We aim to create more operating leverage and future.