Q1 2024 ChargePoint Holdings Inc. Earnings Call
Speaker 1: the second quarter of fiscal 2024. These forward-looking statements involve risks and uncertainties, many of which are beyond our control and could cause actual results to differ materially from our expectations. These forward-looking statements apply as of today, and we undertake no obligation to update these statements after the call.
Speaker 1: For more detailed description of certain factors that could cause actual results to differ, please refer to our form 10K filed with the SEC on April 3rd, 2023, and our earnings release posted today on our website and filed with the SEC on form BK. Also, please note that we use certain non-GAAP financial measures on this call, which reckon, siled.
Speaker 1: over to best quality.
Speaker 2: Thank you, Patrick, and thank you all for joining us today.
Speaker 2: We delivered a strong first quarter. Revenue was at the high end of our guidance range at $130 million. And non-gap gross margins sequentially improved two points to 25%.
Speaker 2: To put these results into perspective, we achieved a 59% year-over-year growth rate in the first quarter and had the second largest quarter in ChargePoint's history. We did that while the EV install base in North America and Europe are still in single digits and the EV market is only at the beginning.
Speaker 2: of a decades-long growth cycle.
Speaker 2: We also achieved this growth in the midst of a challenging macroeconomic environment.
Diversification across verticals and geographies continues to contribute resilience to our business.
So while we saw less growth in North American commercial and residential than we would have liked due to what we believe is a delay in discretionary purchases.
We continue to see overall growth and margin improvement.
Rex will address guidance for the second quarter, but just to give you a sense of the magnitude of the long-term opportunity ahead of us, the midpoint of that guidance would make Q2 the largest quarter in ChargePoint's history.
You'll also hear Rex talk about non-GAAP adjusted EBITDA.
To give some context, we use non-GAAP adjusted EBITDA as a key measure of the health of our business as we drive towards profitability and as we disclose in our proxy statement filed last week, this metric is one of the two components of our annual management bonus program.
Beneath the top line results, we're continually improving our operations and investing for future scale.
We've consistently improved gross margins while recovering from supply chain issues, making meaningful changes to the cost of our products and optimizing our operations.
Also, as we scale, we're carefully managing our operating expenses while making the necessary investments in our support operations and internal business systems.
We are committed to delivering dependable infrastructure to our customers so drivers can find it, use it, and depend on it everywhere.
Turning back to Q1, we saw two areas of particularly strong growth, Europe and the fleet.
For the first time in our history, Europe delivered over 20 percent of ChargePoint's quarterly revenue.
Meanwhile, Q1 fleet billings more than doubled year over year, despite supply limitations on vehicles entering the segment relative to demand, and as a percentage of billings, the increase from Q4.
We're encouraged to see continued resilience in these growth areas.
Beyond the financials, we continue to focus on our products.
We offer industry leading hardware and software for nearly every fueling vertical.
Our solutions help our customers deliver the kind of EV driver experience that will continue to accelerate EV adoption across North America and Europe .
In brief, better charging infrastructure delivers a better driver experience, which drives more value across the entire EV ecosystem. It's a positive feedback loop for growth that benefits ChargePoint, our partners, and EV drivers in the environment.
We are betting on the continued changeover from fossil fuels to electric drive regardless of OEM or vertical, and as a result, we believe we are an index for the electrification of mobility.
on the continued changeover from fossil fuels to electric drive, regardless of OEM or vertical. And as a result, we believe we are an index for the electrification of mobility. Before handing off to Rex,
Let me update you on a few key statistics to give you a little more color on our continued growth.
On the network side,
We give drivers and ecosystem partners access to approximately 745,000 EV ports in North America and Europe .
243,000 of these are active ports under management on the ChargePoint network, up from 225,000 last quarter, and we recently passed a milestone of over 500,000 roaming ports.
These roaming ports are critical to delivering a world-class ecosystem to ChargePoint drivers, A-Host customers, and strategic partners such as OEMs and fuel car providers.
Approximately 21,000 of the 243,000 ports on the ChargePoint network are DC fast charging, up from approximately 19,000 at the end of Q4, and approximately one third of our overall ports are located in Europe .
We count 76% of the 2022 Fortune 50 and 56% of the 2022 Fortune 500 as our customers.
This reflects excellent penetration given our land and expand strategy, the stickiness of our solutions and our strong rebuy rates.
From an environmental perspective, as of the end of the quarter, we estimate that our network now has fueled approximately 6.3 billion electric miles.
avoiding approximately 252 million cumulative gallons of gasoline and over 1.25 million metric tons of greenhouse gas emissions.
So when you put all that together.
It shows that despite the current economic environment, charge point growth continues.
We've made significant progress against our long-term roadmap ensuring that church point scales ahead of this remarkable market opportunity.
We're running a highly differentiated business that is not CapEx intensive. And as you'll hear from Rex. And as you'll hear from Rex.
We're heading into the black while we turn the world green in the early innings of the EV transition. Rex, over to you for financials.
Thanks, Miss Qualley. As reminders, please see our earnings release where we reconcile our non-GAAP results to GAAP. And recall that we continue to report revenue along three lines.
Network charging systems, subscriptions, and other networked charging systems is our connected hardware.
Subscriptions include our cloud services connecting that hardware, our sure warranties and our charge point as a service offering.
where we bundle hardware, software, and warranty coverage into recurring subscriptions.
other consists of professional services, and certain non-material revenue items.
As Pasquale indicated, we had a solid Q1 with revenue of $130 million, up 59% year-on-year, and above the midpoint of our previously announced guidance range of $122 to $132 million.
Down seasonally as expected from Q4, Q1 was notably the company's second largest quarter ever, and a good start for the year when compared to Q1 contributions over the past two years.
Network charging systems at 98 million with 76% of Q and revenue down from 122 million and 80% in Q4 due to typical seasonality.
Q1 revenue from Network Charging Systems Groups, 65% year on year.
Subscription revenue at 26 million was 20% of total revenue, up 49% year-on-year, up sequentially and again above the 100 million annual run rate we referenced in our last call.
Our deferred revenue, which is future recurring subscription revenue from existing customer commitments and payments continues to grow, finishing the quarter at 205 million from 199 million at the end of before.
We're especially encouraged to see this continued growth in our recurring revenues in the very early days of what we believe is a decade-long EV adoption curve.
Other revenue at 5 million and 4% of total revenue increased 20% year on year.
Turning to verticals, first quarter billions percentages were commercial 63%.
and reflecting a particularly strong performance complete.
Commercial grew 44% euro in the air, while fleet was up 129%.
Residential grew at 13% year on year and maintained its generally consistent buildings percentage.
From a geographic perspective.
Q1 revenue from North America was 79% and Europe was 21%. As Pasquale mentioned, Europe continues to outpace North America on a percentage basis of 70% year on year.
Turning to gross margin, non-Gafer Q1 was 25% up sequentially from Q4's 23%.
And up eight points from 17% in two one of last year. This improvement is primarily a combination of diminishing supply chain and logistics expense pressures.
significant operational improvements and better scale.
We continue our considerable investment in our driver and host support infrastructure because we believe support and reliability are critical differentiators for both drivers and our customers.
We expect contingent improvement in NIGAP First, margin this year.
Non-GAP operating expenses for Q1 were 85 million, a year-on-year increase of 2%, and a sequential increase of 6%, primarily reflecting payroll taxes, as well as annual compensation increases effective April 1st.
As we look out to the rest of 2023, we will manage expenses carefully and expect to deliver improvements in operating leverage.
As you may recall in calendar 2020 and 2021, our op-ex, which reflects significant forward investments in our business.
was at approximately 100% of our revenue. In 2022, we took that down to 53%, and Q4, and 69% for the year. In Q1, we were at 66% given revenue seasonality, but again, expect continued improvements this year, particularly in the second half.
To give this trajectory, I'd also like to expand on Pasquale's comments regarding non-gap adjusted EBITDA. We added this metric and the associated reconciliation today in our press release with the goal of better illustrating our path to profitability.
To calculate adjusted EBITDA, we take our non-GAP Met income loss and add back interest taxes and depreciation. The depreciation component is low thanks to our business model.
Using this metric, Q1 non-Gap adjusted EBITDA was a loss of 49 million, a year on year improvement of 27%. We looked to cut this loss further by approximately two thirds by Q4 this year.
Looking at cash, we finished the quarter with 314 million down from 400 million last quarter. As in prior quarters, a primary driver, our negative cash flow is operating loss. In Q1, we also managed to break free on a number of supply chain issues and move our inventory solidly from raw materials and width or work in progress.
will look forward but we expect it will grow with business.
We use our ATM very lightly in Q1, adding 18 million in cash through the program.
We will evaluate used to the ATM at a quarter by quarter basis and also continue to assess non-deleted liquidity options.
To close on a couple of other key figures, stock base compensation in Q1 was 24 million consistent with the past three quarters. Our annual compensation cycle includes equity. So we expect our annual step up and stock base compensation in Q2 to be approximately eight million and to be fairly constant for the ensuing three quarters.
Three.
Turning to guidance for the second quarter of fiscal 2024, we expect revenue to be 148 to 158 million, up 41% year on year at the midpoint. We are committed to being adjusted either to positive and Q4 calendar, 2024 and remain committed to being cash for positive by then as well. In summary, we've achieved the growth we expected to achieve despite significant headwinds.
for questions.
Thank you. If you would like to ask a question on the phone line today, you can press star one on your telephone keypad. If you would like to remove yourself from the queue, it's star one again. We ask, please limit yourself to one question to allow everyone an opportunity to ask a question.
We'll take our first question from Gabe Doward with Cowan. Hey, thanks guys. Appreciate it with a pair of remarks. Maybe, as well, I just wanted to hit on the comment earlier. Can you prepare remarks just about some of the commercial and residential units that you?
You guys know, just curious if you could give a bit more color on how that maybe snaps back as we progress through the rest of this year and maybe.
What's kind of embedded in your own internal forecast?
So, hi Gabe. It's a very simple answer actually. The beauty of this market is the utilization pressure sits there because EVs keep...
You know, we keep converting the install base from fossil fuel to electric vehicle. Businesses right now all businesses, commercial businesses that have a discretionary need for charging for their employees or their customers can adjust timing to deal with the macroeconomic uncertainty.
So the need doesn't go away, but the optionality to delay addressing that need and some of our commercial customers exist. What I'll point you to though is something that we've commented on in previous earnings calls as we went through the pandemic.
The mix in our business by vertical shifted pretty meaningfully during the pandemic because we went into a abrupt work from home situation and other areas of the business because we've been broadly placed across verticals and geos.
other places in the business picked up the slack. So we didn't have to deal with a massive discontinuity financially.
You're seeing that I think play out here again. So we still I think turned in very, you know, very aggressive growth on a quarter to quarter basis, Q1 this year, Q1 last year.
It's a healthy percentage step up. And the geodeiversity, especially given that Europe is now 20% of the business and performing strong and fleet up 200% year-over-year, similar Q1 to Q1.
It's just evidence that as the macroeconomic water balloon exerts its pressure on the different verticals that we're diverse enough to take up the slack. So we're not in a position where we think.
The demand has gone away and it is perished. We'll get it back as the macroeconomic situation clears up. Hope that answered it.
Yeah, that's a great call, thanks, Ms. Galley. Maybe as a follow-up, just at a, maybe I'll ask just about the mixed shifts or just the buildings and the documents that you reported in.
in fleet in particular, could you maybe just give us a bit more color on Where exactly are you seeing that strong growth and strong demand within fleet? Is it less mile logistics? Is it I guess on the light duty vehicle side just given how we're still vehicle constrained on me and then heavy duty but just curious I guess is
What can you say on flea? What's really driving the momentum there? And then is it also more fleet momentum in Europe versus the US, or is it fairly similar? Thanks, Chef. It's easier to go backwards with your follow-up question. It's pretty balanced between Europe and North America. Fleets, as I said in my prepared remarks,
It's vehicle limited right now. If there were, if OEMs were producing vehicles in quantities to match demand, you'd see faster penetration and conversion from fossil fuel to electric.
It's actually well aligned with
a softer macro in that everyone's looking for cost savings. Obviously, these vehicles are meaningful components of the cost structures of the businesses that they serve. What that's done is it's planted, as I mentioned by the way, consistently in previous.
in previous calls, it slants it to land, but not much expands.
within a customer. And so that's, you know, I think just, you know, a good indicator for things to come in the future when that starts to on coil is complicated, given that there's a bit of a dependency there on vehicle OEMs producing things that scale one of the...
bright spots that I mentioned before regarding fleet is transit because that's the most mature segment and so we continue to see that segment do quite well but there has been no general shift in mix between the quarters that's worth that that's materially worth reporting. Okay, okay great that's helpful thanks guys I'll take the rest offline.
with the sales cycle looks like conversations you're having with folks around when and kind of volume up to claim this.
I had a conversation, recalling the conversation's not any different now that it's been in the past.
and commercial conversations tend to be a mixed bag of, are you dealing with the tenant, are you dealing with the property manager, are you dealing with the landlord, or are you dealing with all of the above in combination? So it really is situational, and that hasn't changed. You are seeing...
Property developers and property managers take a more keen interest right now in charging as an amenity more broadly in their portfolio versus in hotspots driven more by tenant kind of tenant activities. But I think in general, because the dominant situation there,
is return to office. And as you've seen in many statistics that have been reported, we're not, we're moving through, we're moving back.
to a larger component of in office, but we certainly haven't snapped back all the way. So that's probably the biggest component in commercial shifts is if people aren't driving to the office, the workplace charging component will continue to basically move down proportionally to
Effectively the utilization in the parking lot of office buildings doesn't mean that there is in charging going in It just goes in proportional to the number of days folks are in the office will also remind you as it's not if you go in three days Or you're going five it generates the same amount of utilization pressure in the parking lot on the three days is for synchronized
So there's a lot of puts and takes there. And I think as this continues, as it gets confused by a lot of other things that are going on in the macro as well, the complexity goes up. So we've got good visibility into it and we're managing it closely.
Excellent, that's super helpful. Now I've got two other things just looking for an update and then maybe a little bit disparate. Some of the permitting streamlining efforts that are going on at a state level and even at a national level, you can just give the sense of anything that you're tracking very closely there that could be meaningful for the business. And then also the potential to consolidate some of these non-
Filling network chargers, whether it's in the US or Europe , and how that opportunity is changing for your guys in your term.
If you're there to take that one backwards, if you look at consolidation of non-network chargers.
There's a lot of programs, a lot of, I mean, not that our revenue is primarily subsidy dependent, but almost all or all I can think of anyway, subsidy programs have a requirement for the charger to be managed, connected to some sort of network and meet some set.
of requirements either at the most basic level for reporting, but usually includes some energy management to give some benefits of the grid. So what you should think about there is a lot of the unmanaged chargers that are out there will likely get replaced with managed chargers because if they don't have the necessary communication and processing gear, it's easier to just tear them out. Most of the work.
would expect that those things would change out over time. With respect to permitting, I just want to point you to a couple of things in the prepared remarks.
With respect to permitting, I just want to point you to a couple of things in the prepared remarks.
If you look at the total ports on our network in terms of activated and under management, and that means they've not only gone through full installation, but they've also gone through software activation. That means the customers decided how they want to use it, all that sort of stuff. We went from 225,000 ports into four to 243,000 ports.
And I'm, you can read the remarks, but that was spread pretty uniformly between DC and AC.
What's interesting in that is the pipeline is already built into our numbers because that is not representative of the ports we sold last quarter. That's representative of the ports that we sold at some previous month or set of months.
that have gone through the construction and installation process and the activation process, which is not an instantaneous thing in time.
So you're seeing in the port growth rate.
the shadow of the permitting delays, print through. Now, for the big stuff.
Right? The big corridor fast charging programs, a lot of the big fleet transit programs. Yeah, we see permitting delays.
continue to be a challenge for our customers. But again, that has been a challenge for our customers. For a while, we absolutely would applaud any change in permit streamlining or utility interconnect streamlining because it will certainly help accelerate.
it'll accelerate some of the customer's ability to add the necessary infrastructure. So headline.
delays are built into our numbers. Build into our guide they're built into our numbers they're built into everything that you're hearing from us.
If we can make it go faster, it's upside.
As a reminder, everyone, please limit yourself to one question. We'll take our next question from James West with Ebercore ISI.
Hey, good afternoon guys.
I'm happy to see you. Thanks, hey Pat. Thanks, Rex. I wanted to ask about the announcement out of Tesla and Ford a couple of days ago. Their alignment, the opening of the supercharger network and what your thoughts were around that is. I mean, is it a nothing burner? Is it?
crystallize it in your mind.
is that Tesla has been an outsized player right now or still sitting around 70%ish market share in the United States in terms of vehicles in the install base. And that supercharger network has been around since the beginning of the time that we're in revenue. And if it weren't for Teslas on the road.
Our customers would have no reason to buy a charge point charger because they're the dominant car there up to now. And they're generating effectively the utilization pressure in the parking lots that are causing a cross vertical, cross-aller vertical customers to want to buy our products and services. So the net net is the...
Supercharger network, whatever effect it's having is built into our numbers.
Okay, now with that said, with that said, our fast chargers in particular, because on the AC chargers, I test-list shipped with an AC adapter since the beginning of time, it's not really, it doesn't, it doesn't impair anything. So that's, there's literally no impact there on the AC side.
I mean, on the DC side, our chargers have modular cables and modular holsters. So the ability for us to address, if a need arises, the ability in particular use cases to add a direct test lookable versus using an adapter like people use today is possible. We're now...
spending time obviously thinking about innovative ways.
to not have to increase what is a very expensive element and extra cable on a charger to be able to get around some of those problems. So, you know, stay tuned, we'll be pretty innovative there, but I wouldn't, I don't read it as a bad thing.
for us long-term at all. Got it. Okay, thanks. We'll take our next question from Morgan Reed with Bank of America.
Hi everyone, thanks for taking my question. And nicely done on the growth drivers and fleet in Europe . Just curious if you can maybe elaborate on how we should think about that strength through the rest of the year. Just wanting to understand how those two segments in particular.
are expected to scale through the year here after. Some nice roast here in the first quarter. I would expect fleet to continue to be strong. These are customers.
that are electrifying for hard business reasons.
There's no discretion in electrification it's competitive in the long term for fleets, for most fleets.
in that in the long term drops or cross-structure and there's a long learning curve and optimization cycle so they need to start it today to not have it be an impediment to their business in the long term. So we expect that segment regardless.
of the macroeconomic environment to be very strong on a go-forward basis. Europe is ahead of the US currently in EV adoption. We expect it to continue to be strong. There is a more...
consistent policy mandate across all of Europe , supporting the transition from electric drive from fossil fuels to electric drive. Now, correspondingly in the long term, we don't see any major difference between the US and Europe . Remember, OEMs have to operate internationally.
and supply chains and cost structures will shift favorably to EVs over over over the not to distant future. So I think it's an inevitable conclusion that in both markets you'll see a conversion rate but currently Europe is...
For all the reasons I mentioned, going to continue to be, I think, very strong for the company, so we would expect that we would see strong growth from that sub-verbal.
For all the reasons I mentioned, gonna continue to be, I think, very strong for the company, so we would expect that we would see strong growth from that sub-verbal or sub-gear exercise.
Great, thank you. And then also, can you just talk about how we should think about the op-x disciplines through the year? And we'll talk about kind of scaling operating leverage towards the ease but a positive inflection later this year. Just curious if you can kind of help quantify the moving pieces there as you look to continue scaling the top line against still a very disciplined op-x.
coming out of the gate and staying close to it. So I think we're going to try to operate within a free tight range.
Great, now to go ourselves on. Thanks.
Great, now to go ourselves on. Thanks. Thank you. Thanks for it. Thank you.
We'll take our next question from Matt Somerville with DA Davidson.
Thanks. First, just a question on gross margins, 200 bits sequentially. How should we expect that to kind of play out as we move through the year? Should we expect a similar kind of step function improvement quarter on quarter, something a bit more conservative to that? And what are the main levers?
to growth margin improvement as we sit here, for the balance of your fiscal 24. Yeah, so I think that as we said, we expect continued improvements. I don't think anyone here would say that 25s of place that we should be, you know, parking our electric vehicle, so it needs to go off.
Whether it goes up, a point or two or whatever, a quarter and quarter remain to be seen. It's very mixed dependent, but I'm confident that we're gonna head towards the numbers we've discussed before, towards the end of the year. I don't want to pag it to a number, but it's gonna be better in Q4 than it is today. So expected to continue to climb this year.
And then with respect to, with respect to the comment you made right towards any of your comparator marks, so you think you can cut the EBITDA law, EBITDA law is by roughly two thirds between now and the fourth quarter, so say, going from, you know, 49 million to say 16 million, or they're about.
The entirety of that bridge just scale from the revenue growth you're expecting or are there actual cost and expense cuts that are contemplated in there? Thank you.
It's actually all of the above. Clearly, you know, grow the revenue line, which we would help to do consistent with what we've done in prior years, because you've started Q1 and you end up in Q4 and Q4 is a lot better than Q1. So clearly that helps. We expect response to improve during the year. That definitely helps a lot. And then if we are disciplined on OPEX.
and keep that, you know, in flatish territory, you can make the math work pretty quickly.
We'll take our next question from Mark Delaney with Goldman Sachs.
Yes, good afternoon. Thanks very much for taking my question. I just wanted to better understand some of the supply chain dynamics. I guess in terms of the P&L impact and it picked up the gross margin theme first. You guys have been talking about how much of a headman to gross margin supply chain was. I think at one point it was some of like 900 basis points of a headwind. Where does that stand as of this most recent quarter in terms of the impact? Yeah.
more broadly on supply chain. If you could speak around how you see that progressing and do you think supply chain will hold you back in terms of hitting your shipment target for the boss of the year. Thanks. Yeah, so thanks for the question Mark. So to start the KPPV slash supply chain in fact that we've been talking about probably closer to.
for fiber-sick that are specifically supply chain. No question that that's gotten much, much better from a supply perspective. So we really snapped through this quarter, and I was glad to see. I think I actually said in prior calls, she's right, I'd love to build some inventory, right? Because we've had to leave business on the table in prior quarters and backlog out of whack, everything else. So we're back to a nice,
Logistics are pretty much back to normal, which is a real time thing you'd pay either you don't. And then the supply chain thing also back to a really good place. So once we work through any existing inventory that had those higher prices previously, we'll be hitting our strides. But I think...
It's fair to say that we are well past the worst of it. Thank you. Our next question comes from Steven Jingero with Steve Ol. The music is 24?s ??.
Good afternoon, gentlemen. One thing for me, I wanted to get you a read on Nevy funding, kind of where we stand and what your thought process is on timing, but also you insight into kind of where your customers are in the process as far as trying to secure funding.
Sure, Stephen. So just to give you some heart facts around Nevi, there are exactly four states where applications on Nevi proposals are due back.
within, you know, shortly, in general, a little over half the United States.
has programs that are effectively live where we're working applications and comments that have made in the past have not changed in that we work across the board with our customer base, where the customers are aligned well.
positionally with the position requirements, the location requirements within the NEVY program, as well as having the right amenity structure, giving a driver something to do that they would want to do while they're on a road trip. So combining those two things, we are orchestrating responses to the NEVY program. And sometimes by the way, we're in multiple applications that detects
customer base or potential customer base and trying to orchestrate that.
Okay, great. That's helpful. So would you expect an inflection point when the funds start flowing? Do you think it'll be a more smooth, smooth realization of those revenues over time? Yeah, so Steven, this is what I refer to as an all-wush no-bang industry.
If you think about what I just said there, right? It's all whoosh and no bang. So the timing of all of this stuff, while you will see Nevis starting as we get into 2024 to start to build momentum, right? It's going to build, it's going to build along
There's not gonna be a sharp discontinuity where you're suddenly gonna go vertical on something like that. Just this market just doesn't let you state programs and how state programs are implemented. It just doesn't let you look at the VW of PENXD programs that contributed.
to our revenue and it contributed to it in a smoothly increasing way over the over the over that program and we would expect Nevee, well bigger in magnitude to have a similar impact. So I wouldn't expect some discontinuity out there in the future. You know, the sun and moon and the stars could align and that could happen. Just not consistent with history.
We'll take our next question from Bill Peterson with JP Morgan. Yeah, hi, good afternoon. And nice to see the gross margin improvement. Just like the clarify in terms of the guidance for the fish current quarter.
It sounds like what you're saying is some of the trends you saw in the first quarter are to continue But just want to make sure still continued relative strength in Europe and fleet Still some I guess discretionary slow down and commercial and residential Is that the right way to think about it? Or is there some other areas that are starting to unlock I guess when does the commercial and residential start to unlock is it? And then we're kind of past the dead showing what are people I guess waiting on in this point from
from your vantage point. Yeah, Bill. So thanks for the question. First of all, in looking forward to Q2, we did not put parameters around that, but to your point, residential is a function of the sale of cars, right? So keep an eye on how fast EVs move from OEMs.
is just an imperative because this isn't a nice to have anymore. This is infrastructure you got to put in. So, as the commercial sector gets happier and less constrained, obviously, I think that will bring down back to the benefit of our business. Thank goodness and in the commercial sector for our existing customers, because they keep coming.
And it's bigger than you would expect in terms of her customer. So that could be a little bit of a diversity. But you know, Q2 is just a blend of the stuff that we see. I don't know that it's going to be meaningfully or wildly inconsistent with the stuff we've seen in Q1.
Yeah, okay, thanks. That's a good lead into my second question. So you give it some good parameters that you do expect some gross margin, I guess, expansion, kind of keep up, that's fairly flatish. So that's fairly good to back into the two thirds improvement on the final fourth quarter, but I guess holistically, if we think about third party forecast, I just have nearly 60% ED growth in the US this year.
I think it has above 60% EV growth in Europe for the calendar year. Your current quarter, kind of 40%, 41% on your growth, but is there any reason to think in the back half of the year that your at least your network systems, charging systems growth wouldn't be in that kind of range? v
to adjust the need for the loss by approximately two-thirds. It tells you we're thinking we're gonna have a pretty backup second half, right? So, I wouldn't express in percentage terms, but I would say, we're obviously looking forward to a very strong second half, which is frankly what we've done the last two years in a row.
We'll take our next question from Alex Potter with Piper Sandler. Perfect. Thanks. I had a question, I guess, on customer satisfaction of time, reliability, I know if he's been a big focus for the company of those metrics, maybe in the past, weren't where you would want them to be.
A lot of angles on the answer to that question. First of all, I can't speak for other charging manufacturers, but we're very proud of the reliability of our systems and the uptime. We've had...
Variety of different packages for parts in labor, warranty programs, since the beginning of the company. We've encouraged customers to purchase those programs. We have a very high attach rate of those programs as we've commented on that before.
All our chargers are connected to our network effectively. So we've good visibility as to general up time on the network and whether the chargers are in a catastrophic state of failure or not. There are a few mechanical failures we cannot spot, but we have drivers that have a nice little mobile app and they're pocket and boy will they tell us.
We now can turn around spare parts very, very, very quickly, next business day in most cases. That was not true during the pandemic. There was some delay there because obviously we were impacted. We were hand-to-mouth on inventory, so I think that hurt.
the entire industry in terms of repair cycle delay that is that is cited now. We have completely revamped our support operations across the board, driver support, station owner support, especially in fleet. We have a lot of new programs in fleet.
for parts and labor warranty, training of self-maintainers, forward stocking of spares, et cetera. So we think we're, uh,
actually in quite good shape with respect to our ability to handle that. We're not going to get overconfident. We're going to continue to watch it closely. And it is, as you've seen in my prepared remarks multiple times now, um, it is a big rotation. There was a question earlier that Rex took with respect to operating expense and operating expense.
focus areas and any focus area changes and what we've consistently said over the last several earnings calls is that we have lived inside what is a flatish envelope for operating expense but we are not living inside a flatish operating expense with respect to our efforts on reliability, support operations, etc.
So we are moving emphasis because we believe that that is the biggest differentiator you can have right now. It has to be reliable and we've commented also previously the construction of our products are not only from a hardware perspective looked at from a software perspective, but also from a software perspective.
point of view inward. So they're designed for all the features that we think are great, but they're also designed to be repaired at an incredibly rapid rate and also to be able to support forward stocking of spare parts so that there can be effectively a minimum number of
Our next question comes from Frias Patil with Wolf Research.
Hey, thanks so much for taking my question. You know, you guys have talked about how there is more diversity.
among your vertical, as it relates to your revenue. Is there anything to consider in that from a margin perspective? I think in the past you've talked about, the workplace charge of being a business being the strongest, fleet was a little weaker due to higher DC fast charging mix. Just curious how we should think about that. Thank you.
Yeah, so it's actually more product specific as opposed to vertical specific. But single family home is single family home, right? And that has a margin we talked about that. It tends to be...
Healthy, but not as strong as some of the pasty products that we put into our commercial and fleet operations. Strongest margins are long-standing AC products, which we've recently upgraded to higher power and based on other improvements. But so where AC goes, you get a better margin and that can be commercial or fleet. And then...
We actually had a really good progress because they're brand new products and then you've launched at a lower number than you also be expected to do. So I wouldn't say it's diverted, it's by products because all of our products, our products go into both of the major verticals commercial and fleet. So I hope that helps you, but it's so think of it more from a product perspective.
We'll take our next question from Brett Costelli with Morningstar.
Yeah, hi, thank you. Just following up actually on that previous question, Rex, you mentioned the rollout of the new CP 6000, I think on the AC side.
Can you just kind of talk about further the mix between that new product and the more legacy product that you're seeing today? And then also can you touch on any margin differences
the space that it's carved out for itself, so to speak, and Rex can address the margin question in particular. We brought out the 6K not to replace the 4K series. We brought it out as a high-end product. It...
It has a lot of things that obviously roll down over time into lower cost products, but it's the flagship currently and it also for applications where it's needed.
can provide more power per port, and that is not necessary in most medium duration parking scenarios. So it is not applicable necessarily to every single vertical alone. It may have other features.
that make it applicable to other verticals because it has features across the board that are superior to the 4K product.
without getting into too much detail on the mix, cause it's so vertical specific. What I will say is the fleet segment.
If it goes with an AC, more in a light commercial situation, is typically using the 6K or our more lightweight product for light commercial.
It is not typically using the 4K product although we do have some fleet scenarios that use that. So the uptick in fleet in particular, there's some correlation there. And the 6K is the primary product we use in Europe .
from the commentary that I made, the primary AC product, I should say, that we use in Europe . So the comments that I made regard to fleet in Europe's strengths and the corresponding strength in the 6K, those one pulls the other, right? The fleet and the Europe business are more 6K dependents than they are, 4K dependents. Rex, I'll let you take the margin question.
Yeah, so from a margin perspective, the 6K, as Pat said, is a premium product, higher performance, better features. Obviously, we're evolving the product portfolio in a positive way. It actually has similar margins in North America to the 4K. It's not all the way there yet.
But it's nice to be able to build a next-gen product and to preserve margin on that in the process. And then what's helping us in Europe , as you may recall, we on the AC side, because of local requirements, et cetera, we've had to leverage third-party hardware and now we don't have to do that anymore because the fixed-
Great, thanks. Good afternoon, everybody. Just two quick ones for me. First, I was hoping you could maybe comment roughly on what you're seeing on utilization of your chargers, particularly among commercial customers. I know not every customer is looking to maximize utilization per se, but I'm also curious what you're seeing there. And second, for Rex, just in terms of the inventory build in Q1…
team obviously sees utilization data as do our customers. It's a standard reporting feature in our network. And the utilization has to be measured in the context of the hours of operation at the site. I'll give you... So it's hard to comment on utilization and the network as a whole and have that be meaningful because in any subvertical the utilization...
is measured differently because it's measured during hours. And the easiest example to give you is a stadium. We have a lot of stadium customers. The stadium is only active when there's an event at that stadium.
measured on a utilization hour, you know, you know, stadiums have horrible ui
So, it all goes down to how you measure it. And utilization is very, very strong across the board. And if you want to see the best proxy for that, look at comments that we've made in the past about the rebuy rate. The rebuy rate tends to be...
the majority of the revenue within a quarter, because as Rex mentioned in an answer to one of his questions, the initial buy is smaller than you think it should be, and the following buys are bigger than you expect them to be. That's because the customers start out with some experimentation, especially in the commercial segment where it's more discretionary, and then they see the utilization and let that drive the expansion.plays Instead of Recovery, essentially
So because the rebuy rate is so strong, it's the best proxy you guys can use for is the utilization on the network, is it strong and is it growing? Yeah, and very quickly on the inventory working capital question. No question in Q1 our inventory popped up, you know, almost 50 million bucks.
In truth, that's actually a blessing, not a curse, because we went from a lot of long lead time items and a lot of stuff in raw materials to being able to kit things up and get some bills. And we have low obsolescence risk of these products. So getting through that and having a blend into the inventory of good finish goods that we can move.
if you look at like the size of the company, no question it's bigger than it needed to be in Q1, but those are the reasons because we're coming out of the supply chain issue. And then working capital generally, we bring inventory down as a relative to that, that'll help as the company grows. And so I actually think that that part of the picture will definitely improve later this year.
We'll take our next question from Joseph Osia with Guggenheim Partners.
Hi, thanks. I just have one question. We talked a little bit about heavy earlier. I'm wondering, given the timetable and the ambition of the carb advanced link leach rule, what your thoughts are about how that might begin to layer into your business. Thanks.
I mean, you saw the strength in the fleet business. And so, you know, also the fleet business is one of, is interesting. California obviously, you know, usually leads the way in the United States with respect to innovation in policy and incentives.
you saw the strength in the fleet business. And so, you know, also the fleet business is one of, is interesting. California obviously, you know, usually leads the way in the United States with respect to innovation and policy and incentives. But, because, you know, telecom business,
It's just good for business to electrify your fleet from a cost structure perspective. We're seeing a fleet business that's pretty pervasive across Europe and the United States and not necessarily hot-spotted just in California. And like any program, and this is very in line with the comments on NEVY, we're seeing
It doesn't hit you all at once. It tends to build. So it will contribute. It will contribute over time because it will drive vehicle electrification. But again, I don't expect it to drive a discontinuity. Remember you need the vehicles to be able to have demand for the charging infrastructure.
And that's the biggest variable there. You can have the incentive structure there, but it doesn't necessarily mean that the vehicles are going to follow in perfect order.
Thank you everyone. This concludes today's presentation. We appreciate your participation and you may now disconnect.
Thank you, everyone.