Good afternoon, ladies and gentlemen. My name is Bo, and I'll be your conference operator for today. At this time, I would like to welcome everyone to the ChargePoint's Second Quarter Fiscal 2024 Earnings Conference Call and Webcast. All participants' phone lines have been placed in a listen-only mode to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. I would now like to turn the call over to Mr. 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 second quarter of 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 a press release announcing results for the quarter ended July 31, 2023, which can also be found on the Investors section of our website. We'd like to remind you that during the conference call, management will be making forward-looking statements, including our outlook for our third quarter and full fiscal year 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-Q filed with the SEC on June 8, 2023, and our earnings release, which posted today on our website as well as filed with the SEC on Form 8-K. Also, please note that we use certain non-GAAP financial measures on this call, which we've reconciled to GAAP in our earnings release and for certain historical periods in the investor presentation posted on the Investors section of our website. And finally, we will be posting the transcript of this call to our Investor Relations website within the Quarterly Results section. With that, I'll turn it over to Pasquale.

Thank you, Patrick, and thank you all for joining us today. Before we get to the results for the quarter, I'd like to address four key points that are likely top of mind. First, we have announced the strategic corporate reorganization that we've been working on for months, with a goal of achieving higher operational efficiency as we scale, while reducing our operating expenses by an estimated $30 million on an annualized basis. As part of this reorganization, we've reduced our headcount by 10% and reducing our non-personnel expenses as well. Second, we've taken an inventory impairment charge on our first generation DC charging products. During the supply chain crisis, we saw the assurance of supply versus costs and are now adjusting our stranded costs to current values given inventory levels. Third, let me address growth. We believe conversion of the world's vehicle fleet to EVs remains inevitable, as does the need for infrastructure to charge them. U.S. EV sales were up 48% year-over-year in Q2, a record for any quarter, and Europe is experiencing a similar pace of adoption. Correspondingly, usage of our existing chargers on our network is up significantly. In short, this puts utilization pressure on infrastructure, and we believe that will turn into demand for our products. Fourth, I'd like to underscore our continued commitment to positive adjusted EBITDA in Q4 of calendar 2024, and we believe we have sufficient cash for each to achieve that core objective. Moving on to Q2. We delivered revenue within our guidance range at $150 million, up 39% year-over-year and 16% sequentially, all done in an environment where many businesses are delaying discretionary spend. In the U.S., we continue delivering on several major projects we have mentioned during previous calls. We are finishing construction of the Volvo-Starbucks project, a 1,300-mile corridor from Seattle to Denver, connected by ChargePoint DC fast charging solutions at Starbucks locations along the route. We also began shipping our charging stations for a much larger project, the Mercedes-Benz fast-charging network, which we announced at CES in January. As Mercedes recently stated, the first of these 400 plus charging hubs will open in the fall. In Q2, we also delivered a large amount of products to the United States Postal Service with our partner Rexel Energy Solutions, supporting the ongoing growth of our fleet business. Transit deployment scaled nicely in the quarter, including a project with the MTA in San Francisco, among others. We've now over 8,000 electric buses served by our charging management software and our telematic solutions. Just last week, we received a FedRAMP unique entity ID from the U.S. government, a designation achieved after a long process. This permits us to bid for tens of millions of dollars in potential U.S. government RFPs. I'd also like to reiterate our commentary on what is perceived as a major market development, the adoption of the NACS connector. Seeing the market need to support this connector type, we began product development well ahead of the recent OEM announcements and are finalizing our NACS connector solutions to begin shipping in November. That being said, we remain committed to making sure our customers do not need to dedicate parking spaces to cars equipped with a specific connector type. Customers' existing investments in ChargePoint technology are protected and will remain so into the future via an optional, cost-effective upgrade program to NACS cables for their chargers. Our goal is to enable drivers to charge any vehicle anywhere, at any time. Turning to Europe. Our business continues to expand with a clear highlight being our collaboration with leasing companies. For those unfamiliar with the European car market, the majority of new vehicles sold are delivered as a leased company car benefit. During the quarter, we added Arval, a part of the BNP Group and a European leader in full-service vehicle leasing, to the list of these companies that have chosen ChargePoint. With the same strategic lens through which we approach leasing company relationships, we also are fostering our partnerships with fuel card providers like WEX, UTA, Voyager, and others. These customers are building substantial charging businesses based on ChargePoint's software. Overall, our European revenue grew 78% year-over-year and we have now surpassed 500,000 roaming ports for drivers there in addition to our own installations. Globally, we are progressing our fortified contract manufacturing strategy. We expect these changes to give us increased capacity and improved cost structure and reliable supply. Finally, to give you a snapshot of ChargePoint's global momentum, here are our latest network, customer, and environmental statistics. We finished the quarter with over 225,000 active ports under management, including more than 22,000 DC fast ports. Approximately one-third of our managed ports are in Europe, and we now provide drivers access to more than 532,000 roaming ports globally. We count 76% of the 2022 Fortune 50, and 57% of the 2022 Fortune 500 as our customers. From an environmental perspective, as of the end of the quarter, we estimate that our network has now fueled approximately 7 billion electric miles, avoiding approximately 280 million cumulative gallons of gasoline and over 1.4 million metric tons of greenhouse gas emissions. And before I hand it over to Rex, I just want to correct one thing that I may have misspoken; we finished the quarter with 255,000 active ports under management. I apologize for the mistake. Rex, over to you.

Thanks, Pasquale, and good afternoon, everyone. 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 others. Network charging systems refer to our connected hardware. Subscriptions include our cloud services connecting that hardware; Assure warranties and our ChargePoint-as-a-Service offerings where we bundle hardware, software, and warranty coverage into recurring subscriptions. Other consists of professional services and certain non-material revenue items. For Q2, revenue was $150 million, up 39% year-on-year and 16% sequentially, within our guidance range of $148 million to $158 million. Network charging systems at $115 million was 76% of Q2 revenue, up 36% year-on-year. Subscription revenue at $30 million was 20% of total revenue, up 48% year-on-year. Other revenue at $6 million and 4% of total revenue increased 51% year-on-year. Our deferred revenue continues to grow; this is future recurring subscription revenue from existing customer commitments and payments, and finished the quarter at $220 million, up from $205 million at the end of Q1. Turning to verticals. As you know, we report them from a billings perspective, which approximates the revenue split. Q2 billings percentages were commercial 75%; fleet 16%; residential 7%; and other 1%. Commercial was healthy and fleet continued execution against large programs. Despite the smaller contribution to Q2 billings relative to 24% in Q1, fleet grew over 50% year-on-year. In residential, we saw demand building for our home products through dealer, retailer, and utility programs. The shipments were slower than expected. From a geographic perspective, North America's Q2 revenue was 79%, and Europe was 21%, consistent with our first quarter of this year. In the second quarter, Europe delivered $32 million in revenue, grew 78% year-on-year, and sequentially increased 17%. Turning to gross margin. Non-GAAP gross margin for Q2 was 3%. As Pasquale indicated, this reflects a $28 million or 19 margin point impairment to cost of goods sold. This was taken to address supply chain related higher component costs and supply overruns for our first generation DC charging products. In addition to this quarter-end impairment, our non-GAAP gross margin for the quarter also included 3 points of headwind from selling this first generation product at the pre-impairment cost structure. We see continued demand for this product. Non-GAAP operating expenses for Q2 were $89 million, a year-on-year increase of 11% and a sequential increase of 4%. From an operating leverage perspective, this represents a 6 point improvement against the first quarter. For reasons Pasquale mentioned today, we took actions reducing our operating expenses. I will speak to the implications when I give guidance shortly. Stock-based compensation in Q2 was $35 million, up from $24 million in Q1. We typically do our annual refresh grants in Q2, which explains the stair step. Q2 non-GAAP adjusted EBITDA loss pre-impairment was $53 million. This was a 5% improvement year-on-year, but higher than our expectations due to revenue landing towards the low end of our range and a lower-than-expected gross margin. Our non-GAAP adjusted EBITDA, inclusive of the impairment, was a loss of $81 million, 44% higher than last year's second quarter. We continued to build inventory during the quarter. As mentioned last quarter, we are working through inventory associated with earlier supply commitments. We finished the quarter with $144 million in inventory, which is net of the Q2 impairment discussed earlier, and up from $115 million at the end of Q1. We do not expect this level to increase significantly over the rest of the year. We are managing through these commitments and vectoring in on our turns goals. Looking at cash, we finished the quarter with $264 million in hand. This balance includes $38 million raised through our ATM program, which has generated a total of $105 million over the past three quarters. During Q2, we also entered into a $150 million revolving credit facility, with four leading global banks. This facility is currently undrawn and provides non-dilutive liquidity. It will be strategically deployed alongside or at the market program to maintain a strong balance sheet as we drive towards becoming cash flow positive next year. This is our capital plan. We had approximately 360 million shares outstanding as of July 31, 2023. Turning to guidance. For the third quarter of fiscal 2023, we expect revenue to be $150 million to $165 million, up 26% year-on-year and up 5% sequentially at the midpoint. For the full fiscal year, we are guiding to $605 million to $630 million, up 32% year-on-year at the midpoint. Regarding gross margin, for the third quarter, we expect to be between 22% and 25% on a non-GAAP basis as we work through the inventory levels discussed earlier. With the inventory issue behind us and aggressive programs for improving our cost structure on supply and manufacturing, we would expect to resume continued improvement in gross margin next year. Though we don't typically guide on operating expenses, given the reorganization we announced today, we want to help reset everyone on a new level for the remainder of this year. Therefore, we expect non-GAAP operating expenses to be $81 million to $84 million in Q3, and $79 million to $82 million in Q4. Finally, regarding our goal of reducing our non-GAAP adjusted EBITDA by two-thirds from our Q1 level this year of $49 million, we are being prudent in our revenue guidance, while managing gross margin and operating expenses. Accordingly, we are targeting to have the Q1 adjusted EBITDA loss in Q4. And with that, I'll turn it back to Pasquale for closing remarks.

Thanks, Rex. In summary, we delivered on our revenue guidance for the quarter and expanded operating leverage. We're the clear leader in EV charging infrastructure across two continents, and recognize that to be successful, our solutions need to be everywhere, easy to find, easy to use, and highly reliable. ChargePoint is at the front of a long-term growth cycle. We are well-positioned and well-capitalized for the future, leaving us confident we will hit our goal of profitability on an adjusted EBITDA basis by the end of next year. Thank you for tuning in today. Operator, let's proceed to questions.

Thank you. We'll take our first question this afternoon from James West of Evercore ISI.

Hey. Good afternoon, guys.

Hey, James.

Hey, James.

Hey. So, Pat, you're going to be shipping the new products here in a couple of months. I know you had already started to do engineering work and things like that. Is it going to cause a change at all in kind of the ASP for your products, or is it a relatively minor kind of adjustment just to add next to the existing portfolio?

It doesn't have an ASP, in fact.

Okay. Thanks. For Rex, regarding the three points of margin headwind, what are the main drivers of that? I understand it's related to preparing for new sales. Is this issue only for this quarter? Will it resolve in the next couple of quarters, or will it persist for the remainder of the fiscal year?

So, James, those should go away going forward. It was an in-quarter item. We only flagged it just because we did the impairments effective as of the end of the quarter. And therefore, it didn't affect any of the underlying margin for that product during the quarter. We just want people to understand what the impact was. But with the impairment, that goes away.

Right. Got it. Okay. Thanks, guys.

Thank you. We go next now to Colin Rusch at Oppenheimer.

Thanks so much, guys. With the restructuring, can you talk about areas where you're going to focus some of those cuts, or is it really just generally across the board? And then the follow-up question is really about the pathway to the cash flow breakeven. If you could walk us through that, at the secondary question here.

I'll take the first part, Colin. I want to ensure that something is clearly understood. We've been working on this restructuring for months, and it's quite different from many of the other financial parameters in the company. It does have some impact on the second half of the year, but it's primarily something we've pursued as we continue to optimize our internal execution. Over the last eight quarters, our operating expenses have been maintained within a fairly narrow range, and we've improved our operating leverage during that time. To specifically answer your question, we initiated a restructuring a few weeks ago as Phase 1, changing how we organize our go-to-market teams in North America and Europe due to scale, aiming to enhance our execution speed and bring some of the product portfolio teams closer to the regions for quicker operation. Today, we added further restructuring regarding our R&D operations and product management organizations. We've made significant consolidation and reorganization in those areas, again with a focus on improving our execution speed. Additionally, we made adjustments in other departments such as sales, marketing, and general and administrative functions, which will aid in reducing operational expenses moving forward. So, it's really a combination of all of these efforts. I hope that answers your question.

That's very helpful. My follow-up question is what I previously asked. To reach cash flow breakeven, it seems that around $180 million in revenue for the fourth quarter is needed, give or take. With a growth rate of 30% to 35%, substantial margin expansion would be necessary. I'm curious how you envision the path to achieving a gross margin in the 30% to 35% range moving forward.

We’ve made solid progress on the model. Our commitment to reaching those results by Q4 of next year is reinforced by today’s reorganization. There needs to be some improvement in gross margin, which I mentioned earlier. We’ll work through some short-term challenges from supply chain issues. However, we have consistently demonstrated our ability to meet our top-line guidance, and we are determined to achieve that target in Q4.

Okay. Thanks so much, guys.

We'll go next now to Matt Summerville at D.A. Davidson.

Thanks. Couple of questions. First, Pat, on your prepared remarks, you mentioned the qualification you received from the U.S. government. What's involved in that qualification and what distinguishes your ability to compete on some of these deals versus others in the market?

The FedRAMP certification focuses on the federal government's internal controls requirements for software that manages assets sold to specific agencies. It's a qualification program where receiving that ID and being listed on the official website indicates that we've completed the necessary processes to meet the federal government's control and audit standards. This involves control and security measures primarily related to software. We take a software-first approach, which also encompasses the hardware that works alongside the software to provide a complete solution.

Got it. And then just a quick follow-up. I think you guys have been doing some belt-tightening ahead of this formal cost-out program. So, when you think about it holistically, is that $30 million number actually higher in terms of OpEx take-outs? And when do you expect to hit that $30 million run rate? What would be the timing on that? Thank you.

The $30 million is an annual figure, and we initiated the reorder today. You'll notice some effects in Q3, which is why I provided guidance on Q3 operating expenses. The full effect will be seen in Q4 since today is September 6th. We won't experience the complete impact in Q3, but we will in Q4, and this will continue into next year. It's important to highlight that we've been careful in managing our operating expenses. We increased spending in 2021, stabilized it in 2022, and although we explored some expenditures at the beginning of the year, we understood that to meet our profitability goals, we needed to scale back. Overall, we've successfully increased our top-line revenue while keeping operating expenses relatively stable. Therefore, we are confident we will achieve our targets next year.

Thanks, Rex.

Thank you. We'll go next now to Alex Vrabel at Bank of America.

Thanks for taking my question, guys. Maybe just a higher level. And I think you mentioned at the outset, talking about sort of utilization on the infrastructure portends sort of more demand to come. I'm just curious, right, there's a lot of sort of noise out there about EV sitting on lots. I think fleet EVs are still relatively delayed around backlog. You guys obviously have a broad scope and a broad view. So, just curious how you would sort of paint the real picture from what you're seeing out there and how things have evolved sort of from the start of the year to today? Thanks.

Let me address your two-part question in reverse order. Regarding the fleet, we are indeed facing vehicle limitations, which aligns with my previous comments during earnings calls. Our success in winning customers positions us well for expansion once the situation improves. If you were to survey large fleet customers, many would likely express concerns about vehicle availability. On the passenger car side, while certain makes and models are performing well, we are witnessing some price sensitivity among consumers, especially in the higher-priced segment of the electric vehicle market and the overall vehicle market, influenced by current interest rates. Additionally, there is uneven demand for various models introduced, based on consumer preferences. Not every vehicle succeeds, regardless of the technology used, resulting in some models being in oversupply. In my prepared remarks, I noted a 48% year-over-year increase in electric vehicle sales from Q2, which I believe is a more significant metric; overall, sales are up despite some fluctuations. This is simply the natural evolution of a market that cannot thrive on just a couple of models; it requires a diverse array of options to meet all needs. Ultimately, not every model will succeed and may not align with current macroeconomic conditions for consumers.

Got it. That's very helpful. I just want to clarify the cash situation you mentioned; is the cash position sufficient to reach that EBITDA inflection later in 2024? I'm also curious about your use of the revolver in addition to the ATM. Can you share any thoughts on why you would choose one over the other and the timing related to your capital sourcing strategy from now until then? Thanks.

Yeah. I think it's sort of an either or thing; it's not preference for A or B. So, I think what we've said previously is the ATM, we'd like to do that on a consistent low level basis to match very loosely in our adjusted EBITDA loss as we progress into next year. That's not a fixed formula, but it is something that's aspirational. And then as far as the revolving credit facility, as you would draw that down when we need to; we have numbers in mind that we'd like to maintain on the balance sheet, and if we need to pull it down, but it does depend on how the ATM shakes out.

We'll next go now to Bill Peterson, JPMorgan.

Yeah. Thanks for taking the questions. So, if we think about your second half demand outlook, can you help us understand how the trends should look across residential, commercial, including workplace and fleet? I mean we saw here in the second quarter that commercials had some nice growth, while fleet and residential kind of took a step back. But how should we think about the trends amongst the segments in the second half?

On the fleet side of our business, fleet customers tend to have variable revenue patterns. This variability is influenced by vehicle availability and their construction plans for depots. Therefore, I suggest looking at our fleet business over multiple quarters rather than just one, as there can be fluctuations from quarter to quarter, but overall, it reflects market changes. Regarding the commercial side, while there has been notable growth, it hasn’t aligned with the levels of utilization we would expect. There seems to be a disconnect between how commercial buyers, or general businesses, view the importance of investing in EV charging compared to where their businesses currently stand and the tough choices they are facing. So, although the growth in commercial is positive, it could have been better without the existing challenges. The pressure on utilization is evident, and a response to that pressure will come. For the home segment, growth will mainly depend on vehicle sales, and we will likely see some increase in the latter half of the year due to typical seasonal trends.

Okay. Thanks for that. And recently, the seven OEMs announced that they'd like to build their own charging network, 30,000 chargers maybe around the summer of '24 starting. You also mentioned that you started your, I guess, Mercedes-Benz build-out. And they are one of the OEMs that's part of this. I guess, are there any particular implications of this charging network? Is this an opportunity for ChargePoint? I mean how would your relationship with Mercedes-Benz potentially benefit this program? Is this something that you're actively pursuing?

So, what I can say being fairly close to all the OEMs that are involved in the broader set in general is that they are sorting out amongst themselves how they want to organize and progress that business. To answer your question specifically regarding opportunity, we view it as absolutely an opportunity for us. We're very proud of what we've done on the Mercedes-Benz project to date. You'll see that, as I said in the fall, Mercedes made an announcement with respect to when they expect sites to go live in the fall. And we'll be eager to hear customer perception of that project. We've been working very hard at it. We hope that bodes well for us with respect to any opportunities that the auto consortium would bring to market. And frankly, I'll remind you that we've also done a lot more with auto OEMs historically. We've done a lot with state programs historically. We've done an awful lot of VW Appendix D statewide programs; we rebuilt our corridors. I mentioned in my remarks that we did a project with Volvo and Starbucks, a 1,300-mile corridor from Seattle to Denver. So, we've got a lot of experience building these things out. And related to that, you saw us make some announcements relative to double down on our investment with respect to uptime performance, bullet-proof availability, etc. We think that's just critical. It's critical for this phase of expansion for consumers. It's got to be reliable. It's got to be easy to find. It's got to be easy to use. And we're making actually quite large investments relative to where most of these corridor builds-out, especially in those areas. So, we hope to be well ahead of the curve.

Okay. Thanks for the color.

Thank you. We'll go next now to Joseph Osha at Guggenheim.

Thank you. Hello, and I apologize; I'm in a car. Two questions. First, obviously, some of the intermediate-term challenges you're seeing presumably exist elsewhere in the business also. Is there any thought around opportunities for inorganic growth or consolidation? Or is that just not something you would ever think about? And then I do have a follow-up.

Well, honestly, if I said we would ever reach a point where we wouldn’t consider that, you would likely question me. Clearly, if we were to find something that met our financial criteria, as well as our customer and talent acquisition needs, we would absolutely pursue it. However, at the moment, our focus is on managing the business and we have set a very high standard for achieving our profitability goals by the end of next year. We have consistently emphasized this in multiple earnings calls, and we are committed to making it happen. Therefore, any potential for inorganic growth moving forward would need to align with those objectives and not disrupt them.

Okay. That makes sense. And then my second question. Speaking to the NACS issue, obviously, you anticipated this. But, yeah, I mean, the competitive landscape in NACS and wire extension DC fast has evolved. So, I'm just wondering, since the beginning of the year, has your thought around the sort of the optimum mix for ChargePoint in terms of L2 versus DC fast changed or evolved at all, or is it still just completely what it was?

I believe your question is important. Do you notice any fundamental market factor that would alter the balance between DC and AC? The NACS part of your inquiry doesn't affect my response. NACS is simply a connector and does not alter functionality; it's essentially a different shape we have to deal with. We have invested to ensure that our customers aren’t forced to allocate a certain percentage of parking spaces to NACS and some to CCS, as that would be a total failure since you could never get that percentage right. If you miss it today, it will change over time, creating unnecessary risks associated with remodeling a charging site, which is not ideal in the early stages of the market. Therefore, this connector does not change functionality or consumer behavior, and we do not see any fundamental shift in the transition of AC business to DC or vice versa; it does not impact anything.

Okay. That's clear. Thank you.

We'll go next now to Stephen Gengaro at Stifel.

Thanks. Good afternoon, everybody. Two things for me. The first maybe for Rex. When we think about your target of getting to EBITDA breakeven. I know this was asked a little bit earlier, but can you talk us through in a little more detail to maybe increase the comfort level on kind of what type of revenue growth you need? I mean, I guess, it's about mid-30s gross margins and kind of what has to happen on the operating cost side? I mean we're just trying to get a kind of what's behind this path, to this number with a little more detail?

Sure, and I apologize for the confusion; it's EBITDA positive, not just breakeven. We are definitely considering our targets. The best way for you to gain insight into that is by following our approach, as we have more visibility regarding pipeline and major deals for the coming year. There is a specific revenue target linked to a certain gross margin level, and we have control over our operating expenses, which we've shown today. There are reasonable assumptions we believe we can achieve by the end of next year. If the industry were to face a significant slowdown, which we don't anticipate, that could create challenges. Nonetheless, we believe we are at the beginning of substantial growth and look forward to continued progress next year. If fleet vehicles finally arrive, that would certainly help. We expect to have a strong year and anticipate overcoming the gross margin issues we've faced recently. Overall, it's a complex situation, and I can't provide further guidance on it, as that wouldn't be appropriate.

Thank you. Another question we often hear from investors concerns NEVI funding. When we consider this, the focus usually shifts to owner-operators. We’d like to understand how ChargePoint is exposed to NEVI funding and its impact. What should we be looking out for? Are there specific customers utilizing your services to make use of their NEVI funding? How can we understand the benefits ChargePoint stands to gain from NEVI funding, and when might we see those benefits reflected in our figures?

We are not directly an asset owner. Similar to our approach in the VW Appendix D days, the NEVI bids are organized at a high level in a similar manner. We may collaborate with a group of our customers to own and manage the assets, ensuring ongoing care and integration with their businesses. In some instances, our name is included in a specific NEVI proposal to a state, while in other cases, it is not. Additionally, multiple proposals often come from various parties that utilize our technology, as they have chosen us as their technology partner for their bids. When evaluating the results after a state decides how to allocate funds among different bidders, it is important to delve deeper into the awards because we may be the recipient on multiple occasions, which has happened recently. Four states have determined how they want to allocate the Phase 1 funding. For example, in Pennsylvania, we are mentioned in one of the awards, but we also serve as the technology supplier for twelve others. Initially, it may seem like our performance was lacking, but a closer examination reveals that we performed well. To provide a data point, among the four states that have made decisions regarding the first phase, we have approximately a one-third win rate on the funds appropriated by the state. We believe this win rate is quite favorable and aligns with what we have observed in other programs. We are supporting businesses interested in establishing their charging infrastructure on ChargePoint. Some of these companies even market themselves with us as an ingredient brand. Consequently, when they announce their charging services, it's often tied to their investments. We're proud to be at the forefront of these developments. We are the technology foundation for many businesses expanding their charging operations, and it's important not to overlook that aspect.

Okay. Well, that's why I asked the question. That's good color. Thank you.

Thank you. We'll go next now to Shreyas Patil at Wolfe Research.

Hey. Thanks a lot for taking my question. Maybe just following up on an earlier question. And if I were to rephrase it, so as you think about getting to positive EBITDA, do you need to see a reacceleration in the top-line growth? And I ask because we've now seen three quarters of decelerating top-line growth and the guidance for Q3 is to decelerate further. So, just trying to think about that trajectory of revenue.

Sure. To clarify, Shreyas, I wasn't entirely sure Stephen and I were completely on the same page regarding whether he was referring to the full year or just Q4. Our goal is to reach that target by the fourth quarter. It would be great to achieve it sooner, but it specifically relates to Q4, not the entire year. On the topic of revenue, when we mention acceleration, if we continue performing as we currently are, we could be in a good position. We don't need to return to last year's growth rates of 94% or 96% year-on-year. This year, we're aiming for mid-30s growth. If we maintain that from a much larger base as we close out the year, that's a favorable situation. We don't need to achieve a 60% growth rate; that's not essential.

Okay. That's very helpful. Just to clarify, if I exclude the entire impact of the legacy DC charger, including both the inventory charge and the effect on margins, it appears that gross margins would have been around 25% for the quarter. I want to confirm that I'm considering this correctly. When I look at the guidance for Q3, which suggests margins may remain flat or decrease slightly sequentially, how should I think about that transition, excluding the impact of the legacy DC charger?

Yes, Shreyas, your assessment of Q2 is correct. The charge resulted in a 3% margin, but without it, the margin stands at 22%, indicating a 19-point impact. If we factor out the headwind related to the product, given that we are dealing with the old cost structure for the quarter, the margin would be closer to 25%, which aligns with what we achieved in Q1. This provides insight into the underlying health of the business. Looking ahead, we've shared a range for gross margin. It's important to note that we are sensitive to product mix, and while it's uncomfortable to acknowledge, it's a reality. Historically, we've seen more alternating current (AC) products than direct current (DC), which are at a 50-50 balance now, potentially shifting towards DC, a lower margin category for us. Therefore, I wouldn't establish a significant range for Q3. Additionally, we are working through product availability due to a supply overrun, as mentioned earlier, which adds a layer of unpredictability since sales may happen in small quantities or larger deals. I've kept that flexible. However, I believe that as we move into next year and address these challenges over the next six months, we should be able to attain a clearer path towards improving gross margins consistently next year.

Okay. Great. Thanks so much.

All right.

Thank you. We'll go next now to Chris Pierce at Needham.

Hey. Good afternoon. You just talked about commercial customers, say, utilization was 20% and then that would lead to the order for a new charger. Like, where are we seeing it now? Like, where can you kind of frame it at? Are they waiting to get to 30%, or is it still TBD? And is there anything you can do to kind of incentivize them to move sooner rather than later?

It varies by segment. If we examine utilization, your figures align closely with the thresholds for passenger vehicles, long-haul trips, and fast charging. This is mainly because human behavior follows a pattern. During certain times, fast charging locations experience high demand, while there are significant periods when they are underused. Your figures for that segment are generally accurate. Taking workplace charging as an example, we measure utilization based on the operating hours of workplaces during office days. We need to adjust this post-COVID for coordinated office days. We are observing that utilization rates are adapting to the time differences when using our waitlist feature, where one vehicle departs and another arrives to use the charging station. Many of our largest workplace clients have approached us, seeking innovative solutions to alleviate the pressure since they currently lack the budget for non-essential spending. Again, this suggests that we have surpassed the point of overutilization in many commercial scenarios. Overall, they indicate that they are awaiting budget relief to make adjustments. So, it really varies by segment.

Okay. And just to clarify, are we talking about budget flush in the year-end or budget relief where you haven't done that deep with them?

Yeah. I mean, I haven't personally had the conversation in specific detail, but my sense from talking to our sales force broadly is that it is less of a budget flush and more of a restricted spend policy on discretionary items within many companies that are kind of sitting here in a hesitant macroeconomic environment, deciding how they want to basically put assurances around their balance sheet.

Okay. Could we just go one deeper then? Is it right to think of that as California-based large tech companies? Is that the right way to think about it? And that's sort of an indicator of...

No.

Okay.

No, that's just one aspect. California, as the state with the highest electric vehicle penetration, will certainly be the primary example for impacts related to charging infrastructure, but other states share similar characteristics. So, it's not specifically about one location; it's more about the level of electric vehicle adoption in that area.

Okay. And then just last question for me. Rex just kind of highlighted the gross margin guidance in Q3 was around mixed AC to DC. That sort of assumes that these customers are going to hold your planning for them to still be at hold in the next three months. Is it the right way to think about it over the next two months or beyond?

Not quite. If you look at the percent of total ports, AC, DC, if you look at it on a technology basis and not on a segment basis, but you just look at DC ports, AC ports, and then we always break home out because it is on a different kind of volumetric scale because it's much more one-to-one with vehicles where they're single-family residence anyway. The percentages haven't moved around that much in a long-term trend. The difference is the ASPs on the DC products have risen. And the reason the ASPs have risen is not because they're getting more expensive; it's that the power levels that are being delivered on average occur parking stall have gone up from early days. So, the cents per watt delivered, if you want to reduce it to its most basic metric, although I would argue that that's not the only metric you should look at, that has clearly come down with efficiency. But the overall kilowatts delivered has gone up significantly with respect to that technology. So, that causes a mix shift in dollar. And then if you look at the fleet business, which is growing quite nicely for us, it also in the early days, especially associated with transit, and I made some comments with respect to transit, medium, and heavy, etc., those are much more DC-heavy businesses. So, when you add that mix in, that's what's behind Rex's comments on mix sensitivity.

Okay. Perfect. Appreciate it.

Thank you. And ladies and gentlemen, that will bring us to the conclusion of the ChargePoint second quarter fiscal 2024 earnings conference call. I'd like to thank you all so much for joining us this afternoon and wish you all a great remainder of your day. Goodbye.