Blink Charging Co. (BLNK) Earnings Call Transcript & Summary

Good morning, and welcome to Blink Charging's acquisition of SemaConnect conference call. [Operator Instructions] Please note, this conference is being recorded. A replay of this call will be available on the Investor Relations page of the company's website. At this time, I'd like to turn the presentation over to Vitalie Stelea, Vice President of Investor Relations.

Good morning, everyone, and welcome to the call on topic of Blink's acquisition of SemaConnect. With us today, we have Michael Farkas, Chairman and Chief Executive Officer; Brendan Jones, President; and Michael Rama, Chief Financial Officer. Please note, there's a slide presentation included with today's call where viewers can follow along. The slides can be accessed on the Investor Relations section of the Blink Charging website. Today's conference call contains forward-looking statements as defined within Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. Actual results may differ from those stated, and the most significant factors that could cause actual results to differ are included on Slide 1 of today's presentation. With that, I'll turn the call over to Michael Farkas.

Good morning, everyone, and thank you for joining us. Today, Blink announced the signing of a $200 million definitive agreement to acquire SemaConnect, a leading provider of EV charging infrastructure solutions in North America. This is a transformative acquisition for Blink and for the entire EV charging industry. As we continue to build our leading global vehicle charging ecosystem, this transaction will further solidify our leadership position through: one, complete vertical integration of supply chain; two, engineering; three, in-house manufacturing capabilities; and many others. And very importantly, the U.S.-based assembly will allow us to instantly comply with the Biden administration's Buy America initiatives outlined in the $7.5 billion EV infrastructure plan. After the acquisition, we'll have about 9,500 host locations, those are relationships with different property owner partners, more than 420,000 registered EV drivers and over 48,000 cumulative combined chargers deployed. Just think of the scale of our operations as we go forward. To give an overview of this transaction, please turn to Slide 4. Of the $200 million purchase price, $40 million is in upfront cash, another $40 million is deferred with 7% annual interest, and the mandatory payment in full in either 36 months or upon raising at least $125 million in capital. The remaining $120 million of consideration will be issued in Blink common stock. We're expecting the transaction to close imminently, and there will be a 3-month lockup period on the restriction of the sales that we're issuing. Please turn to Slide 5. As you can see the extensive network of SemaConnect chargers and locations, you can see that the company has generated over $12 million in revenue in 2021 and has a significant presence not only within the coasts, but also in Mid-America. This acquisition will add nearly 13,000 chargers to Blink's existing footprint, an additional 1,800 site locations and more than 150,000 registered EV drivers. We are also looking to welcome 185 new team members from SemaConnect, of whom over 1/4 of them are engineers. This is allowing us to grow our base of employees tremendously in times where it's not so easy to find good employees. Please turn to Page 6. SemaConnect brings to Blink its in-house research and development, hardware design and manufacturing capabilities to its Buy America-compliant manufacturing facility in Maryland and its state-of-the-art manufacturing facility in India. Current manufacturing capacity of 10,000 units per year for the 2 facilities can be expanded to over 50,000 units in the near future, which gives us production flexibility to serve our customers and rapidly increasing demand in charging equipment. The U.S. manufacturing facility positions Blink to significantly benefit from the $7.5 billion Biden administration EV infrastructure bill, which mandates that chargers be built in the United States. Post-acquisition, Blink will be the only EV charging company to offer complete vertical integration from research development, ownership of our network, manufacturing of the hardware, selling the hardware to property owners, owning and operating those charging stations. This vertical integration creates unparalleled opportunities to control the supply chain and accelerate Blink's go-to-market speed while reducing operating costs. As you can see on Slide 7, SemaConnect's portfolio of chargers include a wide spectrum of offerings from Level 2 residential charging stations, commercial charging stations and all the way up through high-powered DC fast chargers. It is a robust hardware product lineup which complements Blink's extensive software capabilities. This is important in a variety of ways. First and foremost, when it comes to DC fast chargers, SemaConnect has been developing that technology for some time now. These efforts will allow Blink to significantly accelerate our DC fast charger speed to market by about 18 months to 2 years while drastically reducing our R&D costs for DCFC technology. Second, SemaConnect hardware will accelerate Blink's expansion across multiple municipalities and geographies, including California where swipe credit card functionality is required by local mandates and SemaConnect already possesses the functionality to do just that while almost every one of our competitors is trying to fight it. Instead, we decided to just build the equipment as required. Upon closing the transaction, we intend to transition SemaConnect's chargers on to Blink's state-of-the-art network, which includes multi-language, multi-currency and advanced connectivity features, allowing Blink to have an EV charging station for any location across more than the 20 countries that we're in and expanding quickly. Please turn to Page 7 -- Page 8. To summarize the investment highlights, we at Blink are very excited about the SemaConnect acquisition. With complementary values, business models and equipment, SemaConnect was an ideal acquisition for -- target for Blink. Together, our combined teams will be building an industry-leading EV charging ecosystem. Besides providing Buy America compliance, SemaConnect has proven technology and vertically integrated supply chain, all of which position us well for the rapid growth in EV charging demand and local initiatives and mandates such as the Biden administration's $7.5 billion EV infrastructure plan. SemaConnect also have robust customer base that has grown through partnerships and well-defined project management skills developed with years of experience. These and other factors have contributed to SemaConnect's attractive financial performance with best-in-class margins, multiple revenue stacking opportunities and a recurring revenue model that will benefit Blink's financial performance well into the future. This will also allow us to reduce our costs on our hardware in our own operating model that will allow us to achieve return on our investment much faster. We are very excited about the future opportunities with Blink. And with this, I will transition the presentation to Brendan. Brendan, take it away.

Good morning, everyone. I'm going to briefly go over some of the investment highlights and then some other information for this important acquisition for Blink. So when we look at SemaConnect, first, it is a proven technology and has comprehensive smart hardware and software solutions and has an extremely large portfolio of intellectual property with successful defense of patents. When we look at it from a vertically integrated perspective, it has end-to-end solutions complete with in-house design and certificates and manufacturing. If we look to the right on this slide, we'll see one of the products that's in design, which is a 90- to 180-watt kilowatt DC fast charger, all in one single unit, which has a very attractive design, and Blink will work to bring that to market very soon. Robust end customer base is also one of those. As Michael mentioned, 18 marquee customer accounts across the United States at prime retail location. In EV charging, land grab is frequently used as making sure that you have the sites to host charging. This will significantly enhance Blink's portfolio. Project management. They have one of the most complete, most demanding multifamily and workplace programs in the industry. It's governed by CARB under one level and EPA under a prior agreement, and they are a major player in MUDs, multifamily and other mostly used locations. We spoke briefly about the number of site hosts. The other aspect is partnerships. Strong partnerships with leading commercial and real estate firms across the United States, another major advantage. And then the last item here is attractive financial portfolio. Best-in-class margins above anybody else in the industry. Recurring sales and class for a model that has been checked and double checked. And multiple revenue stacking opportunities across the entire portfolio. If we move to 10, Michael touched on this briefly. The complementary manufacturing and engineering capabilities are a highlight of this acquisition. This creates for Blink unmatched speed, cost and flexibility in the industry today. We've talked much about vertical integration, but this is end-to-end in-house design and manufacturing. It's comprehensive, innovative product suite from chargers to networks to fleets and management who benefit Blink greatly. And then significant product cost reduction is available to us with industry-leading margins, which is going to change the way that we transact and able to act deals. Manufacturing capacity. As we spoke about, cost-effective, supply chain predictability, tight controls, and again, IP ownership. And we can't ignore the fact that Buy America, SemaConnect today builds older chargers in the U.S. after assembling them from parts in India. We'll be doing the same and modifying this program to encompass Blink chargers, making Blink SemaConnect, one of the only manufacturers in the U.S. to be able to achieve this in record time. In-house design, increased engineering, product standardization and 8 patents for a robust patent portfolio. When we flip to the next slide and examine SemaConnect from revenue synergies, we had an outside consulting company come in and say where do the synergies align? And they came in, in the usual categories, selling Blink hardware to SemaConnect customers. We'll get incremental revenue from each Blink charger that is upgraded on a SemaConnect site today. Then we'll get increased chargers at high utilization SemaConnect sites, optimized footprint with additional charges at high utilization. And last but certainly not least for the Blink model, we'll get increased owner-operated models and site hosts that want to switch from owning a charger to signing an agreement with Blink to be able to manage that charger for them either on a hybrid basis or a Blink on a turnkey owner-operated basis. On Slide 12, we can look further into synergies on manufacturing costs and procurement. Right now, we know based on data that a reduction in Blink L2 hardware and cost of goods sold by leveraging SemaConnect's low-cost manufacturing ability is in our future. If we look to J&A efficiencies, we see scalability across the organization. And then if we look at optimization through customer service, reduction in customer service expense, we estimate it at a minimum in the first 2 to 3 years at 6%, and that number will grow over time. If we turn to the next slide, Slide 13, here's a highlight of what we expect. Global manufacturing: United States, India, Taiwan. Global network: 6 language, 19 countries -- 19 currencies, excuse me, 21 countries. And then a global portfolio, common design, Blink-branded, flexible, but locally adaptable to our markets on a global basis. If we flip to the next slide, this gives you an idea of what Blink combined with SemaConnect will look across the industry. And I'm just going to highlight the first line here. So in-house design, check; manufacturing, check; network, check; owned and operated, check; managed infrastructure, check; charging services, check; and fully integrated fleet solutions. Blink will stand out as the most complete EV infrastructure company in the business today and our competition will have to catch up with us. I'll now turn to Slide 15 over to Michael Farkas.

Thank you, Brendan. Just to summarize the key points, the acquisition of SemaConnect by Blink and the combination of our individual capabilities creates a powerhouse in the EV charging industry. Blink gains a vertically integrated in-house manufacturing with increased future capacity, which will allow us to instantly be Buy America-compliant. In addition, it reduces our cost for each charging station dramatically. We also gain access to DC fast charger technology, which will significantly accelerate our speed to market and allow us to take advantage of the Biden administration's $7.5 billion EV infrastructure plan. We will roll out and transition all of our chargers on to our brand-new cutting-edge network that is built on the latest tech stack and allows for adaptability while allowing customers the same friendly experience all over the world. We'll continue to offer our flexible business models tailored to each owner with long-term site exclusivity, especially as demand and EV penetration continue to rise. We'll have a full package of EV charging solutions which underlines our winning commercial strategy. And we believe talent is extremely important in today's world as we welcome the SemaConnect employees to our Blink family. We are excited about what our future holds for Blink and are looking forward to sharing with you our progress in the future. So with that, this concludes our portion of prepared remarks, and we can transition to Q&A.

[Operator Instructions] Your first question for today is coming from Gabe Daoud.

It's Gabe here from Cowen. Was wondering if -- I know Sema's revenue in '21, $12 million. Is there a breakout between the hardware and the software side? Just curious how much of that is recurring. And then also, anything on Sema's gross margin that you can talk to?

Michael?

I'll jump in -- yes. I'll jump in real quick. Gabe, how are you? A majority of the revenues -- yes. How are you? A majority of the revenues is hardware, but I'd say about 80% -- 75%, 80% is on hardware, and then there's a recurring nature. And -- but what's attractive to this is as we provide and come in and provide options to their customer base now, we'll have an opportunity to bring in the Blink model of owned and operate, but again give the option and flexibility to the customers.

Michael, and then as a follow-up to that, over time, how many of the 13,000 ports or so do you think you can convert to Blink owned and operated?

It's not only about converting the current charging stations. It's about needing more chargers in each of those locations. So as time progresses, we'll have a better understanding of it. But obviously, Blink wants to own and operate the majority of its charging stations. So we're going to go into all of these customers and tell them of our deployment methodologies. And it's important to us not to really just pitch what we want to sell but really sell the customer exactly how they typically purchase and how they invest capital in their locations. So we don't want to go to a property owner that's asset-light and ask them to go in there and buy hardware. Obviously, those that outsource everything -- again, we're not going to force a specific model on them. It's very important for us to really comply with the deployment methodologies that the property owners themselves and how they deploy capital at their locations and fall within those parameters. But to answer your question, we hope that a lot of those locations, which are now needing a lot more charging stations because more EVs on the road, that the additional charging stations would go under the Blink model.

Got it. Got it. Okay. Okay, makes sense. And then just last one on the cost side. You mentioned reducing Level 2 COGS by about 30% or so. What's the timing on that -- to realize that? And then moving forward, what does Blink pro forma gross margin look like maybe this year or next year? Is there anything you can talk to there?

Obviously, on a pro forma -- I'll jump to the pro forma, what it looks like obviously going forward. This year, we'll -- given the -- when we expect to close the transaction, we'll be able to recognize for the remainder of the year -- well, call it for the next 6 months. So we'll show on a combined basis a bit of an increase in our gross margins, but obviously those synergies will take a bit of time to integrate and to process through. But at least on a stand-alone, we'll see the overall gross margins increase just by the addition of Sema's numbers.

So to add some clarity to Michael Rama's comments there, so we'll be going through an immediate consolidation on the manufacturing and IT side to have one vision. And in that vision, it's to accelerate the technology and the manufacturing aspects. So that is our first priority as a company because it's one of the biggest values in the deal. So we begin working on that today.

Your next question for today is coming from Stephen Gengaro.

I'm with Stifel. The -- I think 2 things for me, if you don't mind. I think the first just start with, can you speak to us a bit about valuation? Like how you arrived at $200 million? I'm just kind of curious to sort of your thought process and what supports the value.

Actually, great question. If you do just basic comps on public companies and their scale and size and even some of the private valuations of recent transactions, even with the major dip in the market as of late, we believe we bought the company very well. Sema on its own, if it was a trading company, capitalized, it could be worth 2 to 3x what we paid for it.

Okay. And are you thinking about that on a revenue basis or a gross profit or chargers installed? Like is there -- or is it all of the above?

Across the board. It's all of the above.

Okay. And then the second thing is you have a really good slide in the presentation as far as your vertical integration and your business models relative to 5 or 6 other comps. When I look at those checkmarks across the board that you present, which areas are strengthened most by the acquisition? And where do you think sort of Blink was stronger than SemaConnect?

Okay. Obviously, in-house hardware design and manufacturing, those were Sema's strengths. Also, they also have a robust portfolio of hardware. They were a little bit more advanced on the DC fast charger development than us. They have an amazing client base as well as us. There's, without a question, tremendous synergies between the 2 companies. And being able to build Blink-designed hardware in Sema's facilities and reducing our costs dramatically and allowing us to instantaneously participate in the Biden administration's programs, really it was just a -- it was a gimme. I mean, it was just, without a question, it made sense for us. The value of the combined companies, we believe, it's not just 1 plus 1 equals 2. It's more like 1 plus 1 equals 7. It really allows us to really truly compete with any other company out there from a technological standpoint, from a scale and size standpoint. And what's really important right now, and this is being felt throughout the entire industry, not only ours, but across the world, is finding really good quality people who know what they're doing, have experienced and have done this before. That is one of the biggest jewels of the SemaConnect acquisition. It's the people.

Great. No, that's helpful. If I could just sneak one more. With Blue Corner getting done, I think, last year in this transaction, how do you feel about sort of the ability to integrate these 2 businesses into Blink, particularly in what's a rapidly growing market? It seems like a challenging endeavor, but just curious how you think about that.

Well, if you look at Blink, our history, we've grown through acquisitions. We're now a consolidation of over 10 companies. There's no other EV charging infrastructure company globally who has anywhere near the experience of acquiring, consolidating companies as we have. So now we're growing in scale and size and the acquisitions that we can accomplish, but we've done this before. We're very experienced in integrating companies like nobody else in the industry. And we believe as successful as we were with what we've done with Blue Corner since we've purchased them, their revenues have gone up significantly. The amount of charging stations they have tremendously. I mean it's just a night and day from when we bought them and where they are today from a scale and size. And we believe we could do the same thing with Sema.

Your next question is coming from Matt Summerville.

This is Matt from D.A. Davidson. A couple of questions. First, I want to be clear, Michael, how much of Sema's footprint today is actually owned and operated by them?

Brendan, do you have that number?

I couldn't hear the question, to be honest. Could somebody repeat it?

Yes. Sorry. I wanted to just put a finer point on how much of Sema's footprint today is owned and operated by them?

It's a very small percentage. SemaConnect has always been a sales model, very similar to other companies out there. The key point is that is after doing some work with SemaConnect and looking at their portfolio, they've never been -- these customers have never been presented with another option. They've always had the sales model. And Michael's points earlier about the capital investment needed to get up to what now will be the new scale, it is going to be difficult for a lot of these site hosts. So we will introduce all of them to the hybrid and the owner-operated model. Based on data, our belief is that we're going to have the high penetration rate of conversions on that. If you use by example, to really validate this point, Massachusetts 30 days ago passed a law that any development on a parking lot, whether it being resurfaced or a brand-new parking lot, must have 10% EV chargers on that lot. Well, that number is going to go up as EV penetration goes up in Massachusetts because they're going to ban internal combustion sales by 2035. That capital is right for the Blink business model. So while the percent is low today, all the data indicates it will be much higher tomorrow in their portfolio of customers.

That's helpful. And then as a follow-up, can you talk about the process involved in scaling manufacturing from 10,000 to 50,000? What's required to get that 5x increase in output and over what time frame you're looking to accomplish that?

Yes. So to be very precise on that, the capacity already exists in terms of the building framework. You have to add some tooling on the L2 front and then some on the DC fast charger. But beyond that, buildings, initial staff, manufacturing capability is all in place right now. You'll see the fastest come out of the L2 line, which is very easy to up capacity right now today as we stand, and then we'll continue to add it over time. But we're secure in the facilities, the land, the people, everything else. So we don't have to go out and acquire any more of that right now. We just have to add some tooling.

Understood. And just as a quick follow-up, I'd be curious as to what you find particularly attractive about their DC fast charging infrastructure versus what you have on a homegrown basis? Maybe if you can kind of compare and contrast where they're at from a development standpoint versus where Blink is at.

Sure. We produce it, number one. Most of the companies out there, especially who worked on the DC fast charger side, they buy their chargers from someone else, giving up that margin. We are going to produce our chargers, our DC, in the future on our own and we keep that margin, improving Blink's revenue. And then on the owner-operated model, then we reduce Blink's cost for -- especially as we look at the Biden administration's 500 -- $5 billion for national infrastructure, if we win one of those awards, we're using our network, our hardware to install that, and that will improve our gross margins and our operational efficiency and then significantly impact our ROI by reducing that time frame. So that sets Blink apart in the industry.

Your next question is coming from Sameer Joshi.

Sameer Joshi from H.C. Wainwright. Congratulations, Michael, Brendan and team on this pending acquisition. I just have a question on the process before some of the questions. The $120 million that you're going to pay later, is that going to be in form of equity? Or is it going to be following equity raise? And part 2 of that question is, are there any approval -- shareholder approvals required for this?

Okay. The $120 million is going to be equity in Blink. And all shareholder votes and everything that was needed to be done, we're along the way. This is a transaction that's closing imminently. This is not done weeks or months. This is M&A.

Got it. And then just on the Buy American qualification, SemaConnect has operations, manufacturing facilities in India, and then there is assembly facilities in the U.S. Are you comfortable of them retaining and you retaining the Buy American qualification for the product [ categories ]?

Yes, without a question. Based upon how we're currently assembling, yes.

Okay, okay. And then I think Brendan mentioned partnerships that SemaConnect brings to the table as part of the synergies and their contribution. Can you talk a little bit about those -- what kind of partnership those are? Are those manufacturing or supply chain or customer partnerships?

Sure. I'll highlight 2 partnerships that are of note. So first is in the U.S., the #1 partner for CBRE is SemaConnect. So at CBRE locations, it is SemaConnect chargers that are selected and installed in that. And if you think about that location, the diversity of that portfolio will now be entering in both the hybrid and the owner-operated model into that constellation. And on the retailer front, they are also in a strong relationship with Gilbarco's C-chain stores as a retail arrangement and the chosen charger to go in those locations. And those are just but 2 of the multiplicity of great partnerships that we will inherit into the larger constellation of Blink companies.

Just lastly, in the previous answers, you said that there won't be -- like scaling up is going to be not that hard. But in terms of capital requirements for that scaling up from 10,000 to 50,000 per year capacity, how much additional capital will be acquired?

Obviously, as Brendan mentioned, we already have the facilities. We already have the personnel. We have to, again, modestly probably increase staff or whatever it is, some tooling, as you mentioned. So it's ready -- built and ready to go effectively. So we think that the investment would be nominal in conjunction with the expansion to up to 50,000 units.

Your next question is coming from Noel Parks.

It's Noel Parks from Tuohy Brothers. Just a couple of questions. You mentioned that your plan was to convert SemaConnect operation onto your network. I'm just curious, do you anticipate that being a pretty straightforward conversion? I'm just wondering what sort of the degree of compatibility. Of course, you have done a lot of work with the next generation of your network recently.

Yes. So we've analyzed that. As well as Michael mentioned, we've analyzed and what we need to do on not just the SemaConnect network, but as we transition every entity over to the new Blink network, as you just referenced. We've confirmed that we can do it with a little difficulty in most use cases over the year. There may be a requirement on a -- on the margin on a very small percentage basis where we have to go -- actually go to the charger, but in the higher use cases, we've already confirmed we can push it and then have the new Blink networks across the globe. And we've already have this timed out and dates that we'll be prepared to release later on.

Okay. Great. And I -- just a couple of things. I apologize if you touched on this before. I happened to miss it, but I was thinking about, first of all, the set of product launches that were ahead of us just on the Blink product lines just from your introductions earlier in the year. So I was wondering if those are going to be affected by the acquisition? And also, just as a broader question, I guess from comments that the company had made in the past about being a little bit leery of possible commoditization of charging hardware itself, can you give a sense of what is it in the technical benefits you saw in SemaConnect that persuaded you the advantage of full vertical integration outweighed any risk on the technology obsolescence side?

Great question. Sema has many, many positive aspects. It's not just their equipment. It's not just Buying America. It's not just their customer base. It's not just their employees. There are many positive reasons why the Sema-Blink transaction makes sense, and it's across the board. Key here is people. Believe it or not, we're growing at such an extreme rate, as you can see from our prior quarterly filings, and we need to grow. And yes, for a while, we've been talking about commoditization of the hardware. We're still far away from that. As I mentioned in a lot of conversations, we're still 3, 4, 5 years away from the commoditization of the hardware. But being able to monetize all of the customers that Sema has, being able to introduce new deployment methodologies to their customer base, being able to consolidate networks on a global basis and putting all of the Sema hardware on their EV, Blue Corner, all on one global network, imagine taking different tech teams that are all working on their own networks, consolidating them, refocusing others on other areas. Now it's a much stronger team, but it's across the board. Every aspect of this transaction makes sense for us. Also, what's very important for us is that we're able to reduce our cost per port, dramatically have the highest margins in the entire industry. That's great for margins when we're selling, but what's more important, it reduces our cost in getting that equipment in the ground and it takes faster for us to get paid back. So we could go through this in many different aspects, but it's across the board. It's a win-win-win for everybody.

You do have a follow-up question coming from Gabe Daoud.

Just one more quick one. Sema's -- the $12 million in revenue in '21, what is the growth rate on that for 2022?

Yes. Just to give you a couple of data points. For 2020, they did about $8 million. They did $12-plus million in 2021. So they're growing, similar like how we were growing. So the expectation is that their trends will continue and as they move forward in time with the continued evolution of EV infrastructure space.

There are no further questions in queue. I would like to turn the floor to Michael Farkas for any closing comments.

Hello, everybody. Thank you for joining us. We believe there are some extremely exciting times ahead of us. We're very excited about being able to be one of the lowest-cost producers of charging equipment, being able to comply with Build in America and the Biden administration's intent and $7.5 billion programs. This positions us better more so than, we believe, any other EV charging infrastructure company in the States. We have the broadest breadth of offerings, deployment methodologies, hardware, state-of-the-art network and really a seamless solution that's global in nature where any customer, any EV driver, whether in London, Paris, New York, L.A., Athens, they're going to have the exact same experience wherever they are. And we believe with interoperability and all the other things that we're offering, we will definitely be one of the largest global players in the space. Thank you, everybody.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.