Ladies and gentlemen, good afternoon. My name is Lisa, and I'll be your conference operator for today's call. At this time, I would like to welcome everyone to the ChargePoint First Quarter Fiscal 2024 Earnings Conference Call and Webcast. All participant lines have been placed on a listen-only mode to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. I would now like to turn the call over to Patrick Hamer, ChargePoint's Vice President of Capital Markets and Investor Relations. Patrick, please go ahead.

Good afternoon and thank you for joining us on today's conference call to discuss ChargePoint's first quarter fiscal 2024 earnings results. This call is being webcast and can be accessed on the Investors section of our website at investors.chargepoint.com. With me on today's call are Pasquale Romano, our Chief Executive Officer, and Rex Jackson, our Chief Financial Officer. This afternoon we issued our press release announcing results for the quarter ended April 30th, 2023, which can also be found on our website. We'd like to remind you that during the conference call, management will be making forward-looking statements, including our outlook for the second quarter of fiscal 2024. These forward-looking statements involve risks and uncertainties, many of which are beyond our control and could cause actual results to differ materially from our expectations. These forward-looking statements apply as of today, and we undertake no obligation to update these statements after the call. For a more detailed description of certain factors that could cause actual results to differ, please refer to our Form 10-K filed with the SEC on April 3rd, 2023, and our earnings release posted today on our website and filed with the SEC on Form 8-K. Also, please note that we use certain non-GAAP financial measures on this call, which reconcile to GAAP in our earnings release and for certain historical periods in the investor presentation posted on the Investors section of our website. And finally, we'll be posting the transcript of this call to our Investor Relations website under the Quarterly Results section. And with that, I'll turn it over to Pasquale.

Thank you, Patrick, and thank you all for joining us today. We delivered a strong first quarter. Revenue was at the high end of our guidance range at $130 million, and non-GAAP gross margin sequentially improved two points to 25%. To put these results into perspective, we achieved a 59% year-over-year growth rate in the first quarter and the second largest quarter in ChargePoint's history. We did that while the EV installed base in North America and Europe are still in single digits, and the EV market is only at the beginning of a decades-long growth cycle. We also achieved this growth in the midst of a challenging macroeconomic environment. Diversification across verticals and geographies continues to contribute resilience to our business. So while we saw less growth in North American Commercial and Residential than we would have liked due to what we believe is a delay in discretionary purchases, we continued to see overall growth and margin improvement. Rex will address guidance for the second quarter. But just to give you a sense of the magnitude of the long-term opportunity ahead of us, the midpoint of that guidance would make Q2 the largest quarter in ChargePoint's history. You'll also hear Rex talk about non-GAAP adjusted EBITDA. To give some context, we use non-GAAP adjusted EBITDA as a key measure of the health of our business as we drive towards profitability, and as we disclosed in our proxy statement filed last week. This metric is one of the two components of our annual management bonus programs. Beneath the top-line results, we're continually improving our operations and investing for future scale. We have consistently improved gross margins while recovering from supply chain issues, making meaningful changes to the cost of our products and optimizing our operations. Also, as we scale, we are carefully managing our operating expenses while making the necessary investments in our support operations and internal business systems. We are committed to delivering dependable infrastructure to our customers so drivers can find it, use it, and depend on it everywhere. Turning back to Q1, we saw two areas of particularly strong growth: Europe and fleet. For the first time in our history, Europe delivered over 20% of ChargePoint's quarterly revenue. Meanwhile, Q1's fleet billings more than doubled year-over-year despite supply limitations on vehicles entering the segment relative to demand, and as a percentage of billings, fleet increased from Q4. We're encouraged to see continued resilience in these growth areas. Beyond the financials, we continued to focus on our products. We offer industry-leading hardware and software for nearly every fueling vertical. Our solutions help our customers deliver the kind of EV driver experience that will continue to accelerate EV adoption across North America and Europe. In brief, better charging infrastructure delivers a better driver experience, which drives more value across the entire EV ecosystem. The positive feedback loop for growth benefits ChargePoint, our partners, EV drivers, and the environment. We are betting on the continued changeover from fossil fuels to electric drive regardless of OEM or vertical. As a result, we believe we are an index for the electrification of mobility. Before handing off to Rex, let me update you on a few key statistics to give you a little more color on our continued growth. On the network side, we provide drivers and ecosystem partners access to approximately 745,000 EV ports in North America and Europe. 243,000 of these are active ports under management on the ChargePoint network, up from 225,000 ports last quarter, and we recently passed a milestone of over 500,000 roaming ports. These roaming ports are critical to delivering a world-class ecosystem to ChargePoint's drivers, site host customers, and strategic partners such as OEMs and fuel card providers. Approximately 21,000 of the 243,000 ports on the ChargePoint network are DC fast-charging, up from approximately 19,000 at the end of Q4, and about one-third of our overall ports are located in Europe. We count 76% of the 2022 Fortune 50 and 56% of the 2022 Fortune 500 as our customers. This reflects excellent penetration given our land-and-expand strategy, the stickiness of our solutions, and our strong rebuy rates. From an environmental perspective, as of the end of the quarter, we estimate that our network has fueled approximately 6.3 billion electric miles, avoiding approximately 252 million cumulative gallons of gasoline and over 1.25 million metric tons of greenhouse gas emissions. So when you put all that together, it shows that despite the current economic environment, ChargePoint growth continues. We made significant progress against our long-term roadmap, ensuring that ChargePoint scales ahead of this remarkable market opportunity. We're running a highly differentiated business that is not CapEx intensive. As you'll hear from Rex, we're heading into the black while we turn the world green in the early innings of the EV transition. Rex, over to you for financials.

Thanks, Pasquale. As a reminder, please see our earnings release where we reconcile our non-GAAP results to GAAP and recall that we continue to report revenue along three lines: Network charging systems, subscriptions, and other. Network charging systems is our connected hardware. Subscriptions include our cloud services, connecting that hardware, assure warranties, and our ChargePoint-as-a-service offering where we bundle hardware, software, and warranty coverage into recurring subscriptions. Other consists of professional services and certain non-material revenue items. As Pasquale indicated, we had a solid Q1 with revenue of $130 million, up 59% year-on-year and above the midpoint of our previously announced guidance range of $122 million to $132 million. Down seasonally as expected from Q4, Q1 was notably the company's second largest quarter ever and a good start for the year when compared to Q1 contributions over the past two years. Network charging systems at $98 million was 76% of Q1 revenue, down from $122 million and 80% in Q4, due to typical seasonality. Q1 revenue from network charging systems grew 65% year-on-year. Subscription revenue at $26 million was 20% of total revenue, up 49% year-on-year, up sequentially, and again above the $100 million annual run rate we referenced in our last call. Our deferred revenue, which is future recurring subscription revenue from existing customer commitments and payments, continues to grow, finishing the quarter at $205 million, up from $199 million at the end of Q4. We're especially encouraged to see this continued growth in our recurring revenues in the very early days of what we believe is a decade-long EV adoption curve. Other revenue at $5 million and 4% of total revenue increased 20% year-on-year. Turning to verticals, first quarter billings percentages were commercial 63%, fleet 24%, residential 11%, and other 2%, reflecting a particularly strong performance in fleet. Commercial grew 44% year-on-year, while fleet was up 129%. Residential grew at 13% year-on-year and maintained its generally consistent billings percentage. From a geographic perspective, Q1 revenue from North America was 79% and Europe was 21%. As Pasquale mentioned, Europe continues to outpace North America on a percentage basis with a 70% year-on-year increase. Turning to gross margin, non-GAAP for Q1 was 25%, up sequentially from Q4, which was at 23%, and up eight points from 17% in Q1 of last year. This improvement is primarily a combination of diminishing supply chain and logistics expense pressures, significant operational improvements, and better scale. We continue our considerable investment in our driver and host support infrastructure because we believe support and reliability are critical differentiators for both drivers and our customers. We expect continued improvement in non-GAAP gross margin this year. Non-GAAP operating expenses for Q1 were $85 million, a year-on-year increase of 2% and a sequential increase of 6%, primarily reflecting payroll taxes as well as annual compensation increases effective April 1st. As we look out to the rest of 2023, we will manage expenses carefully and expect to deliver improvements in operating leverage. As you may recall, in calendar 2020 and 2021, our OpEx, which reflects significant forward investments in our business, was at approximately 100% of our revenue. In 2022, we took that down to 53% in Q4 and 69% for the year. In Q1, we were at 66% given revenue seasonality, but again expect continued improvements this year, particularly in the second half. Given this trajectory, I'd also like to expand on Pasquale's comments regarding non-GAAP adjusted EBITDA. We added this metric and the associated reconciliation today in our press release with the goal of better illustrating our path to profitability. To calculate adjusted EBITDA, we take our non-GAAP net income loss and add back interest, taxes, and depreciation. The depreciation component is low, thanks to our business model. Using this metric, Q1 non-GAAP adjusted EBITDA was a loss of $49 million, a year-on-year improvement of 27%. We look to cut this loss further by approximately two-thirds by Q4 of this year. Looking at cash, we finished the quarter with $314 million, down from $400 million last quarter. As in prior quarters, the primary driver of our negative cash flow is operating loss. In Q1, we also managed to break free on a number of supply chain issues and move our inventory solidly from raw materials and WIP or work in progress to finished goods, meaningfully increasing our inventory level, which helped us avoid leaving business on the table as we have been forced to do in recent quarters. This build helped us in Q1 and sets us up well for Q2 and Q3. Inventory will vary as we look forward, but we expect it will grow with the business. We used our ATM very likely in Q1, adding $18 million in cash through the program. We will evaluate the use of the ATM on a quarter-by-quarter basis and also continue to assess non-dilutive liquidity options. To close on a couple of other key figures, stock-based compensation in Q1 was $24 million, consistent with the past three quarters. Our annual compensation cycle includes equity, so we expect our annual step-up in stock-based compensation in Q2 to be approximately $8 million and to be fairly constant for the ensuing three quarters. We had approximately 353 million shares outstanding as of April 30, 2023. Turning to guidance for the second quarter of fiscal 2024, we expect revenue to be $148 million to $158 million, up 41% year-on-year at the midpoint. We are committed to being adjusted EBITDA positive in Q4 of calendar 2024 and remain committed to being cash flow positive by year's end. In summary, we've achieved the growth we expected to achieve despite significant headwinds. We continue our march to profitability even while we invest in operational excellence at scale. Our differentiated business model is not CapEx intensive and our adjusted EBITDA metric, which we consider to be a strong indicator of the overall health of our business gives us confidence in our trajectory. With that, I'll turn the call back to the operator for questions.

Thank you. We'll take our first question from Gabe Daoud with Cowen.

Hey, thanks guys. I appreciate all the prepared remarks. Maybe, Pasquale, I just wanted to hit on the comment earlier in your prepared remarks just about some of the commercial and residential areas where we may have missed, just curious if you could give a bit more color on how that may snap back as we progress through the rest of this year and maybe what's kind of embedded in your own internal forecast.

Hi, Gabe. The answer is quite straightforward. The strength of this market lies in the ongoing pressure from utilization as we continue to convert the existing base from fossil fuel to electric vehicles. Currently, all businesses with discretionary charging needs for their employees or customers can adjust their timelines to manage macroeconomic uncertainties. The necessity remains, but some of our commercial clients have the option to postpone addressing that need. However, I want to highlight something we've mentioned in past earnings calls during the pandemic. The distribution of our business by sector changed significantly when we transitioned to remote work, leading other sectors to compensate for that shift. Therefore, we avoided major financial disruptions. We are seeing a similar trend now. Our quarter-to-quarter growth from Q1 this year to Q1 last year has been strong, and notably, Europe now constitutes 20% of our business and is doing well, while our fleet segment has grown 200% year-over-year from Q1 to Q1. This shows that, as the macroeconomic pressures affect various sectors, our diversity allows us to adapt and sustain ourselves. We believe that demand hasn't disappeared; it will return as the macroeconomic environment improves. I hope this clarifies things.

Thank you for the insight, Pasquale. As a follow-up, could you elaborate on the mix shift regarding billings and price momentum you mentioned in relation to fleet? Specifically, where are you noticing strong growth and high demand within the fleet? Is it in last-mile logistics, or are you seeing it more on the light-duty vehicle side due to constraints on medium and heavy-duty vehicles? I'm interested in what is driving the momentum in fleet, and is the momentum in Europe significantly different from that in the US, or is it quite similar? Thank you.

It's easier to go backwards with your follow-up question. It's pretty balanced between Europe and North America fleets. As I said in my prepared remarks, it's vehicle-limited right now. If OEMs were producing vehicles in quantities to match demand, you'd see faster penetration and conversion from fossil fuel to electric. It's actually well aligned with a softer macro in that everyone's looking for cost savings obviously as these vehicles are meaningful components of the cost structures of the businesses that they serve. And what that's done is it's slanted, as I've mentioned by the way consistently in previous calls, it's slanted to land, but not much expand within a customer. And so that's, I think, just a good indicator for things to come in the future. When that starts to uncoil, it's complicated given that there is a bit of a dependency there on vehicle OEMs producing things at scale. One of the bright spots that I mentioned before regarding fleet is transit because that's the most mature segment. And so we continue to see that segment do quite well, but there has been no general shift in mix between the quarters that's worth reporting.

Okay. Okay, great. That's helpful. Thanks, guys. I'll take the rest offline.

We'll take our next question from Colin Rusch with Oppenheimer.

Thanks so much, guys. Can you talk a little bit about the dynamics in the U.S. commercial market? Can you give us a bit more detail on what's happening with commercial property owners as they work through cost of capital changes, rental rates, and looking at upgrading amenities? With the sales cycle, it looks like conversations you're having with folks around when and kind of volume of deployments?

The conversation now is no different from what it has been previously. The discussions in the commercial sector often vary depending on whether you're talking to the tenant, the property manager, the landlord, or a combination of all of them. It really depends on the situation, and that remains unchanged. Currently, property developers and managers are showing more interest in offering charging as an amenity across their portfolios rather than focusing solely on areas driven by tenant demand. A key factor in the commercial sector is the shift back toward office usage. While many statistics indicate that we are moving towards increased in-office work, we have not fully returned to pre-pandemic levels. Consequently, if people are not commuting to the office, the demand for workplace charging will continue to decline in proportion to the number of vehicles using the parking facilities at office buildings. This does not imply that charging infrastructure isn't being deployed; it simply aligns with how many days people are physically present in the office. It's worth noting that whether someone goes in three days or five, it can create similar pressure on parking utilization if those days are aligned. There are many variables at play here, and the situation is further complicated by broader macroeconomic factors. We have good visibility into these dynamics and are managing them effectively.

Excellent. That's super helpful. I've got two other things. Just looking for an update there, and then maybe a little bit disparate, some of the permitting streamlining efforts that are going on at the state level and even at a national level. If you could just give us a sense of anything that you're tracking very closely there that could be meaningful for the business, and then also the potential to consolidate some of these non-fully networked chargers, whether it's in the U.S. or Europe, and how that opportunity is changing for you guys near-term?

It is easier to approach that topic in reverse. When it comes to the consolidation of non-network chargers, there are numerous programs available. While our revenue isn’t primarily reliant on subsidies, most subsidy programs require that chargers be managed, connected to a network, and meet certain basic reporting or energy management standards that benefit the grid. Consequently, many unmanaged chargers will likely be replaced with managed ones, as those lacking necessary communication and processing capabilities can be more easily removed. The main effort involves installing the electrical infrastructure for the chargers, which makes this a cost-effective replacement. Currently, we don’t see this as a significant replacement cycle due to the rapid scaling of the market, with growth overshadowing it, but I expect this will change over time. Regarding permitting, I encourage you to look at a couple of points from the prepared remarks. The total ports on our network that are activated and under management—meaning they've been fully installed and activated with the customers setting their usage preferences—have increased from 225,000 in Q4 to 243,000. This growth is fairly uniform between DC and AC. It’s worth noting that the pipeline is already reflected in our numbers, as these figures represent ports sold in previous months that have completed construction, installation, and activation, which is not an instantaneous process. Therefore, the growth rate reflects the impact of permitting delays. As for larger initiatives like corridor fast-charging programs and significant fleet transit projects, permitting delays remain a challenge for our customers. This has been an ongoing issue, and we would certainly welcome any improvements in permit streamlining or utility interconnect processes, as they would help accelerate our customers' ability to establish the necessary infrastructure. These delays are accounted for in our projections and guidance, and any acceleration would be beneficial.

We'll take our next question from James West with Evercore ISI.

Hey, good afternoon guys. Hey, Pat. Thanks, Rex. Wanted to ask about the announcement out of Tesla and Ford a couple of days ago, their alignment, the opening of the sort of the supercharger network and what your thoughts were around that? I mean, is it a nothingburger? Or is it something to be expected? Is it showing us that there's two superchargers out there? What's your take on that?

So I anticipated someone would ask that question. To simplify, Tesla has been a major player, currently holding around 70% market share in the U.S. for vehicles. Their Supercharger network has been in place since we started generating revenue. If it weren't for Tesla cars on the road, our customers would find little reason to purchase a ChargePoint charger because Tesla's dominance has been driving demand for our products and services. The Supercharger network's impact is factored into our numbers. Regarding our fast chargers, Tesla vehicles come with an AC adapter, so there’s no interference with that aspect. On the DC side, our chargers are designed with modular cables and holsters, which means we can adapt to specific needs, including potentially adding a direct Tesla cable instead of using an adapter. We're actively exploring innovative solutions to reduce costs related to chargers. Overall, I don’t see this as a negative for us in the long run.

We'll take our next question from Morgan Reid with Bank of America.

Hi, everyone. Thanks for taking my question and nicely done on the growth drivers in fleet in Europe. Just curious if you can maybe elaborate on how we should think about that strength through the rest of the year. Just wanting to understand how those two segments, in particular, are expected to scale through the year here after some nice growth here in the first quarter.

I expect the fleet to remain strong. These customers are transitioning to electric for solid business reasons. Electrification is not optional; it's competitive for most fleets in the long term and will lower our cost structure. There’s a necessary learning curve and optimization cycle, so they have to start now to avoid future challenges to their business. We anticipate that this segment will remain robust regardless of the broader economic conditions. Currently, Europe is leading the U.S. in electric vehicle adoption, and we expect this trend to continue due to consistent policy support for the shift from fossil fuels to electric drive. However, in the long run, we do not foresee a significant difference between the U.S. and Europe since OEMs operate on an international scale, and supply chains and cost structures will soon favor EVs. It’s clear that both markets will experience a conversion rate, but for now, Europe, for the reasons mentioned, is likely to be very strong for us. We expect to see significant growth from that segment.

Great. Thank you. And then also, can you just talk about how we should think about the OpEx discipline through the year? And you all talked about kind of scaling operating leverage towards a positive inflection later this year. Just curious if you can kind of help quantify the moving pieces there as you look to continue scaling the top line again still a very disciplined OpEx line.

The short answer is we have a number for Q1, and we aim to stay close to that number for each of the next three quarters this year. There may be some variations, as last year we maintained consistency from the start. We plan to operate within a relatively narrow range.

Thanks, Morgan.

We'll take our next question from Matt Summerville with D.A. Davidson.

Thanks. First, just a question on gross margins up 200 bps sequentially. How should we expect that to kind of play out as we move through the year? Should we expect a similar kind of step-function improvement quarter-on-quarter or something a bit more conservative to that? And what are the main levers to gross margin improvement as we sit here for the balance of your fiscal '24?

Yeah. So I think, as we said, we expect continued improvements. I don't think anyone here would say that '25 is a place that we should be parking our electric vehicle for these to go up. Whether it goes up a point or two or whatever, quarter-on-quarter, we might be seeing, is very mix-dependent, but I'm confident that we're going to head towards the numbers we've discussed before towards the end of the year. I don't want to peg it to a number, but it's going to be better in Q4 than it is today. So expect it to continue to decline this year.

And then with respect to the comment you made, Rex, towards any of your prepared remarks. Are you thinking of cutting the EBITDA loss by roughly two-thirds between now and the fourth quarter, so say going from $49 million to say $16 million or thereabouts? Is the entirety of that bridge just scale from the revenue growth you're expecting? Or are there actual cost and expense cuts that are contemplated in there? Thank you.

It's actually all of the above. Clearly, we grow the revenue line, which we would hope to do consistent with what we've done in prior years because you start in Q1 and you end up in Q4, Q4 is a lot better than Q1. So clearly, that helps. We expect gross margin to improve during the year, that definitely helps a lot. And then if we are disciplined on OpEx and keep that in flattish territory, you can make the math work pretty quickly.

We'll take our next question from Mark Delaney with Goldman Sachs.

Yes, good afternoon, and thanks very much for taking my question. I was hoping to better understand some of the supply chain dynamics, I guess in terms of the P&L impact and stick to the gross margin theme first. You guys have been talking about how much of a headwind to gross margin, supply chain. I think at one point, it was something like 900 basis points of a headwind. Where does that stand as of this most recent quarter in terms of the impact? And then more broadly supply chain, if you could speak around how you see that progressing? And do you think supply chain holds you back in terms of hitting your shipment target for the balance of the year? Thanks.

Yeah, thanks for the question, Mark. So to start, the PPV/supply chain impact that we've been talking about, it's probably closer to five and six points per quarter. There are logistics charges. We can take it up another quarter or two, and then we have had a couple of write-offs that we did last year that impacted us. So I just want to frame that the percentage points there, it's really closer to five or six that are specifically supply chain, no question that has gotten much, much better from a supply perspective. So we really snapped through this quarter, and I was glad to see. I think I actually said in prior calls, jeez I'd love to build some inventory, right, because we've had to leave business on the table in prior quarters and backlog out of whack. So we're back to a nice rhythm now. I think from a build perspective there, as you can imagine, there are some prior deals that we had to cut that gets supplied that's now sitting in inventory. So you won't see a hundred percent of the supply chain impact disappear overnight. We obviously have to work that through existing inventory and sell that through, but I would say from an operational perspective, logistics are pretty much back to normal, which is a real-time thing. However you don't. And then the supply chain thing also back to a really good place. So once we work through any existing inventory that had those higher prices previously, we will be hitting our stride. So, but I think it's fair to say that we are well past the worst of it.

Thank you.

Our next question comes from Stephen Gengaro with Stifel.

Good afternoon, gentlemen. One thing for me, I wanted to get your read on NEVI funding, kind of where we stand and what your thought processes on timing, but also do you have insights into kind of where your customers are in the process as far as trying to secure funding?

Sure, Stephen. So just to give you some hard facts around NEVI, there are exactly four states where applications on NEVI proposals are due back shortly. In general, a little over half the United States has programs that are effectively live where we're working applications, and the comments I've made in the past have not changed. We work across the board with our customer base where the customers are aligned well positionally with position requirements, their location requirements within the NEVI program, as well as having the right amenity structure, giving a driver something to do that they would want to do while they are on a road trip. So combining those two things, we are orchestrating responses to the NEVI program, and sometimes, by the way, we're in multiple applications as the technology provider with different sets of folks from our customer base. That's generally how we approach it. So think of us as trying to put together this set of optimal sites to meet the state's requirements by looking into our customer base or potential customer base and trying to orchestrate that.

Okay, great, that's helpful. So would you expect like an inflection point when the funds are flowing? Or do you think it will be a kind of a more smooth realization of those revenues over time?

Yes, Stephen, I consider this industry to be one with a lot of initial excitement but little lasting impact. The timing of developments will show NEVI gaining traction as we approach 2024, but it won't experience a sudden spike in growth. This market just doesn't allow for that, partly due to how state programs are executed. For example, the VW Appendix D programs have positively affected our revenue in a steady manner, and we anticipate NEVI, being larger, will have a similar influence. Therefore, I don't foresee any sudden disruptions in the future. While anything is possible, such occurrences are not in line with historical trends.

We'll take our next question from Bill Peterson with JPMorgan.

Good afternoon, and it's great to see the improvement in gross margin. I would like to clarify the guidance for this current quarter. It seems like the trends from the first quarter will continue, but I want to confirm that there is still relative strength in Europe and fleet. However, there still appears to be a discretionary slowdown in commercial and residential segments. Is this the correct interpretation, or are there other areas that are beginning to show improvement? When do you anticipate the commercial and residential sectors will start to recover? Given that we've moved past the debt ceiling, what do you think people are currently awaiting in your view?

Thank you for the question, Bill. As we look ahead to Q2, we didn't set specific parameters. Regarding residential sales, it depends on how quickly EVs transition from manufacturers to consumers, which is difficult to predict. However, it appears that manufacturers are improving their delivery capabilities. The commercial sector is largely influenced by the return to work, but there is also significant new construction and infrastructure projects that are essential. As the commercial sector becomes more optimistic and less constrained, it should positively impact our business. Fortunately, our existing customers in the commercial space continue to return, providing a solid foundation for our revenue as we approach Q2. As for fleets, predicting that segment is trickier, as initial orders tend to be lower than expected, but the middle and later stages are often larger per customer. Therefore, Q2 will be a mix of what we've observed, and I don't anticipate any major or unexpected changes compared to Q1.

Yes. Okay. Thanks. That's good leading to my second question. So you've given some good parameters that you do expect some gross margin, I guess, expansion, kind of keep OpEx for any flattish. So that's really good to back into the two-thirds improvement on the fourth quarter. But I guess, holistically, if we think about third-party forecasts, IHS has nearly 60% EV growth in the U.S. this year. I think it has above 60% EV growth in Europe for the calendar year. Your current quarter kind of 40%, 41% year-on-year growth, but is there any reason to think in the back half of the year that at least your network systems, charging systems growth wouldn't be in that kind of range?

Well, I haven't thought about it in those exact percentage terms. However, I did mention in my prepared remarks that if we look at the overall year and our capabilities, we believe we can reduce the adjusted EBITDA loss by about two-thirds. This indicates that we expect the second half to be quite challenging. While I won't quantify it in percentage terms, it's clear that we are anticipating a strong second half, similar to our performance in the last two years.

We'll take our next question from Alex Potter with Piper Sandler.

Perfect. Thanks. I had a question, I guess, on customer satisfaction, uptime reliability. I know you've done a big focus for the company, those metrics maybe in the past weren't where you would want them to be. Just interested in knowing maybe what inning you're in, in terms of addressing that, both, I guess, qualitatively, but also to the extent possible to translate that into P&L impact growth would also be useful and interesting. Thanks.

There are many aspects to consider regarding this question. While I can't comment on other charging manufacturers, we take great pride in the reliability and uptime of our systems. Since the founding of the company, we have offered various parts and labor warranty programs and have encouraged customers to take advantage of them, achieving a high adoption rate. All our chargers are connected to our network, allowing us to monitor overall uptime and determine if any chargers are experiencing significant failures. Although some mechanical issues may go undetected, our drivers, equipped with a mobile app, quickly report any problems, acting as an early warning system for network maintenance. Consequently, we are now intensifying our efforts on network upkeep. With improvements in inventory management, we can now quickly turn around spare parts, often on the next business day, which was not the case during the pandemic when we faced inventory challenges. This situation affected the entire industry by causing repair delays, which we are now overcoming. We have revamped our support operations for drivers and station owners, particularly in our fleet services, introducing new programs for warranties, training self-maintainers, and stockpiling spare parts. Overall, we believe we are well-positioned to manage these concerns, though we will remain vigilant. It's important to note that while we have maintained stable operating expenses overall, we are investing more in reliability and support operations, which we view as key differentiators. Our products are designed not only for functionality from a hardware and software perspective but also to enable fast repairs and effective spare parts stocking. This design approach minimizes the number of components used in our charging infrastructure, making it easier to support the necessary repair cycles to meet our customers' uptime expectations. We are making substantial investments in this area.

We'll take our next question from Shreyas Patil with Wolfe Research.

Hey, thanks so much for taking my question. You guys have talked about how there is more diversity amongst your verticals as it relates to your revenue. Is there anything to consider in that from a margin perspective? I think in the past, you've talked about the workplace charger business being the strongest, fleet was a little weaker due to higher DC fast charging mix. Just curious how we should think about that.

Yes. It's actually more about specific products rather than specific verticals. A single-family home is always a single-family home, and that has a margin we’ve discussed, which is generally healthy but not as high as some of the AC products used in our commercial and fleet operations. The strongest margins come from established AC products that we have recently upgraded to higher power and improved. Therefore, wherever AC is applied, it yields a better margin, whether in commercial or fleet sectors. Additionally, we have invested significantly in our diverse DC portfolio, which includes various models suited for specific applications, as well as our Express Plus modular architecture, both of which are seeing good and improving margins. We've made excellent progress with new products that initially launch at lower numbers but are expected to perform well over time. So, rather than focusing on verticals, consider it from a product standpoint, as our products serve both major sectors of commercial and fleet. I hope that clarifies things.

We'll take our next question from Brett Castelli with Morningstar.

Yeah, hi, thank you. Just following up actually on that previous question. Rex, you mentioned the rollout of the new CP6000, I think, on the AC side. Can you just kind of talk about sort of the mix between that new product and the more legacy product that you're seeing today? And then also, can you touch on any margin differences between the new product versus the legacy? Thank you.

I’ll discuss the space the product has established for itself, and Rex can address the margin question specifically. We introduced the 6k not to replace the 4k series, but as a high-end offering. It has features that will eventually be incorporated into lower-cost products, but it currently serves as our flagship. For applications that require it, it can deliver more power per port, although that's not necessary in most medium-duration parking situations. Thus, it may not apply to every vertical, although it has superior features compared to the 4k product that could make it relevant for others. Without going into too much detail due to the specific nature of each vertical, I can say that in the fleet segment, especially in light commercial scenarios, the preference is usually for the 6k or lighter products rather than the 4k, though there are some fleet cases that utilize the latter. There is a noticeable correlation with the uptick in fleet demand, and the 6k is our primary product in Europe. The strength in our fleet segment and the European market is closely tied to the 6k, rather than the 4k. Rex, I'll pass the margin question over to you.

Yes. So from a margin perspective, the 6k, as Pat said, it's a premium product, higher performance, better features. Obviously, we're evolving the product portfolio in a positive way. It actually has similar margins in North America to the 4k. It's not all the way there yet, but it's nice to be able to build a next-gen product and to preserve margin on that in the process. And then what's helping us in Europe, as you may recall, we on the AC side, because of local requirements, et cetera, we've had to leverage third-party hardware, and now we don't have to do that anymore because the 6k is a product that is legal and certifiable and works in both North America and Europe. So that's been a nice improvement from a margin perspective for us in Europe.

Our next question comes from Itay Michaeli with Citi.

Great, thanks. Good afternoon. Just two quick ones for me. First, I was hoping you could maybe comment roughly on what you're seeing on utilization of your chargers, particularly among commercial customers. And I know not every customer is looking to maximize utilization per se, but curious what you're seeing there? And second, for Rex, just in terms of the inventory build in Q1, maybe how should we think about working capital at a high level the rest of the year?

Two very different questions. I'll address the first one. Our sales team obviously tracks utilization data for our customers as it's a standard reporting feature in our network. Utilization must be understood within the context of operating hours at the site. It's challenging to comment on overall network utilization in a meaningful way because it varies significantly across different subverticals, as it’s measured during specific hours. A clear example is a stadium; we have many customers in that sector. Stadiums are only operational during events, so if you look at their utilization over a 24-hour, year-long period, it appears very low unless there's an event, at which point they're fully booked. So, the measurement method is crucial. Overall, utilization remains very strong. A good indicator of this is the comments we've previously shared regarding rebuy rates. The rebuy rate usually constitutes the majority of quarterly revenue because, as Rex noted in response to one of his questions, the initial purchase is often smaller than expected, while subsequent purchases tend to be larger. This happens as customers begin with a trial phase, particularly in the commercial segment where spending can be more discretionary. They then observe the utilization and use that to drive further expansion. With such strong rebuy rates, it's an excellent indicator of whether utilization across the network is robust and growing.

Yes, and very quickly on the inventory working capital question. No question in Q1, our inventory popped up almost $50 million. In truth, that's actually a blessing, not a curse because we went from a lot of long lead time items and a lot of stuff in raw materials to being able to kick things up and get some bills, and we have low obsolescence risk on these products. So getting through that and having a blend to inventory of good finished goods that we can move and therefore, we have pretty back-end loaded quarters like most companies. Knowing that you can ship what you need to ship at the end of the quarter to meet demand is a really good thing. I think the inventory will come down meaningfully on a percentage basis relative to revenue. If you look at the size of the company, the question is bigger than it needed to be in Q1, but those are the reasons because we're coming out of the supply chain issue. Then working capital generally, we bring inventory down relative to that, that will help as the company grows. I think that part of the picture will definitely improve later this year.

We'll take our next question from Joseph Osha with Guggenheim Partners.

Hi, thanks. I just have one question. We talked a little bit about NEVI earlier. I'm wondering, given the timetable and the ambition of the CARB Advanced Clean Fleets rule, what your thoughts are about how that might begin to layer into your business? Thanks.

I mean, you saw the strength in the fleet business. And so also the fleet business is interesting. California obviously usually leads the way in the United States with respect to innovation and policy and incentives. But because it's just good for business to electrify your fleet from a cost structure perspective, we're seeing a fleet business that's pretty pervasive across Europe and the United States and not necessarily hotspoted just in California. And like any program, and this is very in line with the comments on NEVI, it doesn't hit you all at once; it tends to build. So it will contribute. It will contribute over time because it will drive vehicle electrification, but again, I don't expect it to drive. It just can't move. Remember, you need the vehicles to be able to have demand for the charging infrastructure and that's the biggest variable there. You can have the incentive structure there, but it doesn't necessarily mean that the vehicles are going to follow in perfect order.

Thank you, everyone. This concludes today's presentation. We appreciate your participation, and you may now disconnect.