ChargePoint Holdings, Inc. (NYSE:CHPT) Q4 2024 Earnings Call Transcript March 5, 2024

ChargePoint Holdings, Inc. misses on earnings expectations. Reported EPS is $-0.13 EPS, expectations were $-0.12. ChargePoint Holdings, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon, ladies and gentlemen. At this time, I would like to welcome everyone to the ChargePoint's Fourth Quarter Fiscal 2024 Earnings Conference Call and Webcast. I would now like to turn the call over to Mr. Patrick Hamer, ChargePoint's Vice President of Capital Markets and Investor Relations. Patrick, please go ahead.

Patrick Hamer: Good afternoon. Thank you for joining us on today's conference call to discuss ChargePoint's fourth quarter and full fiscal 2024 earnings results. This call is being webcast and can be accessed on the Investors section of our web site at investors.chargepoint.com. With me on today's call are Rick Wilmer, our new President and Chief Executive Officer; and Mansi Khetani, our Interim Chief Financial Officer. This afternoon, we issued a press release announcing results for the quarter ended January 31, 2024, which can also be found on the Investors section of our web site. We'd like to remind you that during the conference call, management will be making forward-looking statements. 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 December 08, 2023, and our earnings release, which was posted today on our web site and was filed today with the SEC on Form 8-K. Also, please note that we use certain non-GAAP financial measures on this call, which we reconciled to GAAP in our earnings release and for a certain financial periods in the investor presentation posted on the Investors section of our web site. And finally, we will be posting the transcript of this call to our Investor Relations web site within the Quarterly Results section.

With that, it is pleasure to introduce our President and CEO, Rick Wilmer.

Rick Wilmer: Thank you all for joining us. In today's call, we will review our financial results for Q4 of fiscal 2024 and the corresponding annual results. After giving an overview of Q4, we will outline ChargePoint’s strategy moving forward as promised during the Q3 earnings call. Later in the call, our interim CFO, Mansi Khetani will outline how we plan to achieve our commitment to being adjusted EBITDA positive in the fourth quarter of this year, and she will also provide top line guidance for Q1 of fiscal 2025. I will begin by reviewing the results for Q4 fiscal 2024, as well as a few highlights of the quarter. Critically, our inputs to the business are beginning to make a difference as evidenced by the operational efficiencies and cash management improvements I will outline shortly.

Our revenue for the quarter increased sequentially to $116 million in Q4. The quarter also saw improvements to the underpinnings with the business. These include our non-GAAP gross margin increasing to 22%, a decrease in operating expenses to $75 million or 65% of our revenue, and a significant reduction in our cash usage. Also of note was our subscription revenue, which was up 30% year-over-year this is particularly exciting because it represents our highest margin revenue stream. For the full fiscal year 2024, revenue was $507 million. Our CFO, Mansi Khetani will give an annual review in her portion of the call. In Q4, we had quite a few highlights. As the industry moves towards the NACS connector in North America, ChargePoint lived up to our promise of being first to market and ready for the transition.

In Q4 NACS connectors rolled out across both our residential and commercial product lines and the first NACS cable installations at DC public fast chargers went into operation. This represents the first time Tesla vehicles have been able to fast charge outside of their own ecosystem without a costly adapter. With additional NACS cables being installed regularly, we are well ahead of the transition. We kicked off the quarter with the launch of the Mercedes-Benz HPC charging network in North America. The network represents the pinnacle of our full stack offerings. Mercedes drivers can reserve a charging session seamlessly authenticate, charge and pay with plug and charge convenience on a new network. These features are enabled by ChargePoint for the Mercedes me in dash experience and mobile app.

At the end of the year, we expanded our relationship with Verizon Communications. ChargePoint will now begin deploying fleet charging solutions at Verizon service areas. These locations will support the Verizon fleet operations. In January, we received our FedRAMP authority to operate, whereby ChargePoint became the only end-to-end EV charging provider to receive this authorization from the United States Federal Government. So what exactly does this mean? ChargePoint is now able to pursue tens of millions of dollars in available government contracts, and all our cloud software products are live for selection on the FedRAMP marketplace. Also, in Q4, we expanded upon our existing relationship with WEX, a leading payments and software provider to businesses representing more than 19 million commercial vehicles serviced globally.

WEX's U.S. customers and their drivers are now able to use WEX's mobile app, driver dash to find, use and pay for charging within the ChargePoint network. Driver dash enables fleet operators to gain enhanced insight and metrics into driver performance, including preferred pricing, proactive monitoring and reporting through a single, integrated payment platform. For our business, this solution represents an exciting new application of existing a product and an additional revenue stream to pursue in the realm of fleet. We are actively working with WEX on additional application for our existing products. Sales volume of our home charging station the charge point Home Flex was up 37% year-over-year and set another annual sales record. This was highlighted by record home charger sales in Q3 and in Q4.

Our NACS offerings for Home Flex have become approximately 10% of the total orders on the ChargePoint e-commerce store, showing that Tesla drivers are also choosing ChargePoint for their home charging needs. Home Flex installations are a critical entry point into the ChargePoint ecosystem, so we are encouraged by the excellent sales volume the product has seen lately. We expect these sales to remain strong in fiscal year 2025. As I mentioned in our last earnings call, network reliability is critical. There's a barrier to EV adoption and we have dedicated considerable resources to improving charger uptime. When we launched the network operation center in August of last year, the ChargePoint network was measured at 96% uptime. Since then, we have made improvements to the functionality of the operation center itself as well as remedied many of the issues it has identified.

I am pleased to report that as of January 31, we are at 99.6% uptime based on what we currently measure. As a reminder, ChargePoint defines uptime as the percentage of ports capable of dispensing energy at any given moment. But uptime metrics mean nothing if any driver pulls up to a ChargePoint station and walks away without a successful charging session. So we aren't stopping there. We are continuing to expand the remote diagnosis and predictive analytics capabilities of our network operations center and incremental measurements will be added this year. To be transparent about where we fell short of our expectations in Q4 being at a sluggish quarter in the EU. This was result of lower hardware sales to commercial customers but the European software business remained steady.

In North America, sales to U.S. automotive dealerships remained at a somewhat slow pace of Q3. Here are the latest non-financial statistics of note. We count 74% of the Fortune 50 and 60% of the Fortune 500 as customers. We finished the quarter with more than 286,000 global active ports under management on the ChargePoint network, of which approximately 24,000 are DC fast chargers. We provided drivers with access to more than 631,000 roaming ports worldwide for a total of more than 917,000 places to charge. Of particular note in Q4, we had a milestone of 100,000 active ports under management in Europe, which is another nod to our growth in subscription revenue. Q4 also saw considerable growth in the e-mobility metrics ChargePoint tracks. We estimate we now have enabled more than 9 billion electric miles driven.

That would mean over 1.9 million metric tons of greenhouse gas emissions have been inverted by EVs on our network. In summary, ChargePoint made incremental progress in the fourth quarter. We have a revised strategy for the road ahead and we remain committed to the goal of becoming profitable on an adjusted EBITDA basis in the fourth quarter of this year. To give market context for the strategy, we will be outlining shortly, I'd like to report what we see in terms of EV adoption. Based on the latest sales reports, EV growth continues as double-digit pace, but not at the aggressive rate OEMs had expected. Looking at the year ahead, Bloomberg NEF estimates passenger EV sales will grow at 32% year-over-year in North America and 10% year-over-year in Europe.

Drivers expected dependable charger access for these vehicles, and ChargePoint remains a leading infrastructure solution. We outlined vehicle data because EV sales are a leading indicator for us. To directly address the EV charging industry, we are seeing a few trends. First, we are seeing disaggregation between hardware and software purchases, particularly amongst larger customers that prefer a multiple sourcing model. This represents an opportunity for us with software, which I will discuss later in the call. The second trend is the commercial hesitation brought on by the noise surrounding the EV segment lately. Institutions want an EV charging but are hesitant to commit at a time when the news is questioning EV adoption. They are still buying but not as freely or quickly as they were last year.

The third trend is in the consumer market where patterns contradict that of commercial. Home charger sales are up considerably a knock-on effect of new EV sales. This tells us that despite the noise, EV adoption is continuing, ChargePoint utilization data backs this up. Regardless of the sector, one thing is clear based on our network utilization data. Pressure for more charging infrastructure continues to build. Last year, the ChargePoint network dispensed over 1 terawatt of energy which is an increase of more than 70% year-over-year, while active port count continued to grow, utilization drastically outpaced it with charging sessions increasing 53% for the year. This data makes it clear that charging infrastructure must scale up faster to keep up with demand and soon.

As a result of these trends, we are evolving our strategy to meet the current needs of the market. Here are the four cornerstones of our strategy moving forward. Our first cornerstone is operational excellence. In our Q3 earnings call, we emphasized the importance of operational rigor with laser focus on execution. The better we execute, the better our results. Scale, efficiency, speed and managing cash all represent priorities. While we are confident in our strategy, it is nothing without a continual focus on operational excellence and execution. This will remain a core focus. We are making progress, but not yet where we want to be. To demonstrate measurable progress, here are two recent actions that had a major operational impact on our business.

In January, we took the tough decision to reduce our global workforce by approximately 12%. This represented a reduction of approximately $33 million in annual non-GAAP operating expenses and was concentrated in hardware engineering for reasons beyond simply cutting our OpEx. To explain by the reductions we’re focused on hardware, in February, we announced a new approach to hardware development. We now have an agreement with a leading power supply manufacturer, AcBel to jointly develop future hardware. Under the agreement, AcBel and ChargePoint will co-design for our portfolio and AcBel will then manufacture that hardware for ChargePoint. This represents an extension of our existing agreement and the arrangement enables us to bring new hardware to market faster because the development of the hardware is integrated with the manufacturing.

We will also have more engineers than ever working on ChargePoint hardware. We expect to do this at lower cost, all while improving our benchmark quality standards. To summarize my comments on this operational cornerstone. In the last six months, we have taken nearly $70 million in annual non-GAAP OpEx out of the business when compared to our OpEx high point in Q2 of last year. In the process, through partnerships, we have increased our hardware engineering bandwidth and we are improving our speed to market. There are many further initiatives planned, but we wanted to relate the demonstrable progress to our shareholders today. We are confident we are on the right track. The second cornerstone is delivering world-class driver experiences. We now serve more than 1 million quarterly active EV drivers representing one of the largest charging platforms in the world.

To attract and scale this driver base, we need to deliver outstanding experiences in every step of the driver journey for any type of EV in North America or Europe. At home or on the road, while the driver eats, sleeps, works or plays, ChargePoint is committed to providing a driver experience that is intuitive and reliable. Our drivers are key to our success. Whether they plug into one of the 286,000 active ports on the ChargePoint's network or tap into the over 631,000 more ports with one of our roaming partners, we must make it easy to charge. We not only need to deliver a great experience, but also surprise and delight our drivers with new, even more useful features. We will continue to execute our road map for this, and we will report progress as we go.

The third cornerstone of our strategy is to double down on the development of our software platform. Historically, we are focused on selling full-stack hardware and software solutions. Our future will include a significant focus on software solutions for all EV charging use cases. Our software margins are considerably better than they are for hardware and the revenues are recurring. This pivot comes at a good time as we're seeing the disaggregation trend I mentioned earlier. For those needing a comprehensive charging solution, we remain a formidable one-stop shop with class-leading hardware. But we will not exclude those who already have hardware and seek a leading software platform to manage it. We will also continue to build out our N-Dash integrations for auto OEMs and payment providers, which improve both the driver experience and our own margins.

ChargePoint is reinforcing our software platform to empower our customers. We will continue to share more details on our software offerings demonstrating their value to business and our margins. For now, we would like to give an overview of what our platform can do. It already enables charging station owners to manage costs, optimize fleet operations, integrate loyalty programs, manage payments and more. It powers our seamless integrations with customer workflows, EV and EVSE manufacturers, fuel and fleet cards, payment processors, utilities and other energy services. A software platform powers ChargePoint network charging stations, thoughtfully designed for usability and uptime. Third-party charging stations and e-mobility service providers can also run on ChargePoint platform.

Uniquely enabling these service providers to deliver their own charging solutions to the market faster. ChargePoint empowers our customers and ecosystem partners to connect with EV drivers when they want to charge. Providing a valuable benefit, increasing brand loyalty and engagement and unlocking powerful tools to generate revenue or optimize fleet operations. Now and in the future, we aim for this platform to be the enabler of any institutions EV charging needs, fostering the realization of their own goals. The final cornerstone is our hardware strategy. As evidenced by the aforementioned AcBel partnership, we have big plans for hardware. Our software has a strong focus under this plan, we will continue to compete in the hardware space. We will develop new hardware for as long as the industry requires innovation because better software runs better on better hardware.

Across the board, EV chargers are still too expensive and have room for improvement in areas such as reliability and durability. Support for the future of green energy, meaning compatibility with vehicle-to-home, grid and other connected energy points is the future of charging hardware. The AcBel partnership enables us to bring these technologies to market faster and in more configurations. We will also continue to focus on developing innovative hardware for home charging, fulfilling our commitment to those great driver experiences, which are critical to our success. In conclusion, we are making ChargePoint fast, lean and efficient, all with the goal of returning higher margins. Moving forward, our strategy of enhancing new experience for our drivers will ultimately maximize the results for our shareholders.

We intend for ChargePoint to be the enabler of the transition to e-mobility. Thank you for listening, and I will now hand the call over to our CFO, Mansi Khetani to review the financials.

Mansi Khetani : Thank you, Rick. As a reminder, please see our earnings press release where we reconcile our non-GAAP results to GAAP. Our principal exclusions are stock-based compensation, amortization of intangible assets and certain costs related to restructuring and acquisitions. We continue to report revenue along three lines: network charging systems, subscription and other. Network charging systems represents our connected hardware. Subscriptions include our cloud services, connecting that hardware, our assure warranties and our ChargePoint as a service offering where we bundle our full-stack solution into recurring subscriptions. Other consists of professional services and certain nonmaterial revenue stream. Moving to our results for the fourth quarter.

Revenue was $116 million an improvement of 5% sequentially and a decrease of 24% year-on-year. Network charging systems at $74 million accounted for 64% of fourth quarter revenue. This was flat sequentially and a decrease of 39% year-on-year due to deteriorated macro conditions that impacted commercial billings. Subscription revenue at $34 million was 29% of total revenue, up 10% sequentially and up 30% year-on-year. Other revenue at $8 million or 7% of total revenue, up 42% sequentially and up 74% year-on-year. Turning to verticals, we report verticals from a buildings perspective, which approximates the revenue split. Fourth quarter billings percentages were, commercial, 64%, fleet 18%, residential 15% and other 3%. The commercial vertical continued to see softness due to slower auto dealership demand in North America and lower channel rebuy rates in Europe.

Fleet improved 11% sequentially. Residential again, had the largest quarter ever in terms of home units sold with billings growing 13% sequentially. From a geographic perspective, North America made up 82% of fourth quarter revenue and Europe was at 18%. The Europe revenue declined 6% sequentially due to lower restocking orders by channel partners as sell-through rates slowed for capital-intensive DC projects. Turning to gross margin. Non-GAAP gross margin for the fourth quarter was 22%, up from negative 18% in Q3. This is up 2 percentage points from a normalized Q3 gross margin of 20%, which excludes the inventory impairment charge we took in the third quarter. Gross margin was down 1 percentage point year-on-year. Non-GAAP operating expenses for the fourth quarter were $75 million, a sequential decrease of 8% and a year-on-year decrease of 7%.

This reflects the full quarter impact of our September restructuring were only a partial portion of the restructuring announced in January. Stock-based compensation in the fourth quarter was $25 million. Looking at cash and cash equivalents, we finished the quarter with $358 million. Cash consumption significantly reduced from Q3. This is primarily attributed to improved working capital management, specifically our inventory remained flat and the improved collection of accounts receivables. While inventory was flat for the quarter, we will continue to focus on managing it down to a more desirable level in the second half of this year, and we sell through the finished goods on hand. Our deferred revenue from subscriptions continued to grow. This represents payments for future revenue commitments from existing customers and finished the quarter at $231 million, up from $227 million at the end of the third quarter.

Our $150 million revolving credit facility remains undrawn, and we have no debt maturities until 2028. We also did not issue any shares via the ADM during the quarter. At the end of the fourth quarter, we had approximately 421 million shares outstanding. Turning to full fiscal year 2024 results. Annual revenue was $507 million, up 8% year-on-year. Network charging systems revenue at $351 million was 71% of total revenue for the year and was flat year-on-year. Subscription revenue at $120 million was 24% of total revenue and up 41% year-on-year. In the software hardware market of the past year and benefits of our recurring subscription revenue really stand out. As Rick mentioned, more than half of our subscription revenue comes from software offerings.

Other revenue at $25 million was 5% of total revenue, up 32% year-on-year. Quickly covering verticals, billing percentages by vertical for the full year were; commercial 69%, fleet 18%, residential 11% and other 2%. From a geographic perspective, North America was 80% of full year revenue and Europe was 20%. Our European business surpassed $100 million in annual revenue for the first time in fiscal 2024. In regards to gross margin, non-GAAP gross margin for the year was 8%, which reflects two quarters with inventory impairment charges and a year-on-year decrease of 12 percentage points. Excluding the impairment charges taken in Q2 and Q3, gross margin would have been 22%. Non-GAAP operating expenses for the year were $330 million a year-on-year increase of 2%.

Turning to guidance. For the first quarter of fiscal 2025, we expect revenue to be $100 million to $110 million. This reflects the typical seasonal drop due to construction slowdowns in the winter months. In addition to seasonality, our first quarter historically contributes a significantly lower percentage of our annual revenue with Q2 to Q4 increasing from the baseline of Q1. This year, we expect the same with a large portion of the revenue to be generated in the second half. We expect gradual improvement in non-GAAP gross margin as the year progresses. This will be the result of continued cost downs for hardware products and an improvement in subscription margin, resulting from the cost optimization of our support organization. In addition, as we sell through inventory on hand, we will begin to see the benefits of our new Asia-based hardware manufacturing strategy in the second half of fiscal year 2025, particularly in Q4.

We expect non-GAAP operating expenses to fall to the low 70s in Q1 and Q2 with the full quarter impact of the January restructuring as well as other cost avoidance measures resulting from the new hardware engineering strategy, Rick mentioned earlier in the call. Operating expenses are expected to fall further in the second half, as we continue to focus on operational efficiency. I will now hand it over back to Rick for closing remarks.

Rick Wilmer : Thank you, Mansi. To conclude, the measures taken over the past two quarters have strengthened our path to profitability on a non-GAAP adjusted EBITDA basis in Q4 of fiscal 2025. The strategic priorities we have outlined intend to deliver the gains to achieve this target, but we won't stop there. Our goal is to develop a thriving, profitable business that will be renowned as the enabler of the transition to e-mobility. Thank you for joining us today. Operator, we will now turn it over for questions.

See also 11 Best Aviation Stocks To Buy According To Analysts and 20 Best Places to Live in Texas in 2024.

To continue reading the Q&A session, please click here.