Q3 2024 ChargePoint Holdings Inc Earnings Call
[music].
Good afternoon, ladies and gentlemen at this time I would like to welcome everyone to the charge 0.3rd quarter of fiscal 2024 earnings conference call and webcast.
I'd now like to turn the call over to Mr. Patrick Tamar charged points, Vice President of capital markets and Investor Relations. Patrick. Please go ahead.
Good afternoon, and thank you for joining us on today's conference call to discuss chart <unk> third quarter fiscal 2024 earnings results.
This call is being webcast and can be accessed on the investors section of our website at investors <unk> charge point Dot Com with me on today's call are Rick Weller, our new President and Chief Executive Officer, and Marty you can Tony our interim Chief Financial Officer. This afternoon, we issued a press release announcing results for the quarter ended October three.
<unk> 2023, which can also be found on the investors section of our website at investors <unk> charge point Dot com.
We'd like to remind you that during the conference call management will be making forward looking statements.
These forward looking statements involve risks and uncertainties many of which are beyond our control and could cause actual results to differ materially from our expectations.
These forward looking statements apply as of today and we undertake no obligation to update these statements after the call.
For a more detailed description of certain factors that could cause actual results to differ please refer to our Form 10-Q filed with the SEC on September 11, 2023, and our earnings release, which was posted today on our website and was filed today 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 certain 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 website within the quarterly results section with that it's my pleasure to introduce our new President and CEO Rick Weller.
Thank you Patrick.
I'd like to begin this call by introducing myself my name is Rick Wilmar, and I have been CEO charge point since November 16.
I was the company's Chief operating officer for the 18 months prior to this so as I enter my new role I am quite familiar with the business.
<unk> previously served as CEO more than once and I can assure you that the responsibility is not new to me.
Since joining charge point I have introduced a number of key initiatives in the C O O capacity, including the following.
A more rigorous process for supplier qualification and management. This has led to millions of dollars in cost savings and improved supply assurance.
A revamp of the company's manufacturing strategy to optimize cost structure reduce tariffs and secure multiple sources for the manufacturing of every product we sell.
This multiple sourcing model includes new factories in southeast Asia, which should be fully online in 2024 at which point, we will begin to realize their benefits.
Of particular note I am rebuilding our entire after sales program.
This is to prioritize customer care insurer predictable deployment and to deliver exceptional support.
We're doing this in a manner that can scale for rapid growth, while improving response time, shortening total time to resolution and increasing the quality of service all without increasing our costs.
I am also leading charge points drive towards flawless network reliability. This is an important point to make as many consider a barrier to adoption.
It's a challenging problem, especially when it comes to physical station damage that operators cannot easily is taxed with remote monitoring.
At the core of this is our recently launched network Operation Center.
The Operation Center features $24 seven proactive station monitoring and predictive analytics to find anomalies before the station owners or drivers notice.
It leverages multiple sources of driver feedback, including our mobile App.
As to our drivers support line and social listening, all which enhanced the completeness of actionable insights.
This all drives uptime charge point defines uptime is the percentage of imports, which are capable of dispensing energy at any given moment.
We believe this is the most transparent reporting.
This metric in the industry and exactly what a customer driving up to our space you would expect it to me.
We launched the operation Center in August.
When the charge point network was at 96% uptime, and we have realized incremental improvement since then for an uptime that is currently at 90, 765%.
I share this increase to communicate our success, thus far but we are not stopping there we.
We will soon be integrating data sources that will account for physical damage where prevents a driver from charging we.
We previously could not detect this and it is critical towards delivering a comprehensive metric for reliability.
More importantly, it will deliver the experience that <unk> is expecting when they charge their EV.
It's more comprehensive dataset.
Initially lower our uptime, but from this new baseline we can continue on our quest for 99% plus reliability and ensure everybody who needs to charge can do so seamlessly.
These are just a few of the projects I have initiated to positively impact the business and I hope they illustrate my track record of results so far in charge point.
Now, let's move on to talk about the third quarter as we pre announced on November 16, the quarter was a disappointment for us and initiated some changes including my appointment.
While the quarter was nowhere near expectation the big picture still looks very good.
We have had challenges executing and this is with the new leadership team is here to fix.
We're firmly committed to being profitable on an adjusted EBITDA basis in Q4 of calendar 2024.
Our CFO Monty Kutani, who will give the results for Q3 in detail shortly.
Consistent with the preliminary results given on November 16th.
The top line figures.
As well as where things went wrong.
Our revenue for the quarter was $110 million non-GAAP gross margin was negative 18% due to a $42 million noncash impairment charge and we managed our operating expenses as forecasted at $81 million.
As we stated earlier.
This top line revenue figure fell short of our expectations. We attribute the majority of this to three factors.
First of all <unk>.
The arrival of many commercial fleet vehicles, there has been delay.
Or in other cases, these vehicles have been slow to ramp up production.
Recent data from the Bloomberg any ASP dropped the 2023 sales forecast for electric commercial and transit vehicles by 20%.
Our customers are eager to receive vehicles that they have order, but are not proceeding with investment in the infrastructure necessary to charge them.
Sure they have line of sight on vehicle delivery.
As examples we have a single customer waiting on more than 40 transit buses others waiting on 100 class six to eight commercial trucks and a third waiting on 500 vans. These begin to add up quickly.
The second factor impacting Q3 topline revenue can be summarized as a slowdown in commercial demand.
Find with supply chain normalization.
As we mentioned last quarter commercial charter demand has waned in the face of high interest rates and economic uncertainty.
How has this been impacted by supply chain normalization in simple terms. Our channel has moved back to model, where they are carrying lower levels of inventory and placing smaller restocking orders as needed.
<unk> impacted Q3, we are poised to quickly monetize any uptick in commercial demand with inventory ready to ship.
The third factor, which negatively impacted Q3 revenue was something we could not have predicted going into the quarter.
Hesitation related to the automotive labor disputes in the United States we.
We do considerable business with the auto Oems and their dealerships both of which were delayed due to the well publicized strike.
Regarding the $42 million noncash impairment charge.
Like to outline what it was taken for and how it differs from the impairment taken in Q2.
The impairment in the second quarter address the cost structure of a single first generation DC charter that product continues to sell and does so at margin.
The noncash impairment taken in the third quarter addresses execution issues related to multiple product transitions and better aligns inventory with current demand.
This was a deliberate action that cleaned the slate for the business moving forward we.
We did not execute these new product transitions, well and we have learned from our mistakes.
Two factors that were at the center of these transitional issues the.
The extreme supply chain shortages brought on by the Covid pandemic.
And the surge in demand we experienced from 2022 through the first half of 2023, leaving us with surplus inventory at the end of Q3.
These issues have been corrected with supply and demand better balanced.
To summarize we have balanced our future supply commitments to realign with current demand.
As the current product range.
We believe the noncash impairment charge, we took in the third quarter places us back on solid ground to build product.
As I have said at the beginning of the call. We have had some execution challenges that I began to fix the COO and will finish addressing as CEO.
Believe the noncash impairments taken this quarter are conservative and comprehensive.
We are now in.
An excellent position to monetize our current inventory.
Despite these issues there were quite a few bright spots in the third quarter.
Underlying strength in the business, that's shown itself via market share.
We boosted our balance sheet by $232 million and ended the quarter with $397 million cash on hand.
No debt maturities until 2028.
This combined with an undrawn $150 million revolving credit facility, placing us in an excellent cash position.
Sales of charge point home flex, our consumer home charging station.
We're up 45% sequentially for its best sales quarter ever.
<unk> has been the top selling charter on Amazon for 19 weeks in a row, we take this as a sign that passenger EV sales are not slowing down despite recent media coverage to the contrary.
I would also like to outline what was new from a product perspective in Q3.
We saw quite a bit of activity, we began to rollout. Our next cable solutions, which are compatible with Tesla vehicles on time and as first to market.
We released the largest update to our driver App in years, which went live as we reached 1 million quarterly active users. Our fleet software lineup has rounded out this form a unique suite of solutions and in preparation for the forthcoming transit vehicles, we have announced our pantograph charging system for municipal bus fleets.
Reverting to the products, we already have in the steel Q3 saw increased utilization pressure.
Energy dispense from our charterers went from 250 gigawatt hours in the second quarter to 304 gigawatt hours in the third quarter, an 18% increase in only three months.
Year over year that figure was more than 70%.
We believe this rapid increase in utilization will necessitate the customers scale their EV infrastructure soon on.
On the customer front, we signed another premium German sports car manufacturer for our in vehicle software to find use and pay for charging in future vehicles.
Lastly, I am extremely proud of the first location for the Mercedes Benz charging network in North America, which recently went online at Mercedes Benz USA headquarters in Metro Atlanta.
This is the fastest passenger vehicle charging solution in North America, Thanks to our powerful and flexible express plus D. C charging line, along with charge points full stack software solution.
This deployment represents the rollout of a phenomenal user experience enabled by charge point with capabilities no. Other company can match, including reservations plugging charge and many other features that make the charging experience impeccable and lastly, a few general statistics of note, we count <unk> 74 per.
<unk> of the Fortune 50, and 59% of the Fortune 500 as customers.
We finished the quarter with more than 274000 global active sports under management on the charge point network.
Of which approximately 22000 or DC fast Chargers, we now provide drivers with access to more than 567000 roaming ports worldwide.
Total of more than 841000 ports all of the ports statistics I Im reciting should leave you with the second clear takeaway our subscription business is growing rapidly and setting us up for long term success.
It is important for me to also gift sets, which means some things for the future of our planet are updated and environmental metrics.
We have enabled nearly 8 billion electric miles driven enough to drive around the world with 320000 times.
To look at it another way we estimate this is enough to power more than 245000 homes for an entire year.
Estimate this means over one 6 million metric tons of greenhouse gas emissions were reverted by Evs on our network to summarize my remarks on the business. Despite our top line numbers for Q3, we believe our product and go to market strategy are solid.
And that's the key to our success moving forward as the operational rigor with a laser focus on execution.
Our strategy is success in the near term will be validated by accomplishing our core objective of being adjusted EBITDA positive in the fourth quarter of next year.
We are managing our cash with extreme rigor and we are well capitalized to reach adjusted EBITDA positive we plan to treat our large inventory balance as that asset ready to ship and deploy faster than the competition.
I have mentioned product transition challenges of the past.
Good news is we have nearly completed the transition to our second generation product portfolio.
Which is a leading and comprehensive product lineup across both hardware and software.
We will continue to fine tune our strategy with a relentless focus on results through excellent execution.
<unk> the guidance, which I'm sure is top of mind for many of you we will not be giving Q4 guidance today.
As much as I would like to do so it would not be prudent given my limited tenure in this role.
And the factors our team is working to counter as we speak.
This decision implies nothing about Q4.
Rather it serves as a signal we are 100% focused on the job at hand, which is rapid recovery and excellent execution with that being said we.
Expect to provide top line guidance next quarter as well as outlined my strategy for the road to profitability I will conclude my remarks with a reminder of who we are what we do and the opportunity lying ahead of us.
We are a leader in this space and continue to grow.
We enable the entire ecosystem from software integrations and the new Evs themselves.
So the software, which will power entire networks for utilities municipalities and businesses, who serve EV drivers.
We win by building for those EV drivers not for a particular market or vertical.
It is the singular focus on the driver that shapes our strategy.
Our platform empowers companies to connect with drivers who need to charge. It allows those companies to extend and expand their relationships with their constituents being entirely new touch points.
So they can enhance their brand company loyalty or operational effectiveness. We are not just about charging an EV to get it back out on the road, but rather to enable the transition to E mobility.
This is not only to help decarbonize our planet.
Also create a new realm of possibilities for our customers to better serve their own customers.
Thank you all for listening.
I will now hand over the call to our CFO Muncie could Tony to review the financials. Thanks.
Thanks Jake.
A reminder, let me see.
Jeremy Let me reconcile our non-GAAP results to GAAP.
And recall that we continue to report revenue along three lines Nicholas charging system subscription and other.
Net with driving system, the first of our connected hardware.
And currently our cloud services connecting that hardware I shall I wondering Keith and Charles pointed this service offering where the bundled hardware software and warranty H into recurring subscription.
This consists of professional services and certain non Mackenzie revenue items.
So Q3 revenue was $110 million down 12% year on year and down 27% sequentially below our guidance range of $150 million to $165 million.
Nevertheless, charging system at $74 million with 67% of Q2 revenue down 24% on yet.
Subscription revenue at $31 million was 28% of total revenue up 41% on yet.
Other revenue of $6 million and 5% of total revenue was down 4% year on year.
Turning to <unk>.
You know, we reported vehicles by building, which approximates the revenues correct.
Q3 billings percentages were.
Commercial, 70%, sweet, 16% residential 13% and 1%.
Commercial slowed down, but do you sort of laid out earlier.
Fleet was 16% of bidding similar to last quarter.
We continue to ship against large programs like the U S Postal service.
But as Rick also mentioned then you can have antibody pushed out many of our larger trends.
Residential had its largest quarter ever in terms of units sold.
So our line of geographic mix North America made up 79% of Q2 revenue in Europe was at 21% consistent with Q2.
In the third quarter Youll have like $23 million in revenue growing 30% year on year.
The decreasing sequentially by 28%.
This decrease reflects reduced demand from commercial customized due to uncertain economic conditions.
This includes change in UK government mandates for electric vehicles as.
As well as restocking Andre Gaumond channel partners.
<unk> do you think they're high inventory of non charge point.
Turning to gross margin.
non-GAAP gross margin for Q3 was negative 18%.
This reflects a noncash impairment charge of 42 million.
Without that impairment charge non-GAAP gross margin would have been 20%.
This was just below our expected range, mainly due to absorption of fixed costs over fewer units sold in the quarter.
You wouldn't think of it in the range, we had guided to hedge revenue matched.
Yes.
non-GAAP operating expenses for Q3 were $81 million.
Year on year increase of 2% and a sequential decrease of 9%.
This reflects a partial quarter impact from the cost savings initiatives, we announced on September six.
We expect to see a continued reduction in operating expenses in Q4 and beyond.
Stock based compensation in Q3 was $33 million down from $75 million in Q2.
Q3, non-GAAP adjusted EBITDA loss with Big Impediments gross profit was $55 million.
This was 7% down year on year and higher than our expectations due to the revenue shortfall.
Our non-GAAP adjusted EBITDA loss inclusive of the noncash impairment was $97 million.
Built inventory during the quarter.
We finished the quarter with $199 million at inventory, which is net of the Q3 noncash impairment discussed earlier and up from $144 million at the end of Q2.
Of note about half of the impairment impacted the inventory line.
The other half which was related to commitments is reflected as a liability on the balance sheet.
We expect inventory to decline in the future as we have slowed down our ability to adjust for the current demand environment.
Our deferred revenue balance, which consists of payments towards future recurring subscription revenue from existing customer commitments was that $227 million.
Up from $220 million at the end of Q2.
Looking at cash we finished the quarter with $397 million of cash and cash equivalence.
This balance includes 232 million days July at.
At the market offering facility during the quarter at an average price of $4.37.
This was comprised of 175 million names with an institutional investor in connection with the amendment to our outstanding convertible notes as announced on October 11th and.
57 million in additional funds raised in the quarter.
Please just like the Westfalia filings available with the SEC, but a more complete description of the amendments to our convertible notes.
We have no further plans to access the aftermarket facility.
We believe we are fully funded to Angola for adjusted EBIT positive in the fourth quarter of Nextgen.
In addition to a cash balance of $150 million.
As a line of credit remains undrawn.
Our path to adjusted EBITDA positive in the fourth quarter of next year as you both modest revenue growth.
Modest margin expansion.
In addition, we will constantly evaluate ways to increase operating efficiency and improve our cost structure.
We had approximately 418 million shares outstanding as of October 31, 2023.
Thank you and we will now move on to Q&A.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
We ask that you limit yourself to one question. Please re queue again, if you desire to ask another question.
We'll pause for just a moment to compile any questions.
Again, if you'd like to ask a question. Please press star one on your telephone keypad now.
Our first question comes from the line of James West with Evercore ISI. Please go ahead.
Hey, good afternoon, Rick and royalties.
Hi, James.
Hey, Rick wanted to kind of dig it a little more on the slowdown in volume, particularly from what will be your fleet customers I recognize that the deliveries of the vehicles or caused the delay but at what point do they really have to go forward with the ability of the charging infrastructure.
It's clearly a gating item to use those vehicles if you will.
I think from our perspective.
We see it.
Desire.
The charging infrastructure, largely coincident with vehicle delivery, maybe a bit earlier than that.
We go to.
Allow them to optimize their capital investment both in vehicles and charging infrastructure such that one doesn't show up in front of the other.
Okay. In these in the infrastructure I'm, assuming these are customers that have already either placed purchase orders that haven't been delivered or you've already got extensive work with them. So the designs are done. So it's just a matter of delivering and installing equipment is that correct.
Generally correct yes.
Okay got it that's helpful. Thanks, guys.
Thanks James.
Our next question comes from the line of Colin Rusch with Oppenheimer and company. Please go ahead.
Thanks, So much guys could you talk a little bit about the timelines on utilization on the existing charters that are out in the field and then also how much cash you might be able to pull out of working capital here over the next couple of quarters as you optimize the balance sheet.
Sure I'll, let Marty take the working capital question, then I'll come back and address utilization.
Yes, I'll comment on the working capital front. Thank you.
We did invest.
In the inventory buildup, you can see from our balance sheet.
Over the next few quarters, we expect to bring that inventory down because we've already started working with our contract.
Contract manufacturers on that front so.
So overall in terms of general catheter working capital usage. This should trend down also a deferred revenue balance.
Which kind of brings out the SaaS component of our business significantly helps with working capital that's about it.
And in terms of utilization call on what we're seeing is an increase.
I think we've seen this from other data points in the industry as well.
And we are interested to see how this translates into a pickup in the commercial business because there is no question that.
Pressure is building on the commercial networks regarding utilization and thus the availability of courts for people to charge their reviews when they want to charge.
Okay I'll take the.
More detailed questions offline thanks, guys.
Our next question comes from the line of Bill Peterson with Jpmorgan. Please go ahead.
Yeah, Hi, thanks for taking my questions.
First of all I'd like to understand more I know you are not willing to provide <unk> guidance, but in terms of the visibility you see I'd like to try to understand what trends Youre seeing with channel partners I guess, specifically for commercial and fleet how much I guess, how much inventory is that your <unk> partners how much how.
How much did that vary between <unk> and D C SaaS, maybe newer and older products.
Trying to wonder is there any more destocking or is there any destocking that needs to occur.
And perhaps related like how orders trended quarter to date, maybe relative to prior quarters at the same period of time first month.
For the quarter.
Yes, Thanks, Phil Good question.
We're under the impression that channel inventory is largely normalized.
And while I hate to continue to use the excuse of the Covid pandemic. It's a real reason why we've experienced this.
During the Covid pandemic, we saw certain components that went into Chargers with two year lead times.
And.
The supply chain was driven hard due to those types of extended lead times, along with very strong demand last year into early this year.
That translated through to the channel our products were on lead time, So the channel bought ahead.
They ended up with inventory.
Our lead times for our components are largely back to normal and we are now shipping with very short lead time into the channel, which has allowed the channel inventory normalize.
Yeah.
Okay, very good and again I'll take mine offline as well.
Okay.
Our next question comes from the line of Craig Irwin with Roth <unk>. Please go ahead.
Hi, good evening and thanks for taking my questions.
So can you maybe update us on the head count exiting the quarter and.
What should we look forward to see the.
The current status on the planned $30 million in savings that you guys talked about.
And.
Is that something that is.
He is a firm target or is that something we can possibly see move around little bit as you've expressed a really clear commitment about EBITDA profitability by the end of 2000 and for calendar year.
I can tell you that Craig so in terms of head count exiting the quarter Youll get more details in our 10-Q, but we were a little over 1800 people.
That includes our Cogs and Opex head total heads.
Okay, what's the comfortable in terms of the savings targets.
Achieved the 30 million that we had talked about in Q2 in fact, if you look at our Q3 Opex number.
Then what that $30 million would indicate meaning thereby that we've actually been able to reduce cost a little bit boy, we're constantly looking at areas for improvement.
We're looking at facilities costs and external services consulting and what have you.
And we showed that in in Q3 by cutting more than the 30 million that we.
We had laid out and we will continue to do that as Nick mentioned and as I said in my prepared remarks is that we will continue to look at that that is one area that is in our control.
And we will.
Look at it constantly to make sure that we hit our EBITDA.
EBITDA positive already in Q4.
Thank you.
Our next question comes from the line of Chris <unk> with RBC capital markets. Please go ahead.
Yes. Thank you.
I wanted to go back to that last question.
And explore a little bit more I guess, maybe maybe just on the EBITDA target for the year and next year can you maybe talk a little bit more about the levers that you have to pull in order to hit hit that goal and then sort of maybe what kind of growth youre looking at for next year that to get you there. Thanks.
Yes, I can take that so yeah, we're not guiding specifically to revenue for next year, but as I said, we are expecting revenue to grow modestly while using conservative estimates on large programs that are expected to hit in the second half of next year.
I shall be across auto and fast charge segment, we're expecting continued delivery on the USPS contract and other large auto and transit contracts that we've already won.
We are being extremely cautious on the transactional and workplace business since that recovery will depend on economic conditions and the interest rate environment. Another indicator is the heavy business activity RFP activity and win rates that we're seeing so that kind of gives us confidence in the modest revenue growth.
And in the second half.
In terms of gross margin I think we will see improvement as well as the second source still Asia manufacturing as Rick alluded to.
And as we continue our cost on FY <unk>.
And lastly, we will be constantly monitoring and controlling opex and we'll continue to focus on efficiency.
A number of significant cost improvements we are evaluating and that is one thing that is definitely more in our control it.
Got it Okay, and then maybe just building on that on that comment around the Asia supply chain.
Is there any any way you could quantify that a bit more just kind of in terms of.
What kind of I guess margin uplift that might provide and how that supply chain differs from from what you all have right now thank you.
Yes today.
The supply chain, we've largely have each of our products built by one manufacturing partner.
So we have not had a position of competitive tension regarding our manufacturing services, we've changed that and this is what the Asia manufacturing footprint brings to the table has every product in our portfolio builds.
And more than one location by two different partners that allows us to.
Put them in competitive tension against product cost, obviously, which is a major priority along with on time delivery and quality.
Got it thank you.
Our next question comes from the line of Stephen <unk> with Stifel. Please go ahead.
Thanks, Good afternoon everybody.
I guess two for me one might be a little although my ear, but I'm kind of curious where you're talking about network reliability and charge your uptime.
The factors that create downtime like is it the quality of the of the charger is it lack of maintenance is it abuse from customers is at all I had.
What it actually is it.
And how do you what are the steps to kind of improve that really.
Great question Stefan Thanks.
It all starts with the reliability and durability of the hardware and we invest a lot of energy and money in building very reliable very durable hardware.
That by no means is the entire solution to the problem.
The next step is to get the hardware installed correctly and this is a major area of focus for us going forward into the future. This is an area of investment for US and this is surrounding training the electricians of the regions, we do business in to work with charging infrastructure correctly.
If it's built correctly and it's designed to be reliable and durable, but if it's if it's installed incorrectly youre going to end up with failure modes that we're going to prevent EV drivers from charging.
The third piece of this.
Relates to physical damage. These are products that are technically complex there are out in the wild everywhere from the far northern reaches where they go well below zero to the deserts.
They get way over 100 degrees Fahrenheit and Theyre expected to last for a decade or longer.
And in those environments. In addition to being outdoors. They are also subject to physical damage. It's shameful, but we see vandalism, we see people backing into Chargers, we see people running overcharge are handles.
And a lot of that physical damage is difficult.
Detect through a remote monitoring technology, which is what I alluded to in my opening comments regarding our network Operation Center enhancements, where we're now going to be crowd sourcing a lot of additional data sources that observed chargers that are down such that we can action knows so to summarize if you build reliable heart.
Where it's installed correctly and you were able to react to problems that occur that are largely out of our control because it's mostly physical damage, we're going to have a very reliable network.
Got it great. Thank you and then.
Yes.
The other one for me.
I know you've touched on this a bit but as we think about that.
So not passed to the EBITDA positive target.
What what should we be watching every quarter I mean is it just as simple as controlling the cost of getting your volumes off like you need a certain volume level to get there.
Is there any more color you could add.
To those pieces of the puzzle.
So as Rick mentioned, we'll give you more color to our path to profitability in Q.
Q4 call our next call, but what I can say at this point is with a modest revenue growth and.
Slower increase in margin.
<unk> each quarter.
We can get there of course, the final lever would be operating expenses.
Okay, great. Thank you both for the color.
Yes.
Our next question comes from the line of Joseph Osha with Guggenheim. Please go ahead.
Oh, hi, there. Thank you.
Understanding that you might not be able to comment in detail I'm wondering if.
Your review of the business might include looking at some of the segments that you're in.
Perhaps emphasizing more and perhaps may be reducing focus on some other other business segments as that one possible outcome of the work Youre doing.
Good question. Thank you for that.
My assessment at the moment is dead.
Our current go to market and product strategy is solid.
Ill give credit to our CEO prior CEO Pascal <unk> Romano he did a great job was the visionary in this industry.
I'm Lucky to have adopted such a well thought out insightful products and go to market strategy.
Obviously fine tune as market conditions change and demand shifts between vertical markets, but largely we're going to be focused on executing that strategy that exists.
Yeah.
Okay, and then one for months just listening to what you guys have talked about today in terms of sort.
Some modest revenue growth and getting to EBITDA breakeven.
So simple math suggests that <unk> got a heck of a gross margin.
Expansion built in there or be that youre going to take a pretty substantial bite out of opex, even from the current run rate am I correct in assuming that.
One of those levers has to move a lot in order to get to this EBITDA breakeven target youre talking about.
Joe and I can say at this point is stay tuned.
We will be ready to provide more details at our at our next call. So he can provide additional T J.
I understand thank you.
Our next question comes from the line of Cameron Lochridge with Bank of America. Please go ahead.
Hey team. Thank you guys for.
Taking my question here.
So I just kind of wanted to go back and talk about some of these.
Larger.
Macro topics that are kind of delaying orders for you guys commercial fleet deliveries you mentioned commercial demand.
Some of these auto labor disputes I guess really my question is what kind of line of sight do you guys have into some of these.
[noise] issues that are admittedly out of your your hands.
We're solving themselves.
And really the question ties back to hear you guys.
Suggesting modest revenue growth next year. So we're just trying to get a sense of kind of what's informing that.
If you could just give us some color there would be helpful.
Procurement, we're always working to get better line of sight onto all of those factors I think in the fleet side, it's easier to get line of sight on fleet vehicle delivery.
But in the past.
Commitments have changed as people realize how hard it is to build electric vehicles at least in the early days. So we keep a very close eye on how any of those delivery commitments of vehicles change on.
On the commercial side I would say that's more.
Bit more difficult to understand I think what we are facing there is an uncertain economic future.
In the face of high interest rates with many believing we could have a nice soft landing at others, believing a recession is coming I think.
The CFO is in the commercial space view charging as something that is.
Not mandatory.
And they are being conservative with their cash and waiting for some of this economic uncertainty to clear up before they start to succumb to the increase utilization pressure, we're seeing on <unk>, that's clearly happening out there.
Got it. Thank you and then just just in terms of the what's kind of giving you guys. The.
The line of sight into modest revenue growth.
Any comments there next year.
Yes, so like I said before.
Think of it as estimates and our large programs that either we've already won or we have line of sight into for the latter part of next year. This includes.
Yeah. This is with the auto Oems and faster which segments.
We will continue to have any on the USPS contract as I mentioned there are some.
Large auto and transit contracts that we've won.
And he started executing on so those are the things that you know.
Whatever it is already funded and we have visibility into what that's what im taking into my model right now.
Extremely cautious on the transactional side of things because we'll have to see how the macro plays out.
Perfect. Thank you guys very much.
Our next question comes from the line of Chris Pierce with Needham <unk> Company. Please go ahead.
Hey, I was wondering if you can comment on competition within level two charging and.
You know with Tesla kind of coming down towards level, two and then level three seems to get a lot of the air play within the industry.
Is it potentially they can see that your potentially your customers are holding off on level two of preference and level three and that's kind of.
Putting you at a disadvantage or.
Is that kind of not the right way to think about it just the competition in level, two and the interplay between level two and level three.
So I don't think Theres, a tradeoff between the two I think level two and level three fit.
Fit into a customer situation, depending on their use case and the needs.
But they have so I don't think theres, one stealing from the other.
Level two.
Home, we obviously saw a record quarter as we reported.
When it comes to workplace. This is what we alluded to earlier where.
Commercial in general not just workplace I think we're seeing this viewed as a discretionary purchase.
And the CFO of the world are being cautious with discretionary purchasing.
But we also see pressure building with the increased utilization as we mentioned earlier.
Okay, and then just if I understand it correctly.
On the last two quarters, you've taken the inventory charges, but without speaking to revenue margins in the fourth quarter and beyond it should kind of revert back to where they were in the last fiscal year like what's the right way to think about or will there be a little bit of a hangover until you burn through inventory, where it make sure it kind of some guidance and modeling margins maybe.
Yes.
We're not giving guidance Joe Q4, gross margin, but I can tell you what I'm thinking right now I think Q4 margins come back in line to the.
Normalized Q3 margins, obviously, it may be slightly up or down depending on where the final mix.
And then next year I think we will start seeing an improvement from Q4 based on the.
The Asia manufacturing strategy. The fact that this impairment has already been taken and so on if I pass extremely clean now so we should see fewer what do you do that into the other thing should have margins into next year.
Okay. Thank you.
Our next question comes from the line of Robert Jameson with UBS. Please go ahead.
My question's just have a few here so first.
Your deep and broad customer base I'm, just curious are you at.
Like with the conservatism from the CFO or are you seeing any kind of headwinds or pressure from like the site preparation side, where maybe the initial installments werent as costly and now it's becoming a little bit harder to install is that anything that's maybe been pressuring demand.
No I haven't seen any pullback there, but I think in.
Commercial obviously, the total cost of ownership, which includes not only the charges, but the installation is.
It's something that's being considered.
The financial decision makers in the commercial space.
Okay, and then just from the comments that you all are shared and I. Appreciate the color just curious I mean.
Is your topline, becoming a little bit more correlated to near term deliveries and kind of what I bought a digestion. That's the commentary, yes, and if that's the case do you expect this is like a near term kind of headwind and then longer term. Obviously the trends are still positive from a growth standpoint, but just curious any thoughts there.
Yeah.
Talk about this before we've had linearity.
Issue a majority of the shipments in the quarter happened within the last two weeks.
And it's not that much transactional but at that point in time.
For example on the fleet side.
Based on our customers wanted to push out delivery. It gets pushed out in the literally the last week and so to that extent, we do get a little blindsided, even though these are contracts that we've already won.
We are.
On a mission to fix that and.
Totally.
Realize that having a more media business will make.
Meg I liked it a lot easier we will be able to.
Forecast more efficiencies will be able to plan our location strategy and are in a better way. So it's more it's more of that back end loaded.
What kind of structure.
Our shipments that's causing more of the.
Uncertainty, which we are.
Okay.
No that helps them sorry, just one last one if I can squeeze it in just conceptually when youre thinking about and I'm not asking for guidance here, but when you're talking about like the opex cuts it you're going to have to make next year.
How do you think about balancing in a high growth market.
Obviously, your sales and marketing staff and conserving talent and keeping employees happy like how do you think about balancing those items as you move forward. When you are going to be making some of these cuts.
Yeah.
Again, we will give you a lot more color in the next call, but that is definitely.
Top of mind, we need to balance a lot of things why we may be these kind of decisions we had to do the same thing.
In September.
And so you know this.
This is top of mind, we're all evaluating all the nuances of every action.
We have other levers like facilities costs like external spend.
Prioritizing.
Our R&D.
Hello, it's prioritizing our sales and marketing.
Investments in areas, where we see revenue today et cetera, et cetera, so not a significant lot of efficiency improvement.
He evaluating but we will be able to give you more color at our next call.
Gotcha. Thank you so much.
Our next question comes from the line of <unk> <unk> with Wolfe Research. Please go ahead.
Hey, Thanks, a lot for taking my question I appreciate the transparency.
I guess just on this issue of reliability of the charges I mean, how are you addressing that.
The reality that you don't own and operate the network.
So you are having to ultimately either absorb cost of repair yourself.
Or you have to try and encourage the station owners to do that.
Either that has to be done through some kind of.
Payment is there is.
Some model that you have to use to get them to do that.
Just trying to understand how you could actually address.
Some of the reliability issues.
As a result, so in terms of covering a station that.
This.
Subject to a problem after it's been energized and is charged vehicles.
Have a very rich suite of aftermarket service offerings to cover that for our customers.
And it all depends on their specific use case.
With respect to the service level that we can provide.
So that's that.
Pay for that as part of our.
Services and support line on our P&L and that's a part of our recurring revenue.
That allows our customers to have peace of mind that their stations are going to be repaired and issues resolved quickly, but it also allows us to afford to do that for them.
Okay.
And maybe just on the.
On the material cost side.
I think we had heard from prior management repeatedly about how new product introductions, we're going to result in significant cost reduction initiatives.
Significant cost reduction opportunities.
We've sort of.
It doesn't seem to be actually happening I mean, the numbers don't seem to suggest that there has been material cost savings and I'm trying to understand how to frame the kind of magnitude of savings you could realize from either this new supply chain strategy or.
The new product introductions that you talked about that have flowed through.
I can assure you they're worth pursuing.
Part of the timing on this is related to our inventory position.
We need to work through that inventory and not only that we have on hand, but it's in the supply chain.
Before we can enjoy lower costs on both piece parts themselves as well as the manufacturing value add that we are charged by our manufacturing partners. This is why we've indicated that by the time, we get to the end of 2024, we will.
Be very cost optimized around product costs.
Yes.
Okay alright, thank you.
Our next question comes from the line of Steven Fox with Fox Advisors LLC. Please go ahead.
Hi, Thanks for taking my question I guess.
I had two clarifications one on the manufacturing strategy would you say that.
Theres still in House final Assembly that the company is doing.
That they could also look at to reduce fixed costs and then secondly on.
On the gross margins I know, you're not talking specifically, but I would imagine there is a benefit to gross margins as you flow through some low or no cost written down inventory through the income statement in coming quarters is that a reasonable assumption.
So let me take the first half of that Stephen.
In terms of in House Assembly, we do very little of that.
One core tenant of our product design principle is around the concept of modularity.
This is very important for inventory and working capital management essentially what that means is.
Even though we have a myriad of configurations that a customer can order.
For example, you can have different lengths of cables you can have Max connectors, you can have all kinds of different configurations and the product itself. We do all of that in a very modular way, which allows us to stock relatively generic inventory, which helped us keep our inventory position down and our working capital.
I'll, let Marty take the second half of that question, Yeah with respect to the inventory impairment piece and the impact on margin. So the Q3 impairment.
It was related to product transitions, so we impaired.
Slow moving product.
Now that we are not actively selling today, so that while there is no <unk>.
And in fact from sell through of that product.
What it does have a where it does has margin is the mckean variances that we would be taking slowly over time as we find ourselves dealing with slow moving inventory write off a little caution that pie.
Is taken care of because we've taken all of that upfront so to that extent there will be some impact of some benefits to margin, but in terms of the actual reduction in Cogs.
We now have comprises of the newer product the next gen product and excellent value.
Thank you very much that's helpful.
Our final question comes from the line of Brett Castelli with Morningstar. Please go ahead.
Yeah.
Hi, Thank you just sticking with that last question around new products I, just wanted to confirm that Theres no new.
I'll call it large new products either on the <unk>.
For the D C side.
That youre planning on rolling out over the next 12 to 18 months I just want to confirm that that's largely.
That's behind US at this point at least in there Brett we have one product transition plan for late 2024, and another one planned for mid 2025.
Those will be the next two coming up and we have definitely learned from our lessons and we will make sure that we.
Optimize the bleed out of the inventory on the products that those new products will be replacing.
Okay and is that on the AC or DC side Rick.
No I'm not going to go into any pre product announcements here I can tell you that both awesome products, though.
Yes.
Fair enough I'll leave it there thank you.
Alright, I would now like to close the call.
Okay.
Oh pardon me I'd now like to turn the call over to Rick warmer for closing remarks.
Alright. Thank you before we close I'd, just like to thank our shareholders customers and employees.
Your continued support thank you very much for your time.
I'd like to thank Guy.
For today's presentation.
Thank you all for joining US you may now disconnect.
Yeah.
Okay.
Joining us you may now disconnect.