Q1 2022 ChargePoint Holdings Inc Earnings Call
This afternoon, we issued our press release announcing results for the quarter, which can be found on our website.
Like to remind you that during the conference call management will be making forward looking statements, including our fiscal second quarter and full fiscal year 2023 outlook and our expected investment in growth initiatives. These forward looking statements involve risks and uncertainties many of which are beyond our control and could cause actual results to differ materially.
Lee from our expectations. These forward looking statements apply as of today and we undertake no obligation to update these statements. After the call for a more detailed description of certain factors that could cause actual results to differ please refer to our Form 10-K filed with the SEC on April four 2022, and our earnings release posted today on our website.
And filed with the SEC on form 8-K also please note that we use certain non-GAAP financial measures on this call, which we've reconciled to GAAP in our earnings release and for historical periods and the Investor presentation posted on the investors section of our website and finally, we will be posting the transcript of this call to our Investor Relations.
<unk> web site under the quarterly results section and with that I'll turn it over to first call.
Thank you Pat.
We are happy to report that our first quarter revenue.
Of $82 million exceeded the high end of the quarterly guidance provided on the last call.
Consistent with recent quarters, we performed well from a demand perspective across all verticals, we treat achieved record growth in Europe was 67% sequential quarterly revenue growth a great indicator that our strategy to establish ourselves as a leader in that geography is working.
Our year over year quarterly growth was 102% and we grew sequentially from Q4 to Q1, beating the season seasonal revenue decline, we typically see between Q4 and Q1.
Even more remarkable is we overcame supply chain headwinds to achieve that level of growth.
We remain steadfast in prioritizing assurance of supply amidst the challenging macro environment.
The increased inventory level on our balance sheet reflects our critical raw materials acquisition program. We are not accumulating finished product having shipped what we could build during the quarter.
Our operations team did a great job ensuring supply this quarter to deliver our topline put supply shifted mix to a degree in demand again outstripped supply with backlog up 35% over the prior quarter.
As we discussed on our previous earnings call, we expected supply chain issues to continue to negatively impact gross margin impacts.
Impacts were higher than expected this quarter for both newer products from a cost perspective and for higher margin mature products from both the cost and availability perspective, resulting in a 17% gross margin for the quarter.
Under more normal conditions gross margins would have been higher and Rex will share more on this.
On the product side, we continue to ramp manufacturing and deployment of our previously announced fast charge product family and our new commercial AC charging platform. The latter replacing white label products, we have used in select geographies for the commercial vertical.
We expect these platforms to deliver scale and margin efficiencies in both fleet and commercial applications.
These R&D advances not only satisfy customer requirements in both fleet and commercial verticals in both North America and Europe , but also represent technology driven margin upside enabled by well designed highly flexible architectures.
Our experience with customers. This quarter is both consistent with historical ratios and supports our investment in the land component of our land and expand strategy.
On the land side, we added over 1000, new customers this quarter with new customer billings at approximately 30% for the period.
Because of orders from new customers initiate a revenue stream that grows consistently into the future. We anticipate most of the revenue generated over the life of customers added this quarter, we will occur in a future environment in which supply chain conditions. However returned to normalcy, hence the decision to accept a lower margin for the quarter just.
Support the acquisition of new customers and the expansion from the installed base.
Supporting this strategy consistent expansion with existing customers was over 65% of our billings for the quarter.
On the commercial front, we now support 52% of the Fortune 500, the success is broad and growing rapidly within existing relationships.
Our fleet business continues to outpace vehicle arrival and had a strong quarter with billings up 157% year over year, and 8% sequentially supported by our partnerships and channel relationships.
In residential demand for our solutions with stronger and that was strong in the quarter billings for the vertical was up 47% versus fourth quarter and up 193% from first quarter of last year and would have been higher if it werent for supply chain constraints.
We are in the early stages of adding recurring revenue for single family residences. In addition to existing recurring revenue in multifamily.
We have numerous pilots underway on this front and have dozens of utility home charging programs in place in North America.
We ended the quarter with over 188000 active ports under management, a sequential increase of 8% on a year over year increase of 67%.
Of those approximately 57000 or in Europe .
And over 12000, our DC fast I'll.
I'll remind you the ports under management is one way to track, our commercial and fleet verticals as each of these ports and annual software subscription. We do not include home Chargers at single family residences in this count where we continue to have strong demand as well.
In addition to our network our roaming reach is now over 320000 additional courts in North America, and Europe , bringing the total number of ports accessible to over 500000 for charge point drivers during.
During the quarter, we celebrated and another another scaling milestone, but driver now plugs into charge point.
Every second or less.
On the strategic front, we've long believed that combining the road trip amenities drivers want with fast charging is critical to making driving electric beyond the drivers battery range a great experience.
Recent progress includes our partnership with Starbucks involved though.
Financing alternatives, including our partnership with Goldman Sachs renewable power.
And public private partnerships such as the completion of the first of six highway corridors, the Colorado Energy office awarded to charge point to enable long distance EV travel across the state.
These examples illustrate how our business model sets us up to operationalize the U S National Electric vehicle infrastructure program known as short as the Navy program.
This is a tremendous opportunity to accelerate the build out of charging along highways and in our communities in a way that delights drivers in the businesses that want to serve them.
As we have commented on previously this new stimulus should begin to manifest in calendar year 2023, rolling for five years.
More broadly both in the U S, Canada and Europe , there are other federal state and utility programs being formed and in place today, all of which indicate broad commitments to the electric future.
I'll close with some important environmental statistics, our network has fueled over 4 billion electric models today and by our estimates drivers we've avoided over $160 million cumulative gallons of gasoline and over 700 metric tons of greenhouse gas emissions.
The scale of these numbers is climbing quickly demonstrating that we can make what is good for business good for the planet as well.
And now I'll turn this over to Rex to discuss financials before we move to Q&A Brett over to you.
Thanks as well.
And good afternoon, everyone. As you all know my comments, our non-GAAP , where we principally excludes stock based compensation amortization of intangible assets and nonrecurring costs related to restructuring and acquisitions.
Please see our earnings release for a reconciliation of our non-GAAP results.
GAAP.
This is <unk> indicated we had a solid Q1 for the quarter revenue was $82 million up 102% year on year.
Above our previously announced guidance range of $72 million to $77 million and beating our Q4 finish work.
We are particularly pleased with this performance given supply change supply chain challenges that worsened in Q1, driving up costs and backlog as we fundamentally shift what we could build.
Last quarter, we spoke about our robust backlog and demand continues to outstrip supply our backlog at the end of April grew 35% sequentially from a record backlog in the fourth quarter.
Network charging systems at $60 million was 73% of Q1 revenue consistent with Q4 and up 122% year on year.
Subscription revenue at $18 million was 22% of total revenue and up 63% year on year and also up sequentially.
Our deferred revenue, which is future recurring subscription revenue from existing customer commitments payments continues to grow finishing the quarter at $157 million up from $147 million at the end of Q4.
Other revenue of $4 million and 5% of total revenue increased 54% year on year.
Turning to verticals as you know we report them from a billings perspective, which approximates the revenue split Q1, billings percentages, where commercial 67%.
Please 16% residential 15% and other 1% while fleet and residential are strong commercial contribution in Q1 was seven points lower sequentially due.
Due to supply constraints impacting shipments.
From a geographic perspective, Q1 revenue from North America was 80% and Europe was 20% representing great progress in Europe , driven by organic growth.
And by our acquisitions to continue to deliver to plan.
In the first quarter Europe delivered $16 million in revenue growing 353% year on year and 67% sequentially.
Turning to gross margin non-GAAP gross margin for Q1 was 17%.
We remain focused on assurance of supply to land, new customers and to expand with existing ones, but margin was challenged this quarter as our non-GAAP results included higher purchase price variances and logistics costs, representing approximately six margin points and shortage of supply of higher margin mature products, which was new this quarter, representing approximately three margin points.
Of impact in Q1, we.
We expect gross margin to recover through the rest of the year from three main factors first fewer supply constraints for mature products second continued technology driven margin improvements for our newer products.
Third continued efforts to pass on higher component costs.
Demand continues to be strong as evidenced by our revenue outperformance and higher backlog at our price points continue to be well received by the market. This.
To summarize our key margin challenges remain on the supply chain side as we continue to work with vendors to ensure continuity of supply and to get back to a more normalized product mix and mitigate increased costs.
non-GAAP operating expenses for Q1 were $84 million a year on year increase of 78% and a sequential increase of 9% as we continue to invest to support our growth.
Opex is also impacted by supply chain issues as higher purchase prices and higher logistics costs also impacted the materials purchased by our hardware engineering teams for the introduction of new products important to our second half growth and beyond.
Stock based compensation in Q1 was $16 million.
Looking at cash we finished the quarter with $541 million. Following the April close of a $300 million five year convertible note offering. These notes carry a cash coupon of three 5% and are convertible at a stock price of $24 <unk>.
We have approximately 337 million shares.
Outstanding as of April 32022, turning.
Turning to guidance for the second quarter of fiscal 2000.
'twenty three we expect revenue to be $96 million to $106 million up 80% year on year at the midpoint and reflecting broad based demand and the challenging supply chain environment, we expect to persist in Q2, we.
We are confirming our annual guidance given on our last call and we remain committed to being cash flow positive in calendar 2024.
With that I will turn the call back to the operator for Q&A.
And as a reminder, that is star one to ask a question. We do ask that you. Please limit your one question and one follow up.
I'll pause for just a moment will compile the Q&A roster.
Our first question will come from Bill Peterson with Jpmorgan.
Please go ahead.
Yes.
Yes, thanks for taking the questions and nice job in getting all the shipments out of <unk>.
Fly constrained environment I guess my first my first question is.
What drove the revenue beat in Mississippi.
First quarter, I guess and how was it different than what you had it.
<unk>.
Lining that up with the mix impact you said the gross margins I looked at commercial was actually down.
Somewhat sequentially based off of your billings and then residential was up but how much does that play a factor on that.
So from a from a numerical perspective, obviously, we did a little bit better than we expected.
From a mix perspective.
It's shifted even a little bit more in the direction is done for the last two or three quarters.
Which is strongly in the direction of.
Some of the quarter and best charging things that we're doing obviously fleet was strong Europe was strong homeless.
Which is part of residential obviously.
But some of the commercial was impacted by the first supply it couldnt get it out the door.
So people are back to work yet so.
It wasn't meaningfully different than what we expected. It was just a slight product mix shifts in.
In a direction that <unk> seen over the last two quarters.
That's great and you mentioned that the backlog was up pretty substantially in the quarter, so that bodes well for visibility for the year, but I guess what is the backlog coverage between now and I guess to reach your.
Midpoint of our full year revenue guidance.
Perhaps that visibility for the full year, how much business is yet to be won.
I'm, just trying to get a feel for visibility, especially in light of that.
Some of the some of the verticals you have out there, maybe slightly becoming a bit more cautious on our Maryland and demanded academy.
We'll come down to you guys.
Yes. So obviously, we don't give out a backlog number I can tell you that and also where frankly, we're not actually a backlog company.
Sort of a backlog company now because of the supply constraints and inventory and we're not building inventory of raw materials. So we've just bought stuff out all I can say is.
Well one of the thing I would say is if we blew out our entire backlog in Q2.
You'd be here to give you heard a different guidance number but anyway. So it is a very very strong backbone for what we expect to happen for the rest of the year.
Our next question will come from James West with Evercore ISI.
Please go ahead.
Hey, good afternoon guys.
Good afternoon, Hi, Jay.
Hey.
Curious.
With the rollout of the new technology of the new products.
Could you maybe talk to the enhancements of the enhanced products that you're rolling out today and I know you said that they are margin accretive maybe you could give some color around that as well.
Yes James.
So there is a I don't know where there's so many places I could start on that one there. There are first of all what we've done is as we transition products, we're aligning the modularity against.
Fewer and fewer number.
Serviceable components so.
So we can improve the long term velocity.
And and.
Our ability to support the SLA is necessary and a lot of commercial fleet applications.
In a very cost effective way, so you're seeing us transition to new platforms. That's one point the second point in terms of enhancement.
If you look at.
I'll just I'll just highlight a few if you look at the new AC platform. The New AC platform has is a is a universal.
AC platform. It is exactly the same hardware for Europe , and North America, and its metering onboard is world certifies honest way to being fully world certified in all applications.
And if you think about how complex that is that's a very complex.
But outside the mundane.
<unk>.
We have moved to a processing environment in the in our Chargers, which is identical across all Chargers and has incredible capabilities from a latent software capability downstream because remember we're constantly rolling the software on our network and software functionality and so we.
Think that we've set ourselves up now for not only a very high velocity of royalties because we communize that platform, which is very important when you're managing software, but also enabled us to not become hardware limited from a resource perspective.
For many times for many many future generations of the last point I'll make and then I'll leave you alone is Greg.
Greg or smart or smart cable environment.
In all our new products DC and AC enables us to change connector types dynamically in the field and has future proofed us against evolving interface types. So the ability to mix and match connector types on DCM AC is really is really I think.
<unk> setting.
Okay.
Well I'm not sure.
I'm sure there are.
One more for me with the National Electric vehicle infrastructure program. It seems to me given your sales and software model plus the financing arrangement you have with Goldman as you guys are particularly well suited or set up for this because your business model is that a is that a fair statement.
Well I think it's a fair statement to unpack it a little bit more I think when a company the statement I made in my in my remarks earlier.
Is the most important to your question which is.
Charging has to be married to the amenities drivers want when they're driving beyond their battery range and the Navy program is focused on that particular use case driving the on your battery range.
Which which we fully support.
And so because our business model is all about.
Enabling and marrying a business to charging and not about owning charging ourselves we are everyone's.
Everyone's our friend in the FMC business, and the fueling and convenience business.
Hi.
And our next question will come from Vishal with Wolfe Research.
Please go ahead.
Thanks, so much.
So you talked about a few of the drivers of margin improvement for the rest of the year and I was hoping you can give us.
Maybe a little more.
Maybe just talk a little bit more about the supply chain component of that.
It sounds like you have some visibility on.
The fact that you would expect that some of those constraints to ease.
Through the through the through the year, maybe what was the magnitude of the impact in Q1, if you can remind us and then.
What gives you that confidence that the supply chain constraints will get better.
Yes, so regarding Q1, the total impact was <unk> nine points.
Six of it from just stuff being more expensive.
But for difficult to get them here in the other three.
Some of our more mature products, we weren't able to ship them so that would have.
Positively impacted margin to get those out the door, but we were not able to do that in Q1 as you might recall on our guidance.
22 to 26 for the year.
<unk> got baked into it.
An estimate looking forward of about six points per.
Per quarter.
Never perfect. It can be five one quarter or 70 next.
We've dug up.
Three point a hole here on that averaged in Q1.
But as we look towards the back half of the year and thinking about the three factors that I mentioned.
A couple of which we actually control right. So one of the ones. We control as we have technology improvements, we're doing that will actually bring the cost down even within this environment.
If you look at that one.
We do think.
And then the other was passing along some of the costs.
And you know.
What that means.
We feel like we've got the moves in place necessary to significantly improve things, particularly in this exit second half. So we want to see we want to see a nice uptick in Q2, and then meaningful upticks in Q3 and Q4 at our goal is to get the three points we lost quarterback.
Okay.
And then secondly.
You mentioned mix and Thats.
Been a factor over the last few quarters.
With regards to.
With regard to in part to the DCF seeing and can you talk about some of the drivers that will help bring that the product margins there up to to sort of maybe the target levels that you've talked about previously.
I would imagine volume and scale is one component of it but how should we be thinking about.
Margin improvement in that category.
So the first thing I would say is that we are trying to make life better. So that we're not as mixed dependent as we are today.
But again Thats the factors I just talked about so I think.
Mix sensitivity won't go away, but won't be nearly as sensitive.
As we are today, so I think I think that's going to be very helpful. The new product introductions that Pat talked about one of which is the universal AC platform, that's going to help us do better in Europe , because right now we use third party product that we white label it.
As you can imagine is harder to make margin on something white label that has something to do yourself.
And then we see a lot of.
A lot of.
Sunshine coming.
As we are successful in the fleet space to which we offer the entire portfolio of products. So no. Two fleets are created the same so we so AC DC to it other than most will do both.
Including higher software and et cetera, So I think that.
If you look at how the business is going to evolve this year.
Our confidence in <unk>.
Improving and an improving gross margin.
It's pretty solid.
Our next question will come from Colin Rusch with Oppenheimer.
Please go ahead.
Thanks, so much guys.
Goldman Sachs.
Finance partner.
<unk>.
The infrastructure funding expected to come through this fall can you talk a little bit about the customer dynamics that youre seeing right now in terms of your competitive position with a robust suite of solutions financing at the table with some some components of the service offering is this the sort of thing where you are seeing.
Your win rates go substantially higher and we're going to see a lot of that as we get into the last half of the year.
With some of that funding flowing or whats the nuance around some of the north American customers around these dynamics.
Colin it's so.
So first of all when rates when rates historically been quite high.
We can measure it.
On fueling and convenience brands in general and especially if you remember.
Now, which is something that most people have forgotten about.
BW settlement there.
<unk> actually had program money awarded to states much in the same way that and where an analogous way I should say that the Navy program is already money to states. We've built some muscle understanding how to manage programs like that.
And how to coordinate.
Effectively the collection of amenity brands that drivers want to avail themselves to along our corridor in how to organize that and bring that to a state. So if you look at marrying that.
Two.
Financing options that can lever that money.
Combine it with other sources of capital are everything from El CFS programs in states where that is.
Is.
It's available and utility programs in states, where that's available we're frankly, we're already playing.
It really we built a tremendous amount of muscle and relationships.
We think we can leverage well into the selection process. Once it's all fully known and once the states take what they've learned from the VW Appendix D program supplier to Navy and keep it in accordance obviously with guidelines that the federal government.
As in control, but we expect those to be in pretty reasonable alignment with our expectations. So I think we're in good shape, but it's not over till it's over.
Okay. That's helpful. And then just in terms of the technology development and the move from <unk> to faster charging L. Three and other other forms can you talk a little bit about what youre seeing in terms of commercialization of batteries that can actually accept some of the higher voltage charging on a ongoing basis.
So so.
Short answer to that question is youre, starting to see more and more vehicles, either come to market or be announced with higher voltage battery packs, that's really the key.
Because the limit at the current connector standard for fast charging is about 200 kilowatts of 400 volts, which is the traditional battery pack bolted you see out there for passenger cars anyway heavy vehicles, a little bit different but let's stick to passenger cars.
So we expect it to move in the higher voltage direction and because we saw that as a necessary element to get to the subtle point for mass market adoption really dropped the friction for mass market adoption.
Due to just the time it takes to dwell at a fast charger.
As a general consumer not an early adopter, we've made all our fast charge products from the beginning capable of up to 1000 volts, which is the limit of the connector. So every single thing we've shipped from days zero in our fast charge product line.
Been under our design control is capable of that.
So for US we don't have to do anything.
And our next question will come from.
Irwin with Roth capital. Please go ahead hi.
Good evening and thanks for taking my question.
In your remarks, it sounds like Youre prioritizing new customer capture really doing an impeccable job, they're going after landing those customers with available product can you maybe talk a little bit about the breadth of new customer additions and then if you could give additional color around.
Sort of a relative cost in the front and maybe the first 100 or 200 charges to a customer versus the next 2000, what the relative cost look like.
Over the course of a multi year relationship.
It depends on the customer's mix in terms of what their initial buy looks like in terms of dollar figure.
And what the ongoing buys look like.
So it's hard to put.
It's a very use case specific even within one vertical like commercial.
Fair use case specific here's what I can tell you to give you a little bit of a little bit of color you got.
As referenced in my remarks over 1000, new customers coming in in one quarter.
And Thats.
Up 30% ish of our of our billings for the quarter.
So you can imagine with the average deal size is just looking at those two numbers.
For new customer acquisitions, it's usually on the smaller side unless it's a fleet customer that is a bit more unfettered.
With respect to vehicle availability, which is depending on the fleet customer also potentially a constraint. So the initial deal sizes are small, but you are getting that customer up and running on our software environment. They are learning how to tie that into their business.
Create whatever incentives they want for their employees their customers figure out how to after operationalize their fleet that is the time, where you spend all your energy getting a customer on boarded and then on a go forward basis. They know how we help them of course, but they begin to learn how to budget had a plan how to how to scale that infrastructure.
Sure. So the later buys are almost to a T always greater than those initial buys and they keep accumulating because those match the vehicle arrival rates in the parking lots of those customers, whether they be a fleet or commercial customers.
Understood understood. My second question is about sleep. So when we look at the vehicle electric vehicle providers out there.
A lot of volatility as far as the success rate and the sales rate.
He is making out there into the channel.
Fleets, obviously really working for you can you maybe comment a little bit about.
What area of fleet this might be or is this really last mile delivery.
The same bold buses box trucks.
You have quite a range of products to serve these different markets.
Can you maybe help us understand what's working for charge points.
Yes, so it works for us so there's two things I think that our are directly mappable to our success and fleet one we don't make the customer of the integrator.
Okay, It sounds simple, but having a comprehensive portfolio along with the ability to consult.
And potentially even project manage the build out.
All under all under one roof with all the technology elements from software to services all there.
That's huge when theyre starting to come up to speed and what is a very meaningful transition from liquid fuel thought about very differently to electricity is fuel.
And so I think I think it's a great.
That's one of the reasons the other in terms of relative success by vehicle type.
We are because we are literally in every sub vertical within fleet from light commercial take home.
<unk>.
Small form factor light commercial vehicles used by sales forces et cetera.
We are in a position because most fleets have a variety of vehicle classes and applications. We're in a position to be one stop shopping again dimensional across all of our sub verticals. So if you. If you cross those two things one we don't make the customer be the integrator and to you don't have to go to a bunch of <unk>.
<unk> solution providers to solve your needs for St last mile versus take home fleet versus et cetera. It's all integrated on one software platform one thing to integrate with one throat to choke.
All of those things above I think that speaks to why we are early in this early market able to establish ourselves so effectively in that segment.
Our next question will come from Ryan Greenwald with Bank of America.
Please go ahead.
Hey, good afternoon guys.
Maybe start after that.
Ed.
Hey, there.
At the time.
<unk> started versus the Asps and the ability to pass through the higher cost can you talk a bit about any success, thus far and how youre kind of expecting this to evolve through the rest of the year given the levels of demand.
Yes, it's actually a great question. So we did.
We took a couple of measures earlier this year on the pricing front and then briefly.
Did it did a few things on the logistics front those changes.
We will start rolling through visibly in Q2, I would say.
And then we're taking some other measures now that will roll through in the second half so.
What we're seeing on it so that's the measure side of it on the ASP side of it.
Pat alluded to this I think I may have alluded to it too.
The asps are holding up very nicely.
As you can imagine in a.
Supply constraint environment, we can't build it probably nobody else can either and what we're finding is.
We don't have to discount as much we don't have to.
And there is some elasticity in terms of our ability.
To manage from a price perspective so.
I think youll see the meaningful impact of all of this mostly there'll be a little bit in Q2, and then and stronger in the second half, but one thing we're not seeing we're not.
When Pat says, we'd go with assurance of supply, we're not buying business.
At all.
Got it that's helpful and maybe just to close the loop on margins any way to provide a bit more color on how youre thinking about the magnitude of the step up into <unk>, specifically kind of given these moving pieces and any implications from the lockdowns in China.
So go back back to front Lockdowns in China.
Incredibly annoying so so our ops team is headed.
Managed around a bunch of that.
So good don't give guidance in terms of gross margin by quarter.
Clearly if we're looking at the full year, having confirmed guidance for the year, which included a gross margin of 22% to 26%. We have some ground to make up so I would be sorely disappointed if we didn't manage to start the March northward.
I just can't give you a number.
And our next question will come from David Kelley with Jefferies.
Please go ahead.
Hi, This is Gavin Kennedy on for David Kelly.
I believe your prior full year guidance for this year did incorporate or did not incorporate a reversal of work from home trends in fiscal year 'twenty three.
Have you guys seen any changes in workplace demand from customers to date.
And if so can you just talk about how that business is trending.
Okay.
Yes.
Workplace fits inside of our commercial segment.
And as I said in my prepared remarks commercial as a percentage of our billings was down sequentially from Q4 as you know that's a really important really.
Really important part of the business so from a pure sales perspective.
It's been tough because to your point people are back to work I would say that we do see pipeline build.
As we sit here today so.
Very guardedly optimistic that thats going to be coming back soon but it really does boil down to you've got to get to get back to work. Obviously there are other components to commercial.
REIT retail.
Retail.
Hospitality all of those things that basically will all start waking up the more people move around so with the world opening up.
NASA being required yes, the pandemic has not gone forever, but we do see positive positive motion and the pipeline obviously, we use salesforce when we strike all that stuff. So.
Thinking.
I don't think this is the rest of the year, it's going to be dampened kind of thing I think I think we're thinking that's going to pick up.
Okay got it and then just as a follow up switching gears, how should we think about R&D as a percentage of sales through year end I believe last quarter, you mentioned that R&D would remain elevated but maybe taper off a little bit faster than G&A is that still a fair statement.
Uh huh.
So.
Ben.
It has bounced around quite a bit one of the things we already do.
So as Dan mentioned.
When you have several million dollars within NPI expenses, it looks like you've got the sort of sustainable rate that youre doing but so we've got popped pretty good in Q1 on that but.
From a percentage standpoint, it should taper.
This year.
I can't give you cant.
Can't give you a number obviously, but I do think as we look at how we end the year in terms of.
All three components Opex overall as a percentage of revenue you should see meaningful improvement there as the company scales for the year.
Our next question will come from Kasha Harrington with Piper Sandler Please.
Please go ahead Scott.
Good afternoon, and thank you for taking the questions.
So from a from a big picture perspective.
Just curious when you expect to start seeing the impact from.
The Goldman Sachs agreement do you see that as more of a 2023 catalyst or do you think we'd start seeing.
Revenue pick up from that deal maybe later in 2022, and then I have a follow up.
Okay.
So you can.
We'll see we'll see some projects.
Underway inside of this year likely but given the complexity of the projects typically associated with <unk>.
Financing arrangements like the one provided by <unk>.
Most of that benefit will show up in the next calendar year or the next fiscal year I should say.
Primary reason for that is developing the project getting all the civil done permitting and then getting through construction and installation just naturally takes time and the more complex projects, especially on the fleet side in there.
I know we've had some commentary with them on this call.
With respect to passenger car, but fleet.
Our fleet is a big focus for us.
That partnership as well.
Got it that's helpful. And then my next question is maybe just a little bit more of a quick modeling a reconciliation question.
I was looking at maybe a question for Rex I was looking at the increase in deferred revenues for Q1, and then it looked like.
The increase was less than what we saw in Q4 of last fiscal fiscal year.
And subscription revenues recognized during the period were flat and so I was just wondering was there something that unique that that happens.
Celebration and deferred revenue growth and that's it for me. Thank you.
Yes so.
Most of our deferred revenue is subscriptions and that's both our cloud software at our sure warranties and those burn off over time, and therefore, they're very predictable they don't gyrate around occasionally we will get our projects.
And I expect this action will probably pick up a bit when we as we continue in the fleet space, where you get some chunky and you get 98% of are done and you go well shoot I can't say I can't take the revenue for that so we did have one project. It wasn't a material number but we did have one project in the quarter that.
We completed that was had been held up for a.
A few months.
You will see some of that so I would encourage you from a modeling perspective to smooth that stuff out and.
And then the other thing that you should make sure that you understand from a from the subscription line is.
When we talk about mix mix also.
Heavily impacts.
Not the dollars.
In our in our subscription line necessarily expense, but it does affect percentages because if you look at it AC product versus the DC product versus the home products.
And then you look at different verticals, you get different software content on a percentage basis across our product lines. So right now we are.
If you buy the percentage of a DC product represented by software is much smaller than the percentage you would see on an AC product.
That's a meaningful factor. So I think you just need to you need to map to the infill.
The information we've given you may not be enough to the mix thing and how the subscription thing.
After that.
And our next question will come from Vikram <unk> with Mizuho.
Please go ahead.
Hi, its potential or the oncor vacate need them.
I wanted to ask about any potential upside from <unk>. It looks like Theres, a blank sections for tax benefits under the <unk> section on the company website. So I guess, just how do you think about.
Any upside from tax breaks both directly and also indirectly.
And then how are you thinking about the impact from the higher cap. So I think there's a 30% reduction in the basis up to a 100 K versus previously up to 30 K and also just the impact of the direct pay option and then I have one follow up thank you.
Okay.
Yes, so we've we've obviously experienced tax credits in our industry before.
We also have a lot of other programs that are simultaneously running if you look at utility programs. If you look at state programs. If you look at the totality.
Effective subsidies put that in the pool of effective subsidies.
We we don't see the tax credit as a meaningful inflection in demand generation for our business, but every little bit helps because there.
There is already a substantive pool, depending on the state that you live in and the geography.
Of incentives out there that are that are helpful.
I think most of our businesses and driven by it's not it's not really a subsidy driven business.
As a as a whole I mean, obviously if you take the Navy program. If you take 30% tax credit if you take all of those different policy components. It's nice to look at our business nice to think about our business that may have this huge inflection, but look at our growth rate without that stuff.
Coming out of pandemic and the worst supply chain environment with backlog building.
The demand is massive because the pressure from cars that are now finally, arriving is driving the bulk of the demand. So I would not while these things are nice.
They do drop some friction in the customers' mind, depending on where they live I would not laser beam focus on any particular subsidy program is a <unk> for any vertical or companies.
Got it okay.
And.
And one related question, so pretty sure that.
The guidance doesn't include any <unk>.
<unk> from <unk>, but just wanted to clarify if that's the case.
No I mean look our policy team our policy team runs a very tight process with our sales force.
I think you've referenced some things on our website, but we have even more tools behind the scenes that our sales force can use with customers and our channel channel partners can use with customers. So we've already looked at we've already experienced enough friction adjustment to know how it how to look forward in our numbers and while we haven't.
Adjusted for what we think might be friction removal from 30 C. I just don't think that that's going to.
I don't think we're going to be able to see such a meaningful thing we can absolutely point to and say that's because of the <unk> tax credit versus something your customer would have already done anyway.
There is some there, but it's hard to quantify.
Our next question will come from Matt <unk> with D. A davidson.
Please go ahead.
Okay.
Thanks, just a couple of quick ones Pat in your prepared remarks, you had mentioned.
Single family recurring revenue opportunity can you talk about maybe the timing the economics Youre approach, whether this would be something you would attempt to do with existing installations or just go forward purchases can you maybe talk a little bit more detail around that.
Sure Yeah I mean.
I will go back and backwards order in terms of existing installations it depends on.
It depends on the program and whether you can grandfather in existing charge point customer we've already done that.
With a couple of utility programs I'll, just reference one in our patch but.
There's a lot of utility programs running if you look at the PG program.
That were part of at home.
There have been E mails going out to existing charge point home customers, but did not start under that program too.
Potentially enroll them in the program. So it will depend on the rules that frankly, we don't set but.
But the incentives are certainly there for if it's a utility.
Two.
Recruit the existing customers that are in there in their patch if the program is favorable to them, which why would they do it if it wasn't.
So thats one in terms that we have.
Pilots rolling across the country and some active utility programs.
Running for for home charging.
The one thing I can tell you that the utilities are very deliberate bunch. So there is a there is a.
What is slower than normal business process to evolve the program to a broader and broader level.
I think theres plenty of time.
Given that we're a little north of 1% penetration in North America.
Europe into the installed base of cars, there's plenty of time to evolve those programs to full blown programs by the time, we get into the really steep parts of this growth curve and I know, it's hard to believe because we are in a very steep growth curve right now, but the growth curve for this industry is going to get steeper.
And so I think theres time, there and it bodes well because there is a tremendous amount of load management benefit to utilities, and managing overnight charging and bringing those cost savings to rate payers across their network.
Got it and then.
With respect to supply chain and I guess, maybe this.
This one's for you.
In the $4 50 to 500 revenue assumption how much if any.
Of the backlog conversion do you actually anticipate I guess, what I'm asking maybe.
Maybe another way to put it rexes do you expect to have a bigger backlog at fiscal year end and you're sitting here with today.
That's a great question.
Because I had an answer in my head and so you asked the tail end of the question. So as I mentioned earlier I don't think of this as a major sort of backlog type company, we tend to sell and we've got great relationships.
We don't build up a lot of inventory and so we're really good about selling through.
The backlog that we have today.
As I mentioned earlier is a really nice boost between here and the guidance that we've given for the euro the revenue perspective.
But if I had to commit to something I think I would say.
As the weather clears I would actually expect the backlog to maybe be slightly smaller right.
Alright so.
The place is the place where we can end up with a lot of backlog potentially is in fleet, but that remains to be seen that's not that's not contemplated anywhere in any of the guidance or numbers that we've done but just because it's so early out there but.
Net net I wouldn't be surprised if it's at or below the level. It is today as we get into Q3.
But that assumes we have supply.
And our next question will come from Stephen <unk> with Stifel. Please go ahead.
Thanks, Good afternoon everybody.
Two things from me.
You mentioned earlier.
You said the percentage of subscription revenues from DC versus AC and how that how that mix impacts subscription revenue going forward could you just add a little color to that I'm not sure I completely understood the concept.
Yes.
Quick comments on that.
As Rex mentioned, if you look at the Asps.
A D C ports, whether it be for fleet or commercial it's much much higher than the ASP for even the highest end AC commercial products that we have on a per port basis now on a per port basis, a DC product, especially in fleet generates on an absolute dollar basis, a higher amount.
Of recurring dollars, but on a percentage basis. It does not on a percentage basis only because the initial court sale is so much more expensive than it would be for even the highest end AC product because it makes sense.
Yes. So that's the that's the fundamental that's really the fundamental driver.
I'll make a second point just to reinforce the training any any new listeners out there that havent tracked our earnings calls before.
Every single Port of hardware, we sell.
Outside of single family residence, and even there we're starting to see recurring right, but every single quarter.
Has an attached software subscription subscription that is recurring we will not sell hardware without that software subscription we will sell the software subscription against third party hardware. If that's if we don't have a hardware solution or the customer prefers other third party hardware.
So there is no real way to have those two curves.
Split.
And lastly, what I'll point out is that on a percentage basis. What is commonly confusing is that the port growth being so high on an absolute basis.
<unk> and accelerating.
That because the revenue is recognized in the period and the revenue associated with the software is rated until the install base is significantly larger.
On the existing ports under management, that's why we quote that number because that existing ports under management is the installed base, that's paying us on an annual basis until that installed base is higher the port growth rate as it accelerates can drive the ratio of the hardware aligned to the software line on our P&L in any given quarter in the wrong direction.
From an optics perspective, but it's actually good news because it says we're adding to the installed base faster.
Got you.
That clarifies things I appreciate that.
The other quick one I know you addressed this a little bit a little bit earlier.
When you when you think about just the visibility I mean, obviously you read it.
<unk> gross margin guidance.
The confidence level is.
Is reasonably high based on what you see today and how things are flushing out from a supply chain.
<unk>, what do you think it takes to kind of get to the upper end versus the lower end as we as we think about the the biggest moving pieces for the rest of the year.
So I Couldnt Couldnt shed you either way, but.
High end or low end, but fundamentally what we've done is we have.
For one thing we have a very good sales team and.
I've been here for four years and even when we were private.
They hit their numbers.
So when we sit down with them and go through Qs now Q2, Q3 Q4, they've got a lot of credibility with pad at a lot of credibility with base. So the fact that they have such a good track record is very encouraging.
We've got a lot of good new products coming online here this year that I think youre going to help.
Is it really it all comes down to my mind you.
Can we build it.
Just.
As we've talked on several of the questions on this call what your backlog looks like we've got a really nice backlog. It keeps building even in what would seasonally be seasonally be our worst quarter, which is Q1.
So we just we think we think the demand looks really really good and so our main handicap as we look through the rest of the year is can we get can we get the parts and put them together.
And get them out to our customers so.
I feel pretty good about the number.
And our final question will come from Steven Fox with Fox Advisors. Please go ahead.
Hi, Good afternoon, just one from me. Please can you maybe address there's been some talk about just frustration in the field about how quickly or not so quickly state and.
Federal dollars are rolling out.
You guys just highlighted that you completed one.
Corridor in Colorado was five years ago. So I was just curious if you could talk about like your experience with that corridor. How it is dealing with some of these expectations for funding and I know its signing your numbers, but I'm. Just wondering if you think it's proceeding to advertisement or maybe it's going to take a little longer.
So.
Historically, when we've been asked questions like.
This in other forums.
Our expectations around public funding, we've always actually modulate it.
The questioner.
<unk>.
Less bullish time wise.
Position only because we have 15 years of experience understanding how long programs take to operationalize its no fault of any.
State government or what have you. It's just there's a lot of moving parts and when youre dealing with policy.
And things and things of that nature. It just takes longer to operationalize and it does to spell out.
In our press release.
When those things are initially uncovered so I think we built in a natural level.
Of expectation at charge point.
That is pretty matched to what actually happens and we find ourselves in a continuous position of having to modulate down external parties that I think have over over.
Sized expectations as to the rapidity of onset once once the program onset than it tends to go.
Along obvious paths and every program for example is a five year program. The first year is a little bit smaller because there is a bigger reserve for some things outside of equipment and services, but it's.
It's at a top level of $2 billion a year for five years.
Rolling to states and we expect that to go kind of like the VW Appendix D programs did with the for visa.
State commissions that are dealing with these programs now have the benefit of the experience that they've already had so we think they will go faster on the back of the fact that they can copy paste a lot of learnings from those previous things, but still it still takes a while to get operationalized and then once the program is <unk>.
Even awarded and Operationalize you still have to get through construction all of the utility provisioning et cetera. So there's just a natural delays. This will take this will come in over years and Thats. Okay. That's a good thing it's not a bad thing we all have to set our lenses accurately.
Great I appreciate that color. Thank you.
And that will conclude today's question and answer session I would now like to turn the call back over to Joe Bob.
Mono for closing remarks.
Well I'll just close by again thanking the team here at charge, 0.1st and foremost for.
As a team pulling together to get through what was a very demanding quarter on the on the company given all the constraints.
And the growth rate.
So thanks to all of you out there listening and then.
We've we've the most encouraging thing for us I'll leave you all with this is that for.
Several quarters now we've reported that.
Really all our verticals are firing theres no single hotspot.
In the business.
That was what we rewound the tape 10 years ago.
What we were designing the company for its nice to see reality match theory for now what is a bunch of quarters, where that's been the case.
So we're really encouraged that we've got a diverse business here and now diverse geographies. It was great to see Europe do.
As well as it did despite the supply chain constraints last quarter for us. So we are.
Very optimistic about our ability to continue to be a leader in this space and we're looking forward to.
A world, where the supply chain issues subside and we can really manage our business.
With the full benefit of knowing that we can get everything we need because then at that point as Rex mentioned.
We're at the limit of our growth, which doesn't seem to be much of a limiter. If these days. So thank you all and we will.
We'll see you next time.
And then well Goodbye conference. Thank you for your participation and you may now disconnect.
[music].