Q2 2021 ChargePoint Holdings Inc Earnings Call

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 factors that could cause actual results to differ please refer to our Form 10-Q filed with the SEC on June 11.2021.

In our earnings release posted today 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 non-GAAP. We reconcile these non-GAAP financial measures to GAAP financial measures for the current quarter in our earnings release and for our historical periods in our Investor presentation posted on the investors section of our website and finally, we will be posting the transcript of our call.

Today through our Investor Relations website under the quarterly results section.

With that I'll turn the call over to first quarter.

Thanks, Pat and thanks to all for your interest in charge point and joining us for our second quarter earnings call.

I will provide a business update to give you some perspective before turning the call over to Rex for financials, and an update of our guidance, reflecting our revenue momentum.

Pleased to hear more about the execution against our plan and our strong quarter for charge points. The results from this quarter can be described with one word scale scale across our three verticals and scaling both North America and Europe.

We are a larger company than we were pre COVID-19 and growing more quickly this quarter from both a quarter over quarter and year over year perspective exceeds revenue growth rates from the quarter. Then ended on July of 2019, we had strong commercial execution as businesses of all types continue to invest in EV charging for their customers employees and visitors.

<unk> <unk>.

Interest in EV charging solutions from fleet operators continues to be high in June we announced the industry's most comprehensive fleet charging portfolio.

Earlier this month, we announced the acquisition of <unk>, a leading fleet vehicle management provider and we expect the addition of teen customers and technology from this acquisition to further strengthen our reach in E bus and commercial fleet.

Residential demand for home charging continues to be strong and our ability to serve all types of residential settings is a differentiator from a geographical perspective, our north American execution remains strong as businesses continue to recover from the effects of Covid. Europe is growing quickly are activated port count is up 40.

4% in Europe for the first half of the year versus Bloomberg any after European public connector growth of 13% over the same period and we expect our position in Europe will expand meaningfully following the close of the acquisition of has to be post regulatory approval with the addition of their network ports under management position added to our existing position.

It has to be has a talented team robust technology and impressive base of customers, including our Vaal Audi GP.

<unk> ion any and Porsche just to name a few.

Before I jump into the business I'll share a few comments on the market tailwind supporting electrification more broadly.

As we have said charge points success is directly tied to the arrival of electric vehicles.

Bloomberg any F published its electric vehicle outlook in June which was the first major increase to their outlook in five years sales.

Sales of Evs accelerated in North America, and Europe in the first half of 2021.

According to be any ASP North America, EV sales were up 97% year over year for the first half and European EV sales were up 153%.

We are witnessing more vehicles coming to market and exciting form factors for a broad array of use cases, we continue to test new vehicle models that run the gamut of passenger fleet in transit in our state of the art test facility and Campbell, California.

Turning to policy much continues to evolve on vehicle and admissions policies President Biden issued an executive order, calling for half of all new vehicles sold to the zero emission by 2030.

The Trudeau administration set a goal of 100% zero emission vehicle sales by 2035, and the EU fit for 55 package announced in July provides the sectoral policy tools to meet the 65% emission reduction ambition by 2030, it's an effective mechanism to hasten the transition to be evs.

This collection of efforts has the support of many major automakers. It helps create category awareness and we expect the pace of electrification to continue to accelerate.

We are also seeing unprecedented progress in infrastructure funding in the U S. We were pleased to see the Senate includes $82.0 billion to expand charging in the recently passed bipartisan infrastructure Bill.

The speaker of the house has committed to voting on this bill by September 27th.

The Senate has also passed a three five trillion budget framework, which is backed by the president and includes instructions for lawmakers around changes in the tax code to make the president in TV go more attainable.

The budget framework was adopted by the house last week, and we are closely tracking the drafting and this legislation and other actions in Congress with potential incentives for EV charging for communities and fleet.

States play an important part in infrastructure funding independently and in crafting mechanisms for the disbursement of federal funds.

California is a leader and an influential market the passing of the state budget that included up to $12.0 billion for zero emission vehicles and charging incentives over the next three years will support continued infrastructure build out.

We believe we are well positioned to enable our customers to leverage public funding. In addition to ongoing private investments our teams have more than a decade of grants management experience, having worked with federal agencies regional governments and local partners to successfully build charging to support communities and connect corridors.

Turning to our verticals first let's look at what's happening in commercial.

It enjoyed its best quarter, yet with sequential billings growth of over 46% and year over year billings growth of over 90% from the same period last year.

As a technology company with software at our core we are pleased to report subscription revenue for the quarter grew 12% from the first quarter and 23% year over year we.

We finished the quarter with approximately 118000 active ports on our network an increase of about 6000 ports sequentially.

This includes over 5400 in Europe up from over 4700 reports last quarter not including the approximately 40000 ports to be integrated on the close of the has to be acquisition.

Exciting deployments with auto dealerships, both North America, and European as well as fueling and convenience locations like come and go led to a record quarter for shipments of DC fast ports. The total fast charge ports on our network grew to over 3700 as of quarter end.

We continue to work with the industry to enable drivers to roam across networks in North America and Europe. This quarter, we crossed over 200000 roaming ports accessible to drivers using charge points.

In fleet, we had a record quarter with growth of 187% year over year from a billings perspective, we believe fleet represents an enormous opportunity for charge points and we are seeing activity across the vertical including delivery and logistics transit and work vehicle fleets.

RFP activity is widespread in June we successfully unveiled what we believe is the industry's most comprehensive charging portfolio that was designed with our fleet management software at its core to ensure cost effective operational readiness for fleets of all types and sizes.

The recently closed <unk> acquisition extend existing charge point functionality with direct vehicle data, enabling additional functionality, including battery health monitoring OEM agnostic telematics vehicle maintenance support and vehicle operations data.

Fleet managers are focused on integrated vehicle and charging visibility access and control and we believe that the combined offerings of charge point, Andrew recipe will be a force in this space.

In the residential vertical our strategy to serve all needs is paying off these.

These include single family residences apartments, and condominiums, and employers who are for electric vehicles bundled with home charging made available through leasing companies.

<unk> over from the fleet vertical employers requiring employees to take work vehicles home overnight use our home charging services that enable fuel cost reimbursement for overnight charging.

Q2 residential billings were very strong up over 79% year over year and 43% sequentially.

We continue to offer seamless access to EV charging with integrations into leading consumer platforms. This quarter with our strategic partner of Mercedes Benz, We announced a new benchmark for EV charging in North America with charge point powering and Mercedes me charge vehicle ecosystem to be launched with the all new eqs luxury sedan and included with all.

<unk> EQ future mobility products for Mercedes Benz.

With our software drivers can seamlessly find navigate connect and security pay for charging in the vehicle and from Mercedes Me App across the charge point network and roaming partners, including charging and access control environments like workplaces shopping malls and hotels.

Our customer growth continued in the second quarter building off the strong start to the year. We eclipsed 5000 customers. We continue to see a steady rebuy rate of well over 60%, we are adding customers quickly while growing with existing customers rapidly.

Charge point continues to invest heavily in our team we finished the quarter with over 1000 employees as a technology company, we are especially proud of our engineering and technical staff the tops more than 500, not including the capable team and diversity and the additional expected team. Following the close of B has to be acquisition.

The team's managing our supply chain have navigated a dynamic environment rest will give me more color on margins and <unk> pointed navigating through this global headwinds, including responding to the demand for our product in the second quarter that exceeded our forecast.

Before turning it directly I would like to reiterate that charge points scaling of the new fueling network is generating notable environmental impact having enabled over $3 billion electric miles driven and avoiding 462000 metric tons of greenhouse gases and roughly 120 million gallons gasoline by the end of Q2.

<unk> over to you for financials.

Thanks, Chris and good afternoon, everyone first my comments or non-GAAP, where we principally excludes stock based compensation and the effect of the valuation of our stock words. This quarter. We also exclude legal expenses.

Associated with our secondary offering completed in July.

<unk> acquisition completed in August and our pending acquisition of has to be.

We announced in July we expect to close later this calendar year.

For a reconciliation of these non-GAAP results to GAAP, Please see our earnings release.

Second after a quick review of our results I will provide revenue estimates for fiscal Q3 and for the fiscal year.

Third consistent with our March and June calls and as you can see in our earnings release, We report revenue along three lines network charging systems subscriptions and other.

Network charging systems represents our hardware while sold with our cloud services solutions subscriptions.

Subscriptions.

<unk> those cloud services are assure warranties and our charge point as a service operator, where we bundle our solutions into a recurring subscription.

Other consists of energy credits professional services and certain non material revenue streams.

Q2 revenue was $56 million up 61% year over year, well above the high end of our previously announced guidance range of 46% to $51 million and up 39% sequentially with.

The top line success was across all verticals and geographies.

Network charging systems at $41 million was 73% of total revenue for the quarter and grew 91% year on year and 53% sequentially.

Subscription revenue was $12 million was 22% of total revenue and up 23% year on year and 12% sequentially.

Subscription growth trails network charging systems revenue growth for three primary reasons.

First mix as both DC network charging systems and home have a lower ratio of subscription to hardware revenue that our overall average.

Our quarterly sales are typically strongest in the third month of each quarter.

Which amplifies network charging systems revenue taken its shipments versus Ratably recognized subscriptions and third for most of our solutions. We began revenue for subscriptions at a fixed time after the associated hardware shipments to accommodate installations.

We are particularly pleased that our deferred revenue from our subscriptions representing record recurring revenue from existing customer commitments of payments that are $100 million this quarter for the first time.

Other revenue of $3 million in 6% of total revenue decreased 16% year on year.

Lower utilization based energy credits, but increased 10% sequentially.

We look at verticals from a billings perspective billings by vertical for Q2 were commercial 75% linked 12% residential 11% and other 3% consistent with billings by percentage for Q1 were.

We are very pleased to see strong growth total billings up 87% year on year, and 42% sequentially on consistent mix demonstrating strength across all our verticals.

From a geographic perspective Q2 revenue from North America was 91% in Europe was 9% consistent with recent breakdowns by geography.

Europe held as a percentage of the high growth quarter with its best quarter ever at $5 million in total revenue.

And up 38% year on year and 42% sequentially.

Our customer rebuy rate, the cornerstone of our business model and reflecting our land and expand strategy.

It remained over 60% of total billings that compelling indicators since we add hundreds of new commercial customers per quarter.

And from a scale perspective, we also continued our channel success with approximately 62% of our business driven by our channel partners and.

And continuing to add partners at a strong rate.

Turning to gross margin non-GAAP gross margin for Q2 was 23% flat to Q1.

Continued improvements in our cost of goods sold and renewed strength in commercial offset supply chain challenges, particularly incremental logistics costs, which had an approximately three point negative impact on gross margin for the quarter.

Non-GAAP operating expenses for Q2 were $53 million.

A year over year increase of 70% compared to a COVID-19 impacted prior year quarter, and a sequential increase of 13%.

We continue to invest heavily in sales and marketing to support our land and expand model in North America and Europe.

In R&D and operations to support significant new product development, and a rapidly expanding customer base and <unk>.

G&A expenses to support continued growth in the business and increased public company related expenses.

Looking at cash we finished the quarter with approximately $618 million with approximately $44 million in from warrant exercises, resulting from the redemption of our public warrants.

Offsetting cash used by operations.

We have funded in Q3, thus far approximately $80 million of our $90 million acquisition of <unk> and on completion of regulatory review, we expect to fund the cash component of it has to be acquisition at approximately $135 million potentially also in Q3.

As a reminder, this acquisition is a blend of cash and stock and I'll cover the stock in a minute.

The squad spoke about the strategic and operating merits of both transactions from a financial perspective, we expect these two acquisitions combined to contribute approximately $4 million in total revenue in Q4.

To be generally accretive to gross margin.

To add approximately $8 million to $10 million and combined operating expenses in Q4 and to provide synergistic sales opportunities for both.

Our hardware and software.

Our new guidance, which I will provide shortly reflects various cities expected contributions since the August close and assumes has to be closes in late Q3.

I do not expect to provide future breakouts for these acquisitions, but wanted to give you a sense of initial sizing as we integrate them into our operations.

Regarding share count during the quarter, we issued eight 8 million shares of common stock.

Action with the final spec merger earn out.

$8.0 million shares of common stock in connection with warrant exercises and $12.0 million shares under our employee stock plans.

We finished the quarter with 322 million shares outstanding.

After giving effect to the acquisition of has to be we expect to have roughly 328 million shares outstanding.

And finally, we completed an underwritten secondary offering in July for $21.0 million.

Outstanding shares held by existing stockholders in order to improve our float and broaden our stockholder roster.

Charge point offered no primary shares in this transaction.

Turning now to guidance as Pat mentioned demand for our solutions in Q2, outstripped, our expectations and production ramp.

And we continue to watch as we all do because of the situation, including its implications for ongoing supply chain challenges and heightened logistics costs.

Despite these factors we turned in a strong first half performance and are excited about our revenue momentum going into the second half.

Accordingly for fiscal Q3, we expect total revenue of $60 million to $65 million at midpoint, an increase of 72% versus Q3 of last year and a sequential increase.

Of over 11%.

For the fiscal year, we are taking our revenue guidance of 15% from $195 million to $205 million to $225 million to $235 million at the new midpoint, representing a 57% increase year on year and with that I'll turn the call back to Pat.

We'd like to thank you again for your interest in charge point, we are very proud of our quarter defined by broad and accelerating scale in North America and Europe across each of our three verticals. We believe our technology capital light business model and market share position us well to continue to execute in this very exciting market.

We will now begin the Q&A session, if you'd like to ask a question. Please press star followed by one on your Touchtone keypad.

Any reason you would like to remove that question. Please press star followed by <unk>.

Again to ask a question press star one.

As a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question, we will pause here briefly to allow questions to generate in Q.

So first question is from Gabe Daoud with Cowen. Please proceed.

Hey, good afternoon, everyone.

I was hoping we could maybe just start with the financials for a bit.

Just noticed there is a margin degradation on the subscription line quarter over quarter looked like it was only 35% and <unk> I think had been closer to 50% in prior quarters is there anything.

You can maybe point to there as to what drove that that degradation sequentially.

So as you know.

Personal line.

But just a whole lot yet so the two things that we charge against that line from a Cogs perspective, or the call center cost to where we're supporting house drivers and then we also clearly when you have it sure warranties in your favor.

I'm sorry in your contract any cost to repair that we have though against that.

There's nothing there's nothing unusual in the quarter.

I think it's just.

Nominally thank you.

Got it got it.

Yes, I guess as a follow up.

It's a little bit about the supply chain.

Situation. Currently obviously you guys continue to do a nice.

This job offsetting.

And increase their logistical costs, but just kicked out the rest of this year.

So that's a great question.

We did a nice job.

Balance sheet, we were not able to.

Build inventories that were <unk>.

Very much.

Okay.

Procuring in shipping we did run into a little bit of.

More demand than we can made so there is some shipments that didn't happen due to supply chain. The biggest issue issue is mostly higher logistics costs.

To a lesser degree there are some component shortages.

So I don't again, I think we managed that really well it has three points in Q2.

That we would have had 26% gross margin showing some nice progression from Q1, if you look at the second half of the year.

We've got a pretty steep ramp for Q2 Q3 from a revenue perspective sort of putting an enormous amount of pressure on our operating team at our supply chain partners and CMS to to meet those numbers and so.

And our guidance we've tried to take all of that into account. So I don't think theres going to be.

X numbers at that point.

Mid mid to low single digits.

Pressure on us from a from a gross margin standpoint, as we think through that ill just tell you an impact back me up on us.

Because of our model, which is land and expand with customer.

You need to you need to win that we're pushing top line to make sure we capture.

Capture the territories are the customers as we go so thats, where the emphasis and so if we have to make that trade off we will.

One more.

Point on that.

Because every report that we sell is associated with a subscription to software that's very low churn.

The way, we look at the AUM.

Overall contribution from a port.

From a margin perspective is over the lifetime of that port because the churn rate is so low.

The software revenue accumulates nicely over the years.

So it's.

It's imperative seemingly possibly can so biasing, our supply chain activities to making sure that we can not only acquiring new customers, but expand within the footprint that we have I think we get it back in spades.

Over the years, we just we just have to.

Understood that makes sense. Thanks.

Just one more just now with diversity in the fold.

Maybe just talk about.

Right.

Competition within that channel.

How impactful.

Having the vehicle telematics is from from potential business for perspective, and maybe also just talk a little bit about.

Some software side for fleets versus.

Some of your competitors.

Well from our perspective, especially given that it's very early.

Early innings in fleet and fleet operators.

Have a tremendous amount of experience with electrification to say the least.

The completeness of our portfolio and the pre integration.

Bank is.

A huge deal.

Differentiator in being able to establish ourselves early with these.

Customers as they convert their fleets from fossil fuels to electricity.

Pursuant to that Ken organically and with the <unk> acquisition Inorganically.

<unk> is having as larger portfolio as possible with respect to.

<unk> in particular.

The functionality that they add on the vehicle side extends beyond just raw talent telematics that included battery health monitoring and other driver vehicle.

Core functions and reporting functions that they have where that comes vehicles within the within the fleet space very very large.

Typically we'll already have a telematics provider that they are.

We are working with and we're pretty integrated with all of those.

The usual suspects there.

We're continuing to integrate with the with a larger set.

For the long tail.

That is often not the case, so having the specific vehicle telematic offering in the portfolio really.

Reduces the integration.

And complexity for someone that's in one of the segments that is not currently.

<unk> partner or it doesn't have the wherewithal internally.

Really do those sorts of integrations themselves. So what we're trying to do as much like the.

The way I example, it is the way that you would purchase potentially an ERP system, but you may not buy every plug in for that ERP system from ERP system vendor, but you'd like having the fact that some customers have the ability to pick and choose from a basket of things that surround the core functionality I think this <unk>.

<unk> has been generally the same direction. So from a differentiation perspective is the completeness of offering check we think we've got a good one there and are going to enter continuing with vast but most importantly, Australia also at your attention to the number of third.

And third party services that we're integrating with as well that are in the fleet ecosystem on the software side to make the adoption of this very very simple.

Okay.

Really helpful. Thanks, guys.

Hey, Gabe one thing this is Rex Brexit and on your first question will come a little flat footed there until it dawned on me that Youre looking at GAAP numbers non-GAAP numbers.

So the driver on that from a GAAP perspective is fundamentally stock based comp, which is a new thing for the company obviously since we've gone public.

If you look at it on a non-GAAP basis, the sulfur margins actually up a point sequentially. So im sorry, Im sorry, I Didnt Didnt brought that with you when you ask the question.

No no. It was understood. Thank you so thats about $2 million that's added back that's all related to the network.

The subscriptions line.

The $2 million.

The $2.

The Delta is without stock based comp subscription gross margin went up.

Okay. Okay got it got it thanks guys.

Yes.

Thank you Mr Dowd.

Ladies and gentlemen, please limit yourself to two questions at a time, please limit yourself to two questions at a time.

Question is from Colin Rusch with Oppenheimer. Please proceed.

Thanks, guys.

Sorry, if I missed this but can you break out the increase in the guide how much of that is coming from acquisitions and how much of that is organic growth from that.

Existing business.

Yes Colin.

This is Rick so our estimate for Q4 was that the acquisitions will contribute approximately $4 million.

And so the balance in Q4 would be us.

And then for Q3.

We do we have <unk> for most of the quarter and hope to have that has to be in quarter. So consider it baked in but we're sort of assuming in our view of the world that you should focus over the contribution in Q4.

Okay.

And then just in terms of the pipeline activity can you speak to the number of.

Potential targets, you're looking at and how that's grown year over year in terms of the land and expand model.

Those new customers.

How should we be thinking about the growth for some customers that you guys can manage.

So when you started you started the acquisitions and you went to customer count.

Customer advocacy.

The second question is really about the pipeline and how.

How that's grown as I've got you here for.

First.

First time buyers of products.

Yes, so on the acquisition front Super happy to have announced the two that we did.

I can tell you I think we follow a beautifully what we as a management team is just those just big picture to you like to make sure you get them. When the question is I think the question is are we looking at that going forward doing some additional or no no I think the question Brian.

On acquisitions at all revenue and customer pipeline.

Okay.

Sorry, I was thrilled by the acquisition questions so pipeline from a.

So I'll take your last thing, which is the whole customer growth question, so from a customer growth perspective.

We had a stellar quarter in Q2.

Well, it's well past the number that we've had in the market before.

As you know we are investing heavily in sales and marketing to make sure that we keep that trend going.

I think we said probably six months ago that were around 500, new customers per quarter were handily, beating that now.

And that's organic guidance. So obviously the two the two acquisitions, bringing some additional customers, particularly in Europe, and particularly in the <unk> segment that we.

We did not have but our.

Organic growth on the customer side is powerful.

Okay. Thanks, guys.

Thank you Mr rash.

Next question is from Craig Irwin with Roth Capital Partners.

Please proceed.

Hi, good evening and thanks for taking my questions.

So today and where the opportunity to look very closely for.

You mean fleet products in person I have to say I'm really impressed.

Particularly from the small.

Conant count in the different the different pieces CMT doesn't components in your.

DC conversion tower.

The <unk> components in Europe.

I guess two part.

Dispenser tower.

This kind of suggests that maybe an opportunity from a margin standpoint.

As these start to ramp in volume can you maybe talk us through.

Whether or not this manufacturing efficiencies in the supply savings products.

It will be accretive to margins over the next number of quarters and there were some questions.

As far as the overall certification status of leasing fleet products.

Yes.

Great Great set of questions and thanks for checking out the product I'm, assuming that you were at the <unk> trade show.

Is that what you're saying okay.

Yes, yes.

Yes, so with.

Core to the strategy here.

<unk> is designing products that build from very few sub components. So if you look across our product line, you'll see the same sub components used in multiple products and the reason for that is twofold. One is.

Exactly what you are alluding to its long term manufacturing efficiency.

And volume scale to yield.

Favorable cost structure, there, but theres, a second factor, which is an <unk>.

Most mission critical mission critical business is fleet or.

Passenger car.

Sparing capacity for self maintainor or our own.

Sure services, our essentially our warranty services, maintaining a simple inventory management system to enable rapid rapid repair and very high uptime is the second reason. So this is one of the few times in products, where you get both the cost.

<unk> advantage due to scale concentration in a few components.

And a reliability and uptime kicker as well.

And now Thats, our intent is to continue to push the volume and we expect that as we scale and I believe Brexit has mentioned on several earnings calls that are as these products mature that's.

That's the underpinning of what we've talked about in terms of our margin recovery curve getting us getting it back to previous historical levels on the margin.

Okay excellent excellent.

My next question's about products for Europe. So my understanding also looking at the products closely is that there is an opportunity for <unk>.

Three small number of components to be changed.

Versus the designs that are now starting to ship into North America.

And.

Can you maybe clarify for us whether or not.

Simplicity this new design approach that you've taken.

Maybe accelerates the margin accretion.

As you look to serve Europe, a lot more aggressively for growth over the next number of quarters.

So we've taken at design approach.

Across the board wherever possible products are being designed to be world products, either through simple final configuration steps in the factory or out of the box world products. The <unk>.

Reason for that is exactly what you are alluding to which is to combine scale.

Excuse me between the two continents to drive not only supply chain efficiency.

But but.

Common practices for.

For repair and reliability.

So we the fast charge products for example that you saw at ACC and even some of the AC products.

I don't remember exactly which ones we had exhibited there.

Our.

Got it.

Fast charge products, our wireless products.

They're designed to work everywhere and the AC products for fleet in particular.

For Europe are.

Our design that they are core to operate globally.

Thank you and then if I could squeeze another one in.

Workplace has been a very important market crush plants over the last number of years. It's a particular point of strength for the company and a lot of US are looking at are.

Our team is being back in the office and I know that many other companies have similar policies.

Can you maybe comment about <unk>.

Recent conversations with your you are important customers and workplace, whether or not it's fair to expect.

So some building of the momentum there may be a return.

So the really impressive growth that you saw over the last couple of years.

So if you look at.

The remarks that we made earlier before the Q&A, we pointed out that R.

Our business volume is now above pre COVID-19 levels in our growth rate is above pre COVID-19 levels, but COVID-19 is not over yet.

And so what that says.

Is that R. R modeling assumptions.

And that cars drive everything.

And then.

In the EMEA and our revenue model cars do drive everything it's completely an attach rate model.

How we model our revenue forecasting in over the last three quarters I think we've done a pretty good job even in a COVID-19 environment forecasting R.

Our revenue.

What we have seen is a mix shift due to COVID-19.

But the overall.

Growth in this space has been more than compensated for by the increased rivalry in cars relative to the pre COVID-19 levels that we've seen.

So.

With all of that said as workplace returns, it's all upside.

Understood well congratulations on the strong quarter I'll hop back in the appendix Q.

Thank you Mr <unk>.

The next question is from <unk> Patel with Wolfe research.

Pete.

Hey, Thank you.

So yeah.

You mentioned earlier.

You are having.

Difficulty in meeting demand and that was that was an issue in the quarter.

I just wanted to see.

We should how we should think about the ability to increase manufacturing.

If this were to continue for the next let's say the next few quarters.

Is there any way to think about any upside potential to capacity.

For for charge points.

So this is not a manufacturing capacity driven problem on the supply chain side for us.

Racked manufacturers can deploy the labor and the capital equipment necessary to build.

To build the physical product.

The issue is.

The random.

The random onset of deaconess and the supply chain for components and our teams.

With our contract manufacturers deep focus on making sure that we exercise every potential source of supply and our engineering teams.

Right behind them qualifying second third fourth sources in some cases, so we can desensitize. The risks you can't drive it to zero and sensitize the risk too.

Sudden decommit.

Where you think you have a source of supply to suddenly they can't meet shipment.

Into the factory because as you've seen the numbers are a bit higher than than our.

<unk> forecast.

<unk> been able to scale on the component supply chain down the land generally meet that today are not completely but generally meet that demand and the team is working like crazy to slip a belt and suspenders in place to drive materials.

Into the factories, where the factory capacity again is not the problem.

So we can meet the meet the guidance that we've set for you for the back half of the year.

So we're working at we have been bitten by it.

Yes.

But.

<unk> experienced enough in matters to never take our eye off the ball and never advertised to you that we are immune to any problems.

Yeah.

Okay.

And then I wanted to switch.

Fleets out of the business you mentioned I think you mentioned 180% growth in.

In the quarter, which is obviously really impressive.

I wanted to as Youre thinking about the opportunity obviously now.

With various city.

And in Europe.

I'm just trying to think through how the competitive landscape evolves here on how you count charge points position and in particular, we've seen announcements from Oems.

That are that are looking to offer fleet charging as part of their product offering.

And then recently GM are two examples so how do you think about the ability to.

To still provide a.

Value add solution.

Add those Oems are indicating interest in trying to sell towards their own customers.

Yeah. So.

We've addressed this question I think.

I think we've got a very similar run on our last earnings call.

There are almost no single OEM fleets out there.

And so we're focusing on a solution that isn't tied to any one particular OEM and that is also <unk>.

Broadly open to all of the other business system partners at fleets tend to integrate with so we can be as pre integrated as possible.

And our focus from a competitive perspective is to be.

As to not have the customer BD integrator is doing is to is to enable a simple integration as possible by being pre integrated.

There's never a perfect science here.

Yes.

But that but thats, but thats, what we consider to be our differentiator in a big way.

I think the Oems need a default offering.

We applaud that I think.

They need to have that but I think most of their customers don't buy from just them.

So again, because most fleets are multi OEM.

We don't see that as a negative.

Okay. Thanks, a lot.

Thank you Mr. Curtail. The next question is from David Kelley with Jefferies.

Please proceed.

Hi, Good afternoon, guys. Thanks for taking my questions I guess, two from my end and maybe starting with the fleet charging.

Portfolio that you unveiled.

A couple of months ago, clearly software intend to so.

Maybe if you could walk us through how you're thinking about the longer term kind of subscription opportunity.

Tied to the software for that product line that would be great.

I mean.

It would take more time than we have in this earnings call to give you a forum down.

We should.

We'll certainly do.

As as we have more technology specific days for the analyst community, but in brief.

The way that you should think about it is that their software thats proportional to charging ports, which is pretty analogous to our traditional commercial charging a commercial business for passenger cars, we sell to.

Workplaces or retailers parking operators et cetera, so something proportional to keeping a port of charging on.

Large point network again, not power Orient, not not making money on the sale of power.

Utilization dependent et cetera.

And then there's the additional fleet services for Charger scheduling based on needs for next day routes or next shift routes that is that is build on a per vehicle basis and how you can think of in a new a new service above and beyond the charter management services.

That can be built on a per vehicle basis for those kinds of services and then Theres sitewide.

Energy management services and come into play later.

So you have a generally things that are proportional to charges proportion of the vehicles are proportional to sites.

In the commercial charging domain.

It's changing as well, except the proportion of the vehicle component and it isn't there isn't really a stronger the telematics doesn't play in there I'll point out one more thing relative to our commercial and our residential business is relevance to fleet.

A lot of.

Lot of operators.

Half take home component to their to their fleets are residential offerings in our business offerings for lease COSE in Europe that provide cars to employees as part of their compensation that same technology package is being pointed at take home fleets to enable electricity.

The cost reimbursement when the when the employee takes the vehicle home and uses their own.

Their own power essentially two to charge a vehicle for work purposes. So we're seeing a lot of crossover there and that's the power of being involved in all of these verticals as being in any one vertical leaves you uncovered for the use cases that crossed into the vertical to last is that.

At <unk>.

Being able to offer.

Sure.

The on route in wild charging capabilities with fuel card integration. So the payments consolidated et cetera is another avenue, where our commercial offerings for drivers like <unk> drive.

Vehicle and target a parking operator or an employer.

That uses those things while imagine now we can bring that world where were.

Fleet drivers can use those services, but have integrated billing back to there.

Back to their employers through integration with fuel card providers et cetera, and we're going to keep we're going to keep expanding.

Leveraging to that commercial segments. So really all of these things play together and Thats whats not really apparent.

Yet.

Two a lot of folks that are looking at the space I'll pause there can be a long answer if I keep going.

Okay no great that's super helpful.

Really appreciate it and maybe just kind of switch gears a bit.

High level question on ESG and sustainability.

And this might be a long answer as well, but clearly we're seeing a broader push in North America. So maybe could you give us a window into the conversations youre, having with existing and new customers.

How they see charging fit it into their strategy and.

Could ESG boost let's call it the longer term rebuy algorithm for charge point as we think out several years into the future.

Well it certainly could I think.

Businesses of all kinds are embracing charging.

Further.

For not only ESG reasons, but it's also good for their employees and good for their customers because driving electric is is in the long term a much more cost effective than driving on fossil fuels. The car itself is.

Is it better cost profile over time, and then fuel oil.

The story there.

And obviously all of these companies are now being measured on ESG.

So it has to factor in.

Just the question is.

You don't really need any more charging then the cars in the parking lot are driving so we can't make an estimate right now of how that's how much of that is pre baked into our attach rate model.

Or not and we'll understand that as the market continues to unfold, but I agree with you.

Certainly a tailwind the question is how much.

Okay got it. Thank you really appreciate the time.

Thank you Mr. Kelly. The next question is from Vikram <unk> with Needham. Please proceed.

Good evening everyone.

I just have two questions one about near term profitability and one about long term outlook and profitability.

You actually highlighted increasing output by <unk> I believe your long term outlook was based on their forecast you've made acquisitions, which are margin accretive how does that change your outlook to achieve profitability matures fiscal 'twenty five.

A few months back could you just talk about puts and takes there and in terms of EMEA.

Near term profitability.

The initial guidance at the beginning of Ta was about 31% you've mentioned about 3% hit to gross margin. This year this quarter due to supply chain issues. There has been a shift in mix.

And the impact of prolonged shutdown due to Covid could you also explaining the near term sort of margin outlook using 31% of the base what the puts and takes on it if you could to the extent you can quantify them that would be helpful. Thank you.

Okay.

Based on your question, you clearly understand it really well already.

But what I would tell you that.

So for this year is absolutely true we are running lighter gross margin than we would've expected.

I think we posted a decent number in Q1, we held in Q2 despite the.

Internal factors.

And we're going to think through.

Does the second half of the year and deal with these factors as well as I said earlier, we are definitely making a commitment to ourselves to drive the topline harder because land and expand is a ballgame and sockets for gaining customers now is super Super important.

Obviously puts a little pressure.

If your margin is not performing that puts more pressure on you from.

From a bottomline perspective, but again for the long term health of the business.

<unk> is everything and keep in mind as we acquire customers.

And customers, who become ongoing customers from a software perspective.

<unk>.

I appreciate by higher margin versus the initial sale. So if you look at.

So.

We don't give.

Martin guidance, specifically, but I think qualitatively you can tell.

We think there is a gap between where we thought we were going to be at the beginning of the year and where we are now and as you referenced mix is a big big big component of that so if the commercial business.

And additional quarters like it did this quarter because it came on extremely strong that's a place where we get a lot of margin power and so that can help slots. So we need to stay tuned on that I think you also asked a question about.

The acquisitions I think the acquisitions are accretive gross margin throughout.

And they will initially be.

Yeah.

More in terms of Opex and the gross margin contributed but I think that flips in the not too distant future and then there are also very positive benefits between.

Stuff, we do that drives more sales of.

The software, we just acquired and stuff. They do it suffered we just acquired the drives more business from from the charter side. So as the synergy kicks in I think I think we should have a pretty good year with those two acquisitions next year and then lastly from an acquisition sorry next segment from a profitability perspective.

We've actually talked in terms of calendar 'twenty four.

Sure.

Turning to our model is every day.

Thank the acquisitions, where our current blue.

Blending of Covid.

<unk> strategy of going for revenue and addressing gross margin initiatives is going to meaningfully change that.

Sure.

We decided that needs to be pushed out we'll let you know, but we're not there yet.

Thank you.

Thank you Mr <unk>.

The next question is from K Mccalley with Citi. Please proceed.

Okay.

Great. Thanks, Hi, everybody.

If I missed it earlier I joined a bit late but did you have the refi percentage in North America for the quarter and then secondly, just going back to the gross margin discussion Rex as we.

Think about the land and expand model.

Okay.

Is it gross margin higher on that incremental ports are installed at a particular customer maybe many of it what is it worth it for you to invest in gross margin initially.

As you land them and then as you expanded that the incremental margin on that would be higher.

Sure. So on your first question about the rebuy rate.

Remarkably consistent north of 60% of our business is revised.

And then how this quarter bounces around $63, 67%.

It's.

Almost all of it has a six in front of us.

And very consistently there in terms of Atlanta and expanded as a margin profile change.

If you look at it.

And it depends on how fast people buy you can look at it in its entirety because over time, obviously software is a meaningful component of the relationship with a customer that helps.

But I've seen nothing that would suggest that we need to.

Go into less expensive take a margin has to secure the customers and then trying to try to get it back over time.

Obviously, if we have women coupled with a number of customers that have.

A couple of a couple of thousand ports, pushing 3000 ports, obviously, they get benefits in terms of pricing, but in terms of the basic model.

Our asps are holding up very very nicely and we just haven't seen a need.

Kind of situations.

Just to take that head on.

Go in and we've remained fairly consistent.

I just wanted to remind I just want to remind everyone on the call one thing as well related to that answer Mark installation does not go through our book that is true.

So any efficiencies that would happen.

From an installation perspective is the deployment gets bigger at a particular customer because of our economies of scale. There, we don't see that because thats not part of our revenue profile that's true.

Got it that's very helpful and if I could sneak one more in maybe back to the ESG discussion earlier give a rough sense of like what portion of your North America commercial customers kind of giveaway charging sessions for free.

They either all the time or at least partially.

I don't have that number moves around a bit I don't have that off the top of my head I can certainly.

Find it.

But I'll give some color.

Workplaces in general do not attempt to.

Usually our employees as a revenue source phase III. This is an employee benefit typically is.

A couple of questions on this call with respect to ESG alignment.

And the cost structure associated with giving your employee.

Power and workplace setting is comparable to providing them coffee.

And so it's not very high on the.

Korea list of cost with respect to employee benefits on our side for example, a cafeteria would be far more expensive.

If it was subsidized and then giving you an employee EV charging.

Also youre effectively lowering your employees cost personnel cost structure.

And.

Because you are enabling them to drive an electric vehicle. So the status its not ours, but the general industry status you are six times more likely to buy an electric vehicle.

If your employer offers EV charging so theres a pretty good indicator for you in your thinking around the subject with respect to retailers.

Retailers in general rate typically.

They set a price at that cost recovery typically.

Our retail if they set a price at all our retailers more using it as a tool to engage.

Engage a driver in the business and their business.

In the future, you'll see more and more integrations with loyalty card programs, there to potentially stratify the charging benefits.

To provide an incentive for you to sign up for our loyalty card program at a retailer thats our expectation.

And other segments, followed similar suit so.

There is a healthy amount of charging for charging going on but I think in general.

There is also a very healthy amount of.

Use of charging as an incentive or employee benefits.

Perfect. That's been helpful. Thank you.

Thank you Mr. Mike Haley.

The next question is from Matt Summerville with D. A Davidson please.

Please proceed.

Thanks, just two quick ones I was wondering especially given all the new customer additions you've been talking about what trends you've been seeing and uptake rates for charge point as a service and how you expect that to scale from here going forward.

Sure. So we've been running over the last four to five quarters anywhere from 4% to 7%.

Of our of our billings.

Billings.

His focus entirely on our L to workplace products. So we're only just now rolling it out to other products. So when you think about.

Our total billings its going to its going to hover in the 4% to 6% and were consistent with that in Q. It's also something we think is going to be a meaningful component of our fleet business because dancing too so theyre going to the company's multifamily and multifamily will be another place. So I think.

This is going to expand nicely over the next call.

Three years, but it's been very consistent in the range.

And so would you say.

Already almost bear in multifamily.

We have.

True that up a bit.

But it's.

It's already a subscription basis for that segment.

Got it and then just as a follow up your cash burn rate in the quarter improved a bit sequentially.

How should we be thinking about that looking out over the next couple of quarters, maybe talk about some of the bigger pluses and minuses you would want to make us aware of.

Sure. So we have laid out.

A nice matching effects in Q2, where we.

I think we're going to be.

Okay.

Cash is concerned.

And our posture for.

Yes.

Foreseeable future revenue keep in mind the thing I said earlier about profitability that still holds.

So if you look at our <unk>.

Current run rates assume that's going to be consistent.

<unk>.

In that range over the next couple of years, we should be.

Be fine from a cash perspective.

Lease revenue for two years from now.

Clearly, though.

Given the comments I made earlier about how when we turn cash flow positive.

Given the fact that we've done acquisitions.

We're obviously don't have sufficient cash to get the entire way, we will have to keep an eye on that.

Got it thank you guys.

Okay.

Thank you Mr. Snowmobile. The next question is from James West with Evercore. Please proceed.

Hey, good afternoon guys.

Oh yeah.

I wanted to ask.

That's something you mentioned right up from that scale.

Clearly you're still in the benefits of scale right now.

But as you outlined there is a lot of tailwind in the business, whether that's the EV sales and of course, many new models are these that are coming in the next 18 months the policy.

Tailwind the infrastructure tailwind.

How do you think longer term that.

Near term with the supply chain, the global supply chain somewhat disarray with they all kind of know about but how do you think longer term about how you scale this business and what the risks or what the opportunities are and maybe given that your software is your base of course, and we think it would be more of the software company, maybe that's easy.

Easy answer because there is not its not hard to scale, but so maybe the two buckets of software versus the system.

I think you're asking absolutely the right question of any company in this space, which is.

Most of the markets in front of us and we're going to see an acceleration of adoption.

So how do you deal with that so I'll give you a couple of a couple of things.

Kind of.

Illustrate how we think about it internally number one is channel.

You have to have a lot of muscle build in our company for a very long time selling through channels, which we do.

That's already built into our margin structure, which is very important you have to have a margin structure. Thats are fought survives more than one carrier distribution. You also have to have the training and channel enablement capabilities figure product can be represented for its differentiation you have to have all of the support capabilities in place to be.

Able to deal with the scale and then you have to have the supply chain partners to be able to deal with the what is the delivery vehicle for software the hardware products at the other ends contract manufacturers of which we have multiple that are partners of ours not too. Many because we obviously don't want to spread ourselves too thin passive.

With.

Good times delay and more.

Manufacturing scale.

In front of the growth of the company and lastly, what I would point out.

On alert, even though I believe that we will have.

Okay.

<unk>.

On the industry for many years to come.

Arrival rate of cars into geography, net new cars into the geography.

That's the real limiter. So we are.

We effectively of the paper.

Got it okay. Okay, that's very helpful.

More on.

M&A you were starting to address.

The acquisition question, but I'm thinking about company acquisitions, you've made obviously, one recently you've got one pending.

Are there technology gaps or their holes are there areas that you're still looking at or are you done for now are putting us on hold as you integrate <unk>. How are you guys thinking about M&A.

So.

We have a pretty.

Tight lens on on that.

We assess opportunities on the basis of.

Technology gaps customer base, which is probably the most important factor is does it avail ourselves to a broader customer base Inorganically and then as a team and culture of the company and a good fit for for us because you're only as an acquisition you're only as good as how low you can integrate it and that's it.

Critical thing to have good alignment and vision for the market with.

Acquisition the company being acquired.

More specifically in terms of what the kinds of things.

<unk> to us.

How much.

Even though our offerings are very complete what are the other adjacencies, we can add that.

Either develop or.

Or inorganically add that.

That add too.

Offering that we have that enables us to sell more high margin software to our existing customer base or new customers.

So thats, how we think about it it's a very tight evaluate or we're not going to be.

We're going to be very measured about how we evaluate things but.

That's sort of color on how we think about it.

Understood very helpful. Thanks, guys.

Thank you.

Thank you Mr West.

I will now pass the conference back to the management team for additional remarks.

Yes.

So.

Great questions and thank you very much.

Your time really very thoughtful questions I want to leave you with is just something that I would tell the employees.

Recently in town halls, it's been it's been an amazing six months for the company.

In six months, we have become public.

This is our third earnings call because of the first one was right pretty much after we close.

Closed the transaction to take us public.

We've announced two acquisitions closed one of them.

We marketed equity offering for selling shareholders.

We've had to deal with the Covid impacts in our supply chain.

Increased forecast over our our increased performance in the market over our forecast.

So it's almost for us it's been a very exciting start.

We're really proud of the accomplishments I couldnt be more proud of the team here in charge point I think they deserve all the credit for working tirelessly to get us to this point.

And we're very optimistic about our positioning for the future we're going to be very mindful.

Not good.

Market.

In front of that and really work hard to to just continue to expand this business, but we're super excited about what the future holds and look very much forward to doing one of these things again in three months. Thank you.

That concludes the charge second quarter fiscal 2022 earnings conference call and webcast enjoy the rest of your day.

Goodbye.