ChargePoint Q4 2023 Earnings Call Transcript

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Provided by Quartr
March 2, 2023

Key Takeaways

  • In Q4 FY23, revenue grew 93% year-over-year to $153 M and non-GAAP gross margin rose to 23%, but results came in 7% below the midpoint of guidance due to supply chain constraints, softer North American demand and late shipments.
  • ChargePoint crossed an annualized $100 M subscription revenue benchmark in FY23 and delivered 94% YoY total revenue growth to $468 M while managing OpEx flat sequentially to improve operating leverage, targeting cash flow positive by Q4 2024.
  • Fleet and Europe verticals outpaced the company average—fleet billings reached 19% of Q4 revenue and Europe grew 129% YoY—highlighted by the USPS award and over 70% of Q4 billings through channel partners, demonstrating diversified ecosystem resilience.
  • For Q1 FY24, ChargePoint expects revenue of $122 M–$132 M (midpoint +56% YoY), anticipates sequential gross margin improvement as supply headwinds ease, and notes OpEx leverage will soften seasonally before improving later in the year.
AI Generated. May Contain Errors.
Earnings Conference Call
ChargePoint Q4 2023
00:00 / 00:00

There are 14 speakers on the call.

Operator

Ladies and gentlemen, good afternoon. My name is Lisa, and I'll be your conference operator for today's call. At this time, I would like to welcome everyone to the Charge Point 4th Quarter Fiscal 2023 Earnings Conference Call and Webcast. All participants' lines have been placed in listen only to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

I would now like to turn the call over to Patrick Hamer, ChargePoint's Vice President of Capital Markets and Investor Relations. Patrick, please go ahead.

Speaker 1

Good afternoon, and thank you for joining us on today's conference call to discuss ChargePoint's 4th quarter and full fiscal 2023 earnings results. This call is being webcast and can be accessed on the Investors section of our website at investors. Chargepoint.com. With me on today's call are Pascal Romano, our Chief Executive Officer and Rex Jackson, our Chief Financial Officer. 2.

Speaker 1

This afternoon, we issued our press release announcing results for the quarter full year ended January 31, 2023, which can also be found on our website. We'd like to remind you that during the conference call, management will be making forward looking statements, including our outlook for the Q1 of fiscal 2024. These forward looking statements involve risks and uncertainties, many of which are beyond our control and could cause actual results to differ materially from our expectations. 2. These forward looking statements apply as of today, and we undertake no obligation to update these statements after the call.

Speaker 1

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 on December 8, 2022 and our earnings release posted today on our website and filed with the SEC on Form 8 ks. Also, please note that we use certain non GAAP financial measures on this call, which we reconcile to GAAP in our earnings release for certain historical periods in the investor presentation posted on the Investors section of our website. And finally, we'll be posting the transcript of this call to our Investor Relations website under the Quarterly Results section. Call. And with that, I'll turn the call over to Pascua.

Speaker 2

Thank you, Patrick, and thanks to everyone for joining us today. Yesterday marked our 2nd anniversary of being a public company, and I'd like to start by recognizing the team here at ChargePoint that has worked Before I get into a bit of retrospective on the full year and what the road ahead holds for us, I'll review the Q4 results for fiscal 2023. Our Q4 grew 93% year on year and 22% sequentially, making another record quarterly revenue level for the company, while improving non GAAP margins by 3 points to 23%, delivering on our expectations set on our last call that we would sequentially improve gross margin. However, on that same call, we effectively raised the midpoint of our full year guidance by $5,000,000 4th quarter revenue results for the full year were slightly below the original guidance midpoint and 2.5% below the revised guidance midpoint. Q4 revenue results were below the guidance range and 7% short of the midpoint.

Speaker 2

This was due to a combination of special circumstances. First is a decrease in North American commercial demand during the month of December. The second, while overall supply chain limitations have eased, the charge They persist for certain hardware products. And lastly, we just missed shipment cutoffs for some customers that caused a larger gap between billings and revenue than historical norms. To put that in perspective, the full year revenue was $468,000,000 Our business grew 94% this year versus last and over 90% year on year each quarter.

Speaker 2

2. We manage operating expenses through the year to achieve the improving operating leverage you see, and this is foundational to becoming cash flow positive 2 in calendar 2024. We are exceptionally proud of crossing through an annualized subscription revenue benchmark of $100,000,000 We also demonstrated growth in fleet as a major vertical globally in our European business across all verticals. Both of these outpaced the 94% growth rate of the company to gain ground as a percentage of overall revenue. A good example of our progress in fleet and the power of our ecosystem is the recent announcement of the United States Postal Service Award with our distribution partner, Rexel.

Speaker 2

Partnerships like these are critical pieces of our differentiated business model. In the Q4, over 70% of billings We're through our channel partners consistent with historical results. And even with limitations on vehicle supply in the vertical, fleet is already a significant component of our revenue and a coiled spring when the vehicles are readily available. This is an essential part of our growth strategy. Participating in nearly every vertical of EV charging in both Europe and North America not only fuels our growth, Center, but also provides resilience in the face of short term emphasis shift across verticals and geographies.

Speaker 2

We benefited from this in COVID years and expect this diversity to be an asset as the market continues to develop for years to come.

Speaker 3

Let me give you

Speaker 2

a sense of where we've been this past year to help you gauge how well we are positioned for the future. We operate at the center of an expanding ecosystem that's highly invested in the electrification and mobility. We are now seeing that investment accelerate from those force multipliers. This indicates that the ecosystem, not just the auto industry, is past the point of no return. Some examples.

Speaker 2

ChargePoint now has over a dozen automotive partnerships live where ChargePoint's cloud service aggregates access to all major public charging networks in Europe and North America via the OEM's in dash system or companion app. Partners added this year include Lexus, Mazda, Toyota and Fisker this year. Additionally, many auto OEMs offer our ChargePoint home charger and recommend us to their dealers the Experience. We added UTA, a leading European fuel card provider to our long list of payment partners. We added STEM and other partners to enable charging to be integrated in broader site wide energy management.

Speaker 2

We continue to grow our channel partner network and launched our mobile application for installers as our first step in creating an education and Port platform for these key players. We continue to work with governments in North America and Europe to shape policy and programs such as nevi to remove barriers and ensure a vibrant and consistent charging market. And lastly, we announced partnerships with Volvo and Starbucks as well as Mercedes Benz and M and A Energy to enable great brands serving the 30 minute retail economy with EV charging to create a fantastic road trip experience for EV drivers. Turning to network, general customer and environmental statistics. We finished the quarter with over 225,000 active ports under management, including over 18,900 DC ports, with just under a third of our overall ports in Europe.

Speaker 2

We also provided our drivers access to over 465,000 roaming ports with over 445,000 of those ports in Europe, significantly strengthening our EU offerings for Sighthos. We now call 80% of the 2021 Fortune 50 Call. And 55% of the 2021 Fortune 500 customers and over 70% of billings from existing chartered numbers consistent with historical norms and our land and expand strategy. As of the end of the quarter, we estimate that our network has now fueled Approximately 5,600,000,000 electric miles avoiding approximately 224,000,000 cumulative gallons of gasoline and over 1,000,000 metric tons of greenhouse gas emissions. While we are facing many of the same headwinds as the rest of the space, The momentum of the ecosystem in which we operate and our differentiated business model are not only driving the near term results we've seen, but position us to capitalize on what is clearly an inevitable long term growth cycle.

Speaker 2

I'm proud of the ChargePoint team and our partners who made this year possible. 2. Together, we are uniquely positioned to pursue this remarkable market opportunity. I'm confident we are on

Speaker 4

the right trajectory heading into this year. Rex, Over to you. Thanks, Asquale. As a reminder, please see our earnings release where we reconcile our non GAAP results to GAAP. 2.

Speaker 4

Our principal exclusions are stock based compensation, amortization of intangible assets and certain costs related to restructuring and to acquisitions. Also, we continue to report revenue along three lines, network charging systems, subscriptions and other. Network charging systems represents our connected hardware. Subscriptions include our cloud services, connecting that hardware, Our Assure warranties and our ChargePoint as a service offerings where we bundle our solutions into recurring subscriptions. Other consists of energy credits, Professional Services and Certain Non Material Revenue Items.

Speaker 4

Moving to results, 4th quarter revenue was strong at 153,000,000 Call up 93% year on year and 22% sequentially, but below our previously announced guidance range of $160,000,000 to $170,000,000 as as noted. Again, the shortfall was principally due to supply issues with our DC product lines as availability was better, With us still not sufficient to hit the significant ramp from the Q3 to the Q4. A lack of linearity to force shipments too late in the quarter to meet our revenue cutoff criteria and softer North American commercial demand that expected also contributed. Network charging systems at $122,000,000 was 80% of 4th quarter revenue, up 109% year on year and 25% sequentially. 2.

Speaker 4

Subscription revenue at $26,000,000 was 17% of total revenue, in line with its 3rd quarter percentage contribution, 2, up 50% year on year and 19% sequentially. Importantly, as Pat mentioned, this quarter we hit a significant milestone of $100,000,000 in annual run rate for this revenue line. Further, our deferred revenue from subscriptions representing future recurring revenue from existing customer commitments and payments continued to grow nicely finishing the quarter at $199,000,000 2, up from $175,000,000 at the end of the 3rd quarter. Other revenue was $5,000,000 3 percent of total revenue, Increased 37% year on year, but was down 22% sequentially, largely due to decreased values of LCFS credits. 2.

Speaker 4

Turning to verticals, we continue to report them from a billings perspective, which approximates the revenue split. 4th quarter billings percentages were commercial 69%, fleet 19%, residential 11% and Other at less than 1%, representing a several point gain for our fleet business versus last year. 2. From a geographic perspective, 4th quarter North America revenue was 86%. Europe was 14% as our European business continues to expand.

Speaker 4

Call. In the Q4, Europe delivered $22,000,000 in revenue, growing 129% year on year and 26% sequentially. Turning to gross margin. Non GAAP gross margin for the Q4 was 23%, up from the Q3 at 20%. We were particularly pleased with this progress as cost reductions, higher ASPs and incrementally lower supply chain headwinds more than offset certain product transition costs.

Speaker 4

Specifically, we saw a 4 point drag from supply chain impact during the quarter. Non GAAP operating expenses for the 4th quarter for $81,000,000 a year on year increase of 5% and a sequential increase of 2%. We continue to manage 2. Operating expenses carefully and with several key product releases achieved earlier in 2022, new product introduction costs were lower in the 4th quarter. Stock based compensation in the Q4 was $26,000,000 Recall that our annual refresh cycle will be in our second fiscal quarter.

Speaker 4

Looking at cash and equivalents, we finished the quarter with $400,000,000 slightly higher than $398,000,000 at the end of the 3rd quarter as we use our ATM or aftermarket offering program to raise $50,000,000 in December. At the end of the Q4, we had approximately 348,000,000 shares outstanding. Turning to the year, 2. Annual revenue was $468,000,000 up 94% year on year. Network charging systems at $364,000,000 was 78 percent of total revenue for the year and up 109% year on year.

Speaker 4

Subscription revenue at $85,000,000 was 18% of total revenue and up 59% year on year. Other represented the balance of 4%. Quickly covering verticals for the year, billings by vertical. For the full year, we're commercial 69%, fleet 17%, 4th quarter, residential 12% and other 1% like the 4th quarter, reflecting particular strength in fleet. From a geographic perspective, full year revenue from North America was 84% and Europe was 16% as Europe outpaces our overall growth rate.

Speaker 4

2. In fiscal 2023, our European business delivered $73,000,000 in revenue, up 1 1 190% year on year. Turning to gross margin. Non GAAP gross margin for the year was 20%, down from 24% the previous year, principally due to a higher mix of DC products and to an approximately 5 percentage point supply chain and logistics impact. Non GAAP operating expenses for the year were $324,000,000 a year on year increase of 35% and managed well below our original targets for the year.

Speaker 4

Again, we are focused on delivering improved operating leverage as non GAAP operating expenses as a percentage of revenue 1,000,000,000. We went from 103% in the Q1 to 53% in the Q4. To maintain our path to profitability, We responded to fiscal 2023 gross margin shortfalls by spending $35,000,000 less in non GAAP operating expenses relative to our original annual guidance and essentially kept quarterly non GAAP OpEx flat each quarter of the year. Turning to guidance. As you all know, we guided for the full year last year on revenue, gross margin and operating expenses.

Speaker 4

We did this because we were a newly public company and analyst estimates varied from our expectations too greatly across these measures. As we look at fiscal 2024, there's far less dispersion in external estimates. Accordingly, we believe annual guidance is not necessary this year. For the Q1 of fiscal 2024, we expect revenue to be $122,000,000 to $132,000,000 a year over year increase of 56% at the midpoint. As you may recall, we typically see a seasonal drop in revenue from the Q4 to the Q1 as site hosts reload budgets and construction slows in the winter.

Speaker 4

However, keep in mind that in addition to being seasonally down from the 4th 4th quarter. Our Q1 historically contributes a significantly lower percentage of our annual revenue than quarters 2 through 4. On other measures, we expect continued sequential improvement in gross margin this year as supply chain challenges continue to ease, our cost down efforts continue, And we get the benefit of volume on newer products. Regarding operating expenses, we expect leverage to be lower in the Q1 on lower revenue, 2, but then to improve through the balance of the year and for the year. Advances in these metrics are key to our commitments to turning cash flow positive in the Q4 of 2024.

Speaker 4

Reaching this milestone next year with the North American EV passenger fleet estimated by Bloomberg EDF at under 5% and under 8% in Europe should position the company well early in the industry's growth cycle. Operator, let's move to Q and A.

Operator

The charts. We'll go first to Colin Rusch, Oppenheimer.

Speaker 5

Thanks so much, guys. I wanted to dig into the seasonality piece of this, because we see this in a variety of industries. And what it looks like has happened in the Q1 of your fiscal year as you end up, penciling out about 18% to 20% of the annual revenue and you're guiding to something a little bit north of 50% here. I guess, What can you say about the backlog and your visibility into the balance of the year and how you're thinking about the seasonal trajectory of revenue throughout the balance of the fiscal year?

Speaker 4

2. Hey, Collin. Thanks for the question. So if you look at to our Q1 outlook. As I said in the prepared remarks, it's a we're a growth company, right?

Speaker 4

So you end up with a Lower percentage in Q1 relative to the percentages for Qs 2 through 4. So you can extrapolate, I think successfully from there. Looking at your models and our historical performance, I think that's something that you guys can do. From a backlog perspective, we actually did a nice job in Q4 of burning off some of the historical backlog. As we've said in prior quarters, We don't actually think that backlog is necessarily a virtue.

Speaker 4

We're not a backlog business, particularly maybe that changes as fleet continues to become a broader 2 part of the company's business, but we're a land and expand business and we want product out the door and in people's hands and in the ground. We're going to burn that down and it was a nice backstop for Q4. It's a decent backstop for Q1, but we're going to work that off as we go through next year.

Speaker 5

Okay. Thanks so much. And then just in terms of the texture of the client engagement right now, can you talk a little bit about What trends you're seeing in terms of incremental customers that you're adding into that land part of the land and expand strategy and the velocity of sales in terms of Whether it's accelerating or decelerating with existing customers as you get into the first part of the year?

Speaker 2

So Colin, I think the easiest way to answer that is Point you at a statistic in our prepared remarks. The rebuy rate as a percentage of our revenue in the quarter Well, it's very consistent with historical norms, which indicates that the customer add rate is holding. So There's no further color to add.

Speaker 5

Okay. I'll leave it there then, guys. Thanks so much.

Operator

Section. Up next, we'll hear from James West, Evercore ISI.

Speaker 6

Hey, good afternoon, guys. So, Rex, question for you, just to clarify. Hey, guys. So, question for you, Rex, just to clarify, The revenue shortfall versus your guidance for the quarter, if you had made if those shipments had gone out In time, would you still have been within or even above your guidance range because it's not really revenue you're not going to get until it comes at a different time?

Speaker 4

Yes. That's a good question, right? So first thing I would say is, we put a lot of pressure on ourselves Going from Q333 to Q4, it was a big uptick and we accomplished most of it. But I don't actually know the number, but I think at the end of the quarter, the semi trucks were 2nd line up around the block. So we fundamentally just had a back end linearity issue Getting product either built from a DC standpoint because you ran out of gas on that from a supply chain standpoint and then on the trucks in time at the end of the quarter.

Speaker 4

So would we have made it? The short answer is yes.

Speaker 6

Okay, okay, got it. That's very helpful. Thanks. And then, a question maybe for Pat is, with your customer and the customer engagement Right now, do you have a sense for how much of your business is new customers putting up charging stations versus Existing customers adding to their charging networks.

Speaker 2

Yes. I mean, I think that's Just a different way of asking the same question that Colin asked previously.

Speaker 7

About 30% of the quarter was new customers

Speaker 2

and there was no deal size anomaly. Customers and there was no deal size anomaly in that. So if the revenue split percentage is Very consistent with historical norms, the new customer add rate is consistent with that.

Speaker 6

Okay. Good stuff. All right. Thanks, guys.

Operator

Our next question is Gabe Daoud with TD Cowen.

Speaker 3

2. Thank you. Hey, everybody. Good afternoon. Maybe just starting on the margin side, you obviously showed sequential improvement on a non GAAP basis.

Speaker 3

Could you, Rex, maybe just give us a little bit of color on the trajectory there and maybe what some of the puts and takes are with respect to margin? Is it fair to assume maybe You continue to turn out like 100 basis point improvement sequentially throughout the rest of the year?

Speaker 4

Yes. If you look at the year, we were 2017, 2019, 2020 2023, non GAAP of course, through the year and We're hard at work in terms of driving that forward. The supply chain thing has been as high as 6 or 7. Now it's more like 4 that helps. We banged through the fact that mix shifted this year meaningfully in favor of DC, which is one good from a resilient standpoint, but it's not the highest margin product that we do.

Speaker 4

So we've managed to bank through that and those margins have come up nicely. Our ops team delivering meaningful cost downs Yes. And then the price increases that we did last year. So mix makes it hard, but all these other factors are You'll note in my prepared remarks, I gave AIG we have lower revenue in Q1. Therefore, the operating expense leverage is Going to go the wrong way for Q1, but then next go back the right way and excuse 2, 3, 4.

Speaker 4

But I did say sequential improvement in gross margins throughout the year next year. 2. I wouldn't put a number on it, like is it 1, is it 2, don't know, or can't guide, but I do think there's going to be

Speaker 6

a steady progression next year. Okay.

Speaker 3

Okay. Thanks, Rex. That's helpful. And then maybe, just going to your comment around seeing a little bit less demand in December, I mean is that just seasonality, obviously, you've been setting up a seasonally weak 1Q or Are you concerned at all with like a lot of your maybe Tech Giant customers in California kind of tightening the strings a bit on spending? Is that creeping into demand issues as well?

Speaker 3

Or could you maybe help us think about that? Thanks, guys.

Speaker 2

Yes. So I think the easiest way To put get some overarching color on that is the revenue diversity has increased meaningfully over time in the company. I made some comments in my prepared remarks about the increased percentage on fleet and Europe overall as a percentage of revenue. And I'll remind you that It had to outpace what was already a blistering year over year growth rate for the company. So it's Just fundamentally very hard for sub segments like that to overcome a growth rate in the core business, which is very mature In North America, we managed to do that.

Speaker 2

And so what that's leading to is we do see Some softness in effectively businesses that have more of a discretionary stance with respect to When they the timing around when they put in charging and I want to emphasize this, eventually, The attach rates prevail. And so in a set of verticals, More so in North America than in Europe. You are seeing some delays or delays of ordering, But we don't see it as a fundamental shift at all. We see it as effectively aligned with the macro. And with the increased resilience in the business with respect to just the spread.

Speaker 2

There's no hotspots. If you look at the residential business, commercial fleet, then you look at the geographies, You've seen us make meaningful progress in all those fronts. So while there's definitely 2. An economic overhang in a couple of verticals. I'm really very pleased that the business doesn't have any Significant overweights, because if that were the case, I would have I would comment otherwise.

Operator

Our next question comes from Bill Peterson, JPMorgan.

Speaker 8

Yes. Hi. Thanks for taking the questions and apologize for the background noise. I wanted to ask what's your thoughts were around Tesla open up its network. I would think that it wouldn't have a lot of impact on what you talked about the verticals you just said, like 2.

Speaker 8

Home fleet work, areas like level 2 for front of the store or restaurant, I wouldn't think there would be really any impact, but maybe large retail locations and maybe some DC fast. Just trying to understand the threat of Tesla or maybe other car companies that have their own networks. Of course, you are a static subset yourselves, but In terms of the competitive environment, how does that how could that play out?

Speaker 2

Yes. So, no, I get the question often. And in fact, I think I've got it on on several previous earnings calls. So the overarching response to that is the fast charge market in the passenger car sector serves a very narrow use case. Room for when you're driving beyond your battery range.

Speaker 2

So it is not the significant driver for our revenue. Now let's not be making any Excuses are saying that you're right on Tesla opening up their network either. We're also seeing now tremendous sudden attention from what we refer to as players in the 30 minute retail economy that traditionally serve people on road trips Now I want to embrace because the broader EV market has shown up. It's not one OEM now. It's a multiplicity of OEMs.

Speaker 2

They're all moving in the right direction, with electrifying their offerings, in fact, completely Disinvesting in their ice cars, that's given the players in the 30 minute retail economy a lot of confidence that they can start to move the ball down the field with respect to investments at their own properties. So we see this as a massive opportunity With respect to placing fast chargers along with partners and if you see how Mercedes Benz and Volvo, two announcements we made this year have worked into a 30 minute retail economy sort of aligned network announcement. We think that's going to continue.

Speaker 8

Yes. Thanks for calling there. You're liking the sweet opportunity to a coiled spring and the lack of vehicles. And we've talked about this, but are you seeing any signs that this should accelerate through the year? I guess, I know it's already a meaningful part of your business.

Speaker 8

How should we think about your fleet opportunity as this stream uncoils?

Speaker 2

So how you should think about fleet Is that it's more land than expand right now. I mean, honestly, it doesn't have The expansion rate within customers that we've won that the more granular commercial business has because passenger cars Our increasing in diversity and availability from a lot of OEMs, while on the fleet side, we are severely vehicle limited, Maybe with the exception of transit buses, but transit buses represent a very small on a vehicle count basis percentage of fleets globally. So hence the coiled spring analogy. If you're landing more than you're expanding, but the expanding has to follow, we're in good position when our customer base decides to actually get well, when they can actually get vehicles and can expand. And

Speaker 4

If you

Speaker 2

look at the announcement we just made with USPS, for example, you're starting to see The clouds break, so to speak, with respect to a very large fleet, that's positioned across the United States, start to get commitments from vehicle manufacturers that they're going to see those vehicles come in earnest. So as that as things like that start to happen, I think you're going to see 1st, a much more balanced expand versus land mix and it should result in an acceleration of revenue even within our customer base.

Speaker 6

For today's

Operator

call. Up next, we'll hear from Kashi Harrison, Piper Sandler.

Speaker 7

Good afternoon, everyone, and thank you for taking my questions. So just the first one for me. So the liquidity position improved a few 1,000,000 of 4 charge. In cash and short term investments $400,000,000 You mentioned the $50,000,000 ATM offering. Could you speak to the driver behind the utilization of the in December, just given that you already had a pretty strong liquidity position before that.

Speaker 7

And then maybe just talk about How we should be thinking about, like strategically the strategy behind the ATM in the future?

Speaker 4

Sure. So, as I mentioned, yes, we definitely capped the ATM in December for $50,000,000 One of the things that is paramount for this company is we have a strong balance Chief and we want to keep it that way. And when you map that to what has been and we hope continues to be a very strong growth rate, 2. We need to be able to support the business. The thing that I would focus you on as we've talked about Our path to profitability, the burn that you see, call it adjusted EBITDA, call it whatever you want to call it, That's going to decline meaningfully over time over the next year or 2 because getting to 0 across the covers, something that's super important.

Speaker 4

So I think that the need to address that will decline every time as those metrics get better. But the bottom line is we just need to maintain 2. A strong balance sheet and relative I think we have the best in the industry and we need to stay there. And then bottom line from a would we use it again, it's opportunistic. It's based on price and circumstances and timing and everything else.

Speaker 4

So, we're just going to keep an eye on it.

Speaker 7

Okay. Fair enough. And then just my follow-up question. As you pointed out, I think both of you pointed out in the prepared remarks, you effectively held the non GAAP OpEx flat all year, roughly $80,000,000 and the as a percentage of sales down to 50% from 100% earlier in the year. Can you talk about your operating expense strategy for 2020 calendar 2023 as well?

Speaker 7

Should we expect flattish OpEx again? Or should we expect a little bit of an uplift as the business is growing chart. And there's also wage inflation. So just some thoughts on OpEx would be great.

Speaker 4

Yes.

Speaker 2

You sort of answered your

Speaker 4

own question. So Yes, yes, there will be an uptick in Q1, The combination of an uptick in Q1 relative to Q4 and the fact that we're seasonally lower on revenue is going to make our operating this leverage number go the wrong way for the first time in 3 or 4 quarters. But the drivers are exactly what you just said. It's we've got our annual race cycle is Point now, and then we'll have the full impact in Q1 of new hires in Q4. So those are the main components that will drive it up a bit.

Speaker 4

But then what you'll see there's sort of this uptick in Q1 and it doesn't keep doing that Q2, Q3, Q4 is a very our view currently is a very, very modest series of increases throughout the year. So Take an uptick in Q1 and slowly higher for the rest of the year.

Operator

Today. We will now hear from David Kelly, Jefferies.

Speaker 9

Hey, good afternoon, guys. I was hoping maybe to start, you could update us on momentum in Europe. You delivered really meaningful growth in fiscal 2023 and the market's coming off of a really robust DB penetration ramp last year. So how are you thinking about the regional opportunity Across the pond in 2024.

Speaker 2

I think about it the same way we think about the opportunity in North America, frankly, and it's driven by, As you said, the differential is driven a little bit by a differential in car penetration chart from a new car sales perspective. But our strategy is virtually identical in Europe as it is in North America with respect to product line offering, business model, etcetera. And I'll just remind you that we've said On many earnings calls that at the root of our forecasting and modeling, it's all factored off of new car projections, net new vehicles in the installed base in the markets we serve. You had a kind of sub question in there about the sub regions. We are serving predominant Markets in Europe.

Speaker 2

We're not in every country, but the ones we're not in are small. And We're just assuming that across the entire continent of Europe, we should be able continue to be successful with the product line that we've been successful with on the previous year. There's no real difference.

Speaker 9

Okay, got it. That's helpful. And then one quick follow-up on the supply chain situation. I guess, are you seeing improvement Q1 today relative to the Q4? And how should we think about that 4 point margin headwind, I think you referenced, does that continue to lessen here into 2024?

Speaker 9

Thank you.

Speaker 2

Well, no one has I mean, as we've said many times, no one has a perfect crystal ball on that one. So taking maintaining A vigilant stance with respect to supply chain is what we're doing. What we have said before and what I can repeat Now based on our experience in Q4 is that the supply chain hotspots have narrowed considerably from the peak of the crisis. So we have all our management bandwidth looking at a much smaller set of problems, the problems you couldn't chart. You may have you may still have issues with availability of supply of a fewer number of components that still limits your build, but it's certainly a lot easier to put in mitigation strategies around right now, and we hope that over the year supply comes into alignment with demand.

Speaker 2

And it's too hard to call exactly what quarter we can say that all of it's gone.

Operator

2. Stephen Gengaro from Stifel is up next.

Speaker 9

Thanks. Good afternoon, everybody. 2 for me. The first, Rex, you mentioned how charged. Full consensus numbers for the year seem relatively tight, but you're not giving full year guidance.

Speaker 9

But it sort of suggests me that you think the consensus is reasonable by making that comment. Am I thinking about that correctly?

Speaker 4

I'm only chuckling just because I did not say consensus. What I said was, and this is an important distinction, analysts develop their models and then they make Judgments based on what believe this. I think this is going to be better. This is going to be worse, and they come to a conclusion. 2.

Speaker 4

And we use the word dispersion. Last year, through no fault of their own, because we're a newly public company and Who could have modeled us from the outside last year, I wouldn't expect you guys to be able to do that. So everybody the numbers were all over the place. So I felt like we needed to help Get it centered. But I think the dialogue we've had with analysts over the last year and people's understanding of the business and their ability to form their own conclusions about what the outlook should be is vastly improved versus last year.

Speaker 4

And so I just think Having you be 100% the author of where you are is the right answer.

Speaker 9

Okay. No, that's fair. Thank you for the clarification. The other question I was curious if you could add some color to is, any thoughts on the nevi program And your strategy, and how you benefit

Speaker 8

from that over the next couple

Speaker 9

of years and how you're positioned there?

Speaker 2

So, yes, as we look at the NIBI program, not unlike how we

Speaker 9

chart. I approached many other

Speaker 2

programs that are similar in color. It's a very corridor oriented program. It's implemented by each state. So each state has its own take on the federal guidelines 2. And we're quite used to that.

Speaker 2

Our policy team has been instrumental in commenting and helping to shape the program. So It offers what we think is a good platform for a broad range of our customers to be able to take advantage of it and The key there is the broad range of our customers. So how we approach it because we don't own and operate stations ourselves and how we have approached similar programs in the past. So this is not a departure approach at all is we look into Our current customer base and our potential future customer base, we do deep analysis. We have this capability internally, deep analysis on the state's requirements of where exactly they want chargers.

Speaker 2

We look at the 2. Correlation between available utility capacity, availability of partners that we have that are in good location, spacing, etcetera, construction ease or lack thereof of construction. And we put together a set of partners and jointly bid into the programs. And in many cases, there are multiple bidders that are based on our technology. We've already seen that in Ohio because those bids were already due.

Speaker 2

And we expect to see that on a go forward basis. And that's not unlike how we've accessed previous programs that again have had similar structure in the past. So we're sort of the kind of the bones behind the organization of the collection of players, sites, technologies, etcetera that can go into a bid. So that's how we approach it. We think the formula works for us.

Speaker 2

We think most importantly, the formula works for drivers. What we've advised States on and the federal government is that these things need to be in good locations. There has to be good alignment, not 100% across Board because you could have some more locations where this statement is inappropriate, but it needs to be well aligned with quick serve brands, Both food services and retail, etcetera. So we create a vibrant and enjoyable experience for EV drivers because that Enables more and more EV adoption to accelerate, which enables the balance of our business. So we care about it deeply.

Operator

Section. We'll take our next question from Matt Summerville, D. A. Davidson.

Speaker 6

Point. Thanks. Just kind of

Speaker 10

a follow-up on Q4 to Q1 kind of seasonality and realizing we don't have a huge amount of historical data to kind of work with here. But Q4 to Q1 last year was actually higher. I know a little bit of that would have been acquisitive related, prior year down slightly, Maybe inquisitive nuance there too may be helping, but moving from the 153 or Whoever was in Q4 down to $127,000,000 at the midpoint. I guess I'm just having a hard time really understanding why there's roughly a $25,000,000 Sequential reduction there, maybe a little more help.

Speaker 4

That's a fair question. The thing I would represent to you is if you go back in history with the company in like private land, we've been very consistent. Two things have been consistent. 1, Q1 is low for Q4. Last year was unusual.

Speaker 4

It was the first time I've been here for 5 years, first time that's happened. So Q1 is always lighter. It varies in terms of percentage. I don't think this year's dip from Q4 to Q1 It's extraordinary. We're surprising it's just kind of what we're used to and we know the reasons for it, which we explained.

Speaker 4

2. And then as you know, we think of ourselves as a growth company. So when you take Q1 and you look at that And Gokie, that's a baseline for the year and how does it grow from there. There's pretty decent information in our history that would allow you to extrapolate. So, I guess, the net of it is I'm not concerned by Q1.

Speaker 10

You're kind of thinking about the portfolio position to the balance sheet. How should we be thinking about M and A over the course of your fiscal 2024 4th. And maybe what sort of technological or otherwise innovation, intellectual property you may be looking to add to the portfolio? Do you have things that are actionable in your pipeline? How should we be thinking about M and A over the next 12 months or so?

Speaker 10

Thank you.

Speaker 4

2nd question. You said

Speaker 2

you were referring mergers and acquisitions?

Speaker 10

Yes. I'm sorry to discern that.

Speaker 4

We heard we have a partner called M and A, So I heard it that way. Please go ahead, Pat.

Speaker 10

Yes. So the way we

Speaker 2

think about acquisitions is we have a very full technology portfolio and 2. Lots of very good stuff in the pipeline. What I've commented on before is that we due to the fact that our Portfolio is well built out, with the exception of a few things that have not, emerged yet that are deep in R and D. We have the ability now to rebalance where we put the R and D resources to look at the scale Technologies necessary to deal with streamlining customer onboarding, ongoing customer interaction and the like. And remember, we have a very, very, very deep channel business.

Speaker 2

So, we have to do we have to have Core product services technologies that enable that all the way through the channel. I made some references to that in my remarks. So as a result, we don't see a deep need from an M and A perspective at all on a technology basis. The way we look at M and A opportunity is customer acquisition capabilities. So if there's a good customer base with chart.

Speaker 2

Low liabilities on the installed base and it's a practical integration, we would certainly consider it. But that's really the lens that we're looking at it from it is not a technology lens.

Operator

Next up from Credit Suisse is Maheep Mandloi.

Speaker 11

Hey, good evening, good afternoon. Thanks for taking the questions here. Sorry, I missed this earlier, but could you? Hi, can you hear me?

Speaker 2

Yes.

Speaker 11

Perfect. Maybe just curious On gross margins, I'm sorry if I missed this earlier. Can you talk about how should we think about the gross margins in Q1 and through the year, Specifically, as you have this higher mix of DC, should we expect this continued linear trend here?

Speaker 4

So I think so first thing is, as I said earlier, DC mix historically last year was a challenge, but actually, we are improving things markedly on the DC front. So it's going to be less of a problem. And that's everything from cost reductions, volume, because our major new Express Plus platform is brand new and in very small volumes. But there's a combination of things that are going to make that better. We also think that the supply chain side of the picture is going to continue to ease.

Speaker 4

So I haven't put a number on it, but I have said I think it's just going to progress steadily throughout the year. I would be severely disappointed if it was flattered down 2. In any given quarter. So, but I think our outlook is quite positive that we can continue to drive the margins sequentially up this year, given a lot of the operational initiatives that we have in the company.

Speaker 11

Got you. And Just one on the balance sheet. On Kashy's question, you talked about maintaining balance sheet at a healthy level as the prime driver here for the ATM. Just curious if you could characterize the like how should we think about that? Is it like a minimum cash balance or some of the metrics to think about that?

Speaker 4

Honestly, I haven't fixed the number. I don't mind the 4 100 $1,000,000 number, but I haven't fixed the number in stone on that. As we grow the business, we may look at other financing opportunities. And then the nice thing is We expect our quarterly loss position to continue to decline nicely between now and cash flow positive next year. So there's a balance there.

Speaker 4

Charged. But if we continue to grow the company and it gets meaningfully bigger than it is today, you're going to want to have a decent balance sheet and I kind of think that's where we are now. So how we maintain that and what we do to maintain that's another question, but we're in a pretty good spot right now.

Operator

Section. We will take the next question from Oliver Huang, TPH.

Speaker 12

2. Good afternoon, everyone, and thanks for taking my question. Just had one sort of a multipronged question. But just wanted to try and get an 2 update with more details around progression of your build cycle over the past quarter. Is it something that still remains fairly back end of the quarter weighted or is it Something that started to really smooth itself out given how there is a backlog to kind of get through.

Speaker 12

And when thinking about the ability to manufacture these chargers at the factory, How close have you all progressed towards full utilization relative to what unconstrained capacity sits at today?

Speaker 2

So I'll take the second part of that question first. We use external contract manufacturers as Partners from a build perspective. So utilization of capacity is not a factor here. We use CMs that have substantially broad capacity capabilities. So access to capacity, I mean, upside is not an issue because we'll see that need coming with adequate lead times.

Speaker 2

And the Excess capacity is not a factor in our financials from a factory perspective. With respect To build linearity, we have much better build linearity now. And our build linearity previously was largely driven not by Factory issues, so to speak. It was driven mostly by supply chain and getting adequate parts, adequate fully populated kits to assembly lines in a smooth manner and because the supply chain crisis has certainly smoothed out. But I think equally importantly, chart.

Speaker 2

Our investments in supply chain management, not only in our own staff, but in process improvements with our CMs, That's dramatically improved the linearity build. So that's much less of a factor now. With a few hotspots. And the last comment I'll make is, while Rex commented on 2 continued limitations. The limitation ceiling keeps rising.

Speaker 2

It's just that the growth rate Has continued to rise. So we maintain some limitations because we have to mitigate limitations on a few components that limit us, but we also have to exceed our growth rate. And that's I'll remind you when you're doubling effectively, which is What we did year over year and we had a very consistent growth rate quarter over quarter. If you look by that a given quarter to the year prior. That's a huge issue.

Speaker 2

You have to overcome a growth rate 2nd and do better on top of that, which we think we're putting in all the mechanisms necessary to do it going into this year. 2.

Speaker 12

Okay. That makes sense. Thanks for the time, guys.

Speaker 6

Thank you.

Operator

We'll go next to Steven Fox, Fox Advisors.

Speaker 13

Hi, good afternoon. I just had one question. After listening to the prepared remarks. I mean, you made a lot of progress on the ecosystem in the past year, and so with a lot of major names. And I'm just curious why At this point, not focused more on the expand piece of land and expand as opposed to adding smaller customers that on a timeline basis, maybe you do better with scaling established customers and also helping improve the margins, etcetera.

Speaker 13

I was just curious how you would react to that question. Thank you.

Speaker 2

So it doesn't improve the margins because cost of sales is not a component in margins. And with the expand piece is limited by, Again, the attach rate to vehicles. So we're expanding effectively with the 2 net new vehicles in the serving sphere of our customers within any geography. And you can't push them past the utilization boundary. They're not going to lean charge.

Speaker 2

We can't push the lien in to an arbitrary degree. Also, if you look at the dividend that pays Forward, the new customers, the dividend that pays forward. We have an incredibly low churn rate on customers and that's been a historical asset for the company. And since we do want to take advantage, we don't want to stall our future growth. So we're not going to shift the chart.

Speaker 2

We're going to maintain the emphasis on a balance between new customer add and expansion in the similar proportions that we've had before. I will tell you that our channel sophistication is improving continuously. It's something we've invested in since the beginning of the company. And that should over time remove a lot of the chart. Sure on both sides of that equation, both the land and the expand.

Speaker 2

The USPS deal was a good one. That was done in conjunction with 1 of our Distribution Partners and it really helps on an ongoing basis to have partners that are co investing in big deals like that.

Speaker 13

Great. That color is really helpful. I appreciate that. Thank you.

Operator

We will now hear from Alex Drbul, Bank of America.

Speaker 13

Hey, guys. Thanks for squeezing me in here. Just to, I guess, to follow-up one more time on this sort of coiled spring idea or the difference I mean, I guess doubling that back into this idea of operating leverage, When we think about the trajectory here kind of later into the year, early into 2024 as you guys get closer to that Cash inflection. Is there, I guess, an expand element that sort of helps you out in the OpEx line? I guess, I'm just sort of thinking like lower S and M per unit or how chart.

Speaker 13

You want to think about that given sort of this dormant fleet story that's sort of waiting in the background, if you will?

Speaker 2

So the way we think about the as you referred to it, the effectively the untapped potential in fleet because our customers are Unlimited in fleet for the most part. As I've also mentioned before, but in a different context, We can afford the investment in fleet because it has a lot of commonality with respect to the investment from an OpEx perspective and the balance of the verticals that we go after and the balance of the geographies. Now there are some fleet specific features that we have to invest in, but for us it's incremental, very incremental, even the same hardware platforms, sometimes different configuration, but same hardware platforms. So where am I going with this? Operating leverage over The year we just closed, we think is pretty phenomenal because it is showing that the 2.

Speaker 2

Trajectory of the OpEx, that's everything from R and D to sales and marketing, G and A, everything is It's on a very different trajectory as we add revenue. We weren't putting the company in peril this year. 2. In fact, we're making some very strategic investments to improve what we think is our long term ability to have a great customer experience at even larger scale this year. So we think that the continued things that you saw from a directional perspective 2nd year we just closed will continue through this year and Rex made one notable exception in that because The Q1 revenue is seasonally down for the company.

Speaker 2

You may see a small retreat in operating leverage only in that quarter, but it should return to normal increase in operating leverage or a similar one that you saw in the previous year.

Speaker 13

Got it. Very clear. And then just on, I guess, sort of the growth outlook generally, like, Is there anything that you would sort of think about downstream beyond sort of the utilization rate or just sort of getting vehicles in people's hands That's constraining you guys today. I'm thinking about utility interconnection, anything that's sort of pampering your abilities charged this little outside of your control that we should be aware of. Thanks.

Speaker 2

So the utility interconnect Question is a very good one and it's hard to model because the utility interconnect delays certainly are there And they vary depending on the circumstances of the site, right? How much spare capacity is there? And what are you trying to do with that site? The way I think you should think about it is the active ports under management It normalizes out the pipeline delay from initial order and shipment To actual installation and activation, which we do see variance. We do see a big variance, but because we have a long pipeline with Effectively no air gaps.

Speaker 2

What you see show up today is the result of Utility interconnect deadlines that are coming to an end, right, on projects that we effectively sold maybe 6 months ago in some instances. But then we can't actually ship the product until they actually need it, and it goes into the ground. So some amount of delay and if you look at the Newport ad rate, you can kind of sort of see the shadows of it. That delay is built into our numbers already.

Operator

2. And everyone, at this time, there are no further questions. Ins. So I'll hand the conference back to our speakers for any additional or closing remarks.

Speaker 1

Thanks for your time today.

Operator

2nd. And ladies and gentlemen, that does conclude today's conference. Thank you all for your participation. You may now disconnect.

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