Q3 2022 ChargePoint Holdings Inc Earnings Call

Speaker 1: Musiches own Ia T is

Please stand by. We're about to begin.

Ladies and gentlemen, good afternoon. My name is Beau and I'll be your conference operator for today's call. At this time I would like to welcome everyone to the ChargePoint third quarter fiscal 2023 earnings conference call and webcast. All participant lines have been placed in listen only mode to prevent any background noise. After the speaker's remarks there will be a question and answer session. I would now like to turn the call over to Patrick Hamer, ChargePoint's Vice President of Capital Markets and Investor Relations. Patrick, please go ahead.

Turning to gross margin non-GAAP gross margin for Q3 was 20% up a percentage point from Q2 to 19%.

We saw that half of the June price increase flow through in Q3, as we continue to work off backlog generated prior to the price increase however that impact was partially offset by $7 million or five points of purchase price variances and elevated logistics costs.

The impact of a heavier <unk> mix due to AC supply shortages and $3 million or two points and product transition charges non-GAAP operating expenses for Q3.

<unk> hundred $79 million, a year on year increase of 26% and down 1% from Q2, we are pleased to see opex as a percentage of revenue dropped from over 100% in Q1 to 74% in the second quarter and a 63% in the third quarter. This progression is a critical component of the combination of revenue growth margin expansion.

Pension and Opex leverage improvement necessary to reach our stated goal of generating free cash flow for the fourth quarter of calendar 2024.

We do not expect Opex to drop in dollar terms as we go forward, but expect leverage to continue to improve especially given that we have now released a number of core products that have taken years to develop.

Stock based compensation in Q3 was.

<unk> was $26 million essentially flat from Q2 recall, our stock based compensation typically stair steps each Q2 due to the timing of annual grants to our employees.

Looking at cash we finished the quarter with $398 million in cash and short term investments.

We had approximately 342 million shares outstanding as of October 31, 2022.

Turning to guidance for the fourth quarter of fiscal 2023, we expect revenue to be $1 $60 million to $170 million up 108% year on year and up 32% sequentially at the midpoint.

This translates to annual revenue guidance of $475 million to $485 million slightly above the mid point, we've had all year and doubling year on year for.

For the fourth quarter, we expect non-GAAP gross margin to again improve sequentially, but for the year to be below the 22% to 26% range. We've previously targeted.

With our continued focus on Opex, we are lowering our annual guidance for non-GAAP operating expenses to 325 million to $335 million down from our prior guidance of the lower end of $350 million to $370 million.

With that I will turn the call back to the operator for questions.

Thank you very much ladies and gentlemen at this time any questions simply press star one and could you find that your question has already been addressed you can remove yourself from the queue by pressing star one again.

And we will take our first question. This afternoon from James West of Evercore ISI.

Hey, good afternoon guys.

Hey, Jamie Hey, Jamie.

Hey, Pat on the fleet side of the business, which obviously is a huge opportunity I know, we're still a bit vehicle constrained, but every quarter, we get closer to that constraint coming down are you starting to see urgency building within your customer base as we get closer to this.

Kind of unleashing of vehicles on the market.

Yes, I mean, the urgency has been there so I don't see.

Change in urgency because I mean, I think there's been a lot of pent up.

Man for vehicles, because they just pencil.

What you are seeing what you are seeing Australia your attention to a couple of comments that I made.

Large.

<unk>.

Growth rates year on year.

In both.

Kind of mid sized logistics short haul.

Vehicles, because you're starting to see more supply come online and then you're also seeing.

What is a disproportionately mature transit industries by effectively buses.

Right there because the mandate there are plenty of manufacturers that have.

Sure maturing products products that have actually seen more than one generation.

Youre seeing that growth rate as well, we expect this to that that trend to manifest the minute vehicle availability.

Kind of percolate through all the other sub verticals.

Okay. Okay. That's helpful and then on the production constraints.

Our logistics and supply chain constraints that you guys are still.

Experiencing are those easing at this point or are they similar to what they did last quarter.

So I mean.

<unk> had some specific comments in my remarks on that.

The components that are.

Continuing to be on the problem less or narrowing so the list is narrowing and I made a similar comment.

Answer to a question I believe last earnings.

For our Q&A.

And so that's continuing.

The freight and logistics, we got headlights into that starting to <unk>.

Normalized.

And so that's moving in the right direction for sure.

And just to kind of a little bit more color on.

Kind of what held us up a bit this quarter.

On the revenue side.

Made a supply driven design update effectively.

One of our AC platforms.

As planned and as a result of.

Components coming in a bit late.

<unk>, a very complicated transition and what is.

Mature product and the factory just didn't get it all built in time, so as Rex pointed out in his comments I think I made it in mind as well, we cleared all of that and shifted we just shifted on the wrong side of the quarter boundary. So that's all.

That stuff's all out and we are continuing to build now on the factory.

Okay. Thanks.

Thanks Pat.

Perfect. Thanks.

Thank you and just a reminder, ladies and gentlemen, please press star one for any questions well go next now to Matt Summerville of D. A Davidson.

Thanks, a couple questions I want to put a just a finer point on the supply chain side of things.

In an unconstrained supply chain environment, what would revenue have looked like in Q3, and what could it look like in Q4.

That's a good question, but what I can't directly answer.

But we've been building backlog as we said at a rapid rate this year.

Yes.

I think as you saw.

Is it would be substantially higher.

But I just can't get I, just can't give that out.

But anyway. The other thing I was thinking is listening to the next question is from James West and how we are handling things.

We have supply chain constraints.

But our growth rate is fairly astounding. So I think we are banging through this pretty well.

I would expect from a backlog burn offs perspective next year.

For that to be a nice boost to.

Maybe a booster of sustainable growth rates right.

It will help us get.

Keep keep the engine running.

I don't know, how fast will burn up but I don't see it as being.

Blowfish.

And then.

To your point right in your prepared remarks, you called out $7 million purchase price variance.

3 million in product transition cost how much of that goes away outright goes away in Q4, how much lingers into Q4, and when will you be 100%.

When will you be receiving 100% of the benefit from the pricing actions, you've taken or will that be in Q4 will that not be until Q1 of next year. Thank you.

Yes. So if your focus is going to the price increase as we said we got about half of it in Q3 I would expect to get most of it most of the rest in Q4.

It's really dependent on how fast we burn the backlog off and there are different components of the backlog and some stuff with shipments up some stuff won't.

But I would expect us to be hitting 100% by Q1.

I'd be surprised if that didn't happen and then in terms of the variances or whatnot.

Mentioned in just a moment ago.

The logistics.

The logistics side of the house.

Is.

Is turning around pretty well I think I think logistics.

Well normalized and look a lot like they should go.

Going forward, so I would expect the benefit there as far as the PPV.

It's more isolated it used to be pretty much across everything and now it's more isolated components and I would see that coming down nicely over the next couple of quarters.

Forecast when it goes away entirely but I do think it would be on a downward trajectory.

Maybe not in Q4, because a lot of things are baked in but certainly as we go into next year.

And then one thing you should know.

In terms of getting to a 100% of our price increases.

Make sure you understand where they apply they applied most fleets in North America hardware in North America.

We did a price increase on software earlier last year.

And if youre doing a model that will apply.

When we get to a 100% it won't be 100%, because we have contracts with customers that let us do that everywhere, but.

But the impact is certainly a meaningful and positive as we saw in Q3, and we expect to see in Q4.

Got it.

Thank you. We'll go next now <unk> built it Bill Peterson of J P. Morgan.

Yes, hi, thanks for taking my questions.

As we look into next year.

Thanks for the color on how Youre prioritizing opex, but I guess what opportunities are you expecting to show the most growth in bus where you're trying to prioritize your opex.

And then if you could stack rank between things like fleet or commercial.

Work some of the applications where are you what are you really focusing our resources as we look into next year.

I mean, where we're continuing to focus in a balanced way across all the verticals and we will continue to do so we're not gonna outs are overweight.

One well.

<unk> the necessary operating expenses expansion on the sales and marketing side.

As you know.

Demand demand dictates essentially by by sub vertical.

So.

It's just how historically, we've performed we havent steered it.

On naturally in any in any one given direction.

Wanted to just make sure that we reinforce a point that I was making in my prepared remarks in that.

When we.

Decided to.

Really escalate our spend rate relative to where the market was this was.

Even before we went public that was essentially to intersect with them.

Growth models that we have put together for EV installed base effectively.

Where the reason that things have leveled off quite a bit with respect to opex expansion and as Rex mentioned it doesn't mean, it's going to go down is just we're controlling that trajectory now is because we've built out most of the functions substantively necessary to support the verticals and the geographies there'll be continued investments as we flush.

Things out and as certain verticals unwind from vehicle shortages, but I don't expect us to.

Unnaturally overweight anything and leave and other vertical uncovered that's just not how we've operated historically.

Okay. Thanks for that color My second question.

Like to ask.

Attach rates are trending like where is it today what has been the trend hasnt sustained as a percentage of installed base has gone up.

Obviously, there's a lot of new EV drivers out there.

That could also kind of create friction when service networks don't work properly, but what is your team doing to I guess to try to drive that higher.

As we look at.

I just want to clarify that when you are referring to you mean.

Our assure programs are our first sort of program.

Maintenance and support programs, Okay, <unk> why don't you take that Rick.

So just to make sure.

Turning to the right the right thing certainly from a software perspective, which is one of the things we supply that I would call service.

Interest rates are always 100% out of the gate.

And our renewal rates.

<unk>.

Been very solid we've said on multiple multiple calls that our loss rate there is extremely extremely low.

As far as our assure warranty program, we put a lot of energy into increasing the attach rates on that over the last couple of years. So they are healthy.

Theyre, not theyre, not 100%, but theyre very healthy and they're not trending down they're trending slightly up and we would expect that to continue.

Big swing on that is.

There are some customers who can't buy it because they want to self serve and theirs and then obviously we have to work successfully with.

Our extensive channel network.

Just to drive the share through that and we're working on that steadily ensures that a great place.

We haven't seen any downward trends on either.

Okay. Thanks for that.

Okay.

Thank you well go next Matthew Gaped out at Cowen.

Thanks, Good afternoon, everybody. Thanks for all the prepared remarks.

First of all you talked about demand trends in.

You talked about <unk>, particularly in Europe , but I was just curious if you can maybe talk a little bit of a little bit about commercial and within commercial what's maybe.

What youre seeing there, what's the largest source of <unk>.

Demand I guess at this point within that channel.

And then also just <unk>.

It makes it so I just missed it on a product basis.

Should we expect over time that D. C will continue to grow.

Particularly as the Navy program kicks off sorry, I know, there's a lot in there but.

Yeah, there's lots of a patent capable let's see if we can.

We can take them in order so the first one regarding.

Hot or cold spots in commercial.

Short hand, your question that way.

We're not.

We've been serving literally every type of parking lot and every type of business since.

Further foreseeable history of that.

Company.

So there is no major hot or cold spots in that.

As <unk> has mentioned I think on a.

Few earnings calls.

The workplace component.

It's there and continues to be vibrant is muted a little bit relative to what it would be if people were in the office five days, a week 100 and 100% of the.

Previous workforce that was in office had have returned to office.

Largely offset by the growth rate of Evs in the installed base of cars. So.

So we just kind of view that as a delay in workplace.

Even relative to the previous.

Answer that I gave to one of the questions today. It stresses why you have to be everywhere drivers go you lose your network effect, if youre not everywhere in every parking lot that they may encounter in charger.

So we lose our network effect advantage two businesses. If we were to see a focus on one sub vertical versus another that's why we don't do it but most importantly, when we see unforeseen macro trends that will change traffic patterns and driving patterns. If you are.

In every vertical you are a bit insulated from that.

And that's you've seen us.

Despite a lot of supply chain constraints et cetera.

Effectively.

<unk> doubling the business in that.

That is largely due to the fact that we're a bit insulated from.

Mix shifts due to grant programs things like that because there's things bubble up in one vertical.

Maybe bubble down in another.

The offsets it takes and you wind up having a fairly predictable steady and healthy growth rate so that tax into the Navy program I want to make one.

And a comment.

We don't see a mix shift in port count.

Two to DC.

From an ASP perspective, it is so much higher on an ASP basis. That's why you see it outsized from a percent of revenue relative to the port count percentage of represent so if you look at the active portfolio management, which is.

A reasonable Ah.

A reasonable view because we do represent.

<unk>.

A network that is in.

Virtually every use case the driver might encounter publicly you'll see a fairly steady port percentage of DC now specifically with heavy you may see some pull forward. There you may see some.

I'll remind you that in the inner years.

Because it is a five year program and the inter years.

That'll be a bigger percentage of the overall DC requirement in the United States.

But in the outer years that because the amount of grant money per quarter. There is constant but the market will be so much bigger it will get more diluted it will still do its job, but it will get more diluted also remind you that we're operating in key geographies and that that phenomenon does not exist in Europe .

And then as fleet unwind.

From a vehicle supply perspective that will start to build in one of the biggest shortages and vehicle supply and fleet is light commercial fleet and as light commercial fleet starts to come up.

The change that will move around Asps a bit in the fleet segment right. Now fleet is very heavily DC oriented because so much of it is transit and mid sized trucking et cetera, So hard to call. The fleet impact on this whole thing, but again.

The DC mix is much more of an ASP ratio problem, we're not problem, but phenomenon than it is a port count shifts toward demand shift.

And I'll remind you that regardless support theres, a recurring software license attached to it.

Yep got it got it okay.

That's really helpful. Thanks, just volume sorry Charles.

Multiple questions within one but I'll just quickly follow up with one last one on the supply chain front could you just talk about the some of the component shortages are at this point I know last year was maybe more of a lack of all maybe this year.

Just more of a chip issue and so just any any color around that and then if you.

You look into your Crystal ball like when do you think this all this all kind of eases. Thanks guys.

Well one of the game one of the things I've learned over my career is.

Using our Crystal ball is probably not a great way to run a business.

When something is driving the financials as hard as supply chain is.

So.

I can't.

Life is more imagination, and we do so I don't know what the Hell is going to happen in the macro that could have.

10 shortly.

Stop the recovery that's happening in the on the supply chain side that something could happen thats unforeseen. So it's just too difficult to call. We are seeing as we've reported now for several quarters.

Our concentration on the material side that is concentrated largely in Ics.

Largely in Ics in the long term.

And it's a big if the macro starts to significantly pull back demand for consumer electronics that use common ics that would be prevalent and chargers.

We'd see that segment of the IC shortages clear up substantially we do see some of that now.

Hard to call how long, it's going to take to fully fully.

Fully relieve itself there.

And then in the long term, we expect that power semiconductors.

We'll likely continue to be in demand because they're used across the energy transition. So we're going to have to be very strategic with respect to power semi is and how we manage that and our supply chain. Obviously, because I. Just said that you know that thats something that our supply chain team is working on continuously.

Nothing new.

That's known in the industry for quite a long time, so that's sort of how it naturally.

Funnel down.

But again anything can happen in the macro as we all know so we are trying to be exceedingly careful I think we've done a good job.

Really building a lot of product and supporting the growth of the company and what is the situation I've never seen before in my entire 30, some odd year career of building products. So.

We are.

We're welcoming a relaxation of these trends.

That's great color. Thank you.

Thank you the next 19, Colin Rusch of Oppenheimer.

Thanks, so much.

The diversity requirements across geographies could you talk a little bit about what youre seeing on the standard development side standards development side and the potential at the moment.

Recently towards standard hardware hardware with dynamically Configurable software from a single SKU potentially.

Yes, I mean look.

The fast charge product line that we've been kind of grooming and expanding.

That that is a product line.

It shifts everywhere now it may because everything has been designed to be fairly Lego block.

Whether we have a European standard cable or use standard cable attached doesn't change.

<unk>.

Fundamental electronics for the core or the software the software just wakes up and understands what it is and what country. It's and it just does have the right stuff in and make sure that everything is set up in accordance of all the local guidelines and local standards.

Hardware remains configurable in that dimension, we launched the CP 6K.

That's up and running and in manufacturing and shipping.

Shipping now.

And that one there is a global IC platform. So it can do the.

The entire power range as well as single or three phase. It does all the metering required for.

The entire world that we can see from our meter standards perspective, and we're systematically going through all of the incremental certification processes to cover the globe. There we haven't gotten through 100% of everything in every corner of the markets that we.

We serve but.

We're making steady progress and that will wrap up.

In the not too distant future. So it is possible to build something.

Point to a specific example.

It's completely modular with respect to whether its socket it or cable attached.

European countries require sockets in some scenarios, where the driver brings their own cable.

You can dynamically changing unit from sockets to cable attached and you can meet all of the shuttered or not socket requirements all over Europe with the same platform.

So again.

From a manufacturing velocity standpoint, and ability to deal with demand.

Instantaneous kind of mix issues, which always happen like the long term trends, we can predict pretty well, but instantaneously within a quarter, especially as you get close to the end you could get.

Deals that come in and move things around locally really quickly it's nice having the ability to have a product that is built that way because you can you can satisfy demand from what is a manageable number of sub assemblies and inventory. So that's why we do it that way.

Perfect that's super helpful and then.

I guess the second.

Question is really around the advantages of applying some of the growth you guys have done.

Very admirable job of growing the team.

<unk> do you have but we saw that growth slowing.

The ability to have Martin cohesive integrated team can you talk about some of the efficiencies youre expecting to get and then what youre seeing from a cultural perspective.

As you start to see this group here, a little bit closer and get some incremental leverage from operating perspective.

I think I think there's too big.

Two big things to highlight that may or may not come to mind immediately when people listen to your question.

Way to go through two acquisitions and integrate them.

And I couldnt be happier with how the teams have come together in both those acquisitions.

They are fully integrated.

Many of the folks who came in from the acquisitions have senior positions within technical and other and sales leadership within within charge point. So there was a really great add from a talent perspective.

And we've kind of culturally all we've learned a lot from those folks and they've I think.

One of the lot from us and together I think were better than we were before all three of those companies came together on the technical side and on the sales side. So we're really happy with that.

Yeah.

I think the bigger impact is how many people we've added since COVID-19 because that forced us into a remote environment like any other company for so many years and if you look at how many if you look at our historical head count of the company.

Kind of pre Covid and then.

We were still private REIT in going public and now being public for nearly two years with two years in March.

Most of our workforce not most but a substantial percentage of our workforce that has been hired since COVID-19 have not had the benefit of great amount of personal interaction just because it's been constrained now that's coming back and we're doing a lot of things.

To make sure we actively get people collaborating in being very careful by the way to make sure that we embrace.

The flexibility that today's workforce sorted demands or.

Where.

Trying to make sure that we don't culturally.

Slow down the integration but.

But we also don't.

Throw cold water on People's expectations of slightly more flexible work environment. So I think we've managed incredibly well.

Feedback, we've gotten is people or people are adapting.

And theyre coming coming back together now since.

The restrictions have lifted so culturally it's.

It's gelling really well we're also looking internally.

Because of all the shift to now we know what this looks like at scale. So now we know what to invest in from customer Onboarding tools and automation Salesforce automation business process.

Reengineering internally to support.

You think you know what it's going to look like and then you really know what it's going to look like when it's upon us. So there is a ton of that stuff going on cross functionally inside the company and.

<unk>.

Its going about as well as it can.

Which doesn't mean, it's going bad it's going actually quite well it'll it'll take time to come to complete tuition. Because we're also trying to run a business. While we're while we're doing that but I am very happy with how the team is coming together.

Yes.

Thank you and ladies and gentlemen, just a reminder, we ask that you. Please limit yourself to one question. We will go next now to Craig Irwin at Roth capital.

Hi, Good evening and thank you for taking my question.

Yes.

I share your preference for performance indicators over <unk>.

Fortune, telling us what the crystal ball.

And.

That being said you have the largest is the development team in the industry.

And very interesting way of managing that team, making will compete for resources.

Can you maybe update us.

We were appropriately conservative.

The funding from the infrastructure Bill.

It said that this is really going be at 23.

Yes.

Can you maybe update us on.

What you see as the potential timeline for different states.

First that money in a meaningful way and is there anything else maybe that you are more optimistic about in the short to medium term that might have a bigger impact on the overall levels of market activity.

Yes.

<unk>.

I don't think we have a shortage of market activity.

And I'm not trying to be glib.

The.

And with respect to <unk> I'm not disappointed.

As you mentioned, we've been very consistent we didn't expect anything to happen before 2023, and if you want to update as you asked I expect something to happen in the front half of the year.

But not a lot, but there'll be some things that happened in the front half of the year for sure.

<unk>.

It'll it'll grow it won't it won't be a cliff, but it will grow through the year and I think youll start to you'll start to see.

Quite a bit of activity in the back half of the year in 2023, and that's the things if things continue on the current trend.

That's our current visibility I'll also point out that we don't engineer.

Things like that into our models, specifically as we're managing the company because we like to be conservative with respect to the dynamics that can happen in slow programs like that down and when youre dealing with governments.

It just moves at the pace of government.

And so if you are in our position and you're betting on something on an optimistic side or you are betting on something at all until that materializes.

Really undermines your ability to be predictive bonds as a public company, it's a bit reckless so.

When we start to see it ramp and we start to see what our win rate will be.

We will.

<unk> will be able to make further comments.

Thank you well go next to Alex <unk> at Bank of America.

Hey, guys. Thanks for having me on just one other one for me and I'm. Just curious if you can comment I know, it's relatively fresh but just on this E. Rins news that came out today. Just curious if you can kind of clarify how you guys are positioned around that.

What do you expect I know the details are very very fresh, but just curious any color. You can you can offer at this point.

So.

I haven't had a chance given that we've been.

A bit preoccupied with the goings on in this call today to really circle with our.

Clean fuels program people here to get a full impact payment, but what I'll, what I can say is that the.

The current L CFS.

Program credits that we take advantage of or the proportions that we can take advantage of that we share with certain customers.

That's in the other line.

On the revenue line, and where <unk> will show up for us will be in the in that line. If we can take advantage in the scenarios, where we can take advantage of it I'll remind you that we are not a station owner in generals. There are occasions, we are but it's not material to our business model.

So we have to really analyze the scenarios.

Where that where those credits go whether whether what percentage youre going to go to us what that will look like in the long term and how much.

<unk> administer on behalf of our customers, but largely benefit our station owner customers. So.

Too early to give you a full <unk>.

Hansen.

But if you look at the other line, you'll get a pretty good indicator of what else CFS Tom.

Thank you we'll go next to Steven Fox of Fox Advisors.

Hi, Good afternoon, just had a couple of quick questions on gross margins one.

You mentioned how you.

Some of your backlog still on old pricing versus new pricing.

What's the difference in sort of the expected margin on the on the backlog that's sort of more favorable versus less favorable and then just wanted to make sure I'm clear on the gross margins going forward.

With the full year guidance are you implying that the gross margins for Q4 might be down from Q3 of just that youre going to be below the full year guidance. Thanks.

Yeah. So let me take the second one first.

The what we expect to have happen is contingent sequential improvement. So if you look at the year. So far we've got 17 to 1920.

And so for Q4, we think we will improve on 'twenty.

Given mix and the other things that we would have to wrestle with on PPD in that sort of thing.

It's hard to put ranges on it but.

But we definitely see that going up in Q4, but we did want to let people know.

And being transparent that the 22 to 26, which we felt we could get to.

Is not mathematically likely so we are taking that up to say, we do expect to get better Q3 to Q4.

And then as far as the backlog is concerned.

We burn off a significant amount of backlog every quarter. So three loading. So we did as we did our price increases in June .

But as you can imagine that takes a while to work through the system in terms of when you got a bunch of quotes out there now that you have to go when Youre doing new clubs and you put the new pricing is it takes a while for that to.

To go through the system.

It only applied to hardware in North America to keep that in mind.

And so we're rolling through the older commitments and as I said earlier, I think we'll probably bang through the older pricing.

Over the next couple of quarters Q4, Q1, so that will be fully on the new pricing in terms of how the margins improve there.

We haven't given a figure on what the price increase level was.

But it was significant right.

And so.

It will have a it will have a very very nice impact on margins when we roll that through.

Increasingly through the next six months.

Okay.

Thank you we'll go next not see my mentally at credit Suisse.

Hey, Thanks for taking our question just.

Clarifying that previous Kevin talked about.

Transitioning to new pricing over the next six months over the next two quarters.

By Q2.

Of next fiscal year and second question just on Opex.

Should we think about that two variables.

A little bit.

Yeah.

Forward should we expect somewhat flattish at these levels.

Obviously slower growth than revenue, but how should we just hit me qualifications or clarity on that I appreciate it. Thanks.

Yes, so on the.

On the pricing front.

Again, if you think that you announced the price increase you got to get it out the channel we've got to get it out to sales it impacts only new deals that are not.

Already quoted.

You have to get those deals closed.

You know we've been building backlog all year. So then you've got to cycle through your backlog. So it takes you to a June price increase.

Fully see that roll through Youre looking at nine months at a minimum just just the way. It works right. Good news is as we are.

Four months through and so we're well underway, we did see some nice impact from that in the third quarter, but I think we just have to be patient there as that works its way through the system.

Over the next several months and as far as operating expense trajectory is concerned I think if you look at our.

Opex for Qs, one two and three of the non-GAAP basis showed encourage you to do even though we all look at.

You'll get to see.

The actual trajectory of the company and it's been very steady this year.

And that's very purposeful.

The nice thing is we look forward, our new product introduction expenses that hit Opex that will be.

Many of which were in this past year will be substantially reduced.

We're going to be intelligent on hiring but as I said in my prepared remarks, I do think Opex will go up but I think it's going to go up at a very very measured way.

<unk>.

In the near term.

A substantially reduced rate relative to.

Our revenue increase and frankly, if you were to look back two years now two years ago, what was the opex rate of increase percentage wise I would expect us to be below that.

So the rate of increase is going to go down.

Thank you the next now to show it.

Thank you well go next now to shape <unk> at Wolfe Research.

Oh, great. Thanks, so much for taking my question.

I just wanted to maybe come back to the margin and just.

As we're thinking about.

The prior guide I think was indicating something around 25%, 26% for the back half.

It sounds like that's going to be more like in the low <unk> now.

I understand some of that is related to.

Some of the ongoing supply chain issue, but maybe can you help us reconcile.

The missing piece, but the pieces there that's kind of.

Resulting in the margin.

Softness.

Yeah. So so number so if you go through our last.

Two calls and this one what youll see is.

The PPV slash logistics side of the house, where we had.

Some separate charges this quarter and then we've had twice we've had.

This does not get out there.

Get out of the dock.

From an AC which is a higher margin product perspective so.

Been six to eight nine points in each quarter.

That doesn't have anything to do with their business model doesn't have anything to do with our products is not anything to do with maybe a little bit with mix, but not really.

It's sort of it's sort of.

<unk> lost on the shop floor.

And so our thoughts and trying to recover to get to our annual guidance coming out of Q2.

And guidance to the low end of that range was dependent upon some of that stuff cleared up and as luck would have it as we said Q3 was another quarter where.

We just couldn't get enough product, especially for them.

And when they see perspective so.

When we look at that going forward.

It's a pretty simple question is when the external environment eases, so that we get those points back.

It's a pretty easy fix but then we have.

I think we've I know, we've announced a new head of operations.

We're attacking the op side of the house, both from a scaling perspective, and a cost reduction perspective with vengeance.

So I think theirs is.

Cause I look forward with the gross margin I see how this can improve.

So we know the recipe we've just we've got to get it out of the kitchen.

Thank you we'll go next now to David Kelley of Jefferies.

Yeah.

Hi, This is Gavin Kennedy on for David Kelly, Thanks for taking my question.

One of your competitors called out installation issues with DC fast Chargers, which stemmed from both labor shortages and transformer supply chain constraints is that something that your team is seeing and if so any thoughts on the magnitude and timetable that disruption.

You don't want ever you're doing construction.

Especially when it involves electrical upgrades.

Things take youre into construction permitting and utility interconnects, so things take a while but I will point you in.

In this way I can kind of help you understand it from our perspective anyway is we added over 1000.

DC fast charge reports to our active ports under management.

Count now that means those those products have been there were sold through.

In the past.

Went through site design construction permitting all the usual stuff utility interconnect and were activated.

But it gives you a flavor for the fact that if you have a pipeline of proper pipeline.

The the delays essentially pipeline away.

And the delays arent there everywhere they are there for certain.

Literally certain physical locations, where the electrical utility infrastructure at those particular locations may require an upgrade to deal with the power levels that are required for that use case at that site.

So we do see some hotspots, but again the business is very broad here and we have a continuous engagement pipeline that's feeding the top of the funnel. So in this quarter alone you're seeing that come out which is pretty big number.

So I.

I, just think as long as you're feeding the top of the funnel of business like ours.

And also because of our diversity of the verticals, we're going to end geographies.

It is a bit more muted for us.

Thank you we'll take our next question now from attainment Kaylee at kidney.

Great. Thanks, Good evening, everyone. Just one quick question on the subscription.

<unk> margin I think it kind of came in at below 40% in the quarter kind of that kind of flat from last quarter. How should we think about that going forward is there any price increases being implemented there.

And the puts and takes in the quarter and the forward outlook.

So sorry.

So mired in non-GAAP .

Is that a surprise to the question of its a fair question from a GAAP perspective, but so on a non-GAAP basis, our subscription margin.

Moved up nicely in Q3.

So as I've said that it's.

If you go to gap, obviously, we are growing we're growing the team, we're investing heavily and frankly doing some pre investing in that space.

Because we see good customer support is a huge differentiator for the company in.

You win so obviously those people live in that line item and the costs are allocated accordingly, so but anyway, but net net our subscription gross margin with north.

And frankly, we put a lot of energy to make sure.

Okay.

Thank you we'll go next to Mark Delaney of Goldman Sachs.

Yes. Good afternoon, thanks, very much for taking the question as we think about the pricing and what that means for margins did you think you need to do another round of price increases in order to reach your longer term margin targets or do you feel with the pricing you've already done and the potential for some of these other.

Impact, perhaps easily supply chain that you can get there.

Engineering is around.

Yes.

So I didn't catch the tail end of the question. There is a reception on the basic question of are we anticipating further price increases I think the answer to that is.

TBD with a shading in the direction of not in the near term because we just did.

We did one early last calendar year that we did another one that was larger but.

North America hardware solutions specific.

In June .

And we're seeing the impact of that begin to roll through.

See about half of it in Q3, we'd like to see the rest of it in.

In Q4 and Q1.

And so we think that will have a beneficial effect on our gross margins and then beyond that we've got a lot of operational improvements that we're doing it with PPD.

And the PPV and.

Logistics situations is I think we can get where we need to be through more traditional means just improve the improving our costs and improving our expenses et cetera.

Versus going for further price increases maybe we do like most software companies, we do have an automatic.

Increase situation on software.

So there is there is a built in escalator there, but in terms of broad based price increases.

Don't see one on the table in the near term.

Thank you and that concludes our question and answer session. This afternoon, Mr. Romano I'll hand things back to you for any closing comments.

Well I just I just wanted to say.

First of all thank you for everyone.

For the thoughtful questions I appreciate it very much.

We want to reiterate my usual thanks for our team here at charge point.

I'd have to work very very hard to pull off the quarterly results I know they are all very proud of their accomplishments and are looking forward to not only rapidly in Europe .

In Q4.

But to the road ahead.

<unk> 2023 for us.

Think.

It's really as I said in my remarks.

The number of makes and models across the board in both passenger cars.

In the fleet segment really.

It's a really stark difference than it has been even a year ago in terms of availability and as those things rich.

Some reasonable level of manufacturing maturity I think youll.

We will all be very pleasantly surprised with the pace of adoption.

Relative to the installed base in this market. So we're very very excited about the future and again. Thank you. All we will see you at our last earnings call of the year.

Next time, and we'll sign off for now Goodbye.

Thank you Mr. Romano, ladies and gentlemen that will conclude charged <unk> third quarter fiscal 2023 earnings conference call.

You all so much for joining us and wish you all a great evening Goodbye.