ChargePoint Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
September 6, 2023

There are 14 speakers on the call.

Operator

Good afternoon, ladies and gentlemen. My name is Beau, and I will be your conference operator for today. At this time, I would like to welcome everyone to the ChargePoint Second Quarter Fiscal 20 24 Earnings Conference Call and Webcast. All participants' phone lines have been placed in a listen only mode to prevent any background noise. Quarter.

Operator

After the speakers' remarks, there will be a question and answer session. I would now like to turn the call over to Mr. Patrick Hamer, ChargePoint's Vice President of Capital Markets Stand 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 2nd quarter fiscal 2024 earnings results. This call is being webcast and can be accessed on the Investors section of our website at investors. Chargepoint.com. Quarter. With me on today's call are Pasquale Romano, our Chief Executive Officer and Rex Jackson, our Chief Financial Officer.

Speaker 1

This afternoon, we issued a press release announcing results quarter ended July 31, 2023, which can also be found on the Investors section of our website. We'd like to remind you that during the conference call, management will be making forward looking statements, including our outlook for our Q3 and full fiscal year 2024. These forward looking statements involve risks and uncertainties, quarter, many of which are beyond our control and could cause actual results to differ materially from our expectations. These forward looking statements apply as of today, quarter, and we undertake no obligation to update these statements after the call. For a more detailed description of certain factors that could cause actual results to differ, quarter.

Speaker 1

Please refer to our Form 10 Q filed with the SEC on June 8, 2023, and our earnings release, which posted today on our website, call as well as filed with the SEC on Form 8 ks. Also, please note that we use certain non GAAP financial measures on this call, quarter, which we reconcile the GAAP in our earnings release and for certain historical periods call in the investor presentation posted on the Investors section of our website. And finally, we will be posting the transcript of this call to our Investor Relations website within quarter, the quarterly results section. With that, I'll turn it over to Thusquale.

Speaker 2

Thank you, Patrick, and thank you all for joining us today. Quarter. Before we get to the results for the quarter, I'd like to address 4 key points that are likely top of mind. Quarter. First, we have announced the strategic corporate reorganization that we've been working on for months with a goal of achieving higher operational efficiency as we scale, quarter, while reducing our operating expenses by an estimated $30,000,000 on an annualized basis.

Speaker 2

As part of this reorganization, we have reduced our headcount by 10 percent and reducing our non personnel expenses as well. 2nd, we've taken an inventory impairment charge on our 1st generation DC charging products. Call. During the supply chain crisis, we sought assurance of supply versus cost and are now adjusting our stranded costs to current values given inventory levels. Quarter.

Speaker 2

3rd, let me address growth. We believe conversion of the world's vehicle fleet to EVs remains inevitable as does the need quarter infrastructure to chargetem. U. S. EV sales were up 48% year over year in Q2, a record for any quarter, quarter and Europe is experiencing a similar pace of adoption.

Speaker 2

Correspondingly, usage of our existing chargers on our network is up significantly. Quarter. In short, this puts utilization pressure on infrastructure and we believe that will turn into demand for our products. Quarter. 4th, I'd like to underscore our continued commitment to positive adjusted EBITDA in Q4 of calendar 2024, quarter.

Speaker 2

We believe we have sufficient cash reach to achieve that core objective. Moving on to Q2, quarter. We delivered revenue within our guidance range at $150,000,000 up 39% year over year and 16% sequentially, quarter, all done in an environment where many businesses are delaying discretionary spend. In the U. S, we continue delivering on several major projects we've mentioned during previous calls.

Speaker 2

We are finishing construction of the Volvo Starbucks project, a 1300 mile corridor from Seattle to Denver, call connected by ChargePoint DC fast charging solutions at Starbucks locations along the route. We also began shipping our charging stations for a much larger project quarter, the Mercedes Benz fast charger network, which we announced at CES in January. As Mercedes recently stated, quarter. The first of these 400 plus charging hubs will open in the fall. In Q2, we also delivered a large amount of product to the United States Postal Service call with our partner Rexel Energy Solutions supporting the on growing growth of our fleet business.

Speaker 2

Transit deployment quarter. We've now over 18, excuse me, 8,000 electric buses quarter served by our charging management software and our telematics solutions. Just last week, we received a FedRAMP quarter, unique entity ID from the U. S. Government, a designation achieved after a long process.

Speaker 2

This permits us to bid for tens of 1,000,000 of dollars quarter and potentially U. S. Government RFPs. I'd also like to reiterate our commentary on what is perceived as a major market development, quarter. Adoption of the NACS Connector.

Speaker 2

Seeing the market need to support this connector type, we began product development well ahead of the recent OEM announcements quarter and are finalizing our NACS connector solutions to begin shipping in November. That being said, we remain committed quarter to making sure our customers do not need to dedicate parking spaces to cars equipped with a specific connector type. Quarter. Customers' existing investments in ChargePoint technology are protected and will remain so into the future via an optional cost effective upgrade program to connect cables for their chargers. Our goal is to enable drivers to charge any vehicle anywhere at any time.

Speaker 2

Quarter. Turning to Europe, our business continues to expand with a clear highlight being our collaboration with leasing companies. Quarter. For those unfamiliar with the European car market, the majority of new vehicles sold are delivered as a leased company car benefit. Quarter.

Speaker 2

During the quarter, we added Arval, part of the BNP Group and a European leader in full service vehicle leasing call to the list of these companies that have chosen ChargePoint. With the same strategic lens through which we approach leasing company relationships, quarter. We also are fostering our partnerships with fuel card providers like WEX, UTA, Voyager and others. Call. These customers are building substantial charging businesses based on ChargePoint software.

Speaker 2

Overall, our European revenue grew 78 quarter. We have now surpassed 500,000 roaming ports for drivers there in addition to our own installations. Quarter. Globally, we are progressing our fortified contract manufacturing strategy. We expect these changes to give us increased capacity quarter, an improved cost structure and reliable supply.

Speaker 2

Finally, to give you a snapshot of ChargePoint's global momentum, quarter. Here are our latest network, customer and environmental statistics. We finished the quarter with over 225,000 active ports under management, call, including more than 22,000 DC fast ports. Approximately 1 third of our managed ports are in Europe quarter and we now provide drivers access to more than 532,000 roaming ports globally. We count 76 quarter.

Speaker 2

We expect that to be a strong year for the year.

Speaker 3

We expect that to be a strong year for the year. We expect that to be a strong

Speaker 2

year for the year. We expect that to be a strong year for the year. Quarter. As of the end of the quarter, we estimate that our network has now fueled approximately 7,000,000,000 electric miles, avoiding approximately 280,000,000 cumulative gallons of gasoline and over 1,400,000 metric tons of greenhouse gas emissions. Call.

Speaker 2

And before I hand it over to Rex, I just want to correct one thing that I may have misspoken. We finished the quarter with 255,000 quarter active ports under management. I apologize for the mistake. Rex, over to you.

Speaker 4

Thanks, Vazquale, and good afternoon, everyone. Quarter. 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: call. Network charging systems, subscriptions and other. Network charging systems refer to our connected hardware.

Speaker 4

Subscriptions include our cloud services connecting quarter. Assure warranties and our ChargePoint sorry, Connecticut hardware are Assure warranties and our quarter. ChargePoint is a service offerings where we bundle hardware, software and warranty coverage into recurring subscriptions. Other consists of professional services quarter and certain non material revenue items. For Q2, revenue was $150,000,000 up 39% year on year quarter and 16% sequentially within our guidance range of $148,000,000 to $158,000,000 Network charging systems at $115,000,000 was 76% of Q2 revenue, up 36% year on year.

Speaker 4

Quarter. Subscription revenue at $30,000,000 was 20 percent of total revenue, up 48% year on year. Other revenue at $6,000,000 4% of total revenue quarter, which increased 51% year on year. Our deferred revenue continues to grow. This is future recurring quarter.

Speaker 4

We finished the quarter at $220,000,000 up from $205,000,000 at the end of Q1. Quarter. Turning to verticals, as you know, we report them from a billings perspective, which approximates the revenue split. Q2 billings percentages quarter. For commercial, 75%, fleet, 16%, residential, 7% and other 1%.

Speaker 4

Quarter. Commercial was healthy and Fleet continued execution against large programs. Despite the smaller contribution to Q2 billings relative to 24% in Q1, quarter. Fleet grew over 50% year on year. In residential, we saw demand building for our home product through dealer, retailer and utility programs, quarter.

Speaker 4

The shipments were slower than expected. From a geographic perspective, North America's Q2 revenue was 79% quarter. And Europe was 21%, consistent with our Q1 of this year. In the Q2, Europe delivered $32,000,000 in revenue, quarter. Grew 78% year on year and sequentially increased 17%.

Speaker 4

Turning to gross margin, non GAAP gross margin for Q2 was 3%. Quarter. As Pasquale indicated, this reflects a $28,000,000 or $19 margin point impairment to cost of goods sold. Call. This was taken to address supply chain related higher component costs and supply overruns for our 1st generation DC charging product.

Speaker 4

Call. In addition to this quarter end impairments, our non GAAP gross margin for the quarter also included 3 points of headwind quarter from selling this 1st generation product at the pre impairment cost structure. We see continued demand for this product. Quarter. Non GAAP operating expenses for Q2 were $89,000,000 a year on year increase of 11% and a sequential increase quarter of 4%.

Speaker 4

From an operating leverage perspective, this represents a 6 point improvement against the Q1. Quarter. For reasons, Fisquale mentioned, today we took actions reducing our operating expenses. I will speak to the implications when I give guidance shortly. Quarter.

Speaker 4

Stock based compensation in Q2 was $35,000,000 up from $24,000,000 in Q1. We typically do our annual refresh grants in Q2, quarter, which explains the stair step. Q2 non GAAP adjusted EBITDA loss pre impairment was $53,000,000 This was a 5% improvement year on year, quarter, higher than our expectations due to revenue landing towards the low end of our range and a lower than expected gross margin. Quarter. Our non GAAP adjusted EBITDA inclusive of the impairment was a loss of $81,000,000 44 percent higher than last year's Q2.

Speaker 4

Quarter. We continued to build inventory during the quarter. As mentioned last quarter, we are working through inventory associated with earlier supply commitments. Quarter. We finished the quarter with $144,000,000 in inventory, which is net of the Q2 impairment discussed earlier and up from $115,000,000 quarter at the end of Q1.

Speaker 4

We do not expect this level to increase significantly over the rest of this year. We are managing through these commitments and vectoring in on our turns goals. Quarter. Looking at cash, we finished the quarter with $264,000,000 in hand. This balance includes $38,000,000 raised through our ATM program, quarter, which has generated a total of $105,000,000 over the past 3 quarters.

Speaker 4

During Q2, we also entered into a $150,000,000 revolving credit facility with 4 leading global banks. This facility is currently undrawn and provides non diluted liquidity. Quarter. It will be strategically deployed alongside our at the market program to maintain a strong balance sheet as we drive towards becoming cash flow positive quarter next year. This is our capital plan.

Speaker 4

We had approximately 360,000,000 shares outstanding as of July 31, 2023. Quarter. Turning to guidance. For the Q3 of fiscal 2023, we expect revenue to be $150,000,000 to $165,000,000 up 20 percent year on year and up 5% sequentially at the midpoint. For the full fiscal year, we are guiding to $605,000,000 to 630,000,000 quarter, up 32% year on year at the midpoint.

Speaker 4

Regarding gross margin, for the Q3, we expect to be between 22% 25% on a non quarter GAAP basis as we work through the inventory levels discussed earlier. With the inventory issue behind us and aggressive programs for improving our cost quarter on supply and manufacturing. We would expect to resume continued improvement in gross margin next year. Though we don't typically guide on operating expenses, Given the reorganization we announced today, we want to help reset everyone on a new level for the remainder of this year. Therefore, we expect non GAAP operating quarter.

Speaker 4

We expect our expenses to be $81,000,000 to $84,000,000 in Q3 $79,000,000 to $82,000,000 in Q4. Finally, quarter. Regarding our goal of reducing our non GAAP adjusted EBITDA by 2 thirds from our Q1 level this year of $49,000,000 we are being prudent in our revenue guidance quarter while managing gross margin and operating expenses. Accordingly, we are targeting to have the Q1 adjusted EBITDA loss in Q4. Call.

Speaker 4

And with that, I will turn it back to Pasquale for closing remarks.

Speaker 2

Thanks, Rex. In summary, we delivered on our revenue guidance for the quarter and expanded operating leverage. We're the clear leader in EV charging infrastructure across 2 continents and recognize that to be successful, quarter. Our solutions need to be everywhere, easy to find, easy to use and highly reliable. ChargePoint is at the front quarter of a long term growth cycle.

Speaker 2

We are well positioned and well capitalized for the future, leaving us confident we will hit our goal of profitability on an adjusted EBITDA basis quarter by the end of next year. Thank you for tuning in today. Operator, let's proceed to questions.

Operator

Thank you. Quarter. We'll take our first question this afternoon from James West of Evercore ISI.

Speaker 4

Hey, good afternoon guys.

Speaker 2

Quarter. Hey, James.

Speaker 5

Hey. So Pat, you're going to be shipping the new products here in a couple of months. Quarter. I know you had already started to do engineering work and things like that. Is it going to cause a change at all in kind of the ASP for your products?

Speaker 5

Quarter. Or is it a relatively minor kind of adjustment just to add NAC's to the existing portfolio?

Speaker 2

Quarter. It doesn't have an ASP effect.

Speaker 5

Okay. Okay. Got it. Thanks. And then maybe for Rex, on the quarter.

Speaker 5

Free points of headwind on the margin. Is that, I guess, what are the main drivers of that? I believe it's just the new getting ready for the new sales, but quarter. Are those just a this quarter issue? Do they go away in the next couple of quarters?

Speaker 5

Or are they here for the rest of fiscal year?

Speaker 4

Quarter. So James, those should go away going forward. It was an in quarter item. Quarter. We only flagged it just because we did the impairment, affected the balance at the end of the quarter and therefore it didn't affect any of the quarter.

Speaker 4

Underlying margin for that product during the quarter, we just wanted people to understand what the impact was, but with the impairment that goes away. Quarter. Right. Got it. Okay.

Speaker 4

Thanks, guys.

Operator

Thank you. We go next now to Colin Rusch at Oppenheimer.

Speaker 6

Quarter. Thanks so much, guys. With the restructuring, can you talk about areas where you're going to focus some of those cuts? Or is it really just generally across the board? Quarter.

Speaker 6

And then the follow-up question is really about the pathway to the cash flow breakeven, if you could walk us through that as a secondary question here.

Speaker 2

I'll take the first part, Colin. So I just want to make sure that Something is well understood. We've been working on this restructuring for months and it's quite distinct from quarter. Many of the other financial parameters in the company, it does have some bearing on the back half of the year, but it's largely something we've done as we've quarter. Continue to optimize how we execute internally and I'll point out that over the last quarter.

Speaker 2

8 quarters or so operating expenses have been operating in a fairly tight band and we've been improving operating leverage over that period of time. And so to specifically answer your question, we made a restructuring a few quarter. We had a Phase 1 of this where we changed how we organize the go to market organizations call with respect to North America and Europe due to scale just to improve our execution velocity and move some of the product portfolio quarter organization closer to the regions to enable them to operate faster today. Quarter. We added to that some restructuring with respect to how we are organized in the R and D operations and product management organizations.

Speaker 2

We did quite a bit of consolidation and reorganization in those areas. Again, call. From an execution perspective, it will improve our velocity. And then we also did some things in other areas of the company across sales and marketing and G and A, in addition to those, where we did address reducing some of the OpEx on a go forward basis. So it's really a combination of all of the above.

Speaker 2

Hope that answers your question.

Speaker 6

That's super helpful. And then the follow-up question is really just what I asked. Quarter. The pathway to get into the cash flow breakeven, it looks like kind of at midpoint you're about $180,000,000 in revenue for the 4th quarter, quarter. Plus or minus.

Speaker 6

And so thinking about a 30% to 35% growth rate, and quarter. It would require substantial margin expansion. And so I just want to get a sense of how you guys see that path moving forward to getting into the 30% to 35% gross margin range?

Speaker 4

Quarter. Yes. So, big work on the model. Bottom line is we've call. Declared again today that we are bound and determined to get to that results by Q4 of next year.

Speaker 4

I think quarter. We did today as an indication of our commitment to that target. If you run the numbers, yes, there needs to be some gross margin improvement. I think I alluded to that in commentary. We've got some short term things that we need to grind through from a call it the supply chain hangover quarter standpoint, which we will do.

Speaker 4

But again, I think we've shown consistently from an execution standpoint that quarter. We can generally hit our top line guidance and we're bound and determined to hit that target in Q4.

Speaker 7

Okay. Thanks so much guys.

Operator

Quarter. We'll go next now to Matt Summerville at D. A. Davidson. Quarter.

Speaker 8

Thanks. A couple of questions. First, Pat, in your prepared remarks, you mentioned the qualification you received from the U. S. Government.

Speaker 8

Call. What's involved in that qualification and what distinguishes your ability to compete on some of these deals versus others quarter. In the market?

Speaker 2

Yes. So, as a point of clarification, that is quarter. The FedRAMP is largely centered around the federal government's internal or call requirements on software systems that are controlling assets that are sold to the federal government in certain agencies. It's one of the qualification programs. Receiving that ID is quarter and being listed on the website.

Speaker 2

Basically is the milestone that quarter. Effectively, as we've been through all of the process at the federal government call with respect to meeting the controls and audit requirements that they have across the board. So think about it as call. Control, security, other things associated largely with software and remember for us, quarter. We always lead with those with a software first approach and that pulls through quarter.

Speaker 2

Obviously, the hardware that we have that works in conjunction with that software to deliver the entire solution.

Speaker 8

Quarter. Got it. And then just as a quick follow-up, I think you guys have been doing some belt tightening quarter ahead of this formal cost out program. So when you think about it holistically, is that $30,000,000 number actually higher in terms of quarter OpEx takeouts. And when do you expect to hit that $30,000,000 run rate?

Speaker 8

What would be the timing on that? Thank you.

Speaker 4

Quarter. Yes. So the $30,000,000 is an annualized number. We pulled the trigger today. Call.

Speaker 4

Today is the reorg took effect today. What you'll see is in Q3, you'll see some impact of that, hence my guidance for Q3 OpEx. Call. The full impact of it will hit in Q4 because obviously today is September whatever today is September 5th, 6th. Thank you.

Speaker 4

So we don't get the full impact

Speaker 2

in Q3, we get the

Speaker 4

full impact in Q4 and then obviously that's a gift that keeps on giving as we move into next year. And I think the main thing that people quarter. If you look at what we've been doing, I think we've been pretty responsible in terms of managing our operating expenses. Quarter. We added some acceleration back in calendar 2021.

Speaker 4

We leveled out in 2022. It's an acceleration beginning of the year, but quarter. Recognize to hit some of the profitability targets that we put out, we need to ratchet back. But we've actually done a great job, I think, of quarter. Significantly expanding the top line while holding the operating expense level really constant, quarter net net.

Speaker 4

And so we feel confident that we're going to get to

Speaker 9

our targets next year.

Speaker 8

Thanks, Rex.

Operator

Quarter. Thank you. We'll go next now to Alex Rygiel at Bank of America.

Speaker 9

Quarter. Maybe just a higher level one. I think you mentioned at the outset, talking about sort of utilization on the infrastructure portends quarter more demand to come. I'm just curious, right, there's a lot of sort of noise out there about EVs sitting on lots. Quarter.

Speaker 9

So I think fleet EVs are still relatively delayed or on backlog. You guys obviously have a broad scope and a broad view. So Just curious how you would sort of paint the real picture from what you're seeing out there, and how things have evolved, sort

Speaker 10

of from the start

Speaker 9

of the year to today? Thanks.

Speaker 2

Quarter. Yes. So let me take your 2 part question kind of backwards. On the fleet side, definitely vehicle limited. Quarter.

Speaker 2

No, no, very consistent with comments that I've made on previous earnings calls. Quarter. So continuing to win customers just sets us up for an expand later when that starts to decompress. And call. From a customer base perspective, I think if you pulled large fleet customers, they would quarter.

Speaker 2

I expressed some frustration with respect to the availability of vehicles. On the passenger car side, while there are quarter. There are some makes and models that aren't moving. I think what you're seeing is some price sensitivity in the consumer market with respect to the higher priced quarter side of the electric vehicle market in general and probably the vehicle market overall given where interest rates are. Quarter.

Speaker 2

And then what you're also seeing frankly is variable take up with respect to the models introduced based on consumer preference. So not all cars are winners, regardless of their drivetrain technology. So some things call. We'll sit in an oversupply state. What you have is, I believe the number is in my prepared remarks, 48% Q2 to Q2, the prior year increase in electric vehicle sales.

Speaker 2

And that's I think the more indicative number is overall up. There are some hotspots and cold spots, but it's overall up. And I just think quarter. That's just the normal development of what is a very

Speaker 4

the

Speaker 2

vehicle market is not quarter. We're satisfied by 2 or 3 models. It's a very large model base that's required to cover everything. And again, not everything is going to win and Not everything is going to be aligned to the economic the macroeconomic conditions out there for consumers.

Speaker 9

Quarter. Got it. Super helpful. Just a quick clarification on the cash. I think you guys mentioned sufficient cash position to reach that EBITDA inflection quarter later in 2024.

Speaker 9

I'm just curious, you guys now have the revolver on top of the ATM. Any thoughts about why you would use one over the other timing around sort of your capital sourcing strategy from now until then would be helpful. Thanks.

Speaker 4

Quarter. Yes. I think it's sort of an either or thing. It's not a preference for A or B. So call.

Speaker 4

I think what we said previously is the ATM, we'd like to do that on a consistent low level basis to match quarter. Very loosely, our adjusted EBITDA loss as we progress into next year, that's not a fixed formula, but it is call. Something that's aspirational. And then as far as the revolving credit facility is, we'll draw that down when we need to. Quarter.

Speaker 4

We have numbers in mind that we'd like to maintain on the balance sheet. And if we need to, we'll pull it down, but it does depend on how the ATM checks out.

Speaker 9

Quarter. Got it. Thanks guys. Thanks for your soft line.

Operator

We'll go next now to Bill Peterson at JPMorgan.

Speaker 10

Quarter. Yes. Thanks for taking the questions. So if we think about your second half demand outlook, can you help us understand how the trends should look across quarter. Residential, commercial, including workplace and fleet.

Speaker 10

I mean, we saw here in the Q2 that commercial had some nice growth, while fleet quarter. And residential kind of took a step back, but how should we think about the trends amongst the segments in the second half?

Speaker 2

Yes. I mean, I think quarter. Perfect cut of copy of the way to answer the previous question is backwards. Start with the Fleet 1. Quarter.

Speaker 2

On the fleet side of our business is the fleet customers are inherently lumpy quarter with respect to revenue. And so and that has a lot to do with not only vehicle availability, but quarter. Their own construction plans for their depots, etcetera. So I would look at our fleet business quarter. On a more than 1 quarter trended basis, given the fact that you could get some quarter to quarter variance that overall is an indicative of any quarter specific market change in condition.

Speaker 2

The commercial side, with respect to growth, while you said there was nice quarter, which there was. The growth was not where utilization would say it should be. Quarter. So you've got a little bit of a dislocation between where commercial buyers, quarter. General businesses effectively when we refer to commercial are viewing quarter.

Speaker 2

The priority of investing in EV charging right now given where their own businesses are and the difficult decisions that all businesses are making in general quarter in the current environment. So while the growth that you commented on is good in commercial, it should have been better quarter. If it weren't for the overhang that exists, but the utilization pressure is there, so the response will come because the response has quarter. And on home, it's going to go largely with vehicle sales. There's a bit of seasonality.

Speaker 2

We'll probably see quarter. Some increase take up in the back half of this year due to normal seasonal trends.

Speaker 10

Quarter. Okay. Thanks for that. And recently, the 7 OEMs announced that they'd like to build their own charging network, quarter. 30,000 chargers maybe around the summer of 'twenty four starting.

Speaker 10

You also mentioned that you started your, I guess, Mercedes Benz build out and they're one of the OEMs quarter. That's part of this. I guess, are there any particular implications of this charging network? Is this an opportunity for ChargePoint? I mean, how would your relationship with Mercedes Benz potentially benefit quarter.

Speaker 10

This program, is this something that you're actively pursuing?

Speaker 2

So what I can say, being fairly close to all the OEMs quarter that are involved in that and the broader set in general is that they're sorting out amongst themselves quarter, how they want to organize and progress that business. To answer your question specifically regarding an opportunity, we view it as absolutely an opportunity for us. Quarter. We're very proud of what we've done on the Mercedes Benz quarter project. To date, you'll see that, as I said, in the fall.

Speaker 2

Mercedes made an announcement with respect to when they customer perception of that project. We've been working very hard at it. We hope that bodes well for us with respect to any opportunities that the auto consortium would bring to market. And frankly, I'll remind you that we've also done a lot more with auto OEMs Historically, we've done a lot with state programs historically. We've done an awful lot of quarter.

Speaker 2

DW Appendix D Statewide Programs where we built out corridors. I mentioned in my remarks that we did a project with Volvo and Starbucks, 1300 Mile Corridor from Seattle to Denver. So we've got a lot of experience building these things out. Quarter. And related to that, you saw us make some announcements relative to a double down on our investment call with respect to uptime, performance, bulletproof availability, etcetera.

Speaker 2

Quarter. We think that's just critical. It's critical for this phase of expansion for consumers. It's got to be reliable. It's got to be easy to find.

Speaker 2

It's got to be easy to use. And we're quarter, making actually quite large investments relative to where quarter. Most of these corridor builds out especially in those areas. So we hope to be well ahead of the curve.

Speaker 3

Okay. Thanks for the color.

Operator

Quarter. Thank you. We'll go next now to Joseph Osha at Guggenheim.

Speaker 11

Thank you. Hello. And I apologize, I'm in a car. Two questions. First, obviously some of the intermediate term challenges you're seeing presumably exist elsewhere in the business call.

Speaker 11

Also, is there any thought around opportunities for inorganic growth or consolidation or is that just not something you would quarter. And then I do have a follow-up.

Speaker 2

Well, frankly, if I told you we would ever enter a period where we wouldn't think about that, quarter. You probably questioned me because, obviously, if we were to come across something that were to meet not only the quarter financial parameters that we would outline, guardrail a deal, but also the customer acquisition parameters quarter. And the talent acquisition parameters, we would certainly do it. It's just that right now, managing the business, we have a very high quarter with respect to achieving our profitability goals by the end of next year. We've doubled down on that quarter on multiple earnings calls and we are hell bent to make that happen.

Speaker 2

So as a test quarter. With respect to any inorganic growth that would make sense potentially on a go forward basis, you would have to not derail that. Quarter.

Speaker 11

Okay. That makes sense. And then my second question speaking to the NAC's issue, obviously, you anticipated this. Quarter. But yes, I mean the competitive landscape in NACs and by extension DC Fast has evolved.

Speaker 11

So I'm just wondering quarter. Since the beginning of the year, has your thought around the sort of the optimum mix for ChargePoint in terms of L2 versus DC fast quarter. Changed or evolved at all or is it still just completely what it was?

Speaker 2

Well, I think the question is a valid question to check-in with us on. Do you see any fundamental market driver that would change the proportion of DC versus AC? Quarter. The NACS component of your question doesn't really change my answer. The NACS component is simply It's a connector.

Speaker 2

It doesn't change functionality whatsoever. It's just the way we think about it is it's a different shape. It's something we have to contend with. And frankly, we've made an investment to make sure that we don't put our customers in a position quarter where they have to dedicate some percentage of parking spaces to NACs and some percentage to CCF. That would be complete failure quarter because you'll never get that percentage right.

Speaker 2

And if you did get it right today, it'll change over time. And so it'll put an undue burden quarter on essentially remodeling risk with respect to a charging site, which is not what you want to have happen in the early days of the market. Call. So because that connector again doesn't change functionality whatsoever or change consumer behavior whatsoever, We see no fundamental split or shift, I should say, in what would an AC business moving to DC or back. Quarter.

Speaker 2

It doesn't really affect anything.

Speaker 11

Okay. That's clear. Thank you.

Operator

Quarter. We'll go next now to Stephen Gengaro at Stifel.

Speaker 3

Quarter. Thanks. Good afternoon, everybody. Two things for me. The first, call.

Speaker 3

Maybe for Rex, when we think about your target of getting to EBITDA quarter breakeven. I know this was asked a little bit earlier, but can you talk us through in a little more detail to maybe increase quarter. The comfort level on kind of what type of revenue growth you need. I mean, I guess it's about mid-30s gross margins quarter. And kind of what has to happen on the operating cost side?

Speaker 3

I mean, we're just trying to get a kind of what's behind this path to this number with a little more detail.

Speaker 4

Quarter. Sure. And by the way, it's not EBITDA breakeven, it's EBITDA positive, sorry.

Speaker 3

Okay. Well, that seems better. I

Speaker 4

couldn't resist. Quarter. Sorry, Stephen. No, no, no, but we're definitely thinking about the target. So I think the best way for you to progress on that is quarter.

Speaker 4

To do what we do, which is we obviously model things out. We clearly have a lot more visibility than you do from a pipeline and big deal perspective as we go into next year. But quarter. There's a certain revenue level associated with a certain gross margin level. You know we have the levers to control from an OpEx perspective, which obviously we demonstrated today.

Speaker 4

Call. It is there are a set of assumptions I think are realistic that are very doable by the end of the next year. Call. If for some reason the industry slows down considerably, which we wouldn't expect, but this is not an experiment that could happen. Yes, it's going to be a problem.

Speaker 4

But we think that we think we're on the front end of a big wave and we're going to move into quarter. Continued growth next year, God forbid, fleet vehicles should actually show up. Prayer is a good thing. Hopefully, that happens. Quarter.

Speaker 4

And we'll have a strong year and the gross margin challenges that we've seen over the last quarter or so will be behind us. So I think it's very difficult. That's all I'd say. I can't really guide you more to it. I think that would be inappropriate.

Speaker 3

Okay. Thanks. And quarter. The other question, one of the things we get from investors a bit is, when we think about nevi funding, right, what the brain goes through is like the owner operators. Quarter.

Speaker 3

And so then when we think about your exposure to nevi funding and how that kind of impacts ChargePoint, What should we be looking for? Should it be certain customers of yours who are basically utilizing you to put their NAVY dollars to work? Like How should we think about exactly how ChargePoint gets the benefit from as leverage to quarter. The NEVI funding and when do you think we start to see that in the numbers?

Speaker 2

So there's I'll give you some hints as to how to process that. We are not directly an asset owner.

Speaker 3

Quarter.

Speaker 2

In many cases, much like we did in the VW Appendix D days, the NEVI bids are structured quarter at a very high level in a very similar vein. We may organize a collection of our customers call to ultimately own and house the assets and continue to care for them on an ongoing basis and integrate them with their business. And in some cases, quarter. Our name is on the particular NEVI proposal into a state. In many cases, call.

Speaker 2

Our name is not on the proposal. And in also many cases, there are multiple proposals from multiple parties quarter. All are based on our technology because they've selected us as the technology partner for their bid. So when you look at the results quarter. When a state finally decides how they're going to allocate their funds across the different bidders, call.

Speaker 2

You have to double click one step deeper into the awards to check because we may be the awardee on multiple, quarter, which has been the case even recently. There are 4 states that have decided how they want to allocate the Phase 1. And in Pennsylvania, for example, we're named in one of them, but we're also the technology supplier for 12, quarter, right? So on the surface, it looks like we didn't do very well. But when you peel the onion 1 more layer, we did quite well.

Speaker 2

Quarter. And just to give you a data point and again, you've got only 4 states that have made decisions and this is only relevant to the first phase. We've got about a third or so win rate there on the monies that have been appropriated quarter by the state. So the win rate, we think is pretty good. It's pretty consistent with what we've seen quarter and other programs.

Speaker 2

And again, we're getting behind businesses that want to build their charging presence on ChargePoint. Point. That's the way to think about us. Some of these companies even branded themselves with us as an ingredient brand. So in many cases, when they make announcements, quarter.

Speaker 2

They make announcements about their charging service because of the investments that they're making. That's a very I would do the same thing. I'm very proud of the question. Being kind of a leading edge company making those investments, we are the technology behind a lot of businesses that are building their charging business. Call.

Speaker 2

And I think it's very easy to overlook that.

Speaker 3

Okay. Well, at the end of this, I might ask the question. That's good color. Thank you. Quarter.

Speaker 3

Thank you.

Operator

We go next now to Shreyas Patil at Wolfe Research.

Speaker 3

Quarter. Hey, thanks

Speaker 12

a lot for taking my question. Maybe just following up on an earlier question, and if I were to rephrase it, so quarter. As you think about getting to positive EBITDA, do you need to see a reacceleration in the top line growth? Quarter. And I ask because we've now seen 3 quarters of decelerating top line growth and the guidance for Q3 is to decelerate further.

Speaker 12

So quarter. So just trying to think

Speaker 3

about that trajectory of revenue.

Speaker 4

Yes. So quarter. Two things. One, to clarify, Trish, because I wasn't sure Stephen and I were 100% aligned on this. Part of me said, is he talking full year or is he talking Q4.

Speaker 4

Our target is to get there for the Q4. If we can do it sooner, obviously, that would be nice. But it is for the 4th quarter, it's not for the full year. Separately from a revenue perspective, I think when you say acceleration, I think if we do quarter. Sort of as well as we're doing now, you could be in the gun sites.

Speaker 4

So I don't think we need to see quarter. Last year, we were what 94%, 96%, I forget the exact number, 94% year on year growth. This year, we're going to be in the mid high end of the mid-30s. Quarter. If we can keep that going off of what should be a much bigger base as we exit the year, that's a good quarter.

Speaker 4

Pretty good spot to be. I don't think we have to get back to a 60% growth rate. I don't think

Speaker 3

that's necessary.

Speaker 12

Quarter. Okay. That's really helpful. And then, just, if quarter. I guess just to clarify, if we if I adjust out the entire impact of the legacy DC charger, both the inventory charge and also quarter.

Speaker 12

The impact to margin ex that, it looked like gross margins would have been about 25% in the quarter. Quarter.

Speaker 3

I just

Speaker 12

want to make sure I'm thinking about that right. And then when I think about the Q3 guide, which would be implying quarter. Flat to maybe down margin sequentially, just how would I think about that bridge excluding the impact quarter of this legacy DC charger.

Speaker 4

Yes. So, Tracey, I think your view of Q2 is accurate. Obviously, with the charge, it was 3%. Without the charge, it's 22%. This is a 19 point hit.

Speaker 4

And then if you eliminated the headwind on the product, because obviously, to carry the old cost structure in the quarter, You'd be looking more like 25% and that's consistent with what we did in Q1. So that's when we talk about the quarter. Underlying health of the business, I think that's where that's the explanation on that. As you look forward, we said we gave you a range call. On gross margin and frankly, and you've been with us for a while, we are mix sensitive.

Speaker 4

I hate to admit that, but it's true. Quarter. We have historically had more AC than DC and that's at fifty-fifty and indeed maybe cross the government to DC, which which is a lower margin product for us. So I wanted to put a big range on meaningful range on Q3. And we got to bang through quarter.

Speaker 4

The product availability because we had a supply overrun as we indicated in our prepared remarks. Call. We need to bang through that until it makes a little unpredictable because you're going to do that onesies, twosies, are you going to cut a deal quarter. 50 to 100 hard to say. So I tried to leave that open.

Speaker 4

But as I said, I do think as we look into next year and we clean through quarter. These issues in the next 6 months, we should have a clear line of sight to steadily improve the gross margin next year.

Speaker 12

Quarter. Okay, great. Thanks so much. All right.

Operator

Thank you. We've been going to now to Chris Pierce at Needham. Quarter.

Speaker 7

Hey, good afternoon. You guys talked about commercial customers, say utilization was 20% quarter. And then that would be then to order a new charger. Like where are we seeing it now? Like where can you kind of frame it at?

Speaker 7

Are they waiting to get to 30% or is it quarter. And is there anything you can do to kind of incentivize them to move sooner rather than later?

Speaker 2

Quarter. It depends on the segment. So if you look at the utilization, call. Your numbers are pretty consistent with utilization thresholds for passenger car long haul trip fast charge. Quarter.

Speaker 2

And that's just because humans are synchronized. So the times of day that fast charge sites tend to see quarter. Congestion are synchronized and then there are broad swaths of the day that they're underutilized. So your numbers quarter. Generally correct for that segment.

Speaker 2

If you look at, I'll take workplace for example. Workplace measured over the hours of operation quarter of the workplace itself for days in office. Now we have to adjust that post COVID for the synchronized days in office. Quarter. We are seeing utilization rates adjusted for the session gap in time between quarter.

Speaker 2

If they're using our wait list feature, 1 car leaving and the next car arriving to take over that charging point, we're seeing them approach effectively the theoretical max cap. So multiple of our largest workplace customers have come to us and say, can we think of a creative way of question because we effectively don't have discretionary spend capability on things that are non core to their business quarter to their customers. And so again, that's an indicator that we're kind of quarter. Beyond the point of overutilization in a lot of commercial settings and on mass what they're telling us quarter. Is there waiting for budget relief to be able to adjust that?

Speaker 2

So it really depends on the segment. Okay.

Speaker 7

And just to clarify, we're talking about budget flush into flush into year end or budget relief or you haven't gone that deep with them?

Speaker 2

Yes. I mean, I haven't quarter. Personally, I had the conversation in specific detail, but my sense from talking to our sales force broadly call is that it is less of a budget flush and more of a restricted spend policy call on discretionary items within many companies that are kind of sitting here in a hesitant macro economic environment deciding how they want to basically put assurances around their balance sheet.

Speaker 7

Quarter. Okay. Could we just go one deeper then? Is it right to think of that as California based large tech companies? Is that the right way to think about it?

Speaker 7

And that's sort of an indicator of

Speaker 3

when you think okay.

Speaker 7

No, it's I mean,

Speaker 2

that's a component. I mean, California being quarter. The state with the highest CV penetration is certainly going to be the poster child for impaction, when it comes to most things associated with quarter charging infrastructure. But other states have a similar profile. So I don't think it's related to a particular geography.

Speaker 2

It has more to do with how penetrated EVs are into the geography.

Speaker 7

Okay. And then just last question for me. Call. Rex just kind of highlighted the gross margin guidance in Q3 was around mix AC to DC. That sort of assumes that these customers are on hold.

Speaker 7

You're quarter. Planning for them to still be on hold the next 3 months is the right way to think about it or the next 2 months and beyond?

Speaker 2

Not quite. Quarter. If you look at the percent of total ports,

Speaker 3

AC, quarter. Do you see if

Speaker 2

you look at it on a technology basis and not on a segment basis, but you just look at DC ports, quarter. And then we always break home out because it is on a different kind of volumetric scale because it's much more quarter, one to 1 with vehicles, where they're single family residents anyway. The percentages haven't moved around that much in a long term trend. Quarter. The difference is the ASPs on the DC products have risen.

Speaker 2

And the reason the ASPs have risen is not because they're getting more expensive, quarter is that the power levels that are being delivered on average per parking stall have gone up quarter from early days. So the cents per watt delivered, if you want to reduce it to its most basic metric, although I would argue that that's not the only metric you should look at. That has clearly come down with efficiency, but the overall kilowatts delivered quarter. Has gone up significantly with respect to that technology. So that causes a mix shift in dollars.

Speaker 2

Quarter. And then if you look at the fleet business, which is growing quite nicely for us, it also in the early days, especially associated with trans and I made some comments with respect to transit, medium and heavy, etcetera. Those are much more DC heavy businesses. So when you add that mix in, call. That's what's behind Rex's comments on mix sensitivity.

Speaker 7

Okay, perfect. Appreciate the detail.

Operator

Quarter. Thank you. We'll go next now to Steven Fox at Fox Advisors.

Speaker 13

Quarter. Hey, good afternoon. Just one big picture question for me. If we step back, I I know you guys weren't providing guidance for the second half, but I mean you've implied that the revenues are lower than you would have thought 90 days ago. So quarter.

Speaker 13

Can you sort of force rank why the disappointment in the top line? And then as a follow-up to that, can you talk about why you would think about a quarter. The acceleration in revenues for next year because if I do the math, your revenues are decelerating to 10% to 20% quarter sales growth, which obviously is not a bad number in this environment, but you're talking about getting back to like 30% for next year. So quarter. I'd love to understand like the biggest drivers of the down and then the backup.

Speaker 13

Thanks.

Speaker 4

Yes. So first of all, just to quarter. Emphasize, Q2, we were within our guidance range, nice year over year growth. So strong performance there, quarter. From a guidance perspective, I think we're doing pretty well.

Speaker 4

Looking forward to the second half, as I said in my prepared remarks, call. We wanted to be prudent in terms of our guide. We just implemented a reorganization. We had the impairment charge that we referenced. Things are interesting and choppy in the real world out there.

Speaker 4

So we want people we want to

Speaker 6

say we're going to do it

Speaker 4

and then do it. So quarter. We're being very prudent from a Q3 perspective. Obviously, there's an implied number from a Q4 perspective, same prudent supplies. Do we think quarter.

Speaker 4

Next year will be better. As I said earlier, we're looking at mid-30s in terms of percentage year over year this year versus last year. And quarter. Yes. There's no reason to expect that that's going to decelerate next year.

Speaker 4

It doesn't need to accelerate, as I said, in terms of getting to our Q4 goals. So quarter. I think we feel pretty good about where we are. Europe is performing beautifully. Maybe we should have a nice conversation today about quarter.

Speaker 4

If I told you 2 years ago that this is what Europe would be doing today, would you have believed me? And people were like, maybe not. So Europe is doing a really great job. Quarter. We do need to get home strengthened again relative to what its performance was at 7%.

Speaker 4

It's usually 10% to 12%. So we see that picking up quarter in Q3, Q4. People need to get back to work. We do see pressure building on the infrastructure we have on the commercial side, not just workplace, but everywhere else. Quarter.

Speaker 4

And in fleet, it's chunky. And as the vehicle show, I think that we're down to our benefit. So I remain very optimistic about quarter. I can't put numbers on it, but I don't see us as talking about slowdowns and challenges. Quarter.

Speaker 4

It's a prudent finish to the end of the year and a good outlook for next year and we'll guide you when we get there.

Speaker 7

Okay. Thank you.

Operator

Quarter. And we'll go next now to Brett Castelli at Morningstar.

Speaker 9

Quarter. Hi, thank you. I just want to ask around the sales pipeline of larger fleet opportunities and what you're seeing there, quarter, sort of deals like the USPS

Operator

type of deal.

Speaker 2

Quarter. Yes. I mean, as I made comments earlier, I think in response to a question, there is certainly a pipeline quarter of large deals. As Rex put it, the prudence we're trying to apply quarter. To the color we give you on that is, frankly, until we see all the ducks in a row with respect to both vehicle availability and all of the construction, accoutrements associated with the deal.

Speaker 2

We're being quarter. Fairly conservative as to where we expect things to show up. We can thanks to the supply chain crisis not being upon us anymore quarter whatsoever we are not supply constrained. So we'll have plenty of response runway as we quarter. See things firming up.

Speaker 2

So the summary is, yes, there's much bigger deals much like USPS, etcetera, quarter in the pipe. Timing is hard to call. And so, we are just being we are just quarter. Trying to be measured with respect to that because as I said in my closing remarks, getting to that profitability number

Speaker 3

quarter. At the

Speaker 2

end of next year, it can't include wishful thinking on our part. It's got to include stuff that we have visibility into. Quarter. So while we're pretty confident that fleet number is going to continue to surprise us all as a positive as a long term trend, quarter. In the short term, Colin, the timing is just too dangerous.

Speaker 9

Yes. Thank you. That's all I had.

Speaker 3

Quarter. Thank you.

Operator

And ladies and gentlemen, that will bring us to the conclusion of the ChargePoint second quarter fiscal 2024 earnings conference call. Quarter. Thank you all so much for joining us this afternoon and wish you all a great remainder of your day.

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Earnings Conference Call
ChargePoint Q2 2024
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