Q4 2021 ChargePoint Holdings Inc Earnings Call
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Ladies and gentlemen, thank you for your patience the charge point and fourth quarter on full year 'twenty, two and two one earnings conference call and webcast will begin shortly.
During the presentation, you will have the opportunity to ask a question by pressing star followed by one on your type of and keep that.
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Good morning, My name is Avi and I will be your conference operator today at.
At this time I would like to welcome everyone to the charge 0.4th quarter and full year 'twenty 'twenty, One earnings conference call and webcast.
All participant lines have been placed and listen only mode to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session. If you'd like to ask a question at that time. Please press star followed by one on your telephone keypad.
If you need I'll pray to assistance. Please press star followed by zero day rate.
Thank you I will now turn the call over to Rebecca Chavez General Counsel.
Rebecca Please go ahead.
Good afternoon, and thank you for joining us on today's conference call to discuss <unk>, holding Inc. 's fourth quarter and fiscal 2021 financial results.
Rebecca Chavez company's general Counsel this call is being broadcast over the web and can be accessed on the investors section of our website at investors that charge point Dot com.
With me on today's call are first the Romano, our president and Chief Executive Officer, and Rex Jackson, Our Chief Financial Officer.
This afternoon, we issued a press release announcing our results for the fourth quarter and fiscal year ended January 31, 2021, which can be found on our website.
We would like to remind you that during this conference call and it will be making forward looking statements, including statements regarding our expectations related to financial guidance for the first fiscal quarter and fiscal year, 2020 two outlook for the sector and company.
And I did investment and growth initiatives.
These forward looking statements involve a number of risks and uncertainties some of which are beyond our control, which could cause actual results to differ materially from those anticipated by these statements.
These forward looking statements apply us today you.
You should not rely on them as representing our views and the future and we undertake no obligation to update these statements after the call.
For more detailed description of factors that could cause actual results to differ please refer to our form 8-K filed with the SEC on March one 2020, Walton and our earnings release posted a few minutes ago on our website and filed with the SEC on form 8-K.
Also please note that certain financial measures. We use on this call are expressed on a non-GAAP basis and have been adjusted to exclude certain charges per store call periods. We've provided reconciliations of these non-GAAP financial measures to GAAP financial measures and supplemental financial information that can be found on the investors section of our website located at investors day charge point Dot com.
And finally once we've completed our formal remarks, we will be posting them to our investor Relations website under quarterly results section.
And with that I'll turn the call true Buffalo.
Hi, everyone. Thanks for joining and welcome to our first earnings call as a public company, we are very happy to be here.
And the category creator charge point shoes electric mobility heavy coming through with John we're operating across nearly all segments UBB charging including commercial and residential we believe we are well positioned to take advantage of the growth from the market.
Very happy to have been trading on March 1st on the New York Stock Exchange, we've raised $480 million and net proceeds as a result and have $650 million and cash on our balance sheet to fund growth.
Point out.
That is more cash than we have net spend and our 13 year history and you get to this point.
I'll cover achievements for the year, and then I'll talk about the outlook for the sector and our company and I'll hand, it to our CFO Rex Jackson, who will review, our fourth quarter and year end financial results and then I'll share some closing comments and we'll open it up to your questions.
Our story began and 13 years ago with the vision that all people and goods could move around the planet on electricity, which is it from basically distributed resource when we set out to create a new fueling network. We understood we have to be everywhere drivers parked at home around town around the road beyond that the world 10 two.
<unk> fleet over time ride hailing services goods delivery, new kinds of work et cetera, We created one single complete product portfolio of solutions for nearly every segment of EV charging commercial fleet and residential.
Today, we are both a pioneer and an established leader and EV charging with proven technology top tier customers and more importantly, our business model is capital light we have <unk>.
71% market share of network level, two charging and North America, and thousands of commercial customers, including many of the fortune 50.
Turning to the market every major automaker is committed to expectation. It's the biggest reach since the invention of the automobile Bloomberg New energy finance projects that by 2030%, 29% of new vehicles sold in the U S and Europe will be electric Matt should be supported by $60 billion and charging infrastructure.
And investment and Thats, where we couldn't.
And the bigger point here is it demand for our charging solutions is driven by the collection of EV models.
No need to pick the next TV winter because charge point is and index for the electrification of mobility.
And a new market, it's common to have a variety of business models with notable differences grouped into the same category and it's important to establish first wire customers provide charging services in their parking lots for employers and businesses serving consumers. It's an inexpensive way to provide a benefit and align with sustainability initiatives.
For fleets, it's all about improving their economics.
We sell annual high margin SaaS subscriptions to the charge point network charging stations parts and labor warranty subscriptions and design build services, we offer and all recurring revenue model as an option where the charging station is bundled into the annual steps SaaS subscription.
In the case of fleets all of that applies and we sell additional software for charging scheduling and energy cost optimization and.
And both fleet and commercial we have comprehensive service and support offerings and.
And we sell annual subscriptions to our cloud service, regardless of the utilization of the stations or energy flowing through them.
We don't own the majority of our stations, we don't monetize energy, we only monetize the driver and the case of home charging therefore, our model is inherently capital wide and because we are in nearly every segment of charging on two continents. There is substantial opex leverage because much of the technology.
And it's common to serve all those markets and Geos.
Quality of our products and services generates higher driver satisfaction that attracts new customers and repeat engagements further driving greater brand awareness and market penetration.
There is a significant recurring component and our business should not only with subscription revenue, but the incremental electrification of parking spaces, and a customer proportional to the incremental EV penetration and their parking lots.
This business model is tested and we are operating currently at scale.
We are and established company with the right model and we are very well capitalized.
Turning to 2020, it was a remarkable year on many fronts and I would like to acknowledge the resilience and dedication of our customers partners and employees.
Because charge points business scales with vehicle adoption.
I'll start by noting and Bloomberg New energy finance data on total global passenger cars, while sales were down 16% in 2020 per overall automobile sales EV sales were up 48%, indicating the long term shift to electric is happening even during a health and economic crisis.
Despite COVID-19 demand for charge point solutions was strong across segments. We've long operated on the premise that being and all segments helps insulate our revenue from behavioral changes and fueling.
Notable shifts and driving patterns really prove the benefits of serving a range of segments demand shifted as there was less commuting and fewer road trips for fund delivery of goods became more critical than ever which benefited fleets and accelerated their interest and retrieving better cost efficiencies through electrification and <unk>.
Our significant investment and new construction continued interest from utilities, and providing incentives and programs to facilitate the build out of infrastructure, we saw increases and regiment residential demand as more consumers looked for the convenience of home charging.
Some highlights from our business.
We have one of the world's largest EV charging network at the end of 2020, we had more than 105000 active public and private charging spot Center network with access to an additional 157000 active public places to charge through roaming integrations with other major EV charging networks across North America, and Europe and.
In addition, we continue to aggressively expand our network and customer reach and activating more than 24000, new charging spot and an additional 100000 places to charge through roaming integrations.
More than half a billion electric miles were driven in 2020, using our charging solutions, avoiding 129 million kilograms of greenhouse gas emissions.
Our fleet business, which includes delivery and logistics and sales service and motor pool and share mobility segment saw significant growth and demand in 2020, we saw businesses from a range of fleet types, including 11 municipal fleets.
And Fortune 500 sales and service fleets 12 utility fleets by.
By transient organizations and a fortune 100 retail furniture company.
Europe is important to our growth strategy and we made notable progress last year and addition to the port growth. We're in 16 countries and providing around the clock support and nine languages.
We continue to expand our partnership with a leading full service leasing and fleet management company, providing lease television solutions for employers we are starting to see referral business coming from that partnership.
With fellow industry participants, we became a founding member of charge up Europe, The European Trade Association for the EV charging industry, creating and building blocks for and open competitive and harmonize market for EV charging infrastructure and <unk>.
Turning and single family homes, buoyed by a strong consumer rating industry recognition and increased interest from utilities wanting to enable residential charging programs our charge point home flex business saw strong demand in addition.
We are seeing the beginnings of fleet customers, who operate take home fleets expressing interest and our managed home charging solutions.
Drivers continue to rely on charge point, whether that is our top rated mobile app, our integrations into Google maps, Apple maps, Google wear OS Apple Watch OS Apple pay Google pay Paypal and many more popular consumer platforms, joining the growing list of software integrations. We've made notable progress on automotive experience.
Including integrations with Apple car play and Android auto as well as native OEM experiences such as in car apps, and Volvo recharge models, and Pollstar and dynamic integration into the <unk> Chevrolet App.
Yeah.
Turning to 2021.
And the shift and electric drive and accelerating and we're excited about the year ahead. The lineup of Evs includes 20, new models across passenger car and fleet segments, I'll remind you that our growth scales with EBIT adoption and according to Bloomberg New energy Finance estimates.
And for global EV sales increased 48% last year and they expect evs to make up three 8% of new passenger car sales globally in 2021, with approximately 5% and Europe, and 2% and the United States.
On the commercial side.
We're all established and commercial charging in North America, our commercial business is in scale mode. We're established and nearly all segments and can support high growth rates, we had our best free quarter ever in Q4 from a billings perspective, and the RFP activity is up 61% quarter over quarter.
These facts reinforce our confidence about this segment.
The category has historically been vehicle limited and we are ready when that unlocks.
On the residential side, the overwhelming demand by consumers for large battery bvs as capitalizing interest and connected home Chargers and our charge point home flex is ready to meet that need.
In North America, and Europe National State and city governments are accelerating implementation of electrification policies, including mandates or commitments to electrify buses trucks and fleets.
We have positive early indication that president and button is committed to transportation electrification from signing the Paris climate agreement on the first day of his administration to announcing a commitment to electrify federal fleets.
This is in addition to the momentum at the state level.
This commitment to electrification is also echoed in the roadmap for our renewed U S. Canada partnership announced earlier this month.
With established policy teams in place. We believe we are well positioned to engage with government agencies to inform public investment, including grants tenders and rebate programs and enable our customers to take advantage of these opportunities utilities across North America are rolling out incentive programs that provide customers with a rebate.
Towards the purchase of a charter or cover a portion of the cost to make our site ready to install charging infrastructure.
We have honed over many years the teams and processes to leverage. These programs 2021, we expect to see more utilities proposed new programs and extensions of their current programs and expanded the fleet and we estimate that the multiyear utility program will expand to 830 <unk>.
Available over multiple years.
We also expect utilities to address the operational costs per charging by establishing new electricity rates designed specifically for EV fuel that leverage managed charging.
We have more money on our balance sheet than we have net spend to reach this point from 2007 and two today, we have a long history of being good stewards of capital and I'll remind you. The use of proceeds from the recent transaction are to continue to scale in Europe continue our investment and fleet.
And keep some powder dry in case and opportunity presents itself for selective M&A.
Now over to Rex on the financials.
Thank you <unk> and thank you all for joining our first earnings call as well. We said we are very pleased to be here to.
To start I'd like to offer a few baseline and comments first my comments or non-GAAP as we define and our earnings release. The primary exclusions are stock based compensation and the effect of the valuation of our preferred stock words.
A quick review of our results and will provide revenue estimates for Q1 and for this fiscal year, which ends January 31 2022.
And third as you can see and our earnings release, We report revenue alone three laws that were charging systems subscriptions and other network charging systems represent our network hardware and is Pasquale said all of our hardware growth.
Subscriptions include our cloud services share warranties and charge for that as a service offerings.
And we bundle solutions into and annual service fee.
There is energy credits professional services and certain non material revenue streams.
Turning to our results Q4 revenue was $42 4 million down 2% year over year, but continuing the year's sequential improvement network charging system revenue was down 5% due primarily to the impact of Covid on commercial sales.
Subscription revenue was up 39% demonstrating the strength of our business model is recurring revenue from our installed base continued to grow.
Other revenue declined 43%.
And the near term, we will not break down revenue by business lines, which is Pasquale mentioned, our commercial residential and fleet. However to give you context billings by percentage for the fourth quarter, where commercial 68% <unk>.
17% residential 12% and other 3%, notably pleased a core component of our go forward strategy, but its best quarter to date and nearly doubling its percentage contribution from last year's fourth quarter.
From a geographic perspective, Q4 revenue from North America was 92% and Europe was 8% compared to 90% and 10% respectively in Q4 of last year.
The lower Europe building business more broadly to largely offset and low revenue. This year from a large network systems customer that was a significant factor last year and progress billing on a large professional services contract from an auto OEM customer that did not reoccur this year we.
We added hundreds of new customers and the quarter higher than our average last year.
Customer revise also a cornerstone of our strategy were strong at over 60% of total.
As disclosed described our business as a land and expand model small first purchases create sticky relationships and a significant rebuy rate.
For the full year, we are pleased that revenue of $146 5 billion was up 1% versus last year, Despite COVID-19 and exceeded our expectations for the year described and our published model.
The full year, reflecting the factors I mentioned and the fourth quarter with a 40% increase and subscription revenue offsetting a 9% decline and network charging systems revenue other revenue was down 4% year over year due to COVID-19 effects.
Across our business lines billings for the full fiscal year were commercial 70% fleet, 11% residential 14% and other 5%.
Geographically for the year, North America contributed 93% of revenue and Europe posted 7% compared to last year's 90% and North America, and 10% and Europe EBIT factors Ive just referenced.
Turning to gross margin entering the year, we're coming off of FY 'twenty non-GAAP gross margin of 20% from the fourth quarter and 13% per the year given down from historically higher percentages, primarily due to revenue new products margin challenges associated with certain major customers and the resale of third party products as part of our EU strategy.
Non-GAAP gross margin for Q4 was 22% up from there.
Last year's fourth quarter of 20%.
The improvement reflects higher margins yielded by strong subscription performance and our improving cost structure, partially offset by mix shift this year towards lower margin products.
With fewer drivers go into the workplace due to Covid shutdowns are higher margin workplace products experienced a slowdown compared to last year as.
As we look forward and we believe our commercial business will recover and we all go back to work.
And the fleet will also be a significant driver as vehicles become available both supporting our overall outlook and improving blended gross margin.
For the full year non-GAAP.
Gross margin was 23% compared to 13% and the prior year due to the reasons I just mentioned and <unk>.
System with our published model.
Turning to operating expenses and the fourth quarter and non-GAAP operating expenses increased 5% year over year to 42 per $1 million compared to $40 2 million in Q4, FY 'twenty full year non-GAAP operating expenses were $148 1 million, 1% higher than last year for the quarter and the year. These rates reflect our efforts to manage.
Expenses and a difficult 2020 environment.
We ended the fourth quarter with a cash balance of $145 million and the completion of our accommodation with Switchback Energy acquisition Corporation on February 26, we increased our cash balance to approximately $615 million.
Expect to use this cash to fund our growth initiatives, including our expansion in Europe and.
And continued growth in North America.
Moving now to guidance for the first quarter of fiscal 2022, which is typically seasonally lower than Q4, and we expect revenue of $35 million to $40 million, a 7% to 22% increase versus Q1 of last year for.
For the year, we expect revenue of $195 million to $205 million consistent with our model and at midpoint, a 37% increase year over year. Thank.
Thank you again for joining us and I'll turn it back to them as well as we close the COVID-19.
Thanks, Rex and closing all reinforced the charge point and is focused on our vision to move all people and goods and electric power since 2007, and Thats still drives us today.
The company has never pivoted.
This shift to electric mobility is accelerating we have a great opportunity here and is still and it's early innings charging infrastructure is now expected by Bloomberg New energy finance this measure to be a $190 billion market by 2040.
Aligning with that our business model is designed to scale proportionally to the adoption rate of vehicles and the Geos we serve.
We have a 13 year foundation to build on and I will remind you and our business model is capital light and.
As a leader and EV charging charge point is well positioned to capitalize on the growing market with great technology, a large customer base and a business model that has been pressure tested over more than a decade.
We are the only EV charging company with solutions across segments on two continents, we have operating expense leverage across geographies, we have cost structure scale benefits and our products and services.
We're excited to be a public company and are committed to continued strong execution across functions. We are also committed to providing our shareholders with timely and transparent investor communication and.
In closing I would like to thank our team at charge point for their incredible effort and dedication to getting us to this point and as I shared with the employees and our listing day on March one I described this moment and our company's history as a semi colon and the sentence that discharge point.
It's a brief breadth as we continue the journey with most of the growth ahead of us.
With that I'll be joined direct and we'll open it up for your questions. Thank you.
Ladies and gentlemen, if you would like to ask a question. Please press star followed by one on your telephone keypad now.
When you ask your question, please and show Youll fairness and muted lately.
Our first question comes from share Patel from Wolfe SaaS.
Please go ahead.
Hey, thanks, so much.
So just wanted to dig into the revenue guidance a little bit.
You are maintaining the guidance.
Fiscal 2022, but can you give us some some of the underlying assumptions either around industry. The demand for from North America, and Europe, and our new charging installations.
And then and then also around gross margin.
And just curious.
Previously you talked about 31% per this year this and be.
Fiscal 2022.
And what you're expecting and how do we think about those drivers as well.
Hi, Sean.
I'll provide some color on that and then I'll have <unk> get.
And get into some specifics on the numbers. Thank you for the question.
First of all I believe you'd asked a question about penetration of evs into the geos that serve and.
I think that's a very that's a bright spot and.
And what has been a challenging auto industry sales numbers.
And what Youre seeing in the industry as an overall decline and auto sales, but an overall increase and the percentage of sales that are evs that offsets that.
Decline in our particular market, that's driving essentially demand for our products and services.
We expect that strength to.
Continue.
And for very long time.
And.
If you look at the new makes and models that are being introduced I talked about that and my remarks, you've got 20, new EV models and this year.
Alone coming out and both the passenger car space and the fleet space It should drive demand and I'll remind you that our.
Revenue has been historically and is predicted to continue to map directly to vehicle penetration in both the consumer segment. The residential segment excuse me commercial segment residential segment and the fleet segment Theyre all vehicle attached across the board.
And so if you believe which we do that.
And the vehicles will continue to come and greater and greater percentages and greater and greater numbers our revenue should follow.
Follow suit and terms of gross margin and I'll make one comment and then I'll hand, it over to Rex our gross margin.
And.
We believe as Covid.
Begins to subside and our revenue mix.
And we will return to a pre COVID-19 revenue mix that will be a favorable trend with respect to gross margin and also as our overall volumes increase.
On both the hardware and software products that we sell into the market. We expect that the trend that we have and gross margin will continue nicely.
Thanks, Matt so.
First of all led to see what is our first earnings call. So thank you for joining secondly.
From a from a revenue guidance perspective first thing I would say is we're embracing the number that's out there as.
And as we look out over the next four quarters second Lee.
There is some seasonality. So that's why we put Q1, where we put it we are typically down in Q4 to Q1.
And that would tell you about fanatically, we're looking at a strong second half I think there's two things. There. One is that's very typical from a pattern perspective for the company and secondly, we do think that people are going to get back to work sometime later this year and that will have the beneficial effects both on the topline and gross margin and the path just mentioned.
From a from a confidence perspective as Pat said, there are a lot of vehicles coming out this year.
The percentage is up and actually the unit count is up as well. So we directly correlate to that as you know our model is 100% built on our attach rate to new vehicles. So that's.
And that's how we build our outlook, we do have a pretty good pipeline and.
And in terms of pipeline visibility is because we have a great pipeline, but the visibility is pretty good sorry.
And so that's how we have constructed our view of the year. One thing you'll note in Q4 as that fleet really picked up but it had its best quarter from a billings perspective, and the history of the company and the one place and our business, where nobody fell asleep and Covid is fleet fleet has really picked up from an RFP perspective.
Get the total cost of ownership and they're just they're at.
Really comes down to vehicles with those guys. So.
That's how we constructed our our model to begin with and.
And we're comfortable saying, we think that we will execute against that lastly on gross margin.
And not going to guide on gross margin I don't think Thats makes sense, because we're so heavily mix dependent.
As you know.
Our commercial business.
From products and different and different different gross margin profiles fleet is very different as well. So I really want people to think about us on a blended basis and.
And I think we're going to see margin expansion as Pat said as we go through the year.
Okay great.
And then.
Wanted to maybe.
Touch on Europe.
You mentioned, 7% of revenue and 2020.
Looking out I think by mid decade, roughly mid decade, you're thinking about it looks like it's supposed to be maybe roughly a third of the revenue.
Can you maybe just help frame what some of the expectations are around.
Either <unk> market share where would that be today and by 2025 and wanted to better understand the partnership with <unk> with the leasing company that you mentioned.
Because I think they are talking about pretty aggressive growth in terms of beds.
Penetration.
I think we have recently talked about increasing that mix.
In terms of vehicles, they lease to 30% by 2025, and maybe 50% by 2030, So I'm just trying to understand how that.
That would flow through.
To charge point either.
From a residential and then from.
Initial perspective.
Okay.
So thanks for the question.
All components of that I think were insightful.
The way so first of all I want to establish a couple of things. We we based our long term model on the boom.
Bloomberg New energy finance estimates for vehicles.
And any revisions that might happen or any changes that might happen and the future could move that vehicle number up or down.
We think that there is.
A lot of positive sentiment and momentum.
Especially in Europe with respect to makes and models, especially given the automakers.
And all have the automakers that serve that market at all made broad statements about <unk>.
Fully electrifying their product lines as they as they as they move forward through the decade. So.
I think what Youll see is continued.
For us continued penetration into Europe, Europe is a very fragmented market.
Right now and we think we can be a tremendous consolidating force.
And that in that market to provide the same driver experience that we've that we have here there and as you mentioned with the lease COSE, they're serving the.
<unk>.
Employer provided vehicles as part of compensation that phenomenon doesn't exist here. So it actually provides a nice concentrated way for us to establish market share quickly in Europe, and so we're leaning in heavily there because.
And obviously.
<unk>.
It's a great way and a coordinated net.
Method to get and new customer up and running at their workplace and then also there is a home component there as well where that.
Leasco bundles that home.
Home charging solution optionally into the into the contracts with the employer revenue.
Yes, so focusing on Europe.
Last year Europe was sorry in Q4, Europe was about 8% of our billings.
We're looking at a meaningful increase over the next this next year.
Percentage basis, something on the order of 50% increase percentage wise, obviously the companies.
We're anticipating we will grow next year and therefore, the actual dollar values will go as well.
So I think we're in good shape, you mentioned market share of our share in Europe is the.
Low to mid single digits.
Or to project, what that might look like at the end of the year, but I can tell you, we're putting a lot of wood behind the arrow.
And Europe this year and would expect.
Meaningful growth both on a dollar and percentage basis.
Okay, great. Thanks, so much on that and congratulations on the quarter.
Thank you.
Our next question comes from calling reached from open to highway and K.
Colin Please go ahead.
Thanks, so much guys.
Can you just give us a sense of trends on sales conversion rates and cycle times particular related to the commercial customers and North America as you've kind of gone through the back half of 2020, one and are looking into the first half of fiscal 'twenty two.
So Colin Thank you for the question and.
And so obviously things are converting.
These penetrate and as it becomes abundantly clear to facilities managers and all segments that that this trend is here to stay.
Conversion rates, obviously, and our pipeline improve we have a very strong pipeline.
Going into the year.
And.
One of the things that we are one trend that we're seeing and our sales force has the ability to on an increasing basis close and win business.
In our sales telephone contact center, which I think is an interesting indicator to us, it's a leading indicator and a significant part of our sales right now, but it will and we'll continue to grow and I think it's a leading indicator and the.
The conversion and the.
And the ability to convert the pipeline to.
To real sales.
With respect to our business in terms of how much pipeline at the beginning of the quarter.
Or how much of the quarter is visible at the beginning of the quarter.
It is roughly roughly and the half maybe a little less.
Perspective in terms of how much we see at the beginning of the quarter book versus how much is closed and one and this is and the highly granular.
<unk>.
Commercial segment.
And the fleet segment is a bit different we get more visibility there.
So what does that tell you that tells you that.
And it's moving pretty Fluidly.
And we expect that to we expect that to increase and what gives us confidence and our numbers on a go forward basis is just the historical attach rate model that we've developed that shows that as long as we're in a geography and serving it well with support and sales coverage good deep channel coverage well trained installers etcetera.
We've got the ability to convert the demand that those cars generate and sales specs and anything else.
Alright.
Alright, that's super helpful. Thank you so much for the detail.
And then within the fleet sector.
And then looking at the competitive dynamics of depot design and some of the software offerings in terms of operating.
Multiple chargers and and being able to manage multiple charging.
Vehicles that I think Kevin and the moment could you talk about where you are sitting in terms of the competitive landscape and how important that is in terms of some of those for you.
And that fleet backlog and Youre looking at developing over the next call it year on year.
And so we come and we view ourselves as a very complete solution provider.
In the fleet segment, and we have a very comprehensive software solutions and the engagement with a free customer and really start to bear to software conversation from the beginning.
Because of the need, especially and very large fleets to integrate with their route planning and telematics.
Business systems that determined when a vehicle needs too.
Leave and the next day and also what it's mileage for its routes will necessarily be and also the energy economic and economics, depending on where the depot situated.
May have some.
Fluctuation as to when or how best to optimize the dispensation to minimize the cost of the energy so.
Our software focuses on that problem set and.
As a result, we have built our support operations.
Which with our short pro product.
Has all of the necessary.
Options to engage with different kinds of fleets that light can be supplied to support their depots and in different ways. Some wanted fully turnkey. Some some may want to do some of the support themselves and stock spares. So we can engage and that in that way with fleets and then.
Lastly, we have.
The charging solutions.
The hardware itself that we built that is very flexible and it's completely designed with our software and mind that also completely designed with uptime.
In mind for mission critical applications like fleet. So we're pretty confident that our package is very very very competitive.
And there on the on the fleet side from a functionality perspective.
Okay helpful. And then final question from me is just around supply chain and obviously, there's a lot of lumpiness within.
And there are so I'm just curious in terms of components and.
And being able to deliver.
Full solutions on time, but can you guys just.
Touch on any sort of inefficiencies and the supply chain expedite and case component charges and how you're expecting that.
The impact.
Gross margins here and the first and second quarter of fiscal 'twenty two.
Yes.
Great question of subject is a lot of conversation inside of Chartwell and obviously on the operations side. We're trying to stay very very focused on this especially given that we're in a high growth market.
And so couple of things first of all.
Last year.
We did not miss shipments based on.
Supply chain issues.
We and as you see by the numbers the mix as well.
And as Matt mentioned in his remarks the mix shifted.
Pretty substantially between segments, which means.
Hardware mix, which is affected by the circumstances that you're outlining.
<unk> and we were we manage to be resilient against that through a whole lot of.
A whole lot of hard work on the on the part of our operations team as we move forward and I'll remind you that we use we have three contract manufacturing relationships and the company and so.
These are large CMS that have good supply chain mechanisms.
Of their own right, but we are actually putting and mitigation strategies and have been with respect to safety inventory I can't say that we're perfectly going to be able to avoid whatever comes around the corner, but we did I think.
Elements work and in the past year and on a go forward basis.
And where we're really focusing on it too to keep ourselves insulated as possible from this.
And obviously.
Last year, you asked specifically about expedite charges, we saw some I don't think they were massively material.
But they were but they but what you always will get that.
And to some degree when you have mix shift around and the business scale.
Beyond with our our initial models where for the beginning of the year.
And Collyn.
And you might expect but do think this will happen.
Our inventories probably going to trend up a bit because there is and the silica and stuff you want to make sure you don't have exposure to and some other components and obviously, we want to play it for growth because as I think our obsolescence risk is really low.
So we're going to try to take the risk out of the supply chain, but bulking up a little bit.
Okay. Thanks, so much guys.
Our next question on line comes from Gabe Daoud from Cowen.
Your line is now open. Please go ahead.
Thank you good afternoon, guys and congrats on getting the deal done and on Europe first quarter here.
Maybe I was hoping to start or just go back to Europe could you maybe just remind us.
And your last comment you did mentioned that the three contract manufacturers you do have but could.
So could you maybe just give us an update on the Europe strategy and whether you are now 100% on contract manufacturing for the AC products and Europe. I think you guys were anticipating it to be 100%.
And on your UC products using contract manufacturing, but just curious if you had an update there.
So our products almost across the board are.
Bill by contract manufacturers now.
And if if we may do some small things.
And with local manufacturers for new product introduction, and early engineering or or very very very early customer engagements, but nothing no major supply now comes from anything but our contract manufacturing partners.
The contract manufacturing partners have global supply chains and.
And they have the ability to cover us globally.
And also.
Along with the supply chain partners, our distribution partners that were using for logistics. So youre.
Your specific question with respect to Europe.
We are currently using some white label products in Europe that has been generally customized for us on the AC side because your question was specifically on AC.
And that will that obviously, we will continue to evolve our product line on the AC side in Europe and.
Stay tuned.
Okay. Okay. That's helpful. Maybe just a follow up.
And we feel at this point.
Team and the human capital that you have.
Behind the effort to expand and Europe is.
And the sufficient I know you were building out the team and you've made a number of expenses and that area, but just curious if you think from a people standpoint.
And we're well staffed now for the growth initiatives.
Yes, so so where.
And we're at about 100 people or so and Europe, maybe higher and now and we're going to be increasing pretty significantly over.
This year in fact, it's a big focus for us and the hiring side I'll remind you where our locations are we have our European headquarters.
In Amsterdam, we have.
<unk>.
And our collection of individuals' also and the Munich, Germany area and then we have.
System size facility and reading right outside of London, and the UK.
We are putting we are we are positioning.
Pretty much all functions that we all corporate functions in Europe. So we have.
And we have finance legal R&D sales marketing et cetera, So we're essentially multi local and that we need to make sure that we.
Have the functional coverage in the region to operate quickly in the region and also make sure that we can deal with all the nuances of selling and building product for local regions now with respect to R&D I want to point out something that's incredibly important.
Product line is a generally for all the product line. There are some areas where the hardware product line may have things that are specific to a region over time.
<unk> will be a world product line and the software while it has its language nuances support nuances things like that and different and different regions.
And as a world platform.
Therefore, the R&D operating expense leverage and being in Europe and.
And North America is very high and that we do not have to have a separate product line with separate software and various separate processes and procedures for Europe. This also helps us greatly and fleet.
There's a lot of commonality and product line as well so the real.
So the people that we have positioned and.
The European market now and as I said, it's going to be a big big head count growth area for us that's just the tip of the iceberg, because our R&D team and.
And lots of other functions and the company are operating producing intellectual property and products for the for the world essentially.
Got it thanks, so much for the color guys.
We have a question now from Craig Irwin from Roth Capital Partners. Please go ahead Craig.
Good evening and thanks for taking my questions.
So I wanted to ask a little bit about the guidance for this year, obviously, you're expecting strengthening into the end of the year can you maybe describe for us the contribution from.
People returning to work are you assuming.
Something related to sort of taper down of this COVID-19 effect and a benefit from that.
Your strength and workplaces as people do return to the workplace and.
And I guess as a second part and there is.
Is there activity going on right now with your customer base and preparing for.
Obviously, the additional charging spots given that fleets are growing quite nicely well everybody stuck with with work from home.
Yes, great question.
Our expect our expectations with respect to full return to work and a and now probably have a new twist set a twist to it and the.
Kind of work.
<unk> methodologies that have evolved during COVID-19.
We expect that to be back end loaded in the year and the second half of the second half phenomenon and we'll be coming out of it.
Q1, and Q2, we expect that.
Fully to show up and the and the numeric towards the back half of the year.
That said and we've had an incredible resilience and the business where the mix has moved around.
As evidenced by by the by the over performance relative to our expectations for the for the last year.
So going into the year, we see fleet being really strong on a year over year basis, even within last year.
It grew substantially and percentage over the over the year.
And we see workplace coming back and we see residential staying strong.
We see the sub segment of multifamily inside of residential.
Getting a lot of attention we have now the.
And the plans arent fully fully hatched of course, but we have the by the administration providing.
Potentially some stimulus in the form of.
Support for infrastructure, and our little corner and that will be charging infrastructure and how that plays out we don't exactly know yet, but we're participating and the discussions with the with the administration. So hopefully that will also be a tailwind. So we see a lot of general tailwind. The specific question with respect to our people prepping for the return to work.
Do we do see construction.
Happening during throughout the Covid period, where.
People with an eye towards the long game.
And real estate, we're preparing and renovating properties given that there was limited occupancy and those segments. We did see plenty of activity. You also have a backbone of utility programs you noticed and my remarks that the available funds and our go forward basis are climbing. These utility programs are multi year I want to make sure you get that clarification.
From my comments, but we and.
Those programs have time chooses on them typically.
And so the.
And if there's a program and force in a particular geography, that's providing some subsidy for either the make ready or even beyond that on.
On things that are on sites that have been more largely affected by COVID-19 and that will put counter pressure.
On the debt.
The business erosion, there temporary business erosion due to COVID-19.
Thank you for that thank you for that the next question I wanted to ask about the new product roadmap.
Touch on the.
And the new AC product, allowing you to.
Move away from third party product in Europe.
And maybe into the end of the year.
And I believe there is also a fleet product.
And the roadmap for this year.
Can you update us on the status of these two products do we have a specific quarter or.
Time point, where these are expected to be launched and what sort of margin implications does this have.
Both I guess on European opportunity and then.
And your success Youre seeing and fleets these days.
Yeah.
So obviously I can't comment on unannounced product launches I wish I could tell you I'm really excited about a lot of other things that we're doing and the R&D team.
And we can't comment on specifics of dates and.
Markets that we'll be launching product into.
What I will tell you is that.
With your gross margin question, obviously, it's a big focus for the company.
And as we continue to evolve our product line and work our supply chain move up the scale ladder as more and more volume and.
Two is on the hardware side, specifically I would expect the gross margins too.
Continue on the trends that.
And that that we've that we've indicated and the past.
And I can certainly say add to that we've factored in new product introductions to our planning this year. So when you look at our model.
Excuse me.
No and win.
And we're planning on doing X and Y as Pat said, we can't say, what X and Y is but.
And the plan and so it's not a.
Surprise kind of thing, we just need to get a large cogs right.
Understood and that makes sense. My last question is directly about gross margins on the DC fast charging products. So the skeptics out there who have been critical about the margin progression and charge points over the last two years and.
People that Unpacks the margin progress obviously understand this is a business mix issue and its also.
The DC fast charging product coming into the market quite nicely can you maybe comment a little bit about margin.
Progress on the DC fast charging units.
Are we versus your plan is there room for that to continue improving over the next few quarters.
So.
However, ex speak to the specifics on the trajectory there I want to just provide a bit.
Of color, which I think is important.
Our fast charge product line, it's not a product line, but it is a modular architecture.
And that is going to continue to evolve into derivative products.
Over time, and so we made a very ambitious investment.
And the initial in the initial set of products built on that architecture and are continuing to evolve it.
And when you start out with ambitious products like that and what is a low volume because the market is a low volume market there and general as you start up those product lines and you get contract manufacturing moving and you invest and <unk>.
All the test infrastructure, you need you're going to have as our first time through the system, you're going to have gross margin impact on the company. It's just a result of investing and then.
But obviously, we have good plans in place to continue to evolve and move that.
<unk> I'll, let you comment on the specific.
The specific numeric.
Yes, so <unk>.
So Craig the margin as you know on.
The <unk> product is.
Currently currently very thin shall we say so its a very soon and I think by the end of this year, where we've made great progress last year. This year, we'll break into.
Meaningful.
Flat to positive territory and the gross margins one of the things about.
Our DC fast charge architecture, which Pat just mentioned.
Yes, we've made investments.
But theres also an element of.
Market education customer education, and ultimate acceptance not all products are created equal and so we did manage to and I think we talked the market something from an AC product perspective, which is why I think we have been as successful as we've been in the U S and.
And hopefully increasingly so in Europe on that side.
Our DC fast charge product is a better product than anything else and the market.
And so about a single number so the number in terms of output is strong. It has all the features and functionality reliability et cetera. So we have some additional market education to do so.
So I think that will help us from an ASP perspective.
And then we're going to take the cost curve down, notably this year and will be filed by the end of the year.
It sounds like a great plan and so congratulations on the successful listing and thanks for taking my questions.
Thank you. Thank you.
Thank you very much.
So we don't have any further questions from the lines. If I hand back I was just the management team for any closing remarks.
Certainly so first of all thank you to all that are attending our first earnings call here were very excited to be here and to be listed on the New York stock exchange. Thank you too.
The folks that ask questions.
It helps a lot the questions help a lot to educate and.
Investors out there on the dynamics of what is a very new and exciting market, we're happy very happy to.
And finally have this market after a 13 year journey with <unk>.
<unk>.
And that the company has been on two.
To finally see all the pieces coming together and the market vehicles and battery technology.
Consumer user experiences for charging.
And a myriad of things plus all the secondary things that have to get integrated there with respect to energy and policy and all of those pieces. So on a go forward basis.
I think.
There's just.
A lot of this is going to be a lot of excitement.
And this industry, where we're.
Going to do is we're going to keep.
Keep our keep our head screwed on straight and execute and for US. It's all about execution and we know exactly what we are.
Doing we've been in this space for a very long time.
And it's not it's not theoretical for US right now it's all about it's all about practical execution, and we hope to turn and <unk>.
Good results for our shareholders. Thank you so much for attending.
Ladies and gentlemen. This concludes today's call. Thank you for joining you may now disconnect your lines.
Okay.
Sure.
And then.
Okay.