Alpine 4 Holdings, Inc. (NASDAQ:ALPP) Q2 2023 Earnings Conference Call August 11, 2023 5:00 PM ET

Company Participants

Shannon Rigney - VP of Social Media

Kent Wilson - CEO, President and Founder

Christopher Meinerz - CFO

Conference Call Participants

Operator

Greetings and welcome to Alpine 4 Holdings, Second Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host Ms. Shannon Rigney. Thank you. Please go ahead.

Shannon Rigney

Thank you and welcome to Alpine 4 second quarter fiscal 2023 financial results conference call. We appreciate your interest in our company. In order to be more efficient with your time we will be reading Alpine 4 Safe Harbor statement at the end of the call. On today's call is Alpine 4s Founder CEO and Director Kent Wilson, Chief Financial Officer, Christopher Meinerz and myself Shannon Rigney, Founder and Vice President of Social Media.

It's now my pleasure to introduce Kent Wilson, Kent, please go ahead.

Kent Wilson

Thanks, Shannon. And thanks everyone for joining us on our call today. As I stated in my CEO letter in June of this year, a new era has begun at Alpine 4. And while we acknowledge that our share price isn't where we want it to be. The reality of what is occurring within our company is transformational and exciting.

Alpine 4 has several new technologies, set to help change the world and our company is leading the way in these industries with purposeful and powerful products. Elecjet’s AX Class of Solid-State batteries, has begun to gain traction with customers. Its unique safety, energy density, and comparable cost structure to lithium ion batteries make it an ideal choice for many applications, including energy grid storage, RV batteries, and other electrical vehicle machinery such as electric tractors. And that's just to name a few.

To-date, our sales team is currently pricing over 75 megawatts of energy storage to customers worldwide. And we believe this is only the beginning of a much larger opportunity globally. But before I go further into more of our successes internally, I want to provide you with a few summary highlights from the second quarter of 2023.

Revenues grew by 11% year-over-year in the second quarter to $28 million, up from $25 million and 3% in the first six months of 2023 over 2022 to more than $52 million, up from $50 million. Manufacturing and technology segments accounted for 46% and 31% of our total revenues in the second quarter respectively.

Gross profit margin increased 28% in the second quarter, compared to 24% during the same period of 2022. This is an important metric for us to point out because as the company drives towards our goal of a blended 32% gross profit margin across all subsidiaries, the company will cross over from generating a loss, to a breakeven and eventually to net profit.

Another important thing we want to point out, is the year-over-year growth in adjusted EBITDA, a non-GAAP financial measure, and it was an astounding 83% increase in the second quarter and 21% year-to-date. Now Chris will discuss this further in his financial review. But our non-GAAP measure is an important metric to share as it really weeds out the one-time and non-cash anomalies in our operating expenses that on a going forward basis should not occur again.

Many shareholders have correctly pointed out that Alpine 4 historically had one-time expenses. And while this is true, our aggressive acquisition strategy of 2019 through 2021 accounted for many of those one-time expenses in our prior filings. We choose to show the non-GAAP measure, because it allows shareholders to see how the company would have performed minus these non-routine and non-cash expenses.

I also like to discuss a few important business items here today with the shareholders. This July Vayu received its first purchase order in the amount of $5.2 5 million from its $100 million supply agreement with All American Contracting Solutions, Inc. This was a big deal for the team at Vayu and for TK Eppley, the President of Vayu. This order has opened the door for additional orders to be received off of the supply agreement and the increased awareness with several global customers that are now seeking information or UAVs is growing exponentially.

The company also settled its lawsuit with Mr. Alan Martin, the Former Owner of Horizon Well Testing and Venture at West energy services for $500,000 less than we carry on our books. This will also reduce our interest and fees and expense by $30,000 a month going forward.

I'm also extremely pleased to say that the company appointed Christopher Meinerz, Chris as we call, as our CFO. And the company regained full NASDAQ compliance.

Finally, with respect to capital transactions that many of you require inquired about, we secured Bridge Financing for $1.7 million, in a fixed price convertible note. We also filed an S1 registration statement with the SEC on August 4. Procurement of these capital transactions is important to our future success in the development, production and delivery of our most exciting products.

It will play an important role in facilitating Vayu’s $100 million supply agreement with All American Contracting Solutions, material and component procurement for electric batteries and electronic procurement for customers at QCA, and elsewhere within our holdings, that allow us to create competitive advantages in the industry marketplaces we serve.

And I'd like to discuss, I liked within some of our subsidiaries, and due to time I'll keep this discussion to the subsidiaries, the shareholders inquired about the most value. Vayu, as you know value has built an impressive catalogue of UAVs from the US-2 to the G1MKII and G1MKIII to our smaller tactical drones of the mitigator class. Over the past year, the Vayu team has generated dozens of sales opportunities all over the world. And we believe that $100 million supply agreement is one of many new sales opportunities that will come to fruition for Vayu Aerospace.

The company is quoting G1 to several customers, including the University of Kansas for scientific work in Antarctica, and International customers in Morocco, Nigeria, Kenya, Japan and Western Europe. The company is also quoting law enforcement entities in Georgia, Indiana, Texas and Nevada for a mitigator UAV and our US-2 UAV for use in their swat/tactical teams and with first responders. It is important for our shareholders to know that the sale of UAVs both here in United States and abroad is a long complex sales cycle, as regulations in each country vary and are complex to navigate for us as a company and for our end users.

Now on to RCA Commercial. RCA Commercials revenue has dropped over the last year's revenue, but our profit margins have increase. We see this as a healthy balancing between sales and margin and we expect RCAs sales to increase back towards our 2022 numbers in Q4 of this year, while maintaining the margins we achieved in 2023.

I'm also pleased to announce that earlier this year, RCA Commercial was granted the exclusive license to bring consumer gaming and commercial monitors to market under the RCA brand. A team at RCA has done an excellent job at developing these products to the highest degree of excellence and quality. And we feel that these new product lines will expand the company's revenue exponentially over the next 24 months.

Now on the QCA, Quality Circuit Assembly. QCA is simply an amazing company. It is led by strong leadership and its president Tim Garcia. With a growing base of high quality customers in the EV space, energy storage systems and commercial electronics. QCA is delivering on its capabilities to our customers, employees and our shareholders. The company will also be moving into its new state-of-the art manufacturing facility in January of 2024, which will bring QCA on-par with some of the largest contract manufacturers in the world, including the likes of FOXCONN and Sanmina.

Elecjet continues to develop its intellectual property portfolio with a focus priority on 56 of the most important patents it has under development. The company envisions building additional product and industry specific patents off of these key 56 patents. Further, these patents will ensure that the AX Class of batteries are well suited for various applications in the future.

The company has also achieved major milestones in several customers for the evaluation, qualification and subsequent volume proliferation of its solid state batteries. Customers that the company is now targeting are in the area of microgrid in this industries, automotive supply chain, battery industry, marine industry, and recreational vehicle industry. These customers represent large, billion dollar industries with enormous sales opportunity for the company, but they also have very demanding performance for safety, reliability and quality.

Further, they have difficult certification the hurdles to overcome, which many -- which prevent many of our competitors from succeeding in this market. And Elecjet is partnering with these groups to succeed collectively in these industries.

On to the microgrid industry, the microgrid industry is a fast emerging industry that many believe will be a mainstay solution to augment our country's aging and overstressed energy grid. In January, the company supplied a leading microgrid power supplier, with our AX-01 cell for testing. With a larger second lot order for testing of the AX-01, which was delivered in July of this year. This larger second lot will be used for further application development and certification of what most batteries can achieve. That will include the CEC, which is the California Energy Commission Certification, and UL and TUV, a global organization equivalent to UL.

This customer has informed us that the performance of the AX-01 is a minimum of 1.8 times better than any other cell that they've tested to-date, and they test a lot of other cells. Microgrids are 24/7 environment where high uptime, safety and quality are a must. And we believe this market represents an explosive megatrends and this customer is a leader in the industry, with an extensive patent portfolio.

On the automotive side and not to be confused with EVs. A global billion-dollar automotive supply chain company entered into a material transfer agreement with Elecjet for the testing and evaluation of the AX Class of batteries. As a solution to their customers seeking to move away from 12v lead acid batteries and AGM batteries in vehicle. There are a number of additional applications that are being evaluated between Elecjet and its customer, applications that require quality, safety, reliability, and performance that our batteries can provide. This customer engagement represents what could be our scale global entry into the lucrative automotive supply chain market.

Further this customer has operations that can support a global market with all the resources expertise and relationships that will complement Elecjet’s core battery cell capability.

Another area that we're actively pursuing is the marine industry. We have developed a 24v and 36v marine product that is released in a pilot production and we have shipped our first 36v solid state battery to a customer for evaluation and qualification. The weight of Elecjet’s 36v 124 Amp-Hr product is one-third that of a lead acid battery now commonly used in the industry, and it runs much cooler and is about half the size.

The applications being evaluated on the commercial rain craft include acid GPS positioning, fishing trains, marine turbines, and backup power. Its extended sailing range and time of operation are two of the exciting paradigm shift about Elecjet will have revolutionized the marine industry with.

Now onto the RV industry. One year ago this month, RCA Commercial and Elecjet partnered together to create a solid state battery for the RV industry. This resulted in a 12v 120 Amp-Hr and a 24v 200 Amp-Hr solid state battery prototype to be sent to customers in the RV industry.

From ongoing R&D consultation and development with our potential RV customers and to accommodate the chart changing power needs of the RV industry, the company will now pursue two new batteries for this industry, a 48v 400 Amp-Hr battery and a 48v 600 Amp-Hr battery. The solution recognizes the changing directors that have been led by the State of California as it seeks to ban gas generators. And this will allow the RV industry to offset those generators with a powerful solid state battery solution.

Now on to Global Autonomous Corporation. This is a big deal for our shareholders and for the company, and I'm very pleased to update our shareholders that the company is aggressively pursuing its business plans in Dubai UAE. Following on the progress the company started with its visit to Dubai in May of this year, GAC has engaged several partners ranging from the medical field for the autonomous delivery of medicine in the region, to working with the Dubai Civil Aviation Agency of Certification of its airframes. The company has also garnered interest from other groups in the region and wanted for the development of GAC in their own countries.

I'm also pleased to announce that the company has engaged in Maxim Investment Bank, to be a sole book-runner on the carve-out of Global Autonomous Corporation from Alpine 4. Alpine 4 anticipates conducting this carve-out and public listing on a National Exchange in 2024. And while we don't expect to receive the incredible $4 billion valuation that our competitor to Zipline received earlier this year, we are encouraged with the potential valuation that GAC may receive.

And finally, I am pleased to share that the Board of Directors of Alpine 4 has also authorized management to work with our investment bank, and carve-out advisors to determine the correct dividend to be paid to our shareholders upon completion of the carve-out in 2024, and we expect to release this dividend information to shareholders in Q4 of 2023.

With that said, I will now turn this call over to Chris, for a more detailed review of our financial results. And then I will come back for a few summary comments. Chris?

Christopher Meinerz

Thanks, Ken. For the company's fiscal quarter ended June 30 2023 Alpine 4 recorded revenues of $28 million, representing an 11% increase over the prior year quarter. The increase is primarily due to revenue increases in the manufacturing segment, partially offset by declines in construction services, and technology segments. Revenues for the six months ended June 30 2023 were $52.4 million, an increase of 3% compared to the same period in 2022.

Gross margin was 28% for the second quarter of 2023 and 25% year-to-date. This compares to 24% in the second quarter of 2022 and 23% for the prior year-to-date. The increase in gross margin is principally due to higher revenues and improvements in costs in our manufacturing segment.

Operating expenses increased to $11.5 million during the second quarter of 2023, compared to $3.8 million during the same period in 2022. For the six months ended June 30 2023, operating expenses increased to $21.9 million compared to $13.2 million during the same period in 2022. The increase in operating expenses was primarily due to $1.6 million increase to professional fees incurred as a result of services performed related to the 2021 restated financials and quarterly and annual filings. A 404,000 increase in research and development expenses add Vayu related to their drone program, and a 5.8 million gain on sale of property in 2022 that did not reoccur in 2023.

Other expenses are $1 million and $2 million for the three and six months ended June 30 2023 respectively, compared to $704,000 and $576,000 for the same periods in 2022. The increase is primarily driven by higher interest expense on the new debt, along with the continued higher interest rate environment for our variable rate debt.

Net loss for the second quarter of 2023 was $4.6 million, or $0.18 per diluted share, compared to net income of $1.5 million or $0.07 per diluted share in the corresponding period in the prior year. For the six months ended June 30 2023, net loss was $10.3 million, or $0.41 per diluted share, compared to $2.4 million or $0.11 per diluted share for the same period in 2022.

The company discloses segment information that is consistent with the way in which management operates and views its business. The primary operating segments and their business activity are as follows. Construction services, MSM or Morris Sheet Metal and Excel Manufacturing which is QCA and Alt Labs, defense, TDI, technologies, RCA and Elecjet, an aerospace which is Vayu. Manufacturing, the largest segment of Alpine 4s total revenues increased to 46% of total revenues in Q2 2023. Compared to 30% in Q2 of 2022. And year-to-date, this segment was 42% of total revenues, compared to 32% for the same period in the prior year.

Technologies was the second largest segment, accounting for 31% and 37% of quarterly and year-to-date revenues in both 2023 and 2022. The $2.8 million 11% increase in revenues in the second quarter of 2023 versus 2022 is due to a $5.4 million or 71% increase in the manufacturing segment through all organic growth. Additionally, a $3.9 million increase for Alt Labs and a $1.5 million increase for QCA. These increases were partially offset by declines in construction services of $2 million, and technologies of $595,000.

The $1.5 million or 3% increase in year-to-date revenues through June 30 of 2023 versus 2022 is due to a $6 million or 37% increase in the manufacturing segment, again through all organic growth and a $4.2 million increase for Alt Labs and a $1.8 million increase for QCA. These increases were also offset by declines in construction services of $2 million and technologies of $2.8 million.

Net cash provided by operating activities increased to $2.5 million through the first six months of 2023. This is a 135% increase, compared to a $7.2 million use of cash during the first six months of 2022. The increase in cash provided by operating activities was primarily due to a $5.8 million non-recurring gain on the sale of property in 2022 and did not reoccur in 2023 and a $7.2 million increase in accounts payable for June 30 2023.

Cash and cash equivalents totaled $3.8 million as of June 30 2023, compared to $4.2 million at June 30 2022. EBITDA and adjusted EBITDA are non-GAAP financial measures within the meaning of applicable SEC rules and regulations. EBITDA is defined as earnings before deducting interest expense, income taxes, depreciation and amortization. And adjusted EBITDA excludes certain other one-time non-cash items.

Adjusted EBITDA, again a non-GAAP metric was a loss of $247,000 for Q2 of 2023, compared to a loss of $1.5 million in Q2 of 2020. The positive increase of 83% year-over-year.

Year-to-date non-GAAP adjusted EBITDA through June 30 2023 was a loss of $2 million, compared to a loss of $2.6 million for the same period in 2022, a positive year-over-year increase of 21%.

Finally, on August 4, we filed a registration statement on Form S-1 with the U.S. Securities and Exchange Commission, the SEC. Relating to a proposed offering of our Class A common stock. The number of shares of Class A common stock to be offered, and the price range for the proposed offering have not yet been determined. The offering is subject to market conditions and there can be no assurance as to whether or when the offering may be completed, or as to the actual size or terms of the offering. We will continuously provide updates regarding the effectiveness of the Form S-1 via public filings through our website and the NASDAQ market website.

I would now like to turn the call back over to Kent for his closing remarks. Ken?

Kent Wilson

Thanks, Chris. The second quarter of 2023 marked a key period in the growth of our business. And we are confident that the top line revenue growth will begin to show signs of acceleration in the fourth quarter of this year. We appreciate your continued interest in our company and look forward to sharing our ongoing progress with you as it develops.

We will now address some of the questions that were shared with us over the past week on our Investor Relations section of our website. Shannon, do you want to go through the question?

Question-and-Answer Session

A - Shannon Rigney

Yes, I can do that. Question number one. What are the capital requirements for the next 12 months? Will a company need to raise additional money in addition to what has already been planned with its S-1?

Kent Wilson

Chris, you're going to answer that one.

Christopher Meinerz

I’ll take that one. Thank you. Yes, I'll take that one. Due to being a growth company with various new subsidiaries and products, but also owning financially secure subsidiaries, there is no straight line for the ups and downs in our cash needs. The beauty of our DSF model is around driving fresh capital for new and large growth opportunities as they arrive in the market, not for a static product like many companies have, based on some of the enormous opportunities the company is creating, it is likely we will need to do another capital raise at some point in the future.

Shannon Rigney

Thank you. Question number two. Can we expect more PR and messaging moving forward? I'll actually answer this question.

Shareholders and market participants can count on us to release information when it's prudent and substantive. All messages requesting non-public or insider information are going to be ignored from our team, because it's highly inappropriate to seek such information from a company. Additionally, messages that are sent to us with hate, slander and general rudeness are also going to be ignored. It's important to note that the company has no legal obligation to communicate on social media. With that being said, we're happy to communicate with our respectful shareholders.

Kent Wilson

Thanks, Shannon. I would also echo a few points on this as well. The company -- I want to be clear the company is dedicated to keeping our shareholders informed and will do so when it's appropriate. But also state that it's important for shareholders are recognized, that unless the information is coming from the company or reputable analysts, it is full hearted to listen to the absolute garbage that is spewed on several social media sites.

Further, it's unreasonable for shareholders to expect the company to address the hate and ridiculous thing somebody's bad actors. People that spew nonstop comments on social media, whether it be overtly positive or negative, do not have your best interests in mind. And frankly, some are just outright demonic. The company -- that said, the company's management and every employee of Alpine 4 genuinely cares about our shareholders, and we work tirelessly every day for you.

All right, Shannon, you can go back to the questions.

Shannon Rigney

Question three. Why are drone sales taking longer than expected?

Kent Wilson

Hey Shannon, I'll take this one. The UAV industry is complex and highly restricted. The company spent most of 2021 and part of 2022 marketing its products to the United States. Where the FDA and FAA restricts many of the incredible use cases that Vayu’s G1 can fulfill. Therefore, in mid-2022, the company began to focus its sales efforts outside the United States, which resulted in our $100 million supply agreement with All American Contracting, and our first $5.25 million P.O. that we received last month.

The company is actively seeking customers outside the United States, as that is where most of the opportunities exist at this time. Also, keep in mind, unlike more seasoned companies like L3 Harris and Lockheed Martin, new emerging companies like Vayu, have much longer sales cycle until our products are proven in the marketplace. All right, Shannon, you're back to the other question.

Shannon Rigney

Thanks, Ken. What is management doing to help correct the falling share price?

Kent Wilson

Again, I'll take this one. This is a really good question. I want the shareholders to know that management is always considering what it can do to enhance the company’s share price. However, there needs to be some context around this question. In early February 2021, when the company hit its all-time high stock price, Alpine have four operating subsidiaries and closed out 2020 with $33.4 million in revenue, $41 million in assets and $55.8 million in debt, and had negative shareholder equity of $14.2 million.

Post this all-time high, the company's stock price has been on a consistent decline, yet the book value of the company has increased exponentially. The company now sits at over $104 million in revenue on an annualized basis as $143 million in assets $82 million in liabilities and have shareholder equity of $61 million. So there's obviously a disconnect between the valuation of the company of what it was and where it is today.

Further I want to point out that Alpine 4 has acquired six businesses, one of them being RCA Commercial. That is double the size of the company's revenue, and is the largest contributor to cash flow in the portfolio companies that Alpine 4 hold. And one being Elecjet. Our solid state battery company, whose intellectual property on graphing and solid state battery development is in an industry measured by the billions of dollars.

So to answer this question, I want shareholders to clearly understand this. Management's focus is on the enhancement, exposure and the sale on the company's products. And as we saw in July of this year, when Vayu announced its first $5.25 million, P.O., off of our supply agreement with American -- All American Contracting, the market is reacted very positively. And so, as the company achieves greater sales with our UAVs, solid state batteries, electronic manufacturing, we believe the market will reward us with increased share price.

Ladies and gentlemen, we have reached the end of our presentation. In closing. As I stated earlier, Q3 2023 has begun a new era for outline for Alpine 4. An era where the vast opportunities of our past are married with our ability to perform at a higher level. I hope you share my optimism and enthusiasm for the future of Alpine 4.

Now, I'd like to turn the call back over to Ms. Shannon Rigney for closing comments, Shannon?

Shannon Rigney

Thank you, Ken. I'd like to thank you all for your time on today's call and your interest in Alpine 4.

Before we close I like to read our Safe Harbor statement. On this call, management personnel’s prepared remarks contain forward-looking statements which are subject to risks and uncertainties and management made additional forward-looking statements during the Q&A session. Therefore, the company claims protection of the Safe Harbor for forward-looking statements as contained in the Private Securities Litigation Reform Act of 1995.

Actual results could differ materially from those contemplated by forward-looking statements as a result of certain factors and not limited to general economic and business conditions, competitive factors changes in business strategy or development of our plans, the ability to attract or retain qualified personnel and changes in the legal and regulatory requirements.

In addition, any projections as to the company's future performance represent management's estimates as of today, August 11 2023. Alpine 4 assumes no obligation to update these projections in the future as market conditions change.

The company filed its 10-K with the SEC on May 8 2023 and second quarter 10-Q on August 11 2023, and also issued a press release announcing financial results for the second fiscal quarter ‘23. Participants on the call who may not have already done so may wish to look at these documents as they provide a summary of the results discuss on the call.

Today's call may include non-GAAP financial measures which include a reconciliation to the most directly comparable financial measures which will calculated and present it in accordance with GAAP and can be found in this week's press release, which is also available on alpine4.com.

This concludes Alpine 4s fiscal second quarter 2023 financial results conference call. Thank you.

Operator

This concludes today's teleconference may disconnect your lines at this time. Thank you for your participation and have a wonderful day.