Ladies and Gentlemen, good morning. My name is Louisa, and I’ll be your conference operator for today. At this time, I would like to welcome everyone to the ChargePoint First Quarter Fiscal 2022 Earnings Conference Call and Webcast. All participant lines have been placed on listen-only mode to prevent any background noise. After the speakers’ remarks, there’ll be a question-and-answer session. Thank you. I will now turn the call over to Patrick Hamer, 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 financial results for ChargePoint’s first quarter of fiscal 2022. I’m Patrick Hamer, Head of Capital Markets and Investor Relations at ChargePoint. This call is being broadcast over the web and can be accessed on the investors section of our website, at investors.chargepoint.com.

Thank you, Pat. Good afternoon, and thanks for joining our first quarter earnings call. Our strong results this quarter reflect our commitment to execution as we continue to build on our established leadership position in EV charging. Our exceptional charging technology, built over 13 years, and broad customer base positions ChargePoint to capitalize on the ongoing and accelerating shift to electric mobility. We are deep in execution. And next, I’ll share the extent to which our team and operations are scaling to support the unprecedented pace of fueling infrastructure build-out. The ChargePoint team is now over 900 strong. We have attracted and engaged high-caliber talent across North America and Europe, and our productivity remains strong as we transitioned to predominantly virtual operations amidst the pandemic. Our channel partners in North America and Europe help us reach more customers at a local level, including distribution partners, value-added resellers, and installation partners. In fact, we added 53 additional channel partners in Q1.

Thanks, Pasquale, and good afternoon, everyone. First, my comments are on non-GAAP. In our non-GAAP results, we principally exclude stock-based compensation and the effect of the valuation of our preferred stock warrants. We reconcile to GAAP in our earnings release. Second, after a quick review of our results, I will provide revenue estimates for Q2 and for the year. Third, consistent with our March call, and as you could see in our earnings release, we report revenue along three lines: network charging systems, subscriptions, and other. Network charging systems represent our network hardware. Subscriptions include our cloud services, warranties, and our ChargePoint as a service offerings, where we bundle our solutions into a recurring subscription. Other includes energy credits, professional services, and certain non-material revenue streams. Q1 revenue was $40.5 million, up 24% year-over-year and slightly above the high end of our guidance range of $35 million to $40 million. Network charging systems revenue was up 36% year-over-year, as commercial began its recovery while fleet and residential posted strong results. North American commercial outperformed our fourth quarter, showing encouraging signals from a return-to-work perspective. Subscription revenue was also up 20% from Q1 of last year. Now the revenue declined largely because of lower energy credit related revenue. Billings by category for the first quarter were commercial 73%, fleet 12%, residential 11%, and other 4%. Billings by percentage for the fourth quarter for commercial was 68%, fleet 17%, residential 12%, and other 3%. Fleet added the second-best billings quarter ever after a particularly strong Q4. From a geographic perspective, Q1 revenue for North America was 91% and Europe was 9% compared to 96% and 4% respectively in Q1 of last year, demonstrating early returns on our continued investments in the European market. Our subscription ChargePoint as a service offerings, which yield ratable recurring revenue, turned in a solid quarter growing 64% year-over-year. As Pasquale indicated, new customer acquisition was particularly strong, as was repeat customer business. A cornerstone of our strategy was line at over 60% of total billings, demonstrating the power of our land and expand model, where small first purchases create sticky relationships and a significant repeat rate.

Thanks, Rex. Based on these results, it is clear we are focused on execution and we believe we are exceptionally well positioned as more fleet and passenger vehicles ship. To support that position, we have exciting R&D work on our way to continue delivering innovative products. At ChargePoint, we know that every charging port counts towards a more sustainable future. Our analytics and reporting features make it easy for customers to understand and measure the environmental impact of their charging program. We are proud of our contribution as a company to mitigating climate change. As we shared on Earth Day on April 22nd, ChargePoint drivers had driven over 2.6 billion electric miles and avoided 107 million gallons of fossil fuels. Drivers on our network have avoided roughly 387,000 metric tons of greenhouse gas emissions. We expect customers to increase their focus on the ESG benefits of EV charging going forward. North American and European markets are becoming more environmentally focused by the day. Commercial fleet and residential electrification is accelerating organically. This past quarter continues to demonstrate that ChargePoint growth scales with EV adoption. We are an index for the electrification of mobility, a transition that we believe promises many years of growth ahead. We will now open the call to your questions.

Thank you very much. Our first question comes from Colin Rusch from Oppenheimer & Co. Please go ahead. Your line is open. Colin, your line is open. Please go ahead. Colin, you may be on mute, please unmute your line.

Guys, can you hear me okay? Apologies for the trouble.

Yes, we got you, Colin.

Yes, Colin, we can hear you.

Okay. Perfect. Hey, can you talk about the competitive dynamics with all the capital that’s been raised on the market and how you think about consolidation? As we see all these appointments go out and potentially work or potentially not work?

Colin, could you clarify that with respect to…

Yes, I mean, we’re expecting a bunch of your competitors to roll out some pretty healthy networks, and some of those business models may or may not survive. So I’m wondering about how you think about navigating that environment where there’s a lot of capital going into the infrastructure and preparing for potential consolidation in the space while defending your market share long-term?

Well, I mean, you know very well, we’ve developed a lot of our business models over a decade of real-world experience in the EV charging market. So we’re confident in our approach. We’re not frankly spending a whole lot of time pondering that particular question. We’re heads down and executing. And if you look at the numbers that we’ve just reported for the quarter, we’re getting the results that are commensurate with the model we’ve been refining for a decade, as I said. And with respect to capital coming in, this is a capital-light model. So the amount of capital that’s coming into different players in the market doesn’t necessarily affect us because we’re not dependent on a capital-heavy model. In fact, I think capital-heavy models definitely have a challenge in that there is a governor, so to speak, on forward velocity based on the need for continued capital, whereas we don’t have that.

Perfect, and then just around the supply chain and how you guys are managing some of the risks on that side. Could you talk about any sort of safety stocks that you guys are keeping, or do you feel like you need to keep potentially at this point? Or is it sort of an environment where you’re able to get what you need and pass on any incremental expenses onto customers?

I’ll make some comments, and I’ll let Rex comment as well. We’ve obviously been watching that entire set of issues very, very closely. Our operations team has doubled down significantly, ensuring that we’ve got good assurance of supply. We're working with our contract manufacturers to put in safeguards. Nevertheless, we’re seeing issues inside the quarter as we execute, but we've mitigated them. As you've seen in the results, we haven't reported any problems so far with the supply chain that hindered our performance. We’re going to continue to put in the necessary mitigation mechanisms to guarantee that we've got part flow into our contract manufacturers to support our forecast.

Thank you so much.

I think if you look back on Q1, we had some impact due to supply chain, but it was immaterial and well mitigated, as Pat said. It did cost us a little bit in expedite and other fees. We still managed to improve our gross margins sequentially. So that's good. As we look forward to this quarter, we've taken what we know about supply chain into account and provided our guidance. And as we look out into the second half of the year, which against our annual guidance implies very nice growth numbers sequentially for Q3 and Q4. We're managing that very, very closely. And so we don't have any conclusions on that yet, but we are definitely taking the things we see on the supply chain into account.

Okay, thanks so much, guys. I really appreciate it.

Thanks, Colin.

Thank you for your questions. Our next question comes from Shreyas Patil from Wolfe Research. Please go ahead, your line is open.

Hey, thanks so much. So just wanted to ask about the full-year guidance. I mean, we’ve seen really strong demand for EVs in the U.S. and Europe, U.S. sales are up 100% year-to-date, Europe is up something like 89% and you've talked about previously how correlated the business is to the broader EV demand. So just thinking about, if we do end up seeing stronger sales, is there anything that we need to think about in terms of like either a lag effect or anything like that that would prevent that upside potential if demand does come in stronger?

So we definitely believe that we are very nicely correlated to the availability of EVs, no question about that. As we look at the second half of the year from the perspective of where we are today, as we said in our prepared remarks, we’re watching reopenings here and in Europe. There's always the possibility that goes really well, but there's also the possibility that something happens and you snap back because you can see what's happening in India, for example. So as we look out, and then of course, there's the supply chain thing that we just mentioned. So we think it's prudent to be cautious now. I think we're going to be massively smarter in 90 days when we have our next call, because we'll have Q2 behind us and really good visibility into those external factors as we look at Q3 and Q4. So I think it just made sense to confirm guidance this time, and then we'll take a really hard look at this for the Q2 call.

Okay, great. And then on the network gross margin. It looked like you saw good improvement versus Q4. It looked like it was up maybe 140 basis points and obviously up meaningfully year-over-year. How should we think about the main drivers of margin improvement on the network side and where do you see margins eventually reaching?

So clearly, as we said in our prepared remarks, there is a meaningful mix component in our business. With the advent of the whole pandemic, the workplace has been solid, but it hasn't had the growth that it's had historically over the last number of quarters. DC fast chargers performed extremely well, which includes fleets, and our home business has been extremely robust over the last two quarters. Those are on the lower end of the gross margin curve for us. Individually, we don't give out gross margin by product, but you have to understand two guardrails: look, we did have good performance internally, I think this quarter. The biggest drivers of gross margin are mix and then as we go up both the operational improvement curve, the cost reduction efforts to renew our components, and then obviously growth in workplace and commercial. Those are all very, very positive influences on gross margin, as we look out. I still believe that we should be comfortably in the mid to high 30s as we look out a couple of three years from now. I think we have steady improvements ahead of us for this year.

Okay, great. And if I could just sneak one last one in, obviously you talked about fleets earlier in the call, and it's something we’ve seen a number of companies talking about—the fleet charging opportunity—and that even includes Ford, which talked about it last week at their Investor Day. So trying to think about how, what are some of the areas that differentiate ChargePoint in the fleet space? And how do you think about positioning there?

Well, I think there are two main drivers to our advantage in the fleet space. First, we charge anything that rolls. So there's no OEM specifics, and our solution is completely OEM-neutral. We also offer a very complete solution in the fleet space. It's all encompassing a broad product line on the software side, including charger control, energy management, and vehicle scheduling, as well as a full complementary line of hardware products of all the different speeds in fleets necessary to adequately service fleet customers. Most fleets have a good mix of vehicle types, sizes, and charging needs. We can meet all those needs with one solution. So we're very bullish on our fleet products, and we're not sitting still either. There's a tremendous amount going into R&D there.

Okay, great. Thanks so much.

Thank you for your question. Our next question comes from Cowen. Please go ahead, your line is open.

Hey, afternoon guys, I was wondering if you can maybe give us a little color around R&D spend on a run rate basis of $25 million in this quarter? How does that trend as we move throughout the balance of this year?

So I would answer that both on R&D and more broadly. We are definitely looking at the trends in the market right now and where we think investments need to go to take advantage of higher vehicle availability, not only in the passenger segment but in the fleet space. So we've made an affirmative decision as a company to increase our efforts. So it has gone up, and I would expect our operational expenses generally to trend a little north this year. This is because we have a lot of product introductions that we want to do in the not-too-distant future. There’s extensive customer support that touches both R&D and operations, and customer support. The sales and marketing side is also going heavier, particularly in Europe because our land and expand model has proven itself every quarter with the customer additions we’ve shown this quarter, and also a very consistent 60-plus percent organic repeat business. Given the scale we have already, it makes all the sense in the world to invest in this area. What you’ll see longer-term is that our operating expenses as a percentage of revenue will trend down, but in the very short run, from a dollars perspective, I expect it to trend up.

Thanks for the color, it’s helpful. And as a follow-up, you kind of hit on it, but last quarter you'd also mentioned the potential rollout of a new product offering focused on Europe. Is there any update there, anything you could talk to around that?

No, just stay tuned for general product updates in the future, and the minute we're ready to announce them, you'll be one of the first to know.

Great, okay. Thanks, guys.

Thank you.

Thank you for your question. Our next question comes from Craig Irwin from ROTH Capital Partners. Please go ahead. Your line is open.

Hi, good evening. I wanted to ask a little bit about the DC fast charging products. Can you maybe update us on the margin plan there, where you are as far as your longer-term plan for increasing margins? Do we need to see some of these product introductions for fleets and other markets for you to meet your longer-term targets?

As Rex mentioned, we talked about the particulars of gross margin by product, and we don't break that out. What I can say is that this past quarter saw some great work and margin improvements specifically on the existing product line. So to your question, are we waiting for a breakthrough on a new product line, or are we continuing to make improvements on the existing product line as it matures? It's definitely the latter. We're seeing improvements as we execute margin improvements, and not just in the fast charge products, but across the board. I'll repeat one point that Rex made because I think it’s indicative: we've improved the margin quarter-over-quarter, as Rex mentioned, and that was in the face of having to expand a little bit more on COGS because of some of the supply chain mitigations we had to put in place. We outperformed and only had that outperformance dragged down a little but not significantly. It was only dragged down a little by the mitigation costs on the supply chain. So we're comfortable.

Okay, so most investors really want to pick through the margin discussion fairly in a fairly detailed manner. So one of the things that has been said in the past is that the mix of products into the end of the year and obviously the revenue are a large part of the expectations for a strong margin rebound, particularly as the return to work helps move the commercial market again. I understand those are your highest margin products. Can you possibly walk us through what we should be looking at to see something in the 30% or 30% plus range as we exit your fiscal year?

That sounds a lot like a question for annual gross margin guidance. What I can tell you is that we really had some very, very good improvements this past quarter across the board, particularly in a couple of places where it was very impactful and very much needed. I think if you look at the second half of the year, clearly, if we get back to work and the mix starts to shift back to a more normalized mix for the company, that’s going to have a very positive impact on the resulting gross margin. I would say, interestingly enough, we think commercial will come back, but that doesn't mean that the other products are going to roll off. So we feel like the trend is for those parts of the business that are lower margin to continue. But net-net, I feel very good about continued improvement in gross margin throughout the balance of this year. I hesitate to call a number at the end of the year, just because that was the guidance.

Understood. Last question, if I may ask this one in. You guys are doing exactly what you said you would; executing well in North America and Europe. You've got fleets handled and a roadmap with new products expected. Many of the past IPOs are looking at the competitive environment and trying to pull forward the opportunity. The biggest opportunity for ChargePoint would be Europe and the new products for Europe, as well as a more aggressive market position there. Is there a possibility we could see ChargePoint take a more aggressive stance regarding expansion in Europe? Or are you moving at a measured pace based on a pre-existing plan to avoid unforeseen challenges?

Yes, I mean, I think philosophically, we've been in an aggressive posture concerning our investment in Europe for quite some time now because we believe in the geography as being incredibly relevant for us globally. So I don't think we need to change our posture there. But again, I don't think that's an indication that we’re not being aggressive already. I think we're being adequately aggressive. Any other comments?

Yes, the only other thing I would add is that we have, in effect, nearly doubled our headcount in Europe over the last two or three quarters. We’re not finished with the hiring plan we have there for this year. So we're really putting a lot of players in the field. One of the things I said internally is, from a headcount perspective and a reach perspective in Europe, we’re one of the largest companies in our space in Europe when it comes to the number of people attacking that market. That doesn’t even take into account the incredibly long list of things that they get from our operations in North America. So it's an extension, and yet it's still larger. I think our coverage there has improved markedly and will be a competitive advantage. Our focus on network and software, we think, is the right strategy. And then, obviously, as you referenced, there are a lot of additional solutions that we'll be providing attached to that over the next several quarters.

And one more thing to note, which I think is a significant issue in your modeling, is scale. Achieving global scale helps tremendously in gross margin. Our scale in North America on a market share basis is great, but it’s still a relatively small unit volume market compared to where it's headed. As that continues and as there's cross-regional product line leverage in the supply chain, support operations, and other elements of gross margin, we should see an advantage there if we can execute on the vision to be significant in Europe, significant in fleet, and significant in our North American commercial business.

So a point of clarification, right? Significance in the North American business, 70% plus share of the network. Is 10 points a logical goal for you to strive for in Europe, or is the level of investment sufficient for you to be happy with a much lower share?

So when we look out with our financial lens over a multi-year period, and I'm not going to put a number to that, but our assumptions are that we get comfortably into the 20s in Europe. I’d like to do better than that, but there's not a North America-style assumption in how we view our financials over the next several years.

And that's perfect color. That’s pure plain conservatism on our part.

Understood, thank you, Rex. Thank you, Pasquale.

Thank you.

Thanks.

Thank you for your question. We have a question from Itay Michaeli from Citi. Please go ahead. Your line is open.

Great. Thanks, everybody. Good afternoon. I apologize if I missed this; I did join the call a little bit late. But in terms of the revenue in the quarter, I was hoping you could just mention the contribution from new customers versus existing customers. And you're trying to think about the land and expand model and the evidence you're seeing that playing out in your revenue in terms of customers who have been with you longer versus new customers, and how that seasoning is progressing.

Sure, Itay, it’s Rex. Happy to help you there. So Q1 revenue was $40.5 million. One of the things that we’re super pleased about this quarter—there were a lot of them—but super pleased about was the customer additions that we had this quarter were remarkable. To say that it was an uptick from last quarter would be an understatement, but useful to give you percentages, it was a super strong customer in terms of new customer acquisition. The remarkably consistent thing over the last three years is that about 60% of our business comes from existing customers—it's a rebuy. So the land and expand model is the cornerstone of the company and is one of the reasons why I’ve said we do want to continue with the investments in particular, for example, in sales and marketing, because it’s a lot easier to keep a customer than to acquire one. So we're putting an enormous amount of energy into customer acquisition because it pays down the road.

Other than new customers, I find that the onboarding process is happening even faster. I think typically, my understanding is it's sort of a few months process, but just given what's happening with EV, are you seeing that process even happen quicker? In other words, were customer adds better than what you had expected internally?

Can you clarify what you mean by onboarding? Is that timing pipeline?

A timing pipeline.

Do you want to take that?

So first of all, the nice thing about the land and expand model we just discussed is that a lot of that business is really fast turnaround. Sometimes you see it coming, sometimes you don't. But that's pretty fast turnover. If it's a brand new customer, I think our sales process lasts anywhere from getting a phone call up to about six months. It just depends on what the process looks like on the other side. I do think it’s trending down and getting quicker. But it really depends on the situation with the customer, the size of what they want to install, and the necessary understanding of what they need to make ready and other things that would be necessary to implement the solutions. So I don't know if that answers your question. But I would say it's anywhere from a month to six months and is getting shorter.

Yes, that's very helpful. And just lastly, as a point of clarification for the Q2 revenue guidance, should we assume that the revenue mix in Q2 is pretty similar to what you experienced in Q1 in terms of DC and residential?

That's a tough one. But I would expect it to be a little better on the commercial side than it was in Q1.

Great, that’s all very helpful.

Thank you because we had a really nice year-over-year resurgence in North America commercial, and then we had a great quarter in Europe overall. So I think the reopening and people getting back to work and the whole recovery of the commercial side has shown really nice signs in Q1, and I would expect that to continue in the future.

Great, that's very helpful. Thank you.

Thank you for your question. It appears we have no further questions from the audience, so I'll hand back over to the management team for any closing remarks.

First of all, thanks for attending everyone, and thank you for all the thoughtful questions. To summarize, I think some of the points that Rex and I made in the prepared remarks—we’re heavily focused on execution right now. We're very pleased with the results across all our lines of business and we're well positioned to execute on the long-term growth plans. So we really look forward to the next earnings call with all of you and have a wonderful afternoon. Thanks, everyone.

Thank you.

Ladies and gentlemen, that concludes today's call. Thank you for the management team for joining. You may now disconnect your lines.