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spk00: Ladies and gentlemen, good afternoon. My name is Hannah, and I will be your conference operator for today's call. At this time, I would like to welcome everyone to the ChargePoint third quarter fiscal 2022 earnings conference call and webcast. All participants' lines have been placed in a listen-only mode to prevent any background noise. After the speaker's remarks, there will be a question and answer session. I would like to turn the call over to Patrick Hammer, ChargePoint's Vice President of Capital Markets and Investor Relations. Patrick, please go ahead.
spk04: Good afternoon, and thank you for joining us on today's call to discuss ChargePoint's third quarter of fiscal 2022. This call is being broadcast over the web and can be accessed on the investor section of our website at investors.chargepoint.com. With me on today's call are Pascal Romano, our chief executive officer, and Rex Jackson, our chief financial officer. This afternoon, we issued our press release announcing results for the third quarter of fiscal 2022 ended October 31st, 2021, which can also be found on our website. We would like to remind you that during this conference call, management will be making forward-looking statements, including our fiscal fourth 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. These forward-looking statements apply as of today, and we undertake no obligation to update these statements after the call. For a more detailed description of certain factors that could cause actual results to differ, please refer to our Form 10-Q filed with the SEC on September 10, 2021, and our earnings release posted today on our website and filed with the SEC on Form 8-K. Also, please note that we use certain non-GAAP financial measures on this call, which we reconcile to GAAP financial measures for the current quarter in our earnings release and for historical periods in the investor presentation posted on the Investors section of our website. And finally, we'll be posting the transcript of our call to our investor relations website under the quarterly results section. And with that, I'll turn it over to Pasquale.
spk06: Thank you, Pat, and thank you all for joining us today. I'll provide a business update, including details of our strong Q3 execution against plan before turning it over to Rex for financials. As I stated previously, our success is tied to the arrival of electric vehicles, and this quarter we saw continued momentum in EV sales in both the passenger and fleet categories. According to Bloomberg NEF, as many as 2.9 million electric vehicles are expected to be sold across North America and Europe this year. an increase of approximately 67% from 2020. And accordingly, we are seeing strong demand from auto dealers for charging infrastructure, an indicator that they are prepping for high-volume EV sales. Our strong financial performance throughout this year is the result of investments in a product and go-to-market strategy we have made over many years to be able to capture associated demand across commercial, fleet, and residential verticals in both North America and Europe. Historically, our revenue has only been limited by a sufficient breadth and quantity of vehicle options available to consumers and fleets, and this further reinforces the charge point as the equivalent of an index for the electrification and mobility. Our Q3 revenue of $65 million was at the high end of the guidance range we provided on September 1. This positions us to raise our expectations for the fourth quarter and full year, despite what continues to be a dynamic supply chain environment. I'd like to call your attention to a number of indicators of the scale we are delivering. First, we added more commercial and fleet customers in Q3 than any other quarter in the company's history. It is clear that our customers are preparing for the future as evidenced by 89% year-on-year growth in our commercial business. We finished the quarter with approximately 163,000 network ports under management inclusive of both acquisitions. Within that, the European port count was approximately 45,000, and globally, the DC fast charge port count was approximately 11,000. We continue to work with the industry to enable drivers to roam across networks in North America and Europe. This quarter, we crossed through over 290,000 roaming ports accessible to drivers using their ChargePoint account in addition to the ports directly on our network. Fleet billings in the quarter increased over 69% sequentially and over 198% year-on-year. I'll remind you, we acquired Vericity, a leading e-bus and commercial vehicle management provider, and we also announced the expansion of our partnership with WEX, a leading fleet payment solutions company. The partnership will provide fleet customers ready access to the largest EV charging network for on-route charging needs and enable depot and at-home charging along with easy employee reimbursement. Demand for our residential solutions continues to be robust. Residential billings for the third quarter were up 62% year on year and 50% from the last quarter. In Europe, we saw revenues up over 190% year over year. As a reminder, we closed the acquisition of Have2Be, an e-mobility provider with a leading charging software platform in the European market at the end of Q3. Our established and growing channel, which provides unique leverage and efficiency, is growing proportionally with the balance of our business as well. And overall, the scale of our network is generating positive environmental impact with over 3.3 billion electric miles driven to date. By our estimates, drivers have avoided over 132 million gallons of gasoline and over 529,000 metric tons of greenhouse gas emissions. Our mission requires world-class talent, and I'm pleased that ChargePoint continues to be a destination for top professionals. We ended the quarter with more than 1,300 employees, including the ChargePointers that joined us through the two recent acquisitions. And on the policy front, the passing of the Infrastructure Investment and Jobs Act includes up to $7.5 billion to accelerate the build-out of charging along highways and in our communities. This is evidence that U.S. policy leaders are committed to an electric future. We are working with policymakers at the federal and state level to shape this. While other state and utility programs are in place now, this new stimulus will likely manifest significantly beginning in 2023. Lastly, I would like to welcome former U.S. Secretary of Transportation and Labor Elaine Chao to our Board of Directors. Her appointment brings depth from both public and private sectors and further strengthens the board composition, which already includes leaders from technology, automotive, and investor communities. Now I'll turn this over to Rex to discuss financials before we move to Q&A. Rex, over to you.
spk09: Thanks, Ms. Qualden. Good afternoon, everyone. First, my comments are non-gap. where we principally exclude stock-based compensation, amortization of intangible assets, and the effective evaluation of our stock warrants. This quarter, we also exclude professional service fees related to acquisitions for reconciliation of these non-GAAP results to GAAP this year earnings release. Second, after a quick review of our results, I will provide revenue estimates for Q4 and the full year. Third, consistent with our prior calls, and as you can see in our earnings release, we report revenue along three lines, networked charging systems, subscriptions, and other. Networked charging systems represents our hardware, all sold with our cloud services solutions. Subscriptions include those cloud services, our assure warranties, our charge point as a service offerings, where we bundle our solutions into a recurrent subscription, and now software revenue from our veracity, and has to be acquisitions. Other consists of energy credits, professional services, and certain non-material revenue streams. Q3 revenue was $65 million, up 79% year over year, at the high end of our previously announced guidance range of $60 to $65 million, and up 16% sequentially. We are very pleased with this performance, despite a number of supply chain challenges, and demand in the quarter we could not meet has given us a good start on Q4. Network charging systems at $48 million was 73% of total revenue per quarter, consistent with Q2, and grew 111% year-over-year and 16% sequentially. Subscription revenue at $13 million was 21% of total revenue and up 24% year-on-year and 11% sequentially. As I mentioned last quarter, the delta in growth rates between network charging systems and subscription revenue is a function of two main factors, and time lag. In Q3, MIX again favored DC network charging systems and home, which have a much lower ratio of subscription to network hardware revenue. Second, for most of our solutions, we began revenue for subscriptions at a fixed time after the associated hardware shipment to accommodate installations, yielding a time lag of at least a quarter. Our deferred revenue from subscriptions, representing recurring revenue from existing customer commitments and payments, grew nicely, finishing the quarter at over $120 million. Other revenue at $4 million and 6% of total revenue increased 37% year-on-year and 30% sequentially as driver activity and associated credits picked up during the quarter. Turning to verticals, as you know, we look at verticals from a billings perspective, which approximates the revenue split. Billings by vertical for Q3 were commercial 69%, fleet 16%, residential 13%, and other 2%, reflecting outperformance in both fleet and residential. We are very pleased to see strong growth. Total billings up 96% year-on-year and 25% sequentially, and in particular, commercial up 89% year-on-year in a COVID-impacted commuting environment. From a geographic perspective, Q3 revenue from North America was 89% and Europe was 11%, representing a slight percentage gain in European contribution, driven by both organic growth and acquisition contribution. In the third quarter, our European business did over $7 million in total revenue, almost tripling from last year's third quarter and up 41% sequentially. Turning to gross margin, non-GAAP gross margin for Q3 was 27%, a four-point improvement over Q2, reflecting continued improvements in our cost of goods sold and positive margin contributions from our European acquisitions. We estimate elevated logistical costs and supply chain constraints cost us approximately 2% of additional network charging system margin. Non-GAAP operating expenses for Q3 were $63 million, a year-over-year increase of 61%, and a sequential increase of 18%. Included in the quarter was an additional $2 million in operating expenses attributable to our two acquisitions. As we have said, we continue to invest heavily on product development, customer acquisitions, operations, scaling, and other areas to drive our leadership position in this rapidly evolving and growing market. Stock-based compensation in Q3 was at a normalized level of $16 million, down from $28 million in Q2. Of the $28 million of stock-based compensation in the second quarter, approximately $14 million was attributable to services performed prior to the second quarter and included grants to employees who joined the company during the preceding 12 months, as well as incentive awards to key personnel in both cases delayed while the company executed its SPAC transaction. Q3 did not have any such adjustments. With respect to contributions from our two European acquisitions, I mentioned in our September earnings call that we expect a Q4 revenue contribution of approximately $4 million and Q4 operating expenses of approximately $8 to $10 million. This continues to be true. In Q3, the revenue contribution from the acquisitions was approximately $2 million comprised of hardware and other, reflecting the fact that we own these assets for only a portion of Q3. Looking at cash, we finished the quarter with approximately $366 million, down from $618 million at the end of Q2, reflecting cash spent on operations and $210 million paid for acquisitions in the quarter. After giving effect to the acquisition of has-to-be and ongoing employee issuances during the quarter, we have approximately 331 million shares outstanding. Turning now to guidance. Demand for our solutions in Q3 continued to outstrip our expectations and production ramp. COVID keeps the markets guessing, and employers continually have to adjust return-to-work plans. But with a strong third quarter, healthy backlog to start the fourth quarter, and continuing broad pipeline build across all verticals, we are moving our Q4 and full year guidance up. For fiscal Q4, we expect total revenue of $73 to $78 million. At midpoint, an increase of 78% versus Q4 of last year, and a sequential increase of over 16%. For the fiscal year, we're taking our revenue guidance up from $225 to $235 million to $235 to $240 million. At the new midpoint, representing a 62% increase year-on-year. And with that, it concludes our prepared remarks, and we'll turn it over to Q&A.
spk00: Certainly, if you would like to ask a question, please press star followed by 1 on your telephone keypad. If for any reason you would like to remove that question, please press star followed by 2. Again, to ask a question, press star 1. We kindly ask that you limit yourselves to two questions today. 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 as questions are registered. The first question is from the line of Shreyas Patel with Wolf Research. You may proceed.
spk08: Hey, thanks so much.
spk06: Just the first one, Pat, I think you had mentioned that you expect to see the federal stimulus to more meaningfully manifest in 2023. Is there a way to maybe frame what kind of funding these additional dollars could support in terms of new chargers? being added, and maybe also if you can remind us what you're seeing at the moment in terms of funding from utilities in certain states towards charging. Thanks, Seth. Thanks, Trace. Good to hear your voice. So it's a complicated question. The federal infrastructure bill is much of the money, not all, but much of the money is going to flow through states and the states have to design their programs. That's why we're estimating that we won't see much of that in 2022. We may see some of the back half of the year, but it's hard to predict. And in terms of how much money is going to flow actually in that year versus subsequent years, is right now, it's too hard to call. I'm not trying to be evasive. It's just if you look at the, I'll give you an example, the VW Appendix D program that was implemented in an analogous way. It was money that flowed from the federal government on the federal portion of the settlement anyway to all states but California. California had its own settlement carve-out. It has taken multiple years for that to roll through. Some states are quick to to define a program, some are slower. So that's why it's challenging for us. And then the color of the program uh in terms of the you know exactly what the constraints are is going to influence the installation cost versus the equipment cost Etc so really hard to call um the sum total of the money like I said we don't we didn't expect to be the next year I also want to draw your attention to one other thing is that the budget uh reconciliation and other Associated conversations about where the government is trying to generate stimulus in other areas for EV charging, that could have faster effects. But again, it's too hard to pin that down right now. In terms of your question with respect to utility funding effectively amounts, Rex, do you want to comment on that? I don't know if you have a current number.
spk09: I actually do not have a current number. My apologies.
spk06: Yeah, so just to remind everyone, the BAT represents approved utility programs, and then those programs roll out over multiple years. Not all the funds are relevant to our revenue, even in those programs. So in previous quarters, we've reported it's similar or analogous to a backlog number associated with kind of the sum total of approved utility programs that are running in the United States. It's not necessarily our backlog, but it's sort of analogous in that domain from the industry's. uh, view and, and, uh, you don't have an update for you right now.
spk09: Yeah. So Pat, I want to make sure, um, was it a question in terms of what the programs are out there that's available? Cause that's how I heard the question as opposed to, yeah. Yeah. Cause we have a billings number for utilities for us, but in terms of total programs, it's in the hundreds of millions of dollars. Um, but in terms of the exact figure, it's hundreds of millions is a fair total.
spk08: Okay.
spk06: And Rex, just looking at OpEx, it was up modestly as a percent of revenue in Q3 versus Q2, but R&D was up more meaningfully. So wondering if you can just talk about some of the main priorities that are driving R&D spending, and then just how should we think about the magnitude of OpEx leverage? especially as we think about maybe the next few quarters or even into next year?
spk09: Sure. So, first of all, the OPEX number is a broad-based number because we're investing heavily in sales and marketing. Obviously, we're a newly public company, so we do need to deal with those things. But specifically, our priorities are some major product releases that we have coming out this year. As you may have seen, we had a big fleet announcement several months ago, and that's just a huge – watershed event for the company. So there's enormous amount of energy going into that. We've got some very interesting things that we have in mind for Europe coming out shortly. There's a huge amount of energy that goes into what we see as one of our greatest differentiators, which is, of course, the software platform. So there's a big, big push right now. And obviously, since we play in all verticals in both North America and Europe, and we see that the time is now from an industry perspective, really putting our shoulder to it. So that aggressive strategy, we think will pay off and steady improvements in that ratio next year. Can't give you a number, obviously, because it's a little early yet, but I think we should see some steady leverage next year that I think you guys will be happy about.
spk06: Okay. And then just last housekeeping for me, could you give us a sense of the non-GAAP gross margin between network and and software and service. I just wanted to confirm that. Thanks.
spk09: That's tough because on the subscription side, as you probably know, we do put our driver and host support into our subscription line. So that line tends to be in the 50s. Other bounces around depending on what the components are. So if you do the math, you can tell that the hardware, you know, you can back into the hardware number by just looking at the overall math. Once you know one, you can solve for the other.
spk00: Thank you, Mr. Patil. The next question is from the line of Greg Wasylkowski with Webber Research Advisory. You may proceed.
spk06: Hey, good afternoon, guys. Nice to be on the call. Thanks for taking the questions. Thank you. I wanted to ask about your targets for market share in Europe and the pathway for reaching those, specifically the balance between an organic versus an inorganic approach, given the relatively more fragmented market over there, and just thinking through what does that do to the cash flow profile and or tapping your own equity currency Yeah, just wondering how you're thinking about the path of least resistance while you're evaluating opportunities in Europe. Thanks. Great. Very good question. So, first of all, market share targets, you know, is obviously as high as we can get them. That's everyone's market share target in an industry. We've done pretty well in North America. We've recently, over the last couple of years, made enormous progress in Europe, and we're not putting a ceiling on that. We've done two acquisitions in very different industries. One is targeted at extending, consolidating customers as well as extending functionality in the fleet space. That was diversity one acquisition. that you saw and then has to be is in the center of the commercial business in Europe. So they serve very different verticals. And with respect to inorganic versus organic growth, you know, we'll be intelligent. We obviously will evaluate opportunities as they present. But I don't think it's necessary to have an all inorganic strategy to gain market share. It's early in the EV market in general, early enough, and we have strength that's broad-based with respect to our product portfolio position. Mind you, we're in every vertical that we can think of in both continents, so there's a tremendous amount of leverage there that we have. And with that said, if there's an opportunity to present itself, like there has to be a diversity and it has team, it has tech, and it has customers that are aligned with our business model, we'd certainly look at it. But we'd be very, very astute buyers. Perfect. Thanks. Very helpful. And then for my next one, more of a theoretical question around site owners' decisions between level two and level three charging especially at places with like shorter visit times, like grocery stores, malls, parks, et cetera. Early conversations we're having, I think there's some split opinions on, you know, what the preference may be for future EV drivers. You guys offer both solutions, obviously, but have more of a presence in L2. So I'm just, I'm curious, you know, what are your conversations been like with, know new site owners deciding which route to go with um and if any existing level two customers are you know looking to expand but with a dc solution there's a lot of misinformation on this and too many folks are pattern matching on on gasoline so um you know one point by by way of fact it's it's not an opinion um When you make the switch to an electric drive, a depot is not your primary fuel anymore, meaning you don't wait until the little yellow light's on, go drive somewhere, fill up, and go home. That doesn't happen. um especially if you if you if you have access to charging either at home or work or both or street side parking this is uh you know this is we've seen these driver patterns that you know kind of dominate how people behave there are always corner cases uh where people you know certain you know certain percentages of the population you know don't conform but they usually have outlier reasons for not conforming so it is not as speed gets faster you put it in in fact it's actually matching the natural parking duration and how much energy is expected to be reloaded in that stay so if you're going to the grocery store near your house you're not trying to show your tank or your battery you're not trying to do that you're trying to avail yourself of some convenience miles you may pick up as an amenity by your grocery store. Now, if you pulled off a highway and you're on your way to a weekend holiday and you happen to pick a grocery store to stop at because it had a fast charger, you're doing that because you want to make essentially a refueling stop. So they're very different use cases, and they get conflated sometimes. The average shopper doesn't want to use a fast charger if they're in their local area. And I'm not talking down one or the other. It's about matching it correctly. If you don't match it correctly, let's say you're that grocery store. If you don't match it correctly, you have a very expensive utilization mistake of the total construction cost and equipment cost versus the number of parking spaces and customers you can serve. So it's not an oops. I got a real problem because I really made a massive mistake. Because if you plug in around town and you're just topping up, a fast charger is such an expensive proposition for that use case and consumes so much electrical capacity for that use case that you've made a mistake. But if you're well-positioned, to serve highway drivers as they're going beyond the battery range. Having a mix on your grocery store site between L2 for your local customers and fast for your long-distance customers makes a whole lot of sense. So what we do is we consult with customers to try to help them understand how to allocate the right equipment strength for the likely use cases that are going to present in that parking lot because the number of parking spaces you can electrify with the electrical capacity and the cost of one fast charger is pretty significant if you're primarily serving local clientele. So that's just some of the coloring. And it's so much different than putting gas stations up. It just has no relationship to that legacy market at all.
spk03: Okay, appreciate the call. Thanks, guys.
spk00: Thank you, Mr. Wasikowski. The next question is from the line of Colin Rich with Oppenheimer. You may proceed.
spk06: Hey, this is Brendan for Colin. First one for me. Would you be able to give us a bit of color on early progress on acquisition integration in Europe and maybe any insight on initial returns for cross-selling opportunities there? I mean, I'll give you generalities because we're not coming at typical specifics. But in both acquisitions, you know, we're newer to the have-to-be one, frankly, than the diversity one because it's earlier innings. because that closed, you know, a couple months past when the Versity one did. But on both, we're making good progress on integration. On the fleet side, we're already co-selling. You know, and we have customers that, like I said, we've done some customer consolidation, and we've had customers that have used Versity for different functionality from ours. and had our charging solution and a Vericity vehicle solution. And where that's the case, we're already moving the ball down the field to integrate the two solutions. With that said, it'll take some time to get things integrated in an orderly way. We're in earlier innings, which has to be, but we've already got some customer activity going on where one plus one is already equaling three. um where we can bring additional functionality either to their customer base or ours vice versa so we're already making nice progress there awesome and then just secondly on the supply chain and pricing are you seeing the need to redesign products or particular subsystems in order to help the resilience of the supply chain and how active have you guys been in terms of passing additional costs to customers yeah so i'm i was uh chuckling as you said that um You know, we're incredibly proud of what our engineering and supply chain teams have had to do. As you've seen, we've turned in upside results now over several quarters. And if you can imagine how hard that is in a supply chain constrained environment, because obviously we're laying forecasts into our supply chain even under normal circumstances, with a significant percentage of a year's worth of visibility, because that's just what you need to do, especially as you're scaling. So to then come up with upside when you get, obviously, surprise decommits, which is happening everywhere in the industry, means that your organization is responding by rapid qualification of substitute components and rapid adjustment, in software to enable that. So it is definitely happening inside of our organization. They are doing a tremendous job keeping things moving through our supply chain. And, yes, it is a drag. You know, we could have put those resources in different places. Rex, I'll let you comment on the question on pass-through pricing.
spk09: Yeah, Brent, that's a good question. So without getting into specifics, we definitely have a program in place for passing through some level of our increased logistics fees, which I referenced in my gross margin comments. And there may be some price adjustments in the not-too-distant future to take account of what's going on in the supply chain. So we definitely have some movements ahead. Nothing major reflected in It's mostly perspective.
spk06: Also, Kyle, I'll remind you of two things. Rex, first of all, I believe in your prepared remarks. You commented that, correct me if I'm wrong, that supply chain issues resulted in about a two-point penalty on gross margin relative to what we could have turned in. Verify that. Um, and, and so, so Colin, um, you know, we, we, we had that, uh, working against us, but we still turned in strong improvement in gross margin quarter of a quarter and, um, turned in results on the high side. So you can imagine internally what that took to, to, um, to achieve.
spk03: Great. Thank you.
spk00: Thank you, Mr. Rios. The next question is from the line of Gabe Doud with Callen. You may proceed.
spk01: Thanks, and good afternoon, everyone. Maybe just kind of back to the supply chain. Can you give us a sense of how much visibility you have into fulfilling orders over the next several quarters and maybe just any thoughts around or commentary around inventory that's on hand currently?
spk06: I'll let Rex comment on inventory, but in terms of visibility, it's not so much visibility that's visibility into supply chain that causes us, many other companies say the same thing, grief in the quarter. It's unplanned decommit, which happens. And we respond to that. Now there's quite a bit of pre-planning going on there where we're scrambling to have multiple sources wherever possible on parts that we forecast as possibly being problematic. But, you know, our communication to supply chain, the firm orders that we're placing in the supply chain for product, et cetera, are well out into next year, well out into next year. Rex, you want to comment further?
spk09: Yeah, from an inventory standpoint, as you know, Gabe, first of all, hi, Gabe. Thanks for joining. We extensively use CN, so not all inventory sits on our books. Our inventory actually, like I said this last quarter, I keep wanting it to go up because of the supply chain challenges. But, you know, it actually slightly declined quarter on quarter here. But I would just tell you, if we can build inventory going forward, we will. We just haven't done that yet. Got it, got it.
spk06: Okay, that makes sense. And, Gabe, that's not weakness. That's just, you know, continued upside materializing. uh and and and that's and that's so that's a in our opinion it's a happy problem i wish we didn't have a supply chain constraints but but nonetheless it's a it's it's a it's on the good side of the problem balance sheet yeah okay because it's kind of odd to have a cfo say hey let's let's increase the fair inventory level uh um we have a we have a obviously a broad portfolio but we have very minimal obsolescence risk
spk09: So if you're trying to ramp the business and you've got supply chain challenges that you're trying to meet, building inventories, as Pat says, is a smart thing to do. So that's what we're trying to do.
spk06: This is also, Cade, where the modularity of the platform is in all the platforms that we ship is really coming into play because we drive a very broad set of use cases on the hardware side of the product line with very few skews or very few internal parts that we have to make. It may show up as different orderable part numbers, but that's largely just configuration at the end. So it really has helped quite a bit. Architecturally, the product line, you know, is not without its challenges in a supply chain constrained environment, but it's better than most.
spk01: Got it. Very helpful, Collin. Thanks, guys. And then maybe just as a follow-up, we kind of hit on the fleet side, just owing to the Veracity deal. But obviously, a ton of competition there, particularly on the software side, just given the energy management needs. It's more of a complex operation. And you saw the competition with another announcement today, BP making acquisitions. Could you maybe just give us a little bit of color on conversations, uh, whether it's here in us and Europe and, and just generally how demand and is stemming from, from the fleet channel and how you expect that to progress over the next couple of quarters.
spk06: Um, well, uh, Gabe fleets, fleets really, uh, you know, it's out of interest, just a tremendous, I mean, it's, it's, uh, it's coming at us from all sides. Uh, and again, in a good way, um, The comment, though, I would say in our opinion, we think we have the most wholesome broad-based software solution in that space, especially with the addition of Versi, because now we've even moved up the food chain on the vehicle side. And we're also a full-service provider with respect to the ability to have design deal consultancy and project management and you know, help with, you know, utility infrastructure on the sites with respect to consultation there. You know, we complete functionality across the board. And then we're seeing a tremendous amount of cross-vertical leverage. I mentioned on a previous earnings call that one example of that is we're seeing a lot of fleets that have a take-home component. to parking operations and refueling operations, not refueling in the traditional sense, but with electricity, wanting to reimburse the contractor that is taking the vehicle home. This is especially prevalent in fleets that are trying to lighten their CapEx load or their real estate load. So because we're operating in those verticals naturally, and especially in Europe, we've developed solutions for lease codes that are providing both company cars and leasing services to commercial fleets. We really got a broad set of functionality, so we're a one-stop shop for much of that stuff. As Rex mentioned on the R&D side, we're piling a tremendous amount of R&D into that on a continuous basis, so we're not stopping with the functionality that we have.
spk01: Great, great. That's really helpful. Thanks, guys.
spk03: Thank you.
spk00: Thank you, Mr. Dowd. The next question is from the line of Brian Greenwald with Bank of America. You may proceed.
spk05: Hey, good afternoon, everyone. Appreciate the time. So maybe first just one more on the supply chain. You guys talk about this 200-bit impact from the elevated logistical cost. I think you guys quoted 300 bits last quarter. Can you just give a bit more color on the evolution of the bottlenecks quarter over quarter and any way to help frame the amount of demand in the pipeline that you guys weren't able to meet?
spk09: Yeah, right. So you definitely have the numbers correct. It was a three-point swing last quarter, two-point swing this quarter. The heaviest component of that is actually logistics. So think expedite fees, putting it on a plane versus putting it on a boat. And so that's the biggest driver there. And I think that obviously we're going to continue to battle that a bit as you look forward. And so the second part of your question was?
spk05: Any way to help frame the amount of demand in the pipeline that you guys weren't able to meet this quarter?
spk09: So I would tell you that there was a positive spillover from Q3 to Q4. It wasn't massive. I hesitate to give you a number, but I would just tell you what's important is to understand that there was demand in the quarter. It was a big enough number that we weren't mentioning it. And it set us up for a nice start here in Q4. But it wasn't a massive number, but it was, you know, a meaningful enough number that would push us well above the high end of a range.
spk05: Got it. Appreciate that. And then in terms of the drivers of the revenue increase versus the plan you guys laid out last quarter, sounds like momentum across the board, but anything you can say in particular in terms of the contribution versus the prior forecast?
spk09: Is that a question? Are you saying did our mix shift at all quarter on quarter?
spk05: No, just in terms of the actual drivers of the revenue increase from last quarter. What is kind of shaking out better than planned in the last quarter?
spk09: As we said earlier, as Pat said earlier, it is broad-based across the three verticals. The mix has been pretty consistent with Q2. So superb performance from home, even though that's not a big revenue number, relatively speaking, because it's a fairly inexpensive product relative to our other products. We've seen really good performance from our CPE250, which is our DC product. And then we've seen Workplace do okay relative to what we think it should be doing once we get out of COVID. But if you were to look at it on a mixed perspective, it was actually quite consistent. As I said, my commentary got a small bump from our acquisitions in Europe. So it isn't like – I wouldn't say there's anything that's moving left or right. It's very consistent with Q2. It's just bigger. I'll leave it there. Thanks, Derek. New customer acquisition was super strong in the quarter, and then the distribution of what they buy, again, consistent. So it's just really good growth across the board. Got it. Thank you.
spk00: Thank you, Mr. Greenwald. The next question is from the line of James West with Evercore. You may proceed.
spk10: Hey, good afternoon, guys. Pascal, you talked up fleet a considerable amount in your repair remarks, particularly on the commercial side. I mean, really massive year-over-year growth there. It's very impressive. And you mentioned fleet's coming at you from all directions, which is a good thing, of course. Or is something... Changing with fleet, is there an uptick in just overall demand or a tipping point that we've hit, or are you taking more share? What do you think the evolution is here for fleet?
spk06: I mean, I think it's pretty basic. What I would love to do is say, hey, you know, we're taking – I mean, I think we are gaining share, but there was, you know, relative to a couple years ago, no share to gain because there were limited vehicles available. And when there aren't vehicles shipping in volume for manufacturers and you're limited to pilot level program sizes, it just isn't that meaningful. And if you remember some of the comments I made in previous earning calls, I pointed out that the revenue in fleet is not proportional to the opportunity that we've seized. Because as we develop pilots and cement our relationship with our fleet customers, obviously based on earning that trust, as they expand, they'll expand with us. And you have to do all the work. to get to a pilot or a lot of the work. You have to integrate with a whole lot of their business systems. You have to have a lot of functionality, and they still are sticklers for reliability, service, response time, all those things. So the challenge is it's an incredible – from an OPEX perspective relative to money returned in the period, it's certainly in the investment category, not the, you know, kind of run rate category, so to speak. So that's what I think is most significant is we are still flag planting. And we are doing a ton of work. And if you look at the size of our business, the OPEX that we're able to deploy because of the size of our business, it is, in our opinion, a huge differentiation on a go-forward basis because we can afford, frankly, to do the work. We can afford that mode because we have a commercial business that's healthy.
spk10: Right. Okay. Got it. That makes a lot of sense, Pat. Thanks for that. You had another comment on auto dealers as well and seeing strong demand for them as they prepare for the the future here, so they're obviously getting the signals from the OEMs, and we all know about the models that are coming out and about to hit the next 12, 18 months. What are they telling you, maybe the dealers or even the OEMs, about when they may start to retire their ICE engines, their older models, their low models?
spk06: You know, I think most any information that I know that isn't part I couldn't say because we'd be in violation of our NDAs with auto OEM partners. But if you just look at public announcements, if you look at public announcements in terms of, you know, flip over points where the majority of auto manufacturers lines will be electric, you're looking in Europe at brands shooting for somewhere between, you know, depending on the brand, the 2021. I think that's a bit aggressive, but by 2030 or the early 2030s, you're seeing most commit to being substantively electrified. And I think the dealers now to be able to get what is a production limited and popular vehicle they need to put in the charging infrastructure and the training and support for selling those types of vehicles before the OEMs will, en masse, give them the vehicles. So if you want to get the inventory, you've got to make the investment as a dealer. And we're seeing the dealers respond to those OEM programs substantially, and we think that especially it's geographically broad-based. It is not in the usual hotspots for EV. It is geographically much more broad-based, not perfectly broad-based, but much more broad-based. That is a very good indicator that auto OEMs are communicating to dealers that get ready. Stuff's coming.
spk10: Right, right. Okay, got it. Thanks, Pat.
spk00: Thank you, Mr. West. The next question is from the line of Bill Peterson with J.T. Morgan. You may proceed.
spk07: Yeah, good afternoon, guys, and nice job on the quarterly execution here. I had a question. You answered a prior question about the mix from the second to the third quarter. I guess based off your backlog and midway through the quarter, can you give us some directionality and how you see home versus commercial versus fleet. And I guess embedded in that, is there any sort of seasonality we should think about within that context?
spk06: It's hard to say whether growth is going to eclipse seasonality, you know, or not. I mean, you know, and shift some of the usual trends around. It's just hard to say. Normally we've seen seasonality in the business relative more to construction cycles in northern hemisphere areas. we're only serving the northern hemisphere, so it normally has a deep winter construction cycle slowdown in some areas, but you've got so much growth going on now, it's hard to predict how much of that's going to get offset. And so in terms of mix, I'll caution you on something. Revenue mix and unit volume mix are very different because of the wild price point differences between the residential business, inclusive of multifamily, and then the commercial and then the fleet business. The fleet business actually is split right down the middle. Light commercial is mostly AC and some And, you know, you get to the kind of mid-tier vehicles and the heavy vehicles, and now you've got a substantively all-DC business. And then their dwell time determines how shared that DC power conversion infrastructure could be. So what that bodes for is a very challenging segment in fleet. to reconcile unit volume even within the segment or vertical it's very difficult to match unit volume to revenue especially in early innings where averages have not stabilized overall i believe rex correct me if i'm wrong but i believe residential was 13 of our billings this past right that's right okay so for periods Yeah, so that gives you an order of magnitude. It's not revenue, it's billings, but you could determine what the correlation is there. That gives you an idea of order of magnitude of that one segment relative to the rest of our business. And I can tell you that the unit volume there to generate that percentage of business has to be quite high relative to, say, the unit volume in our commercial business.
spk07: Okay. Yeah, thanks for that, Keller. There was an earlier question on the infrastructure, and I think you also spoke to it as well. We've actually seen here in the last few weeks the California Energy Commission as well as the California Air Resources Board announcing pretty significant dollars over the next few years, $1.4 billion total, planned $1.1 billion in new money, of which a big chunk of that is for charging infrastructure. Can you give us a feel for if you're already seeing some activity and how you should – Do you expect these type of announcements, which are fairly near-term, frankly, relative to the infrastructure bill on your business?
spk06: So, I mean, we've got a lot of experience with the CEC. We've done quarter bill programs with the CEC for years. The CEC moves relatively quickly, as you said, relative to other programs because it's not – if you look at the federal infrastructure bill, the bulk of the money has to flow to states, and then states have design programs. So you've got this inherent two-tier infrastructure. two-tier cascade where the CEC doesn't have that two-tier cascade. It's a very large state. It already has a very large EV population and it's been operating with significant EV programs for a lot of years. So the, how should we say, the relief pitchers are warmed up in the bullpen in California. And so we, you know, it's hard to call how much of that is going to flow. Again, to us, it's always hard to call subsidy programs, so I'm not going to venture a guess. And remember, all of the subsidy programs that are announced recently have not been contemplated in any of our previous commentary. on go forward, it hasn't, it was not in any of our models because we don't put something into a model until we can count on it. And we understand that policy has a life of its own. And so we don't count on stuff until we can actually count on stuff. So none of what you're seeing Rex talk about is contemplating any of that.
spk07: Okay. Thanks again for the call.
spk00: Thank you, Mr. Peterson. The next question is from the line of Tyler Bailey with Needham and Company. You may proceed.
spk03: Hey, guys. Just filling in for Vikram here. Just one last quick one for you related to supply chain and the mix for that last question. But I guess due to some of the supply chain issues you're seeing, is there any potential for a shift in mix to prioritize some of your capital margin segments?
spk06: We tend not to – we don't financially engineer our margin. And the reason is a customer today is a customer for a very long time because of the rebuy nature of this. So shaping is dangerous. We try to take all the business we can service. And, you know, obviously inventory levels and lead times, you know, may impact our ability to win a deal in the future. Who knows? But so far, so good in not having it impact things. But remember, a customer's initial buy is usually a fraction of their ongoing buys. And you have a lot of time over the life of that customer to – mature and evolve the product that they buy today. So if they buy a product today that's under, say, supply chain pressure, well, you want that customer anyway, because most of the product they're going to buy is going to be well past when all of this clears.
spk03: Okay. And then one last quick one.
spk09: I don't think there's a lot of big gifts that we could, to pass on exactly, that we could or would want to engineer backwards and forwards. And the fact that our mix has been fairly consistent, Q2, Q3, and will probably be fairly consistent in Q4, just means, you know, and we have demand that's more than what we can meet. We're meeting demand as best we can. So just leave it there.
spk03: that's awful and sorry one last quick one um in terms of you mentioned the spillover uh just curious is most of that residential that's on that spillover into q4 is it just a mix across the board um certainly some of those residentials um and uh but it's fundamentally across the board you know just
spk09: By the way, I got the inventory comment backwards. We're effectively flat, but anyway, the difference of society doesn't really matter, but we are chasing a very, very strong demand level across our business, and we're meeting it as well as we can. So we don't have big open holes anywhere, but we would expect that to continue at some level, but thus far we're managing it, and our OTC is doing a great job.
spk06: If the question is from the vantage point of is there one product that's suffering undue levels of supply chain and the rest are clear to build, no. If that's where your question is coming from. That's not the case.
spk03: Sure. That's helpful. Thank you. I appreciate it. Thanks for taking the questions and congrats on the quarter. Thanks.
spk00: The next question is from the line of Stephen Gangario with Steisel. You may proceed.
spk08: Stephen Gangario Thanks. Good afternoon, gentlemen. Two things for me. First, when you look at your opportunity in Europe, any sense how we should think about sort of relative growth rates in Europe over the next couple of years versus the U.S. market?
spk06: relative growth rates of the market itself or our growth rate.
spk08: So your growth rates in, I think your growth rates relative to the market for sure, but also you think the European business grows at about the same rate as your U.S. operations, or do you think it's materially different based on sort of the maturity of the market and the product lines?
spk06: I don't think it's, the product lines aren't substantively different between the two markets. There are some differences in some areas, but they're not substantively in the long term different. We've got some startup conditions in our business in Europe that we haven't worked ourselves out of yet, but that's the process. So I actually think fundamentally in the next few years, just because of the – the regulatory and the policy environment in Europe, you're likely to see higher percentages of electrification on new car sales than you will in the United States, and that will normalize out over time. I think well before we hit significant percent penetration of EVs into the install base. I'll remind you of an interesting stat that almost no one Everyone says I have when I say it, but no one realizes it up front. If 100% of cars sold tomorrow were electric, it takes you over 20 years to replace the install base of cars that are in North America, Europe. That's how big this market is. And so... The next couple of years, it's certainly where a lot of the customers are going. It's certainly where a lot of the market positions are made. But the volume, wow, the volume continues to go up for a very, very long time. to serve that install base. So we see the two markets as relatively similar, relatively on the margin of the differences, but relatively similar by the time you get to significant penetration into the install base of vehicles out there. In terms of our business, we should acquire market share faster in Europe than we're acquiring market share in the U.S. because the market share is already so high in the U.S., And so by definition, we should be acquiring market share in Europe. I'll also point out something else. There is a higher percentage of ports and management in Europe by necessity because we are acquiring customers that already have some hardware on the ground that do not have our hardware on the other side of our software. It's a much higher percentage in the U.S. It's not 100%, but it's much higher in the U.S., and and and therefore the average when you look at the ports under management and you try to equate that to revenue it's a little bit lower in the early days in europe because not a hundred percent of the customers are on our hardware or not an equivalent percentage are on our hardware makes it a little harder in your chair to do the analysis
spk08: I understand, and I appreciate that comment. And then just the other quick one for me, and you mentioned on the call sort of the one-quarter lag on subscriptions just based on the time from installation. So that's been pretty steady, right? That's a pretty steady number that we should think about as kind of a guidepost going forward.
spk09: Thanks. Yeah, that's definitely true. So there's a one-quarter lag, and then the other factor when you look at hardware, sorry, network solutions versus our subscription revenue is you get a very different outcome on a percentage basis depending on what you sell, right? So if you're selling a home unit that has lower percentage software content than a commercial unit on a percentage basis, And then in our DC line, the equipment itself is sufficiently expensive that, again, relative to that number, software is a smaller percentage. So MIX can really bang the percentages for such subscriptions around.
spk08: Okay. Great. I appreciate the call, gentlemen. Thank you.
spk09: Yep. No worries.
spk00: Thank you, Mr. Gangaro. The next question is from the line of David Kelly with Jefferies. You may proceed.
spk04: Good afternoon, guys.
spk06: Thanks for taking my questions. Maybe if you could talk a bit about the visibility to workplace ramp and your customers' propensity for rebuys at the moment. You're just curious how that is trending recently, given COVID continues to factor into corporate planning here into 2022. I'd actually really enjoy your insights into when we'll be returning to work for – oh, I'm kidding. Rex, if you want to – the gist there is around, you know, it's a difficult predictive environment for us in terms of return to work. So what we're doing, what I'll point out is that the growth rate in the overall industry, just the sheer volume of cars that have entered the market, while workplaces certainly not on a proportional basis, hasn't returned to its previous levels because there's not as much utilization pressure at work. um there are so many more cars where we're still seeing relatively relatively uh decent numbers there uh and because there are sections of the country uh where there are different types of workplaces that have different criticality with their jobs or different policies internally with respect to how they uh want to take on the more administrative the larger administrative burden of having people in the office more often so you're seeing those hot spots everywhere so it's not zero It's not zero. When it gets to the new normal, whatever that is, well, your guess is as good as mine. Rex, you want to comment on the other piece of that question?
spk09: So the only thing I would add is if you look at our Q4 guide, the assumption that's built into that is that Workplace doesn't come back in Q4 in a big way because, you know, if you look at all the things that are going on out there, you know, we even got updates today. it's really hard to think that people are going to be back to the office by the end of January. Um, yeah. So what would, so then my mix go to that as well. So we think our current mix is going to continue to Q4, uh, hence the numbers, uh, which we think are look great as far as guidance are concerned. Um, we're really looking forward to workplace coming back, um, and, and full force next year. Um, we're not forecasting that that's going to happen yet, but, um, You know, that would be very, very good impact on our business. We hope that happens. But, you know, we're sort of staying the course now in terms of how we look at the near-term future.
spk06: Philosophically, yeah, philosophically, whenever there's doubt, we take a conservative stance in how we think about it because that's safe. And as Rex said, we'll build as much inventory as humanly possible because right now it's not possible to overbuild. It's just not, especially with our limited inventory. Scrapper risk, obsolescence risk. So we'll build as much inventory as possible should things come out on the positive side, either be an early onset of stimulus money, early retreat of COVID, what have you. If we get surprised to the upside, awesome. But we're not going to engineer our company around expectations given variables we don't control on the rosy side of that equation.
spk04: Okay, got it. And for the record, my guess of return to work is not very good, so I won't get it.
spk06: But maybe as a quick follow-up, just on the utilization point, maybe this is a bit of an oversimplification, but kind of viewing it as a pull model as it relates to workplace demand. Are you seeing any shift to more of a push model in the sense that a lot of companies are certainly focused on ESG metrics, sustainability,
spk04: where maybe there's some offsetting impact where the demand is going up regardless of kind of what the utilization is at the moment?
spk06: So what that would – I'm sure there's some of that, frankly, because all companies are turning their attention to making sure that they have the right posture with respect to supporting electrified transportation, which supports the climate goals we all have. So there's certainly an element of that. What I'll point out, which I think is significant, is that early buys from a company just moving into electric vehicle charging tend to be small. It's their re-buys based on their run rate experience that tend to be large. So customers trying to plant an ESG flag, I doubt, are moving the needle significantly in our workplace business. But I bet you it's in there. I just can't quantify it. Rex, do you have any better commentary?
spk09: I don't. I think there's a – it's hard to call the build ahead because, you know, we're so close to the waves going to hit us any time next. hitting it now. So I think I think people recognizing this is an undeniable trend and they should get ready for it. So I would call it preparation as opposed to early. It's just it's just a smart time to move.
spk08: And yeah, by the way, I couldn't.
spk06: Yeah, right. And what's also happening, I'll point this out, is there is actually construction happening during COVID because it's an opportune time to do construction and remodeling of office space because it's unoccupied or lightly occupied. So for that, we're not seeing any slowdown at all. In fact, we're seeing that being relatively strong on the construction side.
spk04: Okay, got it. That's helpful color. Thanks, guys. Thank you.
spk00: Thank you, Mr. Kelly. That concludes the question and answer session. I will now turn the call back over to Pascal Romano for closing remarks.
spk06: So, first of all, I want to thank everyone for the questions, and I want to welcome All the new folks that have asked questions that haven't participated in our earnings calls interactively before, the family, really great to have you all. Wonderful questions today. And I want to just, you know, sum up again, as I said in last quarter's remarks, I really want to thank the ChargePoint team. I think you've heard a lot of commentary around how much work it's been for this team to manage to the upside in what has been a dynamic environment with respect to supply chain and, frankly, the market materializing to the upside, which has been a wonderful thing for our employees. We also are well on our way now of integrating two stellar teams from two acquisitions, into the family of ChargePointers. So I want to thank the ChargePoint team. I know a lot of them are listening to these calls. So thanks, guys, for doing all the good work that you do. And we're very, very, very excited about what the future holds for all of us collectively as an industry and our company and our investors. We think it's just A tremendously bright picture there. We're really buoyed by the broad-based support that we've seen in the market for all verticals here, all verticals. And then you've got the cars showing up, and we've always said that we're sort of analogous to an index to the electrification and mobility because as cars come, we've been so attached to cars like EV trucks, et cetera, heavy-duty vehicles. So as they continue to materialize, we see that really fueling some great growth ahead. So thank you all again. We look forward to hosting you in a quarter. Thank you. And have a wonderful holiday.
spk00: That concludes today's conference call. Thank you for your participation. You may now disconnect your line.
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