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spk01: Ladies and gentlemen, good afternoon. My name is Mai, and I'll be your conference operator for today. At this time, I would like to welcome everyone to the ChargePoint second quarter fiscal 2022 earnings conference call and webcast. All participants' lines have been placed in listen-only mode to prevent any background noise. After the speaker's 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.
spk06: Good afternoon, and thank you for joining us on today's conference call to discuss ChargePoint's second quarter of fiscal 2022. This call is being broadcast over the web and can be accessed on the Investors section of our website at investors.chargepoint.com. With me on today's call are Pasquale Romano, our President, Chief Executive Officer, and Rex Jackson, our Chief Financial Officer. This afternoon, we issued our press release announcing results for the second quarter of fiscal 2022, ended July 31st, 2021, which can be found on our website. We'd like to remind you that during the conference call, management will be making forward-looking statements, including our fiscal third quarter and full year 2022 outlook and our expected investment and growth initiatives. 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.
spk03: 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 factors that could cause actual results to differ, please refer to our Form 10-Q filed with the SEC on June 11, 2021, and our earnings release posted today on our website and filed with the SEC on Form 8-K.
spk06: Also, please note that certain financial measures we use on this call are non-GAAP. We reconcile these non-GAAP financial measures to GAAP financial measures for the current quarter in our earnings release and for our historical periods in our investor presentation posted on the Investors section of our website. And finally, we'll be posting the transcript of our call today to our Investor Relations website under the Quarterly Results section. And with that, I'll turn the call over to Pasquale.
spk05: Thanks, Pat, and thanks to all for your interest in ChargePoint and joining us for our second quarter earnings call. I'll provide a business update to give you some perspective before turning the call over to Rex for financials and an update of our guidance reflecting our revenue momentum. We are pleased to share more about the execution against our plan in our strong quarter for ChargePoint. The results from this quarter can be described with one word, scale. Scale across our three verticals and scaling both North America and Europe. We are a larger company than we were pre-COVID and growing more quickly. This quarter, from both a quarter-over-quarter and year-over-year perspective, exceeds revenue growth rates from the quarter that ended on July of 2019. We had strong commercial execution as businesses of all types continue to invest in EV charging for their customers, employees, and visitors. Interest in EV charging solutions from fleet operators continues to be high. in june we announced the industry's most comprehensive fleet charging portfolio earlier this month we announced the acquisition of viricity a leading fleet vehicle management provider and we expect the addition of team customers and technology from this acquisition to further strengthen our reach in ebus and commercial fleet residential demand for home charging continues to be strong and our ability to serve all types of residential settings is a differentiator From a geographical perspective, our North American execution remains strong as businesses continue to recover from the effects of COVID. Europe is growing quickly. Our activated port count is up 44% in Europe for the first half of the year versus Bloomberg NEF European public connector growth of 13% over the same period. We expect our position in New York will expand meaningfully following the close of the acquisition of has to be post regulatory approval with the addition of their network ports under management position added to our existing position. Has to be has a talented team, robust technology and impressive basic customers, including Arval, Audi, uh, GP jewel, Ionity and Porsche, just to name a few. Before I jump into the business, I'll share a few comments on the market tailwind supporting electrification more broadly. As we have said, ChargePoint's success is directly tied to the arrival of electric vehicles. Bloomberg NEF published its electric vehicle outlook in June, which was the first major increase to their outlook in five years. Sales of EVs accelerated in North America and Europe in the first half of 2021, According to BNEF, North America EV sales were up 97% year-over-year for the first half, and European EV sales were up 153%. We are witnessing more vehicles coming to market in exciting form factors for a broad array of use cases. We continue to test new vehicle models that run the gamut of passenger fleet and transit in our state-of-the-art test facility in Campbell, California. Turning to policy, much continues to evolve. On vehicle and emissions policies, President Biden issued an executive order calling for half of all new vehicles sold to be zero emission by 2030. The Trudeau administration set a goal of 100% zero emission vehicle sales by 2035. And the EU Fit for 55 package announced in July provides the sectoral policy tools to meet the 55% emission reduction ambition by 2030. It's an effective mechanism to hasten the transition to BEVs. This collection of efforts has the support of many major automakers. It helps create category awareness, and we expect the pace of electrification to continue to accelerate. We are also seeing unprecedented progress in infrastructure funding. In the U.S., we were pleased to see the Senate include $7.5 billion to expand charging in the recently passed bipartisan infrastructure bill. The Speaker of the House has committed to voting on this bill by September 27th. The Senate has also passed a $3.5 trillion budget framework, which is backed by the president and includes instructions for lawmakers around changes in the tax code to make the presidency legal more attainable. The budget framework was adopted by the House last week. We are closely tracking the drafting of this legislation and other actions in Congress with potential incentives for EV charging for communities and fleet. States play an important part in infrastructure funding independently and in crafting mechanisms for the disbursement of federal funds. California is a leader and an influential market. The passing of a state budget that included up to $3.9 billion for zero emission vehicles and charging incentives over the next three years will support continued infrastructure build-out. We believe we are well-positioned to enable our customers to leverage public funding in addition to ongoing private investment. Our teams had more than a decade of grants management experience, having worked with federal agencies, regional governments, and local partners to successfully build charging to support communities and connect corridors. Turning to our verticals, first let's look at what's happening in commercial. It enjoyed its best quarter yet with sequential billings growth of over 46% and year-over-year billings growth of over 90% from the same period last year. As a technology company with software at our core, we are pleased to report subscription revenue for the quarter grew 12% from the first quarter and 23% year over year. We finished the quarter with approximately 118,000 active ports on our network, an increase of about 6,000 ports sequentially. This includes over 5,400 in Europe, up from over 4,700 ports last quarter, not including the approximately 40,000 ports to be integrated on the close of the has-to-be acquisition. Exciting deployments with auto dealerships, both North American and European, as well as fueling and convenience locations like Come and Go, led to a record quarter for shipments of DC fast ports. The total fast charge ports in our network grew to over 3,700 as of quarter end. We continue to work with the industry to enable drivers to roam across networks in North America and Europe. This quarter, we cross over 200,000 roaming ports accessible to drivers using ChargePoint. In fleet, we had a record quarter with growth of 187% year-over-year from a billings perspective. we believe fleet represents an enormous opportunity for charge point and we are seeing activity across the vertical including delivery and logistics transit and work vehicle fleets rfp activity is widespread in june we successfully unveiled what we believe is the industry's most comprehensive charging portfolio that was designed with our fleet management software at its core to ensure cost effective operational readiness for fleets of all types and sizes The recently closed Vericity acquisition extends existing ChargePoint functionality with direct vehicle data, enabling additional functionality including battery health monitoring, OEM agnostic telematics, vehicle maintenance support, and vehicle operations data. Fleet managers are focused on integrated vehicle and charging visibility, access and control, and we believe that the combined offerings of ChargePoint and Vericity will be a force in this space. In the residential vertical, our strategy to serve all needs is paying off. These include single-family residences, apartments and condominiums, and employers who offer electric vehicles bundled with home charging made available through leasing companies. Crossing over from the fleet vertical, employers requiring employees to take work vehicles home overnight use our home charging services that enable fuel cost reimbursement for overnight charging. Q2 residential billings were very strong, up over 79% year over year and 43% sequentially. We continue to offer seamless access to EV charging with integrations into leading consumer platforms. This quarter, with our strategic partner, Mercedes-Benz, we announced a new benchmark for EV charging in North America, with ChargePoint powering a Mercedes meCharge vehicle ecosystem to be launched with the all-new EQS luxury sedan and included with all EQ future mobility products from Mercedes-Benz. With our software, drivers can seamlessly find, navigate, connect, and securely pay for charging in the vehicle and from the Mercedes MEAC across the ChargePoint network and roaming partners, including charging in access-controlled environments like workplaces, shopping malls, and hotels. Our customer growth continued in the second quarter, building off a strong start to the year where we eclipsed 5,000 customers. We continue to see a steady rebuy rate of well over 60%. We are adding customers quickly while growing with existing customers rapidly. ChargePoint continues to invest heavily in our team. We finished the quarter with over 1,000 employees. As a technology company, we are especially proud of our engineering and technical staff that tops more than 500, not including the capable team at Beaver City and the additional expected team following the close of the Has-to-Be acquisition. The teams managing our supply chain have navigated a dynamic environment. Rex will give you more color on margins and how ChargePoint is navigating through this global headwind, including responding to the demand for our product in the second quarter that exceeded our forecast. Before turning it to Rex, I'd like to reiterate that charge point scaling of the new fueling network is generating notable environmental impact, having enabled over 3 billion electric miles driven and avoiding 462,000 metric tons of greenhouse gases and roughly 120 million gallons of gasoline by the end of Q2. Rex, over to you for financials.
spk06: Thanks, Ms. Wall, and good afternoon, everyone. First, my comments are non-GAAP, where we principally exclude stock-based compensation and the effect of the valuation of our stock warrants. This quarter, we also exclude legal expenses associated with our secondary offering completed in July, our raricity acquisition completed in August, and our pending acquisition of has-to-be we announced in July and expect to close later this calendar year. For a reconciliation of these non-GAAP results to GAAP, please see our earnings release. Second, after a quick review of our results, I will provide revenue estimates for fiscal Q3 and for the fiscal year. Third, consistent with our March and June calls, and as you can see in our earnings release, we report revenue along three lines, network charging systems, subscriptions, and other. Network charging systems represents our hardware, all sold with our cloud services solutions. Subscriptions, includes those cloud services, our Assure warranties, and our ChargePoint as a service offerings, where we bundle our solutions into a recurring subscription. Other consists of energy credits, professional services, and certain non-material revenue streams. Q2 revenue was 56 million, up 61% year over year, well above the high end of our previously announced guidance range of 46 to 51 million, and up 39% sequentially. The top line success was across all verticals and geographies. Network charging systems at $41 million was 73% of total revenue for the quarter and grew 91% year on year and 53% sequentially. Subscription revenue at $12 million was 22% of total revenue and up 23% year on year and 12% sequentially. Subscription growth trails network charging systems revenue growth for three primary reasons. First, mix. as both DC network charging systems and home have a lower ratio of subscription to hardware revenue than our overall average. Second, our quarterly sales are typically strongest in the third month of each quarter, which amplifies network charging systems revenue taken at shipment versus relatively recognized subscriptions. And third, for most of our solutions, we begin revenues for subscriptions at a fixed time after the associated hardware shipment to accommodate installations. We are particularly pleased that our deferred revenue from our subscriptions, representing recurring revenue from existing customer commitments and payments, hit $100 million this quarter for the first time. Other revenue at $3 million and 6% of total revenue decreased 16% year-on-year due to lower utilization-based energy credits that increased 10% sequentially. We look at verticals from a billings perspective. Billings by vertical for Q2 were commercial 75%, Fleet 12%, residential 11%, and other 3%, consistent with billings by percentage for Q1. We are very pleased to see strong growth, total billings up 87% year-on-year and 42% sequentially, on consistent mix, demonstrating strength across all our verticals. From a geographic perspective, Q2 revenue from North America was 91%, and Europe was 9%, consistent with recent breakdowns by geography. europe held its percentage in a high growth quarter with its best quarter ever at 5 million in total revenue and up 38 year on year and 42 percent sequentially our customer rebuy rate a cornerstone of our business model and reflecting our land and expand strategy remained over 60 of total billings a compelling indicator since we add hundreds of new commercial customers per quarter And from a scale perspective, we also continued our channel success with approximately 62% of our business driven by our channel partners and continuing to add partners at a strong rate. Turning to gross margin, non-GAAP gross margin for Q2 was 23%, flat to Q1. Continued improvements in our costs of goods sold and renewed strength in commercial offset supply chain challenges, particularly incremental logistics costs. which had an approximately three-point negative impact on gross margin for the core. Non-GAAP operating expenses for Q2 were $53 million, a year-over-year increase of 70% compared to a COVID-impacted prior year core, and a sequential increase of 13%. We continue to invest heavily in sales and marketing to support our land and expand model in North America and Europe. in R&D and operations to support significant new product development and a rapidly expanding customer base, and G&A expenses to support continued growth in business and increased public company-related expenses. Looking at cash, we finished the quarter with approximately $618 million, with approximately $44 million in from warrant exercises resulting from the redemption of our public warrants, offsetting cash used by operations. We have funded in Q3 thus far approximately $80 million of our $90 million acquisition of Verisity, and on completion of regulatory review, expect to fund the cash component of the has-to-be acquisition at approximately $135 million, potentially also in Q3. As a reminder, this acquisition is a blend of cash and stock, and I'll cover the stock in a minute. Ms. Qualls spoke about the strategic and operating merits of both transactions. From a financial perspective, we expect these two acquisitions combined to contribute approximately $4 million in total revenue in Q4, to be generally accretive to gross margin, to add approximately $8 to $10 million in combined operating expenses in Q4, and to provide synergistic sales opportunities for both our hardware and software. Our new guidance, which I'll provide shortly, reflects Vericity's expected contributions since the August close and assumes it has to be closed as soon as Q3. I do not expect to provide future breakouts for these acquisitions, but wanted to give you a sense of initial sizing as we integrate them into our operations. Regarding share counts, during the quarter, we issued 8.8 million shares of common stock in connection with the final SPAC merger earn out, 4.4 million shares of common stock in connection with warrant exercises, and 3.9 million shares under our employee stock plans. We finished the quarter with 322 million shares outstanding. After giving effect to the acquisition, it has to be, we expect to have roughly 328 million shares outstanding. And finally, we completed an underwritten secondary offering in July for 13.8 million outstanding shares held by existing stockholders in order to improve our flow and broaden our stockholder roster. ChargePoint offered no primary shares in this transaction. Turning now to guidance, as Pat mentioned, demand for our solutions in Q2 outstripped our expectations and production ramp, and we continue to watch, as we all do, the COVID situation, including its implications for ongoing supply chain challenges and heightened logistics costs. Despite these factors, we turned in a strong first half performance and are excited about our revenue momentum going into the second half. Accordingly, for fiscal Q3, we expect total revenue of $60 to $65 million, at midpoint an increase of 72% versus Q3 of last year, and a sequential increase of over 11%. For the fiscal year, we are taking our revenue guidance up 15%, from $195 to $205 million to $225 to $235 million, at the new midpoint representing a 57% increase year-on-year. And with that, I'll turn the call back to Pat.
spk05: We'd like to thank you again for your interest in ChargePoint. We are very proud of our quarter defined by broad and accelerating scale in North America and Europe across each of our three verticals. We believe our technology, capital life business model, and market share position us well to continue to execute in this very exciting market.
spk01: We will now begin the QA session. If you would like to ask a question, please press star followed by one on your touchtone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly to allow questions to generate in queue. The first question is from Dave Dowd with Catwin. Please proceed.
spk02: Hey, good afternoon, everyone. I was hoping we could maybe just start with the financials for a bit. Just noticed there's a margin degradation on the subscription line quarter over quarter. It looked like it was only 35% in 2Q. I think it had been closer to 50% in prior quarters. Is there anything that, Rex, you can maybe point to there as to what drove that degradation sequentially?
spk06: So as you know, in the subscription line, and you're talking about just the pull line, yeah. So the two things that we charge against that line from a COGS perspective, are the call center costs to where we're supporting house and drivers. And then we also, clearly, when you have a sure warranties in your favor, or sorry, in your contract, any cost of repair that we have go against that. I would say there's nothing unusual in the quarter. It would suggest something that's a long-term trend in that regard. So I think it's just an anomaly. Thank you.
spk02: Got it. Got it. Thanks, Rex. And then I guess as a follow-up, could you maybe just talk a little bit about the supply chain situation currently? Obviously, you guys continue to do a nice job offsetting an increase in logistical costs. But just curious what you guys are anticipating moving throughout the rest of this year.
spk06: So that's a great question. In Q2, I'd say we did a nice job managing it. You could probably tell by looking at the balance sheet, we were not able to build inventories. So we're very much procuring and shipping. We did run into a little bit of more demand than we could meet. So there were some shipments that didn't happen due to supply chain. The biggest issue is mostly higher logistics costs. But to a lesser degree, there are some component shortages out in the market. So again, I think we managed that really well. It hit us three points in Q2. Without that, we would have hit 26% gross margin, showing some nice progression from Q1. If you look at the second half of the year, we've got a pretty steep ramp for Q2, Q3 from a revenue perspective. So we're putting an enormous amount of pressure on our operations team and our supply chain partners and cms to uh to meet those numbers and so we you know in our guidance we've tried to take all of that into account so i do think there's going to be a um you know x numbers of points you know mid to low single digits um pressure on us from a from a gross margin standpoint as we bang through that uh i will just tell you and impact that back me up on this we've because it's of our model which is land and expand get the customer We're pushing top line to make sure we capture the territories or the customers as we go. So that's where the emphasis is. And so if we have to make that trade-off, we will.
spk05: There's one more point on that. Because every port that we sell is associated with a subscription to software that's very low churn. The way we look at the overall contribution from a port uh uh from a margin perspective is over the lifetime of that port uh because the term rate is so low it it it the software revenue accumulates nicely over the years um so it's imperative that we ship as many ports as we humanly possibly can so biasing our supply chain activities to making sure that we can not only acquire new customers, but expand within the footprint that we have. I think we get it back in spades over the years. We just have to meet our customer demands right now.
spk02: So that makes sense. Thanks for calling, Rex. Just one more. Just now with diversity in the fold, Could you maybe just talk about conversations with fleet operators? Obviously, there's plenty of competition within that channel. Could you maybe just highlight how impactful having the vehicle telematics is from a potential businessman perspective? And maybe also just talk a little bit about some of ChargePoint's competitive advantages on the software side for fleets versus some of your competitors.
spk05: Well, from our perspective, especially given that it's very early in fleet and fleet operators don't have a tremendous amount of experience with electrification, to say the least, the completeness of a portfolio and the pre-integration we think is a huge differentiator in being able to establish ourselves early with these fleet customers as they convert their fleets from fossil fuels to electricity. So pursuant to that, what we're investing in both organically and with the vericity acquisition inorganically is having as large a portfolio as possible. With respect to vericity in particular, The functionality that they add on the vehicle side extends beyond just raw telematics. It includes higher level functionality like battery health monitoring and other driver vehicle support functions and reporting functions that they have. Where that comes into play is in specific sub-verticals within the fleet space, very, very large. fleets typically will already have a telematics provider that they're working with and were pre-integrated with all of those usual suspects there or continuing to integrate with the larger set. For the long-tail fleets, that is often not the case. And for eBus, that is often not the case. So having the specific vehicle telematics offering in the portfolio really reduces the integration complexity for someone that's in one of the segments that has currently picked a partner or that doesn't have the wherewithal internally to really do those sorts of integrations themselves. So what we're trying to do is, much like the way I example it is, the way that you would purchase potentially an ERP system but you may not buy every plug-in for that ERP system from the ERP system vendor, but you like having the fact that some customers have the ability to pick and choose from a basket of things that surround the core functionality. I think this market heads in generally the same direction. So from a differentiation perspective, it's the completeness of offering, check. We think we've got a good one there and are continuing to invest. But most importantly, I'll draw your attention to the number of third-party services that we're integrating with as well that are in the fleet ecosystem on the software side to make the adoption of this very, very simple. I'll pause there.
spk02: Really helpful. Thanks, guys.
spk06: Hey, Gabe. One thing. This is Rex again. On your first question, you caught me a little flat-footed there until it dawned on me that you were looking at gap numbers, not non-gap numbers. So the driver on that from a GAAP perspective is fundamentally stock-based comp, which is a new thing for the company, obviously, since we've gone public. If you're looking on a non-GAAP basis, the software margin is actually up a point sequentially. So sorry I didn't rock that with you when you asked the question.
spk02: No, no worries. I'm just saying thank you. So that's that $2 million that's added back. That's all related to the network subscriptions line, the $2 million.
spk01: uh the two minutes the delta is with without stock based comp subscription gross margin went up okay okay got it got it thanks guys thank you mr dowd ladies and gentlemen please limit yourself to two questions at a time please limit yourself to two questions at a time the next question is from colin rush with oppenheimer please proceed
spk04: Thanks, guys. Sorry if I missed this, but can you break out the increase in the guide, how much of that's coming from acquisitions, and how much of that is organic growth from the existing business?
spk06: Colin, this is Rex. So our estimate for Q4 was that the acquisitions would contribute approximately $4 million. And so the balance in Q4 would be us And then for Q3, we have veracity for most of the quarter and hope to have that has to be in quarter. So consider it baked in, but we're sort of assuming in our view of the world that you should focus some of the contribution in Q4. Okay.
spk04: That's incredible. And then just in terms of the pipeline activity, can you speak to the number of – you know, potential targets you're looking at and how that's grown, you know, over here in terms of, you know, the land expand model, you know, getting any of those new customers in. How should we be thinking about the growth in those for some customers that you guys can leverage?
spk06: So you started with acquisitions and you went to customer count?
spk04: The acquisition is done. The second question is really about the pipeline and how that's growing here for first-time buyers of products.
spk06: Yeah, so on the acquisition front, super happy to have announced the two that we did. I can tell you I think we followed beautifully what we as a management team insisted on, which is pick the two you like and make sure you get them. And the question is, or I think the question is, are we looking at that going forward doing some additional or no? No, I think the question, right?
spk04: No, no, no, it's not about acquisitions at all.
spk06: It's about customers. Yeah. Oh, okay. I'm sorry. I was thrown by the acquisition questions. So pipeline from a... Well, I'll take your last thing, which is the whole customer growth question. So from a customer growth perspective, we have a stellar quarter in Q2. We're well past the number that we've had out in the market before. As you know, we are investing heavily in sales and marketing to make sure that we keep that trend going. I think we said probably six months ago that we're around 500 new customers per quarter. We're handily beating that now. And that's organic, right? So obviously the two acquisitions bring some additional customers, particularly in Europe and particularly in the e-bus segment that we did not have. But our organic growth on the customer side is powerful.
spk03: Okay. Thanks, guys. I'll take that.
spk01: Thank you, Mr. Rush. The next question is from Craig Irvin with Roth Capital Partners. Please proceed.
spk04: Good evening, and thanks for taking my questions. So today I had the opportunity to look very closely at your new fleet products in person, and I have to say I'm really impressed, particularly from the small component count in the different pieces, you know, the dozen components in your DC conversion tower, the eight components in your, I guess, two-port dispenser tower. This kind of suggests that there may be an opportunity from a margin standpoint as these start to ramp in volume. Can you maybe talk us through whether or not this manufacturing efficiencies and the simplicity of these products will be accretive to margins over the next number of quarters? And there were some questions as far as the overall certification status of these new fleet products.
spk05: Yeah, that's a great, great set of questions. And thanks for checking out the product. I'm assuming that you were at the Actrade show. Is that what you said?
spk04: Yes.
spk05: Yeah. Yeah, so what's core to the strategy here is designing products that build from very few subcomponents. So if you look across our product line, you'll see the same subcomponents used in multiple products. And the reason for that is twofold. One is exactly what you're alluding to. It's long-term manufacturing efficiency. and volume scale to yield a favorable cost structure there. But there's a second factor, which is in most mission-critical or all mission-critical businesses, fleet or passenger car, sparing capacity for self-maintainers or our own ashore services are essentially our warranty services. Maintaining a simple inventory management system to enable rapid repair and very high uptime is the second reason. So this is one of the few times in product where you get both the cost structure advantage due to scale concentration in a few components and a reliability and uptime kicker as well. Now, that's our intent, is to continue to push the volume, and we expect that as we scale, and I believe Rex has mentioned on several learnings calls that as these products mature, that's the underpinning of what we've talked about in terms of our margin recovery curve, getting us back to previous historical levels on the margin.
spk04: Excellent. Excellent. But my next question is about products for Europe. So my understanding also from looking at the products closely is that there's an opportunity for a very small number of components to be changed versus the designs that are now starting to ship into North America. And can you maybe clarify for us whether or not this simplicity, this design approach that you've taken maybe accelerates the margin accretion as you look to serve Europe a lot more aggressively for growth over the next number of quarters?
spk05: So we've taken a design approach across the board that wherever possible, products are being designed to be world products, either through simple, final, or out-of-the-box world products. The reason for that is exactly what you're alluding to, which is to combine scale between the two continents to drive not only supply chain efficiency but common practices for repair and reliability. So the fast charge products, for example, that you saw at ACT and even some of the AC products, I don't remember exactly which ones we had exhibited there. The fast charge products are world products. They are designed to work everywhere. And the AC products for fleet in particular and for Europe are designed at their core to operate globally.
spk04: Thank you. And then if I could squeeze another one in. Workplace has been a very important market price point over the last number of years. It's a particular point of strength for the company. And a lot of us are looking at our teams being back in the office and know that many other companies have similar policies. Can you maybe comment about recent conversations with your important customers and workplace, whether or not it's fair to expect some building of the momentum there, maybe a return to the really impressive growth that you saw over the last couple years?
spk05: So if you look at the remarks that we made earlier before the Q&A, we pointed out that our our business volume is now above pre-COVID levels and our growth rate is above pre-COVID levels, but COVID's not over yet. And so what that says is that our modeling assumptions in that cars drive everything, And in our revenue model, cars do drive everything. It's completely an attach rate model as to how we model our revenue forecasting. And over the last three quarters, I think we've done a pretty good job even in a COVID environment forecasting our revenue. What we have seen is a mix shift due to COVID. but the overall growth in the space has been more than compensated for by the increased arrival rate in cars relative to the pre-COVID levels that we have seen. So with all of that said, as workplace returns, it's all upside.
spk04: Understood. Well, congratulations on the strong quarter. I'll hump back in the queue.
spk01: Thank you, Mr. Irvins. The next question is from Shreyas Patel with Wolf Research. Please proceed.
spk04: Okay, thank you. So you mentioned earlier that you're having difficulty in meeting demand, and that was an issue in the quarter. I just wanted to see, you know, how we should think about the ability to increase manufacturing if this were to continue for the next, let's say the next few quarters. And is there any way to think about any upside potential to capacity for ChargePoint?
spk05: So this is not a manufacturing capacity driven problem on the supply chain side for us. Our contract manufacturers can deploy the labor and the capital equipment necessary to build physical product. The issue is the random the random onset of decommits in the supply chain for components and our teams with our contract manufacturers deep focus on making sure that we exercise every potential source of supply and our engineering teams right behind them qualifying second, third, fourth sources in some cases so we can desensitize the risk. You can't drive it to zero, but desensitize the risk to sudden decommits where you think you have a source of supply, but suddenly they can't meet shipment into the factory. Because, as you've seen, the numbers are a bit higher than our original forecast, we've been able to scale on the component supply chain on the way in to generally meet that demand, not completely, but to generally meet that demand. And the team is working like crazy to put a belt and suspenders in place to drive materials into the factories where the factory capacity, again, is not the problem. So we can meet the new guidance that we've set for you for the back half of the year. So we're working it. We haven't been bitten by it yet. But, you know, we're experienced enough in these matters to never take our eye off the ball and never advertise to you that we're immune to any problems.
spk04: Okay. And then I wanted to switch to the fleet side of the business. You mentioned, I think you mentioned 180% growth in the quarter, which is obviously really impressive. You know, I wanted to, as you're thinking about the opportunity, obviously now with, with, with varsity and, and you're, I'm just trying to think through how the competitive landscape evolves here and how you kind of charge points positions. And in particular, you know, we've seen announcements from OEMs that are, that are looking to offer, you know, fleet charging as part of their, their product offering. Ford and then recently GM are two examples. So, you know, how do you think about the ability to, to still provide a value-add solution as those OEMs are indicating interest in trying to sell towards their own customers?
spk05: Yeah, so we've addressed this question, I think, on the – I think we got a very similar one on the last earnings call. There are almost no single OEM fleets out there. um and and so we're focusing on a solution that isn't tied to any one particular oem and that is also uh broadly open to all of the other business system partners that that fleets uh tend to integrate with so we can be as pre-integrated as possible um and our focus from a competitive perspective is to be um is to not have the customer be the integrator is to is to is to enable as simple a integration as possible by being pre-integrated There's never perfect science here, but that's what we consider to be our differentiator in a big way. I think the OEMs need a default offering, and we applaud that. I think they need to have that, but I think most of their customers don't buy from just them. So again, because most fleets are multi-OEM, we don't see that as a negative.
spk04: Okay, thanks a lot.
spk01: Thank you, Mr. Patil. The next question is from David Kelly with Jeffrey. Please proceed.
spk06: Hi, good afternoon, guys. Thanks for taking my questions. I guess two from my end and maybe starting with the fleet charging question. portfolio that you uh unveiled uh a couple months ago you know clearly software intensive so maybe if you could walk us through how you're thinking about the longer term kind of subscription opportunity uh tied to the software for that uh product line that'd be great i mean i i it would uh it would take the more time than we have in this earnings call to give you a full rundown um it's something we should we should
spk05: certainly do as we have more technology-specific days for the analyst community. But in brief, the way that you should think about it is that there's software that's proportional to charging ports, which is pretty analogous to our traditional commercial business for passenger cars, you know, when you sell to workplaces or retailers, parking operators, et cetera. So something proportional to keeping a port of charging on the charge point network. Again, not power orient, not making money on the sale of power, not utilization dependent, et cetera. Then there's the additional fleet services for charger scheduling based on needs for next day routes or next shift routes. that is billed on a per vehicle basis. So now you can think of a new service above and beyond the charger management services that can be billed on a per vehicle basis for those kinds of services. And then there's site-wide energy management services that can come into play later. So you have generally things that are proportional to chargers, proportional to vehicles, and proportional to sites. In the commercial charging system, domain, it's changing as well, except the proportional to vehicle component isn't really as strong because the telematics doesn't play in there. I'll point out one more thing relative to our commercial and our residential businesses' relevance to fleet. A lot of operators have a take-home component to their fleets. Our residential offerings and our business offerings for lease codes in Europe that provide cars to employees as part of their compensation, that same technology package is being pointed at take-home fleets to enable electricity cost reimbursement when the employee takes the vehicle home and uses their own vehicle. power essentially to charge a vehicle for work purposes. So we're seeing a lot of crossover there and that's the power of being involved in all these verticals is being in any one vertical leaves you uncovered for the use cases that cross into the other vertical. The last is that being able to offer the en route, in the wild charging capabilities with fuel card integration so the payment's consolidated, et cetera, is another avenue where our commercial offerings for drivers like you and I that drive a vehicle and park it, a parking operator or an employer that uses those things. Well, imagine now we can bring that world where fleet drivers can use those services but have integrated billing back to their employer through integration with fuel card providers, et cetera. And we're going to keep expanding that leverage into that commercial segment. So really all these things play together, and that's what's not really apparent yet to a lot of folks that are looking at the space. I'll pause there. So it's going to be a long answer if I keep going.
spk06: Okay. No, great. That's super helpful. Really appreciate it.
spk04: And maybe just kind of to switch gears a bit, a high-level question on ESG and sustainability and
spk03: this might be a long answer as well, but clearly we're seeing a broader push in North America.
spk05: So, so maybe could you give us a window into the conversations you're having with existing and new customers, you know, how they see charging fit into their strategy and, and, you know, could ESG boost, let's call it the longer term rebuy algorithm for charge point, you know, as we think out several years into the future. Well, it certainly could. I think businesses of all kinds are embracing charging for not only ESG reasons, but it's also good for their employees and good for their customers because driving electric is, in the long term, much more cost effective than driving on fossil fuels. The car itself has a better cost profile over time, and then fuel, well, it's the story there. And obviously, all these companies are now being measured on ESG. So it has to factor in. Just the question is, you don't really need any more charging than the cars in the parking lot are driving. So we can't make an estimate right now of how that's how much of that is pre-baked into our attached rate model or not. And we'll understand that as the market continues to unfold. But I agree with you. It's certainly a tailwind. The question is, how much?
spk03: Okay, got it. Thank you. I really appreciate the time.
spk01: Thank you, Mr. Kelly. The next question is from Vikram Bagri with Needham. Please proceed.
spk00: Good evening, everyone. I just have two questions. One about near-term profitability and one about long-term outlook and profitability. Rex, you highlighted increasing outlook by BNEF recently, and I believe your long-term outlook was based on their forecast. You've made acquisitions which are margin accreted. How does that change your outlook to achieve profitability, which was fiscal 25 a few months back? Could you just talk about puts and takes there? And in terms of Near-term profitability, the initial guidance at the beginning of the year was about 31%. You mentioned about 3% hit to gross margin this year, this quarter, due to supply chain issues. There has been a shift in mix and the impact of prolonged shutdown due to COVID. Could you also explain the near-term sort of margin outlook using 31% as a base, what the puts and takes are, and if you can To the extent you can quantify them, that would be helpful. Thank you.
spk06: So, Vikram, based on your question, you clearly understand it really well already. But so what I would say, so for this year, it's absolutely true we are running lighter on gross margin than we would have expected, though I think we posted a decent number in Q1. We held in Q2 despite some of the external factors. uh and we're going to bang through uh the second half of the year and deal with those factors as well as i said earlier we are definitely making a commitment to ourselves to drive the top line harder uh because land and expand is a ball game and so getting customers now is is super super important uh that obviously puts a little pressure um if you're if your margins not performing that puts full pressure on you from a From a bottom-line perspective, but again, for the long-term health of the business, the top line is everything. And keep in mind, as we acquire customers, we're acquiring customers who become ongoing customers from a software perspective at an appreciably higher margin versus the initial sale. So if you look at – so I do – we don't give gross margin guidance specifically, but I think qualitatively you could tell that there's a gap between where we thought we were going to be at the beginning of the year and where we are now. And as you referenced, mix is a big, big, big component of that. So if the commercial business turns in additional quarters like it did this quarter because it came on extremely strong, that's a place where we get a lot of margin power. So we need to stay tuned on that. I think you also asked a question about the acquisitions. I think the acquisitions are a credo of gross margin throughout. They will initially be more in terms of OPEX than the gross margin contributed, but I think that flips. in the not-too-distant future. And then there are also very positive benefits between stuff we do that drives more sales of the software we just acquired and stuff they do with the software we just acquired that drives more business from the ChargePoint side. So as that synergy kicks in, I think we should have a pretty good year with those two acquisitions next year. And then lastly, from an acquisition – sorry, from a profitability perspective, we've actually talked in terms of calendar 24. We're turning our models every day. I don't think the acquisitions or our current – uh blending of of go or strategy of going for revenue and addressing gross margin issues is going to meaningfully change that um you know if if we decide that that needs to be pushed out we'll let you know but we're not there yet thank you thank you mr bagri the next question is from attain mccally with city please proceed
spk03: Great. Thanks. Hi, everybody. Apologies if I missed it earlier. I did join a bit late. But did you have the rebuy percentage in North America for the quarter? And then secondly, just going back to the gross margin discussion, Rex, As we think about the land and expand model, is the gross margin higher on incremental ports that are installed at a particular customer? Meaning, is it worth it for you to invest some gross margin initially as you land them, and then as you expand them, the incremental margin on that would be higher? Sure.
spk06: so on your first question about uh the rebuy rate we're uh um remarkably consistent north of 60 of our businesses revised um and that held this quarter you know it bounces around 63 67 61 but it's It has a six in front and very consistently there. In terms of land and expanded, there's a margin profile change. If you look at it, it kind of depends on how fast people buy. You can look at it in its entirety because over time, you know, obviously software is a meaningful component of the relationship with the customer. That helps. But I've seen nothing that would suggest that we need to go in less expensive, take a margin hit, to secure the customers and then try to get it back over time. Obviously, we have a number of customers that have a couple of couple thousand ports pushing 3 000 ports obviously they get benefits in terms of pricing but in terms of the basic model um you know our asps are are holding up very very nicely and we just haven't seen a need in uh competitive situations um to take that head up front uh we go in and we remain fairly consistent
spk05: I just want to remind everyone on the call of one thing as well related to that answer. Installation does not go through our book. That is true. And so any efficiencies that would happen from the installation perspective as the deployment gets bigger, the particular customer, because there are economies of scale there, we don't see that because that's not part of our revenue profile.
spk03: Yeah, that's very helpful. And if I could sneak one more in, maybe back to the ESG discussion earlier. Do you have a rough sense of, like, what portion of your North America commercial customers kind of give away charging sessions for free, either all the time or at least partially?
spk05: I don't have that. That number moves around a bit. I don't have that off the top of my head. I can certainly – find it, but I'll give you some color. Workplaces in general do not attempt to use their employees as a revenue source. They treat this as an employee benefit. There's typically been a couple of questions on this call with respect to ESG alignment. And the cost structure associated with giving your employee power in a workplace setting is comparable to providing them coffee. And so it's not very high on the Pareto list of costs with respect to employee benefits on a site. For example, a cafeteria would be far more expensive if it was subsidized than giving an employee EV charging. Also, you're effectively lowering your employees' personal cost structure and because you're enabling them to drive an electric vehicle. So the status, it's not ours, but the general industry status, you're six times more likely to buy an electric vehicle if your employer offers EV charging. So there's a pretty good indicator there for you when you're thinking around the subject. With respect to retailers in general, they typically, if they set a price, it's a cost recovery. Typically, if they set a price at all, a retailer is more using it as a tool to engage engage a driver in the business, in their business. In the future, you'll see more and more integrations with loyalty card programs there to potentially stratify the charging benefits a bit to provide an incentive for you to sign up for a loyalty card program at a retail. That's our expectation. And other segments follow similar suits. So there's a healthy amount of charging for charging going on, but I think in general, There's also a very healthy amount of use of charging as an incentive or employee benefit.
spk03: Perfect. That's been helpful. Thank you.
spk01: Thank you, Mr. McKaylee. The next question is from Matt Somerville with DA Davidson. Please proceed.
spk06: Thanks. Just two quick ones. I was wondering, especially given all the new customer additions you've been talking about, what trends you've been seeing in uptake rates for ChargePoint as a service and how you expect that to scale from here going forward? Sure. So we've been running over the last sort of four to five quarters. It's anywhere from four to 7%. of our billings, it's focused entirely on our L2 workplace product. So we're only just now rolling it out as to other products. So when you think about our total billings, it's going to hover in the 4% to 6%, and we were consistent with that in Q2. But looking forward, we're aggressively looking at applying that to Our DC products, it's also something we think is going to be a meaningful component of our fleet business because fleets, like one throws a choke in financing too, so they're going to look at... Multifamily as well. And multifamily will be another place. So I think the places where we end up providing things as a service is going to expand nicely over the next couple, three years. But it's been very consistent in the range of just... It's already almost there in multifamily. Yeah. And it's got to...
spk05: True that up a bit, but it's already a subscription-based service for that segment.
spk06: Got it. And then just as a follow-up, your cash burn rate in the quarter improved a bit sequentially. How should we be thinking about that looking out over the next couple of quarters? Maybe talk about some of the bigger pluses and minuses you would want to make us aware of. Sure. So we had a nice matching of effects in Q2 where we generated about $44 million from warrant redemptions in the quarter, which more or less matched the operational cash burn. I think we're going to be in a cash-consuming posture for – the foreseeable future. Keep in mind the thing I said earlier about profitability, that still holds. So if you look at our current run rates, assume that's going to be consistent, hopefully, in that range over the next couple of years, we should be fine from a cash perspective, at least for two years from now. Clearly, though, and given the comments a minute earlier about how when we turn cash to a positive, given the fact that we've done acquisitions, you know, we obviously don't have sufficient cash to get the entire way, and we'll have to keep an eye on that. Got it. Thank you, guys.
spk01: Thank you, Mr. Somerville. The next question is from James West with Evacor. Please proceed.
spk03: Hey, good afternoon, guys. First of all, I wanted to ask about something you mentioned right up from that scale. Clearly, you're selling the benefits of upscale right now.
spk06: um but as you outlined um there's a lot of tailwinds in the business whether that's the ev sales and of course many new models of evs that are coming in the next 18 months the policy tailwinds the infrastructure tailwinds um how do you think longer term not not near term with the supply chain the global supply chain somewhat disarray which we all kind of know about but how do you think longer term about how you scale this business and what the risks are, what the opportunities are. And maybe, you know, given that your software is your base, of course, and we think of you more as a software company, maybe that's an easy answer because software is not hard to scale. But so maybe the two buckets of software versus a system.
spk05: I think you're asking absolutely the right question of any company in this space, which is, Um, most of the markets in front of us and we're going to see an acceleration of adoption. Uh, so how do you deal with that? So I'll give you a couple of, a couple of things to, to kind of illustrate how we think about it internally. Number one is channel. Um, you have to have a lot of muscle build in a company for a very long time selling through channels, which we do. Um, that's already built into our margin structure. which is very important. You have to have a margin structure that survives more than one tier distribution. You also have to have the training and channel enablement capabilities so your product can be represented for its differentiation. You have to have all of the support capabilities in place to be able to deal with the scale. And then you have to have the supply chain partners to be able to deal with what is the delivery vehicle for software, the hardware products at the other end of the wire, And the decisions we made there were to partner with large household names, contract manufacturers, of which we have multiple that are partners of ours, not too many because we obviously don't want to spread ourselves too thin with respect to management bandwidth, but enough there where there is plenty of capacity with, you know, reasonable, very reasonable lead times to lay in more manufacturing scale in front of the growth of the company. And lastly, what I'll point out is that the great throttler, even though I believe that we will have good growth in the industry for many years to come, the arrival rate of cars into a geography, net new cars into a geography for both fleets and commercial, that's the real limiter. So we are up against the production capacity effectively of the vehicle OEMs that are in the space.
spk06: Got it. Okay. Okay. That's very helpful. And if I could maybe ask one more On M&A, you were starting to address it earlier, but then it switched to a customer acquisition question. But I'm thinking about company acquisitions. You made, obviously, one recently. You've got one pending. Are there technology gaps? Are there holes? Are there areas that you're still looking at? Are you done for now? Are you putting this on hold as you integrate? How are you guys thinking about M&A?
spk05: So we have a pretty tight lens on that. We assess opportunities on the basis of technology gaps, customer base, which is probably the most important factor, is does it avail ourselves to a broader customer base inorganically? And then is the team and culture of the company a good fit for us because you're only as In an acquisition, you're only as good as how well you can integrate it, and that's a critical thing to have good alignment and vision for the market with acquisition, the company being acquired. More specifically, in terms of what the kinds of things we are paying attention to is how much, even though our offerings are very complete, What are the other adjacencies we can add that, you know, either develop or inorganically add that add to the offering that we have that enables us to sell more high-margin software to our existing customer base or to new customers? So that's how we think about it. It's a very tight evaluator. We're not going to be, you know, we're going to be very measured about how we evaluate things, but that's sort of color on how we think about it.
spk06: Understood. Very helpful. Thanks, guys.
spk03: Thank you.
spk01: Thank you, Mr. West. I will now pass the conference back to the management team for additional remarks.
spk05: Great questions, and thank you very much for your time. Really very thoughtful questions. What I'll leave you with is just something that I tell the employees. of recent in town halls. It's been an amazing six months for the company. In six months, we've become public. This is our third earnings call because the first one was right pretty much after we had closed the transaction to take us public. We've announced two acquisitions, closed one of them. We marketed an equity offering for selling shareholders. We've had to deal with the COVID impacts in our supply chain, you know, increased forecasts over our, or increased performance in the market over our forecast. So it's almost, you know, for us, it's been a very exciting start. We're really proud of the accomplishments. I couldn't be more proud of the team here at ChargePoint. I think they deserve all the credit for working tirelessly to get us to this point. And, you know, we're very optimistic about our positioning for the future. We're going to be very mindful and not get, you know, not get in front of that and really work hard to just continue to expand this business. But we're super excited about what the future holds and look very much forward to doing one of these things again in three months. So thank you.
spk01: That concludes the ChargePoint second quarter fiscal 2022 earnings conference call and webcast. Enjoy the rest of your
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