Greetings. Welcome to the Blink Charging Co. Third Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note that this conference is being recorded. I will now turn the conference over to your host, Vitalie Stelea, VP of Investor Relations. You may begin.

Thank you, Kelly. Welcome to Blink's third quarter 2023 earnings call. On the line today, we have Brendan Jones, President and CEO; and Michael Rama, Chief Financial Officer. The discussions today will include non-GAAP references. These are reconciled to the most comparable U.S. GAAP measures in the appendix of our earnings deck. You may find the deck along with the rest of our earnings materials and other important content on Blink's Investor Relations website. Today's discussions may also include forward-looking statements about our expectations. Actual results may be different from those stated, and the most significant factors that could cause actual results to differ are included on Page 2 of the third quarter 2023 earnings deck. Unless otherwise noted, all comparisons are year-over-year. Now, regarding the Investor Relations calendar: Blink will attend the UBS Industrials Summit on the 29th of November in Palm Beach, Florida; and Needham 26th Annual Growth Conference on the 16th of January of 2024. Please follow our announcements for additional investor events in the future. I will now turn the call over to Brendan Jones, President and CEO of Blink Charging. Brendan, please go ahead.

Thanks, Vitalie, and good afternoon, everyone. Thanks for joining us today. We're going to just jump right into the presentation. So, our third quarter performance surpassed our second quarter results to take over the title of the best quarter in the history of Blink. Now, let's put that in the context. The third quarter 2023 consolidated revenue increased more than 150% to $43.4 million as compared to $17.2 million in the third quarter of 2022. Now, this was driven by increased demand for both our products and services as well as Blink's ability to cater to our customers' needs and timelines. We also wanted to note that in the first nine months, Blink has already generated $98 million in revenue, putting us significantly ahead of our full-year 2022 revenue, which was $61.1 million. And we still have another quarter of revenues yet to get to. So, these are quite impressive results. And we actually significantly beat a quarter that was our best quarter in history. So, great job to the team. Now, when we shift and look at our service revenue, they increased by 119% to $6.7 million, charging service revenue increased 207% to $3.9 million compared to $1.3 million in the third quarter of 2022. Now that represents a $2.6 million increase in charging revenue at a 62% gross margin. We also recorded a 36% increase in network fees to $2 million for the quarter. Our network fees are recurring by nature and represent a reliable high-margin revenue stream as we continue to build the foundation for our continued growth. Blink company-wide margin in the third quarter of 2023 was 29.5% or $12.8 million. On a year-over-year basis and in absolute dollar terms, this represents an increase of $8.3 million in gross profit in Q3. This gross margin and profit increase demonstrates our success in increasing service revenues, managing our manufacturing costs and expenses, and of course, selling more chargers. Scaling our business is key to unlocking further margin expansion as we move forward. Now, we contracted, sold, or deployed 5,965 chargers globally in the third quarter. Notably, we are seeing a long-term trend with increased sales of our DC Fast Chargers as they grow to a larger proportion of our revenue mix. To give you some additional context around that, Blink chargers dispersed approximately 16.2 gigawatts of energy across all Blink's networks globally. Now, as a reminder, when we look at the Blink network, gigawatts dispersed via Blink's own and operated network model comes at a lower cost versus our competitors due to the predominant L2 nature of these installations, which requires significantly lower CapEx investment and the operating expense is greatly reduced as well. To date, in 2023, we have two record-breaking quarters with Q3 2023 representing Blink's strongest revenue quarter in the history of the company. Last quarter, we used the word "momentum" to describe our tremendous progress in 2023, and that description of our business trajectory remains on point. As we move through the close of this year, we are focused on increasing that momentum and the pace we've gathered to drive our continued growth and financial progress. Now, let's jump over to Slide 5. You will see on Slide 5 that we are increasing our revenue target for the end of the year. We are now targeting revenue between $128 million and $133 million versus our previous target of $110 million to $120 million. This new target is based on our current marketplace visibility, our pipeline, and our backlog of sales. Additionally, we would like to reiterate our full 2023 gross margin target of 30%-plus with some expected margin accretion into 2024. If we jump over to Slide 6 now, with our second consecutive quarter of record results, we are reconfirming our commitment to targeting a positive adjusted EBITDA run rate by December 2024. We believe our achievements this quarter directly reflect the success of synergies, the vertical integration we've been doing, proactive cost-saving actions, comprehensive product portfolio, and positive trends in our revenue backlog. Importantly, these factors will continue to provide us with tailwinds as we go into 2024. On Slide 7, we are able to scale our revenue and achieve higher gross margin because Blink is the only fully-integrated, U.S.-based, full-service EV infrastructure provider, and we've said this many, many times. As such, we design and manufacture our charging equipment and we manage our own network. This allows us to provide a full suite of capabilities to customers who want to either own their own chargers and subscribe to our network or to site hosts that want us to own and operate the chargers on their land, and hybrids in between that with our hybrid model. Our ability to provide flexible models is a unique component of our business and it provides us with a competitive advantage over other companies. On Blink's network, we upgraded it last year, and that upgrade continues to drive growth for the company. In the third quarter, we saw a lower maintenance requirement and lower ongoing cost when compared to legacy networks and other competing networks that are more fragmented. During the last couple of months of 2023, we will continue to integrate the remaining networks in the UK and Europe, generating additional operating savings as we move through 2024. Our record quarter is evident that our business model and our disciplined plan to achieve continuous improvement are working. We employ what we call a holistic approach to executing our growth initiative by combining market analysis with a careful evaluation of industry data and EV charging trends to identify our path forward as we drive towards profitability. Next on Slide 8, you can see the long-term forecasted growth for electric vehicles and EV chargers globally. As we stated before, we believe that the charging landscape is tremendously underserved. It is anticipated that there will be a need for up to 490 million chargers by 2040 globally, representing growth over 30 times the current level today. Blink has the team and technology to play a significant role in leading this expansion and gaining our fair share of the market, or unfair share, I should say. If you move now to Slide 9, we provide some context here around the significant opportunity of the ongoing transition to EVs globally. Through September of 2023, EVs grew to 8% of new car sales sold in the United States. In California, 22% of all new cars were EVs, with Washington and Oregon trailing behind that. In October, the percentage of new vehicle shoppers very likely to consider a full battery electric vehicle reached an all-time high of 29.2%. Now, on a worldwide basis, consumers spent approximately $400 billion on EVs in 2022. There are over 40 EV models available in the U.S. currently, with 75 more coming to the market between 2024 and 2030. The United States alone is expected to add 1 million new EVs to its road by the end of this year and, thus far, they're on target. And many fleets prefer EVs over internal combustion engines because they save about 30% on the total cost of ownership. Globally, and this is a big number here, OEMs committed to over $600 billion in total EV investments from 2023 to 2027, with most of those investments made five years in advance of production. So, despite various industry reports, we expect the EV market to continue to grow and we view competition as a positive catalyst for EV consumers in the U.S. and globally. It's simple, the more EVs that are produced and deployed, the cheaper they become to own and operate, significantly benefiting Blink and the entire EV infrastructure market. Moving on now to Slide 10, charger installations are projected to grow to over 30 million chargers by 2030 and to over 90 million chargers by 2040, equating to approximately $100 billion investment by 2040. It's also important to note that the 30 million number is based on a 35% EV penetration rate. Especially notable, according to McKinsey, PricewaterhouseCoopers, and Bloomberg New Energy Finance, over 90% of new chargers are forecasted to be Level 2 chargers, creating another immense opportunity for Blink. And to remind you, Blink can provide and support both CCS and NACS charging standards. Tesla customers are already our largest segment by brand for L2 charging, and we see the transition to NACS as an opportunity to expand our addressable market for DC fast charging significantly. You can see on Slide 11 that DC Fast Chargers continue to be a growing part of our business, with 1,435 DC Fast Chargers contracted and sold in the first nine months of 2023. Approximately $27 million in revenue so far this year can be attributed to DC Fast Charger sales. Now, while we expect that L2 chargers will continue to represent the majority of our installed chargers in the near term, we are pleased to see the growth in DC Fast Charger sales. On Slide 12, you can see our innovative product portfolio which has advanced and flexible solutions for both Level 2 charging and high-powered DC fast charging. The variety of products we offer appeals to a broad and diverse range of customers, ensuring that we are prepared for the global increase in EV demand. On Slide 13, in the third quarter, Blink contracted, sold, deployed, or acquired 5,956 chargers both domestically and internationally, bringing the total charger count for the company to nearly 85,000 chargers since Blink's inception. Now, as we've said, we're giving you these percentages. So right now, 78% of the company-wide number is attributed to North America, and 22% is to international locations, predominantly in Europe, England, Ireland, the Netherlands, Belgium, and several others. Slide 14 shows a representative group of our customer base, including many recognizable names across commercial entities, multifamily complexes, planned communities, healthcare facilities, fleets, and municipalities around the world. Now, just to name a couple, during the quarter, we were pleased to announce partnerships with Royal Farms convenience stores, Parkopedia, a leading global connected car and parking service provider, and with Arcos Dorados, the largest independent McDonald's franchise in the world. We also increased our geographic density by adding our first chargers in El Salvador and in Puerto Rico. So, with this and a lot of data we provided, I will now pass the presentation on to Michael Rama, our CFO.

Thank you, Brendan, and good afternoon, everyone. Now turning to Slide 16, total revenue in the third quarter of 2023 grew 152% year-over-year to $43.4 million. In the nine months ended September 30, 2023, total revenue increased 154% to $97.9 million. Product sales in the third quarter of 2023 were $35.1 million, reflecting a 162% increase over the same period in 2022. For the nine months ended September 30, 2023, product sales reached $76 million, up 151% compared to the same timeframe in 2022. This growth is attributed to customers buying larger volumes of our commercial L2 and DC Fast Chargers. Service revenues for the third quarter of 2023, which includes charging service revenues, network fees, and car-sharing revenues, amounted to $6.7 million, marking a 119% increase compared to the third quarter of 2022. In the nine months ended September 30, 2023, service revenues were $18.5 million, an increase of 171%. This year-over-year growth was mainly driven by higher usage of our chargers both in the U.S. and internationally, a greater number of chargers on Blink networks, and revenues from the Blink Mobility car-sharing program. Gross profit for the third quarter of 2023 was around $12.8 million, up 167% or $8.3 million compared to the same time last year. As a percentage of revenue, gross margin was 29.5% in Q3 2023 compared to 27.7% in the same period last year. For the nine months ended September 30, 2023, gross profit was about $29.6 million, a 256% increase or $21.3 million over the same period last year. Gross margin as a percentage of revenue for this period was 30.3%, up from 21.6% in the prior year. As Brendan mentioned earlier, our strategy of vertical integration and manufacturing insourcing, along with cost avoidance and optimization efforts, have played a significant role in driving our gross profit and margins higher, and we anticipate that this will continue. Operating expenses for the third quarter of 2023 were $123.5 million compared to $29.3 million in the prior year. For the nine months ended September 30, 2023, operating expenses were $211.2 million, an increase from $69.8 million in the same period last year. The elevated operating expenses in Q3 2023 included a non-cash goodwill and intangible asset impairment charge of $94.2 million due to a quantitative impairment analysis indicating that the fair value of all reporting units was less than their carrying amount. It is crucial to note that these impairment charges are non-cash and do not impact our business operations in any way. Excluding these charges, our operating expenses for the third quarter of 2023 remained flat year-over-year at $29.3 million, which also includes $1 million of acquisition expenses related to the Envoy acquisition. In contrast, we increased our Q3 revenue by $26 million year-over-year, achieving a 152% revenue increase while keeping operating expenses stable. This was accomplished through synergies and ongoing improvements aimed at boosting revenue and optimizing costs. Adjusted EBITDA for the third quarter of 2023 showed a loss of $11.7 million, an improvement from a loss of $17.6 million in the previous year. Sequentially, adjusted EBITDA in Q3 2023 improved by $1.8 million compared to the prior quarter. As a percentage of sales, our Q3 adjusted EBITDA improved by 1,700 basis points year-over-year. We anticipate this trend to continue as we increase volume and gross profit while realizing additional savings from our continuous improvement plan discussed by Brendan. For the nine months ended September 30, 2023, adjusted EBITDA was a loss of $43 million, down from a loss of $45.6 million in the same period last year. The adjusted EBITDA figures for both the three and nine months ended September 30, 2023, exclude the effects of stock-based compensation, acquisition-related costs, one-time non-recurring expenses, non-cash impairment charges, and a non-cash loss related to the extinguishment of note payable. Earnings per share for the third quarter of 2023 was a loss of $1.74 per diluted share, compared to a loss of $0.51 per diluted share in the prior-year period. For the nine months ended September 30, 2023, earnings per share was a loss of $3.02 per share, compared to a loss of $1.39 per share in the same period last year. Please note that the impact of non-cash accounting adjustments to our goodwill and intangible assets negatively affected earnings per share by $1.54 for Q3 and year-to-date. Adjusted earnings per share for the third quarter of 2023 was a loss of $0.16 per share compared to a loss of $0.47 per diluted share in the previous year. For the nine months ended September 30, 2023, the adjusted earnings per share was a loss of $1.15 per share compared to a loss of $1.23 per share in the prior-year period. Non-GAAP adjusted earnings per share is calculated as adjusted net income, excluding the impact of stock-based compensation, acquisition-related costs, one-time non-recurring expenses, non-cash impairment charges, and the non-cash loss on the extinguishment of note payable, divided by the weighted shares outstanding. Now turning to Slide 17, you can see that in Q3, we're continuing the trend we observed in Q2 of increased gross profit compared to our historical results. This is mainly due to the high demand for our chargers, our ability to meet that demand, and increased utilization. Our strategy to enhance in-house manufacturing is improving margins, and we expect ongoing benefits from this approach in the long term. We concluded the third quarter with cash and cash equivalents totaling $66.7 million. Our cash burn in the third quarter was $17 million, which represents a significant improvement compared to Q1 2023 at $28 million and Q2 2023 at $47 million. We have opportunities to strengthen our balance sheet as we move forward, with an outstanding ATM of $230 million, and we are exploring other avenues. Our objective has been to showcase Blink's strong operating results and potential for profit generation while considering additional shareholder-friendly funding options. Our management team is dedicated to maintaining sustained profitability and achieving a positive adjusted EBITDA run rate by December 2024 through revenue growth, gross margin expansion, cost savings, and process streamlining to promote a culture of continuous improvement. This second consecutive quarter of record results clearly demonstrates the effectiveness of our financial and operational strategy. Now, I'd like to turn the call back over to Brendan for a few final comments. Go ahead, Brendan.

Thanks, Michael. We are thrilled to have delivered our second consecutive quarter of absolutely record-breaking revenue growth. We had to push the team to think outside of the box while adopting a methodical and consistent approach to reducing operating expenses. Given our performance to date and the visibility we have, we've raised our revenue target for the full year to $128 million to $133 million, and we have reiterated our goal of targeting positive adjusted EBITDA by December 2024. We are very proud of this team and the effort this past quarter. But we are excited even more about what the future holds for Blink as we continue to focus on fundamentals and remain committed to delivering discipline and continuous improvement as we charge towards profitability and breakeven in December of 2024. So with that, I believe we are now open and ready for questions, so we'll turn it over to the operator.

Certainly. At this time, we will be conducting a question-and-answer session. Your first question is coming from Robert Jamieson with UBS. Please pose your question. Your line is live.

Hey, guys, congrats on a great quarter. Really nice to see the revenue growth. I guess just to focus a little bit on gross margin, just given the strength in product sales, obviously charging revenue is solid as well, but just kind of want to talk about the gross margin profile between your Level 2s and DCFCs. Has this become a larger portion? I mean, how should we think about that going forward?

Yeah, it's a good question. So, when we break out the two, of course, on our L2 in our Series line, we have very, very robust gross profit on a new unit retailed. DC Fast Charger, on an aggregate level, lags behind. And what we are doing and we began doing this month and actually the previous quarter is we started to introduce Blink built and manufactured DC Fast Chargers. The first was our Series 9 charger, which is a 30 to 40 kilowatt charger, mostly fleet and dealerships, but it's the number one seller we have. We've improved the gross margin on that product and we expect to see as we sell more of those in the balance of this year and next year. And as we previously announced, we're working on our own 240 DC Fast Charger, which will be a silicon carbide model. That will either be 100% manufactured at Blink or manufactured through a contract manufacturer where our gross profit margin hits our targets, and we're finalizing those plans. So, each step of the way we're looking at the portfolio and we're saying, "Here are margin targets. Let's make sure we balance the portfolio on both DC Fast Chargers and L2s to get to the aggregate target." And so far, so good, but we have more work to do on that, and we've already laid the groundwork to achieving all those goals.

Are there areas where you can continue to manage your operating expenses? I know you have ongoing initiatives to consolidate some of your redundant systems and transition to the Blink network. I'm curious, as we look through the rest of this year and into 2024, what will primarily drive the improvements? Are there any other factors we should consider as we look ahead to next year?

Yes, initially, we expect some savings to start appearing in Q4, primarily coming from our network improvements. In Q1 of next year, we will focus on integrating systems for back office functions, including NetSuite and Salesforce, transitioning from a country-specific approach to a global one. Additionally, we plan to implement more ancillary software applications that will decrease our reliance on human resources across the board. It's important to note that our strategy is not based on a single approach; we have multiple strategies in place. To develop our EBITDA targets, we engaged a major consulting firm to conduct a thorough analysis of our business on a global scale. We examined areas where we could increase revenue and identified necessary cost avoidance and cost-cutting measures. This is a comprehensive plan that we are actively working on. Most of the changes are expected to take effect in the first year, gradually rolling out in the first half of next year, with significant results expected by Q3 and fully realized by Q4 of next year.

Excellent. Thanks for taking my question. Congrats again.

Sure, thank you.

Your next question is coming from Craig Irwin with ROTH MKM. Please pose your question. Your line is live.

Good evening, gentlemen. Congratulations on this chunky revenue result. I wanted to ask, Brendan, if you could talk a little bit about what's working specifically for Blink here, right? Your growth rates are materially above that of the rest of your peers, what we are seeing across the industry. I understand Level 2 is a point of strength, obviously, for Blink and the market right now. Can you maybe speak about whether or not this is market-related, Blink-specific as far as the specific products that you're offering? And can you maybe talk about the relative availability of some of the funding support out there for your customers to use these Level 2 products and whether or not this is having a beneficial impact versus some of the challenges in the fast charging area of the market?

I believe our model stands out because it is flexible and accommodates customers rather than turning them away. If a customer is a good site host and can maximize utilization, we can support them fully and generate revenue. If not, we still have competitive products and services. The key differentiator is that most of the Level 2 chargers we sell in the U.S. are made in-house. We manage those costs effectively, producing some components in India and assembling them in Bowie, Maryland, which allows us to have lower costs of goods sold. This makes us highly competitive, especially since we have our own network, something others may struggle to achieve. We are not restricted by supply issues and were pioneers in partnering with the post office. This partnership was manageable for us as we could scale production while serving our other customers and adhering to the post office’s timelines. This capability has given us a competitive edge. We can maintain solid margins on the post office deal and remain ahead of our competitors in securing similar contracts. Moreover, we've also won several fleet deals, including a recent $2 million opportunity. The advantages we have from our manufacturing efficiency and cost-effective model are clear. Although profit margins on DC Fast Chargers are lower, if we can achieve high volumes, it positively impacts revenue. There are many Level 2 opportunities out there, especially utility-based and rebate programs for multifamily housing and more, and we're actively engaging with such initiatives across various states, including Florida. The difference in maintenance and upkeep between a DC fleet and a Level 2 fleet is significant. For an owner-operated model that involves a full turnkey installation of a Level 2 charger by Blink, I typically need just 18 months for a return on investment at 10% utilization. In a hybrid model, that payback period drops to one year at the same utilization level, which highlights our distinct advantage compared to the profitability profile seen in DC fast charging.

Understood. That makes a lot of sense. The second question I have is about your revenue guidance. The range of $128 million to $133 million represents a nice increase and reflects the strengths seen in the third quarter. This suggests that the consensus numbers align with the guidance you provided. Can you discuss the sequential progression? Is there any conservatism in your outlook for the fourth quarter? Are there supply chain considerations to take into account? Or do you expect a minor impact from the transition to the new facility in Bowie, Maryland, affecting your throughput? Could you elaborate on the sequential progression?

Sure, let's begin with the last point. We do not foresee any significant issues. We will continue parallel processing at Bowie. As we bring the new facility online, we will still operate from the Tesla Drive location, after which the new site will start its operations. You may encounter a 24 to 36-hour disruption at the beginning, but it won’t extend beyond that. The team has a solid plan in place for a rapid ramp-up and transition. Regarding recent events, we had the chance to ship out more products in the month that was already booked. The warehouse situation, as I've mentioned previously, is not ideal. Therefore, we aimed to maintain a strong throughput. Rather than deferring shipments for the next quarter, we processed everything immediately due to a surge in bookings for Q4 products arriving at the warehouse. We simply couldn't hold both sets of bookings, which led to increased revenue. Some of those bookings that were initially intended for Q4 ended up being counted in Q3, which significantly boosted our numbers. Although we expect Q3 figures to be high, they may not reach the same level as what we experienced this month, but it will still rank among our best performance ever.

Excellent. And then, last question if I may, your charging service revenue is just doing fantastic. So, you're obviously seeing the same benefit that EVGo is. People are driving their EVs more and using third-party charging more. But can you maybe talk about your mix of endpoints and your expectations for utilization on the network? I know there's some legacy endpoints versus endpoints that you've invested in more recently. How do you feel about the potential for continued increases in utilization and throughputs on the network?

We are very pleased with the decisions we've made over the past three years. As you mentioned, we had some older chargers that weren't performing well, but we've taken a closer look at our business. We've shifted to the owner-operator model in both Europe and the U.S., and we're seeing over 15% utilization on average for most of the chargers we've installed using our new approach. This new methodology is straightforward; it uses a platform called ArcGIS combined with a significant amount of data. It evaluates incoming chargers, including those from competitors, predicts EV sales, considers the location's geographic factors, and ensures that each site meets our expected utilization rates. We've been applying this method in Europe and the U.S. since November 2020, and the new installations are performing significantly better. Additionally, we are working on upgrading older sites; where possible, we are replacing or updating chargers. We are currently enhancing locations with upgraded equipment that exceeds the old infrastructure, primarily 50 kilowatts, aiming for improved utilization. Our operations team, led by COO Mike Battaglia, is managing this effort. While this will provide some benefits, they may be limited. It's crucial for us to remain committed to the owner-operator model, whether hybrid or otherwise, ensuring a disciplined approach to investments and charger placements.

Excellent. Well, congratulations on this progress. I'll go ahead and hop back in the queue.

Sure.

Your next question is coming from Stephen Gengaro with Stifel. Please pose your question. Your line is live.

Thanks. Good evening, everybody. I wanted to discuss the product sales, which were clearly very strong. Can you share insights on where they're headed? What were the major drivers or end markets behind the significant sequential growth in product sales?

I will categorize the information into key areas. First, we have a strong presence in the commercial fleet sector, which has been steadily growing. Initially focused on dealerships, we are now expanding our fleet business to other companies and will soon make an important announcement regarding one of these commercial fleets. Municipal fleets, such as those for the post office, represent a significant opportunity for us. As mentioned earlier, one successful deal often leads to another, and excelling in these ventures opens up further sales opportunities. When we focus on the fleet channel, which includes both municipal and commercial fleets, our sales are predominantly driven by transactions rather than owner-operator models, contributing to a high product sales mix. The next group involves healthcare, where we have numerous contracts with organizations across the U.S., including Cleveland Clinic, Lehigh Valley Health, and Kaiser Permanente, among others. In this area, the preferences vary: some clients want ownership, while others prefer an owner-operator model, with a mix of both reducing our capital expenditure. This represents another substantial revenue stream. The remainder includes a variety of other clients, such as the largest franchisee, McDonald's. The demand for chargers is a promising indicator for the future. Currently, we see a need for 30 million chargers at a 35% penetration rate, and California is rapidly approaching that mark with a penetration of 22% in 2023. More than 28 million of these chargers will be designated for multifamily housing, fleets, municipal fleets, and home charging. This primarily aligns with Blink's focus and is where we are generating sales now and expect to continue seeing sales in the future.

Thank you for your help. I wanted to ask about the EBITDA positive position expected by the end of 2024. Can you provide any rough estimates for the quarterly revenue needed? I assume there will be some cost controls in place and likely some improvement in gross margin. Are there any targets you can share regarding the growth rates necessary to achieve this?

Not yet. We have started to implement the plan, which is very detailed. When we reached our target for the end of the year, it was the first time we provided guidance, and we were quite nervous about it. However, it seems like it was the right decision. We will begin to analyze everything and determine whether we want to set quarterly targets or provide general guidance. We plan to give general guidance for the year after we report the end of 2023 for 2024, and then we'll evaluate the need for specific guidance. You're correct in your thoughts. When we examine the levers, we see cost reductions, some personnel reductions due to efficiencies and redundancies, margin enhancements, and fee increases where we can adjust pricing based on market conditions without any issues. All of these elements are included in the plan.

Your next question is from Noel Parks with Tuohy Brothers. Please go ahead with your question. Your line is live.

Hi, good afternoon.

Hey.

I have a couple of general questions. I was curious about your thoughts on measuring the strength of your brand and its reputation regarding charger availability. As more people have experiences with different operators, I believe these factors will become increasingly important. Any insights you could share would be appreciated.

It's a major focus for the company. I've mentioned this before and will keep saying it; when we talk about quality, we need to consider it as a comprehensive subject. It encompasses everything we communicate, everything we do, everything we create, and everything we maintain. Our previous focus on quality was at a certain level, and now it's significantly improved. We discuss it every day. We are actively participating in the U.S. government sub-committee that is examining charging quality and are fully engaged in California. Our CTO is taking significant measures to ensure we meet and exceed the quality standards emerging from both California and federal studies he is involved in. Additionally, we are focusing on the quality of our chargers and the network to ensure they function properly. Upon analyzing the quality issues, we found that over 85% are related to customer connectivity, which includes the network, cellular connections, screens, or credentials and IDs. We are minimizing points of contact wherever possible to ensure that when a customer interacts with our charger, there are fewer chances for failure. This is part of our team's efforts. We are also working on placing chargers in optimal locations for network connectivity, and when necessary, we are increasing budget allocations to improve connectivity to avoid interruptions. These are actions Blink is taking. Moreover, the entire industry has united to enhance quality levels. Lastly, it’s important to evaluate your legacy portfolio and make decisions about chargers, especially those owned by individuals who don’t update them. It requires taking a proactive stance and negotiating with owners when necessary to address performance issues. These can be tough discussions, but Blink is actively engaged across all these areas, and we are seeing positive improvements.

Thank you. Additionally, among the startups that are specifically targeting the commercial market, including those focused on delivery and more heavy-duty applications, it appears they were recovering from a slowdown experienced during the COVID era. They seemed to be on a positive trajectory regarding the adoption of their technology by large commercial fleets, which were piloting various solutions. However, in the last quarter, we've started to notice some signs of hesitation from end customers in proceeding with orders. I was curious if you've observed any of this impacting charger sales, fleet discussions, and similar areas.

The main positive development right now is in the fleet segment. We are not witnessing an increased gap between bookings and revenue; instead, it remains steady and is actually improving compared to before. Even looking out 60, 90, or sometimes even 180 days from the booking date to when we recognize the revenue, we are not experiencing any significant losses in those figures at this moment. Much of this stability can be attributed to the fleet segment, where we often have quick delivery cycles of 30 to 60 days. Our focus will be on the longer-term commitments and fleet contracts, which include significant commercial accounts like the post office. We are currently in our second stage with the post office and have a lot more work ahead, with around 44,500 chargers involved. Even at this stage, we are not seeing any drop in performance. There has already been progress in our first and second stages with the post office, which is now fully committed. Furthermore, we have noticed an increase in installations in multifamily dwellings and other areas as well. Overall, based on our interactions and observations in the business, there is a general engagement and upward trend, with minimal fallout across customer segments.

Great. Thanks for the detail. Bye-bye.

Your next question is coming from Chris Pierce with Needham. Please pose your question. Your line is live.

Good evening, everyone. Can you clarify the reasons for the potential sequential decline in gross margins for the second half of '23 and the possibility of improvement in '24? I remember you mentioned legacy charging equipment that hadn't been produced. Additionally, you talked about the possibility of engaging a third party to manufacture Level 3 chargers. I'm curious about the rationale behind considering that option again.

We're currently conducting a comprehensive study on developing our own DC Fast Charger, focusing on the location and cost aspects. Additionally, we're analyzing the implications of using third-party manufacturing on our capital budget. We haven’t made a final decision yet; our priority is to choose what’s best for Blink and our shareholders. While we are inclined towards maintaining a strong gross margin, we must also consider the overall financial impact. If we proceed with manufacturing, we won't adopt a design that merely resembles ours; it will be tailored to our specifications, ensuring it meets our margin requirements. We're still evaluating this, and adjustments may occur as more data becomes available. We expect to have a final decision soon, as the product is nearing the final prototype stage. I apologize, but I seem to have forgotten the other question.

Oh, no problem. Sequential gross margins in Q3 versus Q2...

Yeah. So, you hit it. You hit some of it already.

...24.

A significant amount of DC Fast Chargers brought our numbers down from the higher figures we previously had, and we still have a considerable amount to work through. While the legacy issues we dealt with in Q2 are on the decline, they still have a low percentage impact on our overall margins, which can be felt more acutely due to the current circumstances. My estimate is that the legacy issues are below 5% of our total inventory and sales. However, they continue to exist, mainly on L2 and are present in both the United States and Europe, which we are actively addressing.

Okay. Perfect. And just lastly, you talked about Level 3 demand and we saw you just kind of answered this question around it. Would you say Level 2 demand is slowing? Or you wouldn't frame it that way, you would just say Level 3 demand is growing at a faster rate than you expected?

So, I've been blessed with getting to work for big DC Fast Charger companies, and then getting to work for Blink that's predominantly L2 that does some DC fast charging. The pace of L2 is increasing dramatically. Although, if you do a share of voice analysis, all you hear about is DC fast charging. But that share of voice analysis doesn't equate to the volume. All the L2 lines are increasing dramatically. And that makes sense because 90% plus of the charging takes place on L2. So, now we're starting to see higher velocity and throughput on that, which makes sense with every piece analysis that has been done in the industry.

We have reached the end of our question-and-answer session. And now, I will turn the call back to Vitalie Stelea for closing remarks.

Thank you, Kelly, and thank you to all of you on the phone and the webcast, as we announced another record quarter for Blink. This concludes our call today.

Thank you. This does conclude today's conference. You may disconnect your phone lines at this time. Thank you for your participation.