ChargePoint Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
June 1, 2023

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 ChargePoint First Quarter Fiscal 20 24 Earnings Conference Call and Webcast. All participant lines have been placed on a listen only mode to prevent any background noise. Call.

Operator

After the speakers' remarks, there will be a question and answer session. 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 Charge Point's Q1 fiscal 2024 earnings results. This call is being webcast and can be accessed on the Investors section of our website call at investors. Chargepoint.com. With me on today's call are Pasquale Romano, our Chief Executive Officer and Rex Jackson, our Chief Financial Officer. Call.

Speaker 1

This afternoon, we issued our press release announcing results for the quarter ended April 30, 2023, which can also be found on our website. Call. We'd like to remind you that during the conference call, management will be making forward looking statements, including our outlook for the Q2 of fiscal 2024. Call. 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.

Speaker 1

Quarter. These forward looking statements apply as of today, and we undertake no obligation to update these statements after the call. For a more detailed description of certain factors that could cause actual results call. To differ, please refer to our Form 10 ks filed with the SEC on April 3, 2023, and our earnings release posted today on our website and filed with the SEC on Form 8 K. Also, please note that we use certain non GAAP financial measures on this call, which reconcile to GAAP in our earnings release call and for certain historical periods in the investor presentations posted on the Investors section of our website.

Speaker 1

And finally, we'll be posting the transcript call to our Investor Relations website under the Quarterly Results section. And with that, I'll turn it over to Pasquale.

Speaker 2

Call. Thank you, Patrick, and thank you all for joining us today. We delivered a strong Q1. Revenue was at the high end of our guidance range call at $130,000,000 and non GAAP gross margin sequentially improved 2 points to 25%. Quarter.

Speaker 2

To put these results into perspective, we achieved a 59% year over year growth rate in the Q1 and quarter, the 2nd largest quarter in ChargePoint's history. We did that while the EV installed base in North America and Europe are still in single digits call. And the EV market is only at the beginning of a decades long growth cycle. We also achieved this growth in the midst of a challenging macroeconomic environment. Quarter.

Speaker 2

Diversification across verticals and geographies continues to contribute resilience to our business. So while we saw less growth in North American commercial and residential than we would have liked due to what we believe is a delay in discretionary purchases, call. We continue to see overall growth and margin improvement. Rex will address guidance for the Q2. Call.

Speaker 2

But just to give you a sense of the magnitude of the long term opportunity ahead of us, the midpoint of that guidance would make Q2 the largest quarter in ChargePoint's history. Call. You'll also hear Rex talk about non GAAP adjusted EBITDA. To give some context, we use non GAAP quarter. We are committed to the adjusted EBITDA as a key measure of the health of our business as we drive towards profitability and as we disclose in our proxy statement filed last week.

Speaker 2

Quarter. This metric is one of the 2 components of our annual management bonus program. Beneath the top line results, call. We're continually improving our operations and investing for future scale. We've consistently improved gross margins, call while recovering from supply chain issues, making meaningful changes to the cost of our products and optimizing our operations.

Speaker 2

Call. Also, as we scale, we're carefully managing our operating expenses while making the necessary investments in our support operations and internal business systems. Call. We are committed to delivering dependable infrastructure to our customers, so drivers can find it, use it and depend on it everywhere. Quarter.

Speaker 2

Turning back to Q1, we saw 2 areas of particularly strong growth, Europe and fleet. For the first time in our history, quarter. Europe delivered over 20% of ChargePoint's quarterly revenue. Meanwhile, Q1 fleet billings more than doubled quarter. Year over year despite supply limitations on vehicles entering the segment relative to demand and as a percentage of billings, fleet increase from Q4.

Speaker 2

We're encouraged to see continued resilience in these growth areas. Call. Beyond the financials, we continue to focus on our products. We offer industry leading hardware and software for nearly every fueling vertical. Call.

Speaker 2

Our solutions help our customers deliver the kind of EV driver experience that will continue to accelerate EV adoption across North America and Europe. Call. In brief, better charging infrastructure delivers a better driver experience, which drives more value across the entire EV ecosystem. Quarter to positive feedback loop for growth that benefits ChargePoint, our partners, newbie drivers and the environment. Call.

Speaker 2

We are betting on the continued changeover from fossil fuels to electric drive regardless of OEM or vertical. And as a result, call. We believe we are an index for the electrification of mobility. Before handing off to Rex, quarter. Let me update you on a few key statistics to give you a little more color on our continued growth.

Speaker 2

On the network side, call. We give drivers and ecosystem partners access to approximately 745,000 EV ports call in North America and Europe. 243,000 of these are active ports under management on the ChargePoint network, call, up from 225,000 ports last quarter, and we recently passed a milestone of over 500,000 roaming ports. Call. These roaming ports are critical to delivering a world class ecosystem to ChargePoint drivers, site host customers and strategic partners such as OEMs and fuel car providers.

Speaker 2

Call. Approximately 21,000 of the 243,000 ports on the ChargePoint network are DC fast charging, up call from approximately 19,000 at the end of Q4 and approximately 1 third of our overall ports are located in Europe. Call. We count 76% of the 2022 Fortune 5056 percent of the 2022 Fortune 500 as our quarter. This reflects excellent penetration given our land and expand strategy, the stickiness of our solutions and our strong rebuy rates.

Speaker 2

Call. From an environmental perspective, as of the end of the quarter, we estimate that our network now has fueled approximately 6,300,000,000 electric miles, quarter, avoiding approximately 252,000,000 cumulative gallons of gasoline and over 1,250,000 metric tons of greenhouse gas emissions. So when you put all that together, it shows that despite the current economic environment, ChargePoint growth continues. Call. We made significant progress against our long term roadmap, ensuring that ChargePoint scales ahead of this remarkable market opportunity.

Speaker 2

Call. We're running a highly differentiated business that is not CapEx intensive. And as you'll hear from Rex, we're heading into the black call, while we turn the world green in the early innings of the EV transition. Rex, over to

Speaker 3

you for financials. Thanks, Usquale. Call. As reminders, please see our earnings release where we reconcile our non GAAP results to GAAP and recall that we continue to report revenue along three lines: network charging systems, subscriptions and other networked charging systems is our connected hardware. Call.

Speaker 3

Subscriptions include our cloud services, Connecting Net Hardware, our Assure warranties and our ChargePoint as a Service offerings, call, where we bundle hardware, software and warranty coverage into recurring subscriptions. Other consists of professional services and certain nonmaterial revenue items. As Pasquale indicated, we had a solid Q1 with revenue of 130,000,000 call of 59% year on year and above the midpoint of our previously announced guidance range of $122,000,000 to 132,000,000 quarter. Down seasonally as expected from Q4, Q1 was notably the company's 2nd largest quarter ever and a good start for the year when compared to Q1 contributions call over the past 2 years. Network charging systems at $98,000,000 was 76% of Q1 revenue, quarter, down from $122,000,000 80 percent in Q4 due to typical seasonality.

Speaker 3

Q1 revenue from network charging systems grew 65% quarter. Subscription revenue at $26,000,000 was 20% of total revenue, up 49% year on year, quarter, up sequentially and again above the $100,000,000 annual run rate we referenced in our last call. Our deferred revenue, which is future quarter. Recurring subscription revenue from existing customer commitments and payments continues to grow, finishing the quarter at $205,000,000 up from $199,000,000 call at the end of Q4. We're especially encouraged to see this continued growth in our recurring revenues in the very early days of what we believe is a decades long EV adoption quarter.

Speaker 3

Other revenue at $5,000,000 and 4 percent of total revenue increased 20% year on year. Quarter. Turning to verticals, 1st quarter billings percentages were commercial 63%, fleet 24%, quarter. Residential 11% and other 2%, reflecting a particularly strong performance in fleet. Quarter.

Speaker 3

Commercial grew 44% year on year, while fleet was up 129%. Residential grew at 13% year on year and maintained its generally consistent billings percentage. From a geographic perspective, Q1 revenue from North America was 79% quarter and Europe was 21%. As Pasquale mentioned, Europe continues to outpace North America on a percentage basis, up 70% year on year. Call.

Speaker 3

Turning to gross margin, non GAAP for Q1 was 25%, up sequentially from Q4's 23% quarter and up 8 points from 17% in Q1 of last year. This improvement is primarily a combination of diminishing supply chain and logistics expense pressures, call, significant operational improvements and better scale. We continue our considerable investment in our driver and host support infrastructure because we believe quarter. Support and reliability are critical differentiators for both drivers and our customers. We expect continued improvement in non GAAP gross margin this year.

Speaker 3

Call. Non GAAP operating expenses for Q1 were $85,000,000 a year on year increase of 2% and a sequential increase of 6%, call, primarily reflecting payroll taxes as well as annual compensation increases effective April 1. As we look out to the rest of 2023, we will manage quarter. We will now begin the Q1 of 2019. As you may recall, in calendar 2020 call.

Speaker 3

In 2021, our OpEx, which reflects significant forward investments in our business, was at approximately 100% of our revenue. Call. In 2022, we took that down to 53% in Q4 and 69% for the year. In Q1, we were at 66% quarter given revenue seasonality, but again expect continued improvements this year, particularly in the second half. Given this trajectory, I'd also like to expand on call.

Speaker 3

Comments regarding non GAAP adjusted EBITDA. We added this metric and the associated reconciliation today in our press release, quarter, the goal of better illustrating our path to profitability. To calculate adjusted EBITDA, we take our non GAAP net income loss call and add back interest, taxes and depreciation. The depreciation component is low, thanks to our business model. Call.

Speaker 3

Using this metric, Q1 non GAAP adjusted EBITDA was a loss of $49,000,000 a year on year improvement of 27%. Call. We look to cut this loss further by approximately 2 thirds by Q4 of this year. Looking at cash, we finished the quarter with $314,000,000 down from $400,000,000 last quarter. As in prior quarters, the primary driver of our negative cash flow is operating loss.

Speaker 3

Call. In Q1, we also managed to break free on a number of supply chain issues and move our inventory solidly from raw materials and WIP or work in progress call to finished goods, meaningfully increasing our inventory level, which helped us avoid leaving business on the table as we have been forced to do in recent quarters. Quarter. This build helped us in Q1 and sets us up well for Q2 and for Q3. Inventory will vary as we look forward, but we expect it will grow with the business.

Speaker 3

We used our ATM very lightly in Q1, adding $18,000,000 in cash through the program. We will evaluate use of the ATM on a quarter by quarter basis and also continue to assess non dilutive liquidity options. To close on a couple of other key figures, stock based compensation in Q1 was $24,000,000 quarter consistent with the past three quarters. Our annual compensation cycle includes equity, so we expect our annual step up quarter and stock based compensation in Q2 to be approximately $8,000,000 and to be fairly constant for the ensuing three quarters. Call.

Speaker 3

We had approximately 353,000,000 shares outstanding as of April 30, 2023. Quarter. Turning to guidance for the Q2 of fiscal 2024, we expect revenue to be $148,000,000 to $158,000,000 up 41% year on year at the midpoint. Call. We are committed to being adjusted EBITDA positive in Q4 of calendar 2024 and remain committed to being cash flow positive by then as well.

Speaker 3

Call. In summary, we've achieved the growth we expected to achieve despite significant headwinds. We continue our march to profitability call. Even while we invest in operational excellence at scale, our differentiated business model is not CapEx intensive quarter. And our adjusted EBITDA metric, which we consider to be a strong indicator of the overall health of our business, gives us confidence in our trajectory.

Speaker 3

Call. With that, I'll turn the call back to the operator for questions.

Operator

Thank question. We'll take our first question from Gabe Daoud with Cowen.

Speaker 4

Call. Hey, thanks guys. Appreciate all the prepared remarks. Maybe, Pasquale, I just wanted to hit on the comment earlier call. In your prepared remarks, just about some of the commercial and residential weakness that you guys noted.

Speaker 4

Just curious if you could give a bit more color on how that maybe snaps back call. As we progress through the rest of this year and maybe what's kind of embedded in your own internal forecast?

Speaker 2

Call. So hi, Gabe. It's a very simple answer actually. The beauty of this market question is the utilization pressure sits there because EVs keep we keep call. Converting the installed base from fossil fuel to electric vehicle.

Speaker 2

Businesses right now, all businesses, commercial businesses that have call. A discretionary need for charging for their employees or their customers can adjust timing to deal with the macroeconomic uncertainty. Call. So the need doesn't go away, but the optionality to delay addressing that need in some of our commercial customers call. What I'll point you to though is something that we've commented on in previous earnings calls as we went through the pandemic.

Speaker 2

Call. The mix in our business by vertical shifted pretty meaningfully during the pandemic call. Because we went into an abrupt work from home situation and other areas of the business because we've been broadly placed across verticals and geos, Other places in the business picked up the slack, so we didn't have to deal with a massive discontinuity financially. Call. You're seeing that I think play out here again.

Speaker 2

So we still I think turned in quarter. Very aggressive growth on a quarter to quarter basis, Q1 this year to Q1 last year. It's a healthy percentage step up and the geo diversity, especially given that Europe is now 20% of the business quarter and performing strong and fleet up 200% year over year similar Q1 to Q1. Call. It's just evidence that as the macroeconomic water balloon exerts its pressure on the different verticals that we're diverse enough to take up the slack.

Speaker 2

So we're not in a position where we think call. The demand has gone away and that it's perished. We'll get it back as the macroeconomic situation clears up. Hope that answered it.

Speaker 4

Call. Yes, that's great color. Thanks for calling. Maybe as a follow-up, just at a maybe I'll ask just about the quarter mix shift or just the billings and the tax momentum that you reported in fleet in particular. Could you maybe just give us a bit more color on where exactly are you seeing that strong growth and strong demand within fleet?

Speaker 4

Is it quarter. Plus mile logistics, is it, I guess, on the light duty vehicle side, just given how we're still vehicle constrained on NIM and heavy duty. But just curious, I guess, call. What can you say on fleet? What's really driving the momentum there?

Speaker 4

And then is it also more fleet momentum in Europe versus the U. S? Or is it fairly similar? Call. Thanks,

Speaker 2

Jeff. It's easier to go backwards with your follow-up question. It's pretty balanced between Europe and North America. Quarter. Fleets, as I said in my prepared remarks, it's vehicle limited right now.

Speaker 2

If there were call. If OEMs were producing vehicles in quantities to match demand, you'd see faster penetration and conversion from fossil fuel to electric. It's actually well aligned with a softer macro and that everyone's looking for cost savings, call. Obviously, and these are meaningful these vehicles are meaningful components of the cost structures of the businesses that they serve. And what that's done is it's slanted, as I mentioned, by the way, consistently in previous calls.

Speaker 2

It's Lancet to land, but not much expands within a customer. Question. And so that's I think just a good indicator quarter. For things to come in the future, when that starts to on coil, it's complicated, given that there's a bit of a dependency there on vehicle OEMs producing things at scale. 1 of the call.

Speaker 2

Bright spots that I mentioned before regarding fleet is transit because that's the most mature segment. And so we continue to see that segment, do quite well, but there has been no general shift in mix between the quarters call. That's materially worth reporting.

Speaker 4

Okay, great. That's helpful. Thanks guys. I'll take the rest offline. Call.

Operator

We'll take our next question from Colin Rusch with Oppenheimer.

Speaker 5

Thanks so much guys. Can you talk a little bit about the dynamics in the U. S. Commercial market? Can you give us a bit more detail on what's happening with commercial property owners as they work through cost of capital changes, rental rates and looking at upgrading amenities.

Speaker 5

What the sales cycle looks like, conversations you're having with folks

Speaker 2

call. Colin, the conversation is not any different now than it's been in the past. Yes. The commercial conversations tend to be a mixed bag of are you dealing with the tenant? Are you dealing with a property manager?

Speaker 2

Are you dealing with the landlord? Or are you dealing with all of the above in combination? So it really is situational That hasn't changed. You are seeing property developers and property managers take call. A more keen interest right now in charging as an amenity more broadly in their portfolio versus in hotspots driven more by tenant kind of tenant activities.

Speaker 2

But I think in general, because quarter. The dominant situation there is return to office. And as you've seen in many statistics that have been reported, call. We're moving through we're moving back to a larger component of in office, but we certainly haven't snapped back all the way. So that's probably the biggest component in commercial shift is if people aren't driving to the office, the workplace quarter.

Speaker 2

Discharging component will continue to basically move down proportionally to effectively the utilization in the parking lot at office buildings. It doesn't mean that there isn't charging going in. It just goes in call. Proportional to the number of days folks are in the office. What I'll also remind you is it's not if you go in 3 days or you go in 5, it generates call.

Speaker 2

Same amount of utilization pressure in the parking lot on the 3 days that were synchronized. So there's a lot of puts and takes there. And I think call. As this continues and it gets confused by a lot of other things that are going on in the macro as well. It gets As the complexity goes up, so we've got good visibility into it and we're managing it closely.

Speaker 5

Call. Excellent. That's super helpful. Now I've got 2 other things just looking for an update, and then maybe a little bit disparate. Some of the permitting Streamlining efforts that are going on at state level and even at a national level, if you could just give us a sense of anything that you're tracking very closely there that could be meaningful for the business.

Speaker 5

And then also, the potential to consolidate some of these non fully networked chargers, whether it's in the U. S. Or Europe and how that opportunity is changing for you guys near term?

Speaker 2

Call. Easier to take that one backwards. If you look at consolidation of non network chargers, there's a lot of programs, A lot of I mean, not that our revenue is primarily subsidy dependent, but almost call or all I can think of anyway subsidy programs have a requirement for the charger to be managed connected to some form of network and meet some set of requirements, either at the most basic level for reporting, but usually includes some energy management to give some benefits to the grid. Question. So, what you should think about there is a lot of the unmanaged chargers that are out there will likely Get replaced with managed chargers because if they don't have the necessary communication and processing gear, it's easier to just tear them out.

Speaker 2

Most of the work by the way call. Is in laying the electrical infrastructure leading up to the charger. So that's a very cost effective swap out. That's not something that we see as significant yet as a replacement cycle only because the market is quarter. So quickly, the growth sort of swamps it, but I would expect that those things would change out over time.

Speaker 2

With respect to permitting, call, I just want to point you to a couple of things in the prepared remarks.

Speaker 6

If you look at the

Speaker 2

total ports on our network call in terms of activated and under management. And that means they've not only gone through full installation, but they've also gone through software call. That means the customers decided how they want to use it, all that sort of stuff. We went from 225,000 ports call in Q4 to 243,000 ports. And I won't you can read the remarks, but that was quarter.

Speaker 2

It's spread pretty uniformly between DC and AC. What's call. Interesting in that is the pipeline is already built into our numbers because that is not representative quarter. Of the ports we sold last quarter, that's representative of the ports that we sold at some previous month or set of months call that have gone through the construction and installation process and the activation process, which is not an instantaneous thing in time. So this call.

Speaker 2

You're seeing in the port growth rate, the shadow of the permitting delays print through. Now For the big stuff, right? The big corridor fast charging programs, a lot of the big fleet transit programs. Yes, we see permitting delays call. Continue to be a challenge for our customers.

Speaker 2

But again, that has been a challenge for our customers for a while. We call. Absolutely would applaud any change in permit streamlining or utility interconnect streamlining because it will certainly help accelerate It will accelerate some of the customers' ability to add the necessary infrastructure. So headline, call. Delays are built into our numbers.

Speaker 2

They're built into our guide. They're built into our numbers. They're built into everything that you're hearing from us. Call. If we can make it go faster, it's upside.

Operator

We'll take our next question from James West with Evercore ISI.

Speaker 4

Hey, good afternoon guys. Call. Hey, Pat. Thanks, Rex.

Speaker 7

Wanted to ask question. About the announcement out of Tesla and Ford a couple of days ago, their alignment, the opening of the supercharger network and What your thoughts were around that? I mean, is it a nothing burger? Is it something to be expected? Is it showing us that there's Q2 chargers

Speaker 3

out there? What's your take on

Speaker 2

that? So, Dan, I could have bet that one of you would have asked that question. So the shortest way I think to crystallize it in your mind is that quarter. Tesla has been an outsized player right now. They're still sitting around 70% -ish market share in the United States call in terms of vehicles in the installed base.

Speaker 2

And that supercharger network has been around since the beginning of the time that we're in revenue. And if it weren't for Teslas call. On the road, our customers would have no reason to buy a ChargePoint charger because they're the dominant car there up to now call. And they're generating effectively the utilization pressure in the parking lots that are causing across vertical across all our verticals customers to want to buy our products and services. So the net net is the supercharger network, whatever effect it's having is built into our numbers.

Speaker 2

Call. Okay. Now with that said, our fast chargers in particular, because on the AC charger side, Tesla shipped with an AC adapter call. Since the beginning of time, it's easy. It doesn't impair anything.

Speaker 2

So that's there's literally no impact there. On the AC side, I mean on the DC side, our chargers have modular cables and modular holsters. So the ability for us to address if the need arises, the ability in quarter. Particular use cases to add a direct Tesla cable versus using an adapter like people use today It's possible. We're now spending time obviously thinking about innovative ways call.

Speaker 2

To not have to increase what is a very expensive element and extra cable on a charger to be able to call. Get around some of those problems. So stay tuned, we'll be pretty innovative there. But I wouldn't I don't read it as a bad thing for us long term at all.

Speaker 4

Call. Got it. Okay. Thanks, Matt.

Operator

We'll take our next question from Morgan Reid with Bank of America.

Speaker 4

Call. Hi,

Speaker 8

everyone. Thanks for taking my question. And nicely done on the growth drivers in fleet in Europe. Just curious if you can maybe elaborate on how we should think about that strength through the rest of the year. Just wanting to understand how those two segments in particular are expected to scale through the year hereafter, some nice growth here in the Q1.

Speaker 2

I would expect call. To continue to be strong, these are very these are customers that are electrifying for hard business reasons. Call. There's no discretion in electrification. It's competitive in the long term for fleets, for most fleets.

Speaker 2

And that in the long term drops quarter. And there's a long learning curve and optimization cycle, so they need to start it today to not have it be an impediment to their business in the long term. Quarter. So we expect that segment regardless of the macroeconomic environment to be very strong on a go forward basis. Europe is ahead of the U.

Speaker 2

S. Currently in EV adoption. We expect it to continue to be strong. There is a more consistent policy mandate across call of Europe, supporting the transition from electric drive to from fossil fuels to electric drive. Now correspondingly in the long term, we don't see any major difference between the U.

Speaker 2

S. And Europe. Remember, OEMs have to operate internationally call. And supply chains and cost structures will shift favorably to EVs over the not too distant future. So I think it's an inevitable conclusion that in both markets you'll see a conversion rate.

Speaker 2

But currently Europe is for all the reasons I mentioned, we're going to continue to be I think very strong for the company. So we would expect call. That we would see strong growth from that subvertical or sub geo, I should say. Call.

Speaker 8

Great. Thank you. And then also can you just talk about how we should think about the OpEx discipline through the year? I know you've all talked about kind of scaling operating leverage towards quarter. There's been a positive inflection later this year.

Speaker 8

Just curious if you can kind of help quantify the moving pieces there as you look to continue scaling the top line against call, a very disciplined OpEx

Speaker 3

line. Yes. So the short answer is we have a number in Q1 call. And we'd like to stay close to that number for each of the rest of the next three quarters of this year. Obviously, there'll be some variations.

Speaker 3

Last year, we were very consistent call. Coming out of the gates and staying close to it. So, I think we're going to try to operate within a pretty tight range.

Speaker 8

Call. Great. And I'll take your rest offline. Thanks.

Speaker 1

Thank you. Thanks, Morgan.

Speaker 4

We'll take

Operator

our next question from Matt Summerville with D. A. Davidson.

Speaker 9

Thanks. First, just a question on gross margins, quarter. Up 200 bps sequentially. How should we expect that to kind of play out as we move through the year? Should we expect a similar kind of step function improvement quarter on quarter, call.

Speaker 9

Something a bit more conservative to that. And what are the main levers to gross margin improvement as we sit here for the balance of your fiscal 2024?

Speaker 3

Call. Yes. So I think that as we said, we expect continued improvements. I don't think anyone here would say that quarter. 25 is a place that we should be parking our electric vehicle, so it needs to go up.

Speaker 3

Whether it goes up quarter or 2 or whatever quarter on quarter remains to be seen as very mix dependent. But I'm confident that we're going to head quarter. Towards the numbers we've discussed before, towards the end of the year, I don't want to peg it to a number, but it's going to be better in Q4 than it is today. Call. So expected to continue to decline this year.

Speaker 2

And then

Speaker 9

call. With respect to the comment you made Rex towards any of your prepared remarks, do you think you can cut the EBITDA loss by roughly 2 thirds between now and the 4th quarter? So say quarter. Going from $49,000,000 to say $16,000,000 or thereabouts, is the entirety of that bridge just scale call. From the revenue growth you're expecting or are there actual cost and expense cuts that are contemplated in there?

Speaker 9

Thank you.

Speaker 3

Call. It's actually all of the above. Clearly, grow the revenue line, which we hope to do consistent with what we've done in prior years, because you quarter. Start in Q1 and you end up in Q4 and Q4 is a lot better than Q1. So clearly that helps.

Speaker 3

We expect gross margin to improve during the year. That definitely helps call. A lot. And then if we are disciplined on OpEx and keep that in flattish territory, call. You can make the math work pretty quickly.

Operator

We'll take our next question from Mark Delaney with Goldman Sachs.

Speaker 10

Call. Yes, good afternoon. Thanks very much for taking my question. I was hoping to better understand some of the supply chain dynamics. I guess in terms of the P and L impact and call.

Speaker 10

I'll take to the gross margin theme first. You guys have been talking about how much of a headwind to gross margin supply chain was. I think at one point it was something like 900 basis quarter. Where does that stand as of this most recent quarter in terms of the impact? And then more broadly on supply chain, if you could speak around how you see that progressing?

Speaker 10

And do you think supply chain call you back in terms of hitting your shipment targets for the balance of the year. Thanks.

Speaker 3

Yes. So thanks for the question, Mark. So to start, call. The PPVsupply chain impact that we've been talking about is probably closer to 5 or 6 points per quarter. There's logistics charges We could take it up another quarter or 2 and then we have had a couple of write offs that we did last year that call.

Speaker 3

So I just want to frame the percentage points there. It's really closer to 5 or 6 that are specifically supply chain. No question that that's gotten much, much better from a supply perspective. So we really call. Snap through this quarter, and I was glad to see.

Speaker 3

I think I actually said in prior calls, geez, I'd love to build some inventory, right, because we've had quarter. The lead business on the table in prior quarters and backlog got out of whack and everything else. So we're back to a nice rhythm now I think from a bill perspective. Call. As you can imagine, there are some prior deals that we had to cut to get supplies that's now sitting in inventory.

Speaker 3

Call. So you won't see 100% of the supply chain impact disappear overnight. We have to obviously have to work that through Inventory and sell that through. But I would say from an operational perspective, logistics Are pretty much back to normal, which is a real time thing, you need to pay it or you don't. And then the supply chain thing also back to a really good place.

Speaker 3

So once we work through any existing inventory that had those higher prices previously, call. We'll be hitting our stride. So but I think it's fair to say that we are well past the worst of it. Call.

Speaker 5

Thank you.

Operator

Our next question comes from Stephen Gengaro with Stifel.

Speaker 6

Quarter. Good afternoon, gentlemen. One thing for me, I wanted to get your read on nevi funding, kind of where we And what your thought process is on timing, but also do you have insights into kind of where your customers are in the process as far as trying to secure funding.

Speaker 2

Sure, Stephen. So just to give you call. Some hard facts around nevi. There are exactly 4 states, where applications call on nevi proposals are due back within shortly, in general. A little over half call.

Speaker 2

The United States has programs that are effectively live where we're working applications and comments that I've made in the past have not changed and that we work across the board with our customer base call, where the customers are aligned well positionally with the position requirements, the location requirements within the nevi program, call, as well as having the right amenity structure, giving a driver something to do, that they would want to do while they're on a road trip. Call. So combining those two things, we are orchestrating responses to the nevi program. And sometimes by the way, we're in multiple applications as That's generally how we approach it. So think of us as trying to put together call.

Speaker 2

The set of optimal sites to meet the state's requirements by looking into our customer base or potential customer base and trying to orchestrate that.

Speaker 6

Okay, great. That's helpful. And so would you expect like an inflection point when the call. Funds are flowing or do you think it will be kind of a more smooth just kind of realization of those revenues over time?

Speaker 2

Yes. So, Stephen, this is what I refer call. As an all whoosh, no bang industry. If you think about what I just said there, right, it's all whoosh and no bang. So the timing of all of this stuff, while you will see nevi call.

Speaker 2

Starting as we get into 2024 to start to build momentum, right? It's going to build along. There's not going to be a sharp discontinuity where you're suddenly going to go vertical call. On something like that, just this market just doesn't let you state programs and how state programs are implemented quarter. Just doesn't let you look at the VW Appendix D programs that contributed to our revenue call.

Speaker 2

And it contributed to it in a smoothly increasing way over that quarter program and we would expect nevi, while bigger in magnitude, to have a similar impact. So I wouldn't expect some discontinuity out there in the future. Hey, the quarter. The sun and the moon and the stars could align and that could happen. It's just not consistent with history.

Speaker 2

Call.

Operator

We'll take our next question from Bill Peterson with JPMorgan.

Speaker 11

Yes. Hi, good afternoon and nice to see the gross margin improvement. Just like to clarify in terms of the guidance quarter. It sounds like what you're saying is some of the trends you saw in the Q1 are to continue, but just want to make sure still continued relative strength in Europe and fleet, call. Still some, I guess, discretionary slowdown in commercial and residential.

Speaker 11

Is that the right way to think about it? Or is there some other areas that quarter. I guess when does the commercial and residential start to unlock? Is it we're kind of past the dead ceiling. What are people, I guess, waiting on in this point from your vantage point?

Speaker 11

Call.

Speaker 3

Yes, Vilsa, thanks for the question. First of all, in looking forward to Q2, we did not put parameters around that. But to your point, residential is a function of the sale of cars, right? Call. So keep an eye on how fast EVs move from OEMs into the hands of consumers and that's a hard one to gauge, but it does look like the OEMs quarter.

Speaker 3

They're catching up on their ability to deliver, which is great. Commercial is tied to mostly the back to work, although there's a lot of call. New construction and other areas where it's just an imperative because this isn't a nice to have anymore. This is quarter. You got to put in.

Speaker 3

So as the commercial sector gets happier and less constrained, obviously, I think that will quarter. We're down back to the benefit of our business. Thank goodness in the commercial sector for our existing customers because they keep coming back. Call. So there are very, very nice underpinning for our existing revenue and what we're looking at in Q2.

Speaker 3

And then fleets, call. You didn't mention fleet, but fleet is a little harder to predict because it's funny on the front end, it tends to be smaller than you would expect. And then on the middle and call. And it's bigger than you would expect in terms of per customer. So that could be a little bursty.

Speaker 3

But Q2 is just a blend of the stuff call. I don't know that it's going to be meaningfully or wildly inconsistent with the stuff we've seen in Q1.

Speaker 11

Call. Yes. Okay. Thanks. That's a good lead into my second question.

Speaker 11

So you've given some good parameters that you do expect some gross margin, I guess, expansion to kind of quarter. Keep OpEx running flattish. So that's fairly good to back into the 2 thirds improvement on the by the 4th quarter. But I guess holistically, if we think about 3rd party forecast, IHS has nearly 60% EV growth in the U. S.

Speaker 11

This year. Quarter. It has about 60% EV growth in Europe for the calendar year. Your current quarter kind of 40 quarter. 41% year on year growth, but is there any reason to think in the back half of the year that your at least your network systems, charging systems growth wouldn't be in that

Speaker 3

quarter. Well, I wouldn't put that frankly, I haven't thought about it quarter. Exactly that, those percentage terms. I do think that the one comment I made in my prepared remarks call. Just to look at the shape of the year and our ability and then saying we think we can cut the adjusted EBITDA loss by Approximately 2 thirds.

Speaker 3

It tells you we're thinking we're going to have a pretty bang up second half, right? Call. I wouldn't express in percentage terms, but I would say we're obviously looking forward to a very strong second half, which is frankly what we've done in the last 2 years in a row.

Speaker 2

Call. We'll

Operator

take our next question from Alex Potter with Piper Sandler.

Speaker 2

Call. Perfect. Thanks. I had

Speaker 12

a question, I guess, on customer satisfaction, uptime, reliability. I know this has been a big call. Focus for the company, those metrics maybe in the past weren't where you would want them to be. Just interested in knowing maybe what inning you're in, call. In terms of addressing that, both, I guess, qualitatively, but also to the extent possible translate that into P and L impact would also be useful and interesting.

Speaker 12

Thanks.

Speaker 2

A lot of angles On the answer to that question, first of all, I can't speak for other charging manufacturers, but we're very proud of the reliability of our systems and the uptime. We've had a variety of different packages for parts and labor warranty programs. Since the beginning of the company, we've encouraged customers to purchase those programs. We have a very high attach rate quarter. As we've commented on that before, all our chargers are connected to call.

Speaker 2

Our network effectively. So we've good visibility as to general uptime on the network call and whether the chargers are in a catastrophic state of failure or not. There are a few mechanical failures we cannot spot, call. We have drivers that have a nice little mobile app in their pocket and boy will they tell us when something is broken. They're a good canary in a coal mine from network hygiene perspective.

Speaker 2

And with that said, we are doubling down now even harder on network hygiene. We are Because of inventory relief, we now can turn around spare parts call very, very, very quickly next business day in most cases. That was not true during the pandemic. There was some delay there because call. We were impacted and we had no we were hand to mouth on inventory.

Speaker 2

So I think that hurt the entire industry in terms of quarter. Repair cycle delay that has subsided now. We have completely revamped our support operations across the board, driver quarter. Station owner support, especially in fleet, we have a lot of new programs in fleet for parts and labor warranty, training of self maintainers, forward stocking of spares, etcetera. Call.

Speaker 2

So we think we're actually in quite good shape with respect to our ability to handle that. We're not going to get overconfident. We're going to continue to watch closely and it is as you've seen in my prepared remarks multiple times now, it is a big rotation. There was question earlier that Rex took with respect to operating expense and operating expense focus areas and any focus area changes. And what we've consistently said over the last several earnings calls is that we have lived inside call.

Speaker 2

What is a flattish envelope for operating expense, but we are not living inside a flattish operating expense with respect to our efforts on reliability, quarter operations, etcetera. So we are moving emphasis because we believe that that is the biggest differentiator you can have right now call. It has to be reliable and we've commented also previously the construction of our products are not only from a hardware perspective looked at from a software point of view inward. So they're designed for all the features that we think quarter. Are great, but they're also designed to be repaired at an incredibly rapid rate and also to be call.

Speaker 2

Able to support forward stocking of spare parts, so that there can be effectively a minimum number call. Of sub components, we build all our charging infrastructure out of, so it can be very easy to support call. The repair cycle that we'll need to support to meet the uptime requirements most of our customers. So huge investment on our side, absolutely huge.

Operator

Call. Our next question comes from Priyas Patil with Wolfe Research.

Speaker 11

Call. Hey, thanks so much for taking my question. You guys have talked about how call. There is more diversity amongst

Speaker 2

your verticals as

Speaker 11

it relates to your revenue. Is there anything to consider call. In that from a margin perspective, I think in the past you've talked about the workplace charger business being the strongest, Fleet was a little weaker due to higher DC fast charging mix. Just curious how we should think about that?

Speaker 3

Call. Yes. So it's actually more product specific as opposed to vertical specific. Call. But so single family home is single family home, right?

Speaker 3

And that has a margin we talked about that. It tends to be healthy but not as strong as some of the AC products that we put into our commercial and fleet operations. Strongest margins call. Our long standing AC products, which we've recently upgraded to higher power and made some other improvements. But quarter.

Speaker 3

Where AC goes, you get a better margin and that can be commercial or fleet. And then obviously, we put a lot of effort behind call. A very robust DC portfolio, which is everything from monoliths that fit in certain applications to call. What we call our Express Plus, which is modular architecture and the margins on those are getting quarter. Good and getting better.

Speaker 3

We actually had a lot of really good progress because they're brand new products and you've launched at a lower number than you ultimately expect to do. So I wouldn't say it's by vertical, it's by product because all of our products our products go into quarter. Both of the major verticals commercial and fleet. So I hope that helps you, but it's so think of it more from a product perspective. Call.

Operator

We'll take our next question from Brett Castelli with Morningstar.

Speaker 2

Call. Yes. Hi. Thank you.

Speaker 5

Just following up actually on that previous question. Rex, you mentioned the rollout of the new CP6000, I think on the AC side. Can you just kind of talk about sort of the mix between that new product and the more legacy product call that you're seeing today. And then also can you touch on any margin differences between the new product versus the legacy? Thank you.

Speaker 2

Call. I'll talk about the space that it's carved out for itself, so to speak, and Rex can address quarter. The margin question in particular. We brought out the 6 ks not to replace the 4 ks series. We brought it out as a high end product.

Speaker 2

It has a lot of things that call. Obviously, roll down over time into lower cost products, but it's the flagship currently. And it also For applications where it's needed can provide more power per port call. And that is not necessary in most medium duration parking scenarios. So it is not applicable necessarily call to every single vertical.

Speaker 2

It may have other features that make it applicable to other verticals because it has call features across the board that are superior to the 4 ks product. Without getting into call. Too much detail on the mix because it's so vertical specific. What I will say is the fleet segment, If it goes with an AC more in a light commercial situation, it is typically using the 6 quarter. Okay.

Speaker 2

Or our more lightweight product for light commercial. It is not typically using the 4 ks product, although we do have some fleet scenarios that use that. So the uptick in fleet in call. There's some correlation there and the 6 ks is the primary product we use in Europe. So call.

Speaker 2

From the commentary that I made, the primary AC product, I should say, that we use in Europe. So the comments that I made regard to fleet in Europe strength quarter. And the corresponding strength in the 6 ks, those one pulls the other, right? Quarter. The fleet and the Europe business are more 6 ks dependent than they are 4 ks dependent.

Speaker 2

Rex, I'll let you take the margin question.

Speaker 3

Yes. So from a margin perspective, quarter. The 6 ks as Pat said, it's a premium product, higher performance, better features obviously. We're evolving the product portfolio in quarter. It actually has similar margins in North America to the 4 ks.

Speaker 3

It's not all the way there yet, But it's nice to be able to build a next gen product and to preserve margin on that call in the process. And then what's helping us in Europe, as you may recall, we on the AC side because of local requirements, etcetera, We've had to leverage 3rd party hardware and now we don't have to do that anymore because the 6 ks is a product that is legal and certifiable and works in both North America and Europe. So, that's been a nice improvement from a margin perspective for us in Europe.

Operator

Call. Our next question comes from Itay Michaeli with Citi.

Speaker 13

Call. Great. Thanks. Good afternoon, everybody. Just two quick ones for me.

Speaker 13

First, I was hoping you could maybe comment roughly on what you're seeing on utilization of your charges, particularly among commercial customers. I know not every customer is looking to maximize utilization per se, but curious what you're seeing there? And second for Rex, just In terms of the inventory build in Q1, maybe how should we think about working capital at a high level the rest of the year?

Speaker 2

Call. Yes, 2 very different questions. I'll take the first. Rex, you take the second. In terms of utilization, call.

Speaker 2

Our sales team obviously sees utilization data as do our customers. It's a standard reporting feature in our network. And the utilization has to be measured in the context of the hours of operation at the site. I'll give you So it's hard to comment on utilization and the network as a whole and have that be meaningful because in any subvertical the utilization call. It's measured differently because it's measured during hours.

Speaker 2

And the easiest example to give you is a stadium. We have a lot of stadium customers. Quarter. The stadium is only active when there's an event at that stadium. Measured on a utilization basis over quarter.

Speaker 2

A 24 hour on a 365 day a year basis, stadiums have horrible utilization unless there's an event and then they're 100% booked. So it all goes down to how you measure it. And utilization is very, very strong across the board. Call. And if you want to see the best proxy for that, look at comments that we've made in the past about the rebuy rate.

Speaker 2

The rebuy rate tends to be quarter. The majority of the revenue within a quarter because as Rex mentioned in an answer to one of his questions, the initial buy is smaller than you think call. It should be and those follow on buys are bigger than you expect them to be. And that's because the customers start out with some experimentation, quarter. Especially in the commercial segment where it's more discretionary and then they see the utilization and let that drive the expansion.

Speaker 2

Call. So because the rebuy rate is so strong, it's the best proxy you guys can use for is the utilization on the network, quarter. Is it strong and is it growing? Yes.

Speaker 3

And very quickly on the inventory working capital question. No question in Q1 our inventory popped up almost $50,000,000 In truth that's actually a blessing not a curse because We went from a lot of long lead time items and a lot of stuff in raw materials to being able to kick things up and get some build. And we have low obsolescence risk on these products. So getting through that and having a blend into the inventory of good finished goods that we can move and therefore, quarter. We had pretty back end loaded quarters like most companies.

Speaker 3

And so knowing that you can ship what you need to ship at the end of the quarter call. Sameet, the management really good thing. So I think the inventory will come down meaningfully on a percentage basis relative to revenue. If you look at like the size of the company, question. The question is bigger than it needed to be in Q1, but those are the reasons because we're coming out of the supply chain issue.

Speaker 3

And then working capital generally, If we bring inventory down relative to that, that will help as the company grows. And so I actually think that that part of the picture will definitely improve later this year.

Operator

We'll take our next question from Joseph Osha with Guggenheim Partners.

Speaker 2

Hi, thanks. I just have one question. Question. We talked a little bit about NAVI earlier. I'm wondering given the timetable and the ambition of the CARB advanced clean fleets rule, call.

Speaker 2

What your thoughts are about how that might begin to layer into your business? Thanks. I mean, you saw the strength in the fleet business. Call. And so also the fleet business is one of is interesting.

Speaker 2

California obviously call. Usually leads the way in the United States with respect to innovation and policy and incentives. But because It's just good for business to electrify your fleet from a cost structure perspective. We're seeing a fleet business that's pretty pervasive across Europe and the United States and not call. And like any program, and this is very in line with the comments on quarter.

Speaker 2

Neve, it doesn't hit you all at once. It tends to build. So it will contribute. It will contribute over time because it will drive vehicle electrification. But again, I don't expect it to drive a discontinuity.

Speaker 2

And remember, you need the vehicles to be able to have demand for the charging infrastructure and that's the biggest variable there. You can have the incentive structure there, but it doesn't

Speaker 4

call. Call.

Operator

Thank you, everyone. This concludes today's presentation. We appreciate your participation and you may now disconnect.

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Earnings Conference Call
ChargePoint Q1 2024
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