ChargePoint Holdings, Inc 10-Q for FY2022 Q2
ChargePoint Holdings, Inc. (CHPT)
10-Q
2021-09-10
For: 2021-07-31
View Original
Added on
April 12, 2026
About this 10-Q
ChargePoint Holdings, Inc filed this 10-Q on September 10, 2021, covering the quarter ended July 31, 2021 (FY2022 Q2).
Headline figures
Quarter ended July 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $56.12M
- up 60.5% from $34.96M a year earlier
- Net loss
- $84.94M
- compared with a net loss of $35.29M a year earlier
- Diluted EPS
- -$0.29
- compared with -$6.97 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended July 31, 2021
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-39004
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or org anization) |
(IRS Employer Identification No.) | |
(Address of principal executive offices) |
(Zip Code) | |
(408 ) 841-4500
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class |
Trading Symbol(s) |
Name of each exchangeon which registered | ||
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act. (Check one): | Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer |
☒ | Smaller reporting company | ||||
| Emerging growth company | ||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule ☒
12b-2
of the Act). Yes ☐ No The registrant had outstanding 322,602,267 shares of common stock as of August 31, 2021.
CHARGEPOINT HOLDINGS, INC.
Table of Contents
Page |
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| 5 | ||||||
| Item 1. |
5 | |||||
| Item 2. |
37 | |||||
| Item 3. |
53 | |||||
| Item 4. |
53 | |||||
| Item 1. |
56 | |||||
| Item 1A. |
56 | |||||
| Item 2. |
83 | |||||
| Item 3. |
83 | |||||
| Item 4. |
83 | |||||
| Item 5. |
83 | |||||
| Item 6. |
84 | |||||
| 85 | ||||||
2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report on Form
10-Q
(this “Quarterly Report”) includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of present or historical fact included in this Quarterly Report, regarding the future financial performance of ChargePoint Holdings, Inc. (“ChargePoint” or the “Company”), as well as ChargePoint’s strategy, future operations, future operating results, financial position, expectations regarding revenue, losses, and costs, margins, prospects, plans and objectives of management are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “continue,” “project” or the negative of such terms and other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. These statements are based on various assumptions, whether or not identified herein, and on the current expectations of ChargePoint’s management and are not predictions of actual performance. These forward-looking statements are provided for illustrative purposes only and are not intended to serve as, and must not be relied on by any investor as a guarantee, an assurance, a prediction or a definitive statement of, fact or probability. Actual events and circumstances are difficult or impossible to predict and may differ from assumptions, and such differences may be material. Many actual events and circumstances are beyond the control of ChargePoint. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about ChargePoint that may cause the actual results, level of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. If any of these risks materialize or ChargePoint’s assumptions prove incorrect, actual results could differ materially from the results implied by these forward-looking statements. There may be additional risks that ChargePoint does not presently know or that ChargePoint currently believes are immaterial that could also cause actual results to differ from those contained in the forward-looking statements. In addition, forward-looking statements reflect ChargePoint’s expectations, plans or forecasts of future events and views as of the date hereof. The Company anticipates that subsequent events and developments will cause ChargePoint’s assessments to change. These forward-looking statements should not be relied upon as representing ChargePoint’s assessments as of any date subsequent to the date hereof. Accordingly, undue reliance should not be placed upon the forward-looking statements. The Company cautions you that these forward-looking statements are subject to numerous risk and uncertainties, most of which are all difficult to predict and many of which are beyond the control of ChargePoint. The following factors, among others, could cause actual results to differ materially from forward-looking statements:
| • | ChargePoint’s success in retaining or recruiting, or changes in, its officers, key employees or directors; |
| • | changes in applicable laws or regulations; |
| • | the possibility that COVID-19 may adversely affect the results of operations, financial position and cash flows of ChargePoint; |
| • | COVID-19-related supply chain disruptions and expense increases; |
| • | unexpected delays in new product introductions; |
| • | ChargePoint’s ability to expand its business in Europe; |
| • | ChargePoint’s ability to integrate newly acquired assets and businesses into ChargePoint’s own business; |
| • | the electric vehicle (“EV”) market may not continue to grow as expected; |
| • | ChargePoint may not attract a sufficient number of fleet owners as customers; |
| • | incentives from governments or utilities may be reduced, which could reduce demand for EVs, or the portion of regulatory credits that customers claim may increase, which would reduce ChargePoint’s revenue from this source; |
| • | the impact of competing technologies that could reduce the demand for EVs; |
| • | technological changes; |
| • | data security breaches or other network outages; |
| • | ChargePoint’s ability to remediate its material weaknesses in internal control over financial reporting; |
| • | the possibility that ChargePoint may be adversely affected by other economic, business or competitive factors; and |
| • | any further changes to ChargePoint’s financial statements that may be required due to SEC comments to the Form 10-K, as amended, or further guidance regarding the accounting treatment of the Public Warrants and the Private Placement Warrants (each as defined below), and the quantitative effects of the restatement of Switchback Energy Acquisition Corporation’s (“Switchback”) consolidated historical financial statements. |
3
The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with the other risk factors included herein. Forward-looking statements reflect current views about ChargePoint’s plans, strategies and prospects, which are based on information available as of the date of this Quarterly Report. Except to the extent required by applicable law, ChargePoint undertakes no obligation (and expressly disclaims any such obligation) to update or revise the forward-looking statements whether as a result of new information, future events or otherwise.
4
Part I - Financial Information
ITEM 1. |
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
| ChargePoint Holdings, Inc. Unaudited Condensed Consolidated Financial Statements |
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| 6 | ||||
| 7 | ||||
| 8 | ||||
| 9 | ||||
| 11 | ||||
| 13 | ||||
5
ChargePoint Holdings, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
July 31, 2021 |
January 31, 2021 |
|||||||
(in thousands, except share and per share data) |
||||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ |
$ |
||||||
| Restricted cash |
||||||||
| Accounts receivable, net of allowance of $ as of July 31, 2021 and January 31, 2021 |
||||||||
| Inventories |
||||||||
| Prepaid expenses and other current assets |
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| |
|
|
|
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| Total current assets |
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| Property and equipment, net |
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| Operating lease right-of-use |
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| Goodwill |
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| Other assets |
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| |
|
|
|
|||||
| Total assets |
$ |
$ |
||||||
| |
|
|
|
|||||
Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ |
$ |
||||||
| Accrued and other current liabilities |
||||||||
| Deferred revenue |
||||||||
| Debt, current |
— |
|||||||
| Total current liabilities |
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| Deferred revenue, noncurrent |
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| Debt, noncurrent |
— |
|||||||
| Operating lease liabilities |
||||||||
| Common stock warrant liabilities |
— |
|||||||
| Redeemable convertible preferred stock warrant liability |
— |
|||||||
| Other long-term liabilities |
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| |
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|
|
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| Total liabilities |
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| |
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| Commitments and contingencies (Note 7) |
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| Redeemable convertible preferred stock: $ and shares authorized as of July 31, 2021 and January 31, 2021, respectively; and shares issued and outstanding as of July 31, 2021 and January 31, 2021, respectively (liquidation value: $ and $ as of July 31, 2021 and January 31, 2021, respectively) |
— |
|||||||
| Stockholders’ equity (deficit): |
||||||||
| Common stock: $ and shares authorized as of July 31, 2021 and January 31, 2021, respectively; and shares issued and outstanding as of July 31, 2021 and January 31, 2021, respectively |
||||||||
| Preferred stock, $ authorized as of July 31, 2021 and January 31, 2021, respectively; issued and outstanding as of July 31, 2021 and January 31, 2021 |
||||||||
| Additional paid-in capital |
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| Accumulated other comprehensive income |
||||||||
| Accumulated deficit |
( |
) |
( |
) | ||||
| |
|
|
|
|||||
| Total stockholders’ equity (deficit) |
( |
) | ||||||
| |
|
|
|
|||||
| Total liabilities, redeemable convertible preferred stock, and stockholders’ equity (deficit) |
$ |
$ |
||||||
| |
|
|
|
|||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
ChargePoint Holdings, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
Three Months Ended July 31, |
Six Months Ended July 31, |
|||||||||||||||
2021 |
2020 |
2021 |
2020 |
|||||||||||||
(in thousands, except share and per share data) |
(in thousands, except share and per share data) |
|||||||||||||||
| Revenue |
||||||||||||||||
| Networked charging systems |
$ |
$ |
$ |
$ |
||||||||||||
| Subscriptions |
||||||||||||||||
| Other |
||||||||||||||||
| Total revenue |
||||||||||||||||
| Cost of revenue |
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| Networked charging systems |
||||||||||||||||
| Subscriptions |
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| Other |
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| Total cost of revenue |
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| Gross profit |
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| Operating expenses |
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| Research and development |
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| Sales and marketing |
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| General and administrative |
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| Total operating expenses |
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| Loss from operations |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||
| Interest income |
||||||||||||||||
| Interest expense |
— |
( |
) |
( |
) |
( |
) | |||||||||
| Change in fair value of redeemable convertible preferred stock warrant liability |
— |
( |
) |
( |
) | |||||||||||
| Change in fair value of common stock warrant liabilities |
( |
) |
— |
— |
||||||||||||
| Change in fair value of contingent earnout liability |
— |
— |
— |
|||||||||||||
| Transaction costs expensed |
— |
— |
( |
) |
— |
|||||||||||
| Other (expense) income, net |
( |
) |
( |
) |
||||||||||||
| Net loss before income taxes |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||
| Provision for income taxes |
||||||||||||||||
| Net loss |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | ||||
| Accretion of beneficial conversion feature of redeemable convertible preferred stock |
— |
( |
) |
— |
( |
) | ||||||||||
| Cumulative dividends on redeemable convertible preferred stock |
— |
( |
) |
— |
||||||||||||
| Deemed dividends attributable to vested option holders |
— |
( |
) |
— |
||||||||||||
| Deemed dividends attributable to common stock warrant holders |
— |
( |
) |
— |
||||||||||||
| Net loss attributable to common stockholders - Basic |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | ||||
| Gain attributable to earnout shares issued |
— |
( |
) |
— |
||||||||||||
| Change in fair value of dilutive warrants |
( |
) |
— |
( |
) |
— |
||||||||||
| Net loss attributable to common stockholders - Diluted |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | ||||
| Weighted average shares outstanding - Basic |
||||||||||||||||
| Weighted average shares outstanding - Diluted |
||||||||||||||||
| Net loss per share - Basic |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | ||||
| Net loss per share - Diluted |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
ChargePoint Holdings, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(unaudited)
Three Months Ended July 31, |
Six Months Ended July 31, |
|||||||||||||||
2021 |
2020 |
2021 |
2020 |
|||||||||||||
(in thousands) |
(in thousands) |
|||||||||||||||
| Net loss |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | ||||
| Other comprehensive income (loss): |
||||||||||||||||
| Foreign currency translation adjustment |
( |
) |
( |
) |
||||||||||||
| Unrealized loss on short-term investments, net of t a x |
— |
( |
) |
— |
( |
) | ||||||||||
| |
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|
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| Other comprehensive (loss) income |
( |
) |
( |
) |
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| |
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|
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| Comprehensive loss |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | ||||
| |
|
|
|
|
|
|
|
|||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
ChargePoint Holdings, Inc.
Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(unaudited)
| Redeemable Convertible Preferred Stock |
Common Stock | Additional Paid-In Capital |
Accumulated Other Comprehensive Income |
Accumulated Deficit |
Total Stockholders’ (Deficit) Equity |
|||||||||||||||||||||||||||
| Shares (1) |
Amount | Shares (1) |
Amount | |||||||||||||||||||||||||||||
| (in thousands, except share data) | ||||||||||||||||||||||||||||||||
Balances as of January 31, 2021 |
$ |
$ |
$ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||||||||||||
| Conversion of redeemable conv e rtible preferred stock into common stock in connection with the reverse recapitalization, including impact of Series H-1 paid in kind dividend |
( |
) | ( |
) | — | — | ||||||||||||||||||||||||||
| Reclassification of Legacy ChargePoint preferred stock warrant liability upon the reverse recapitalization |
— | — | — | — | — | — | ||||||||||||||||||||||||||
| Issuance of common stock upon the reverse recapitalization, net of issuance costs |
— | — | — | — | ||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of warrants |
— | — | — | — | ||||||||||||||||||||||||||||
| Contingent earnout liability recognized upon the closing of the reverse recapitalization |
— | — | — | — | ( |
) | — | — | ( |
) | ||||||||||||||||||||||
| Issuance of earnout shares upon triggering events, net of tax withholding |
— | — | — | — | ||||||||||||||||||||||||||||
| Reclassification of remaining contingent earnout liability upon triggering event |
— | — | — | — | — | — | ||||||||||||||||||||||||||
| Vesting of early exercised stock options |
— | — | — | — | — | — | ||||||||||||||||||||||||||
| Repurchase of early exercised common stock |
— | — | ( |
) | — | — | — | — | — | |||||||||||||||||||||||
| Stock-based compensation |
— | — | — | — | — | — | ||||||||||||||||||||||||||
| Net income |
— | — | — | — | — | — | ||||||||||||||||||||||||||
| Other comprehensive income |
— | — | — | — | — | — | ||||||||||||||||||||||||||
| |
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| Balances as of April 30, 2021 |
— | — | ( |
) | ||||||||||||||||||||||||||||
| Issuance of common stock upon release of restricted stock units |
— | — | — | — | — | — | — | |||||||||||||||||||||||||
| Issuance of common stock upon exercise of warrants |
— | — | — | — | ||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of vested stock options |
— | — | — | — | — | |||||||||||||||||||||||||||
| Issuance of earnout shares upon triggering events, net of tax withholding |
— | — | ( |
) | — | — | ( |
) | ||||||||||||||||||||||||
| Vesting of early exercised stock options |
— | — | — | — | — | — | ||||||||||||||||||||||||||
| Stock-based compensation |
— | — | — | — | — | — | ||||||||||||||||||||||||||
| Net loss |
— | — | — | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
| Other comprehensive loss |
— | — | — | — | — | ( |
) | — | ( |
) | ||||||||||||||||||||||
| |
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| Balances as of July 31, 2021 |
— |
$ |
— |
$ |
$ |
$ |
$ |
( |
) |
$ |
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| |
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9
Redeemable Convertible Preferred Stock |
Common Stock |
Additional Paid-In Capital |
Accumulated Other Comprehensive Income (Loss) |
Accumulated Deficit |
Total Stockholders’ Deficit |
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Shares (1) |
Amount |
Shares (1) |
Amount |
|||||||||||||||||||||||||||||
(in thousands, except share data) |
||||||||||||||||||||||||||||||||
| Balances as of January 31, 2020 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||||||
| Issuance of common stock upon exercise of vested stock options |
— | — | — | — | — | |||||||||||||||||||||||||||
| Vesting of early exercised stock options |
— | — | — | — | — | — | ||||||||||||||||||||||||||
| Stock-based compensation |
— | — | — | — | — | — | ||||||||||||||||||||||||||
| Net loss |
— | — | — | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
| Other comprehensive loss |
— | — | — | — | — | ( |
) | — | ( |
) | ||||||||||||||||||||||
| |
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| Balances as of April 30, 2020 |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Issuance of redeemable convertible preferred stock and common warrants, net of issuance costs |
— | — | — | — | — | — | ||||||||||||||||||||||||||
| Issuance of common stock warrants in connection with Series H-1 redeemable convertible preferred stock |
— | — | — | — | — | — | ||||||||||||||||||||||||||
| Beneficial conversion feature in connection with Series H-1 redeemable preferred stock |
— | ( |
) | — | — | — | — | |||||||||||||||||||||||||
| Accretion of beneficial conversion feature in connection with Series H-1 redeemable preferred stock |
— | — | — | ( |
) | — | — | ( |
) | |||||||||||||||||||||||
| Issuance of common stock upon exercise of vested stock options |
— | — | — | — | — | |||||||||||||||||||||||||||
| Issuance of common stock related to early exercise of stock options |
— | — | — | — | — | — | — | |||||||||||||||||||||||||
| Vesting of early exercised stock options |
— | — | — | — | — | — | ||||||||||||||||||||||||||
| Stock-based compensation |
— | — | — | — | — | — | ||||||||||||||||||||||||||
| Net loss |
— | — | — | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
| Other comprehensive income |
— | — | — | — | — | — | ||||||||||||||||||||||||||
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| Balances as of July 31, 2020 |
$ |
$ |
$ |
$ |
$ |
( |
) |
$ |
( |
) | ||||||||||||||||||||||
| |
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| (1) | The shares of the Company’s common and redeemable convertible preferred stock, prior to the Merger (as defined in Note 1) have been retroactively restated to reflect the exchange ratio of approximately 0.9966 established in the Merger as described in Note 3. |
The accompanying notes are an integral part of these condensed consolidated financial statements.
10
ChargePoint Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
Six Months Ended July 31, |
||||||||
2021 |
2020 |
|||||||
(in thousands) |
||||||||
Cash flows from operating activities |
||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
||||||||
| Non-cash operating lease cost |
||||||||
| Stock-based compensation |
||||||||
| Amortization of deferred contract acquisition costs |
||||||||
| Change in fair value of redeemable convertible preferred stock warrant liability |
( |
) | — | |||||
| Change in fair value of common stock warrant liabilities |
( |
) | ||||||
| Change in fair value of contingent earnout liability |
( |
) | — | |||||
| Transaction costs expensed |
— | |||||||
| Other |
||||||||
| Changes in operating assets and liabilities, net of effect of acquisitions: |
||||||||
| Accounts receivable, net |
( |
) | ||||||
| Inventories |
( |
) | ||||||
| Prepaid expenses and other assets |
( |
) | ( |
) | ||||
| Operating lease liabilities |
( |
) | ( |
) | ||||
| Accounts payable |
( |
) | ||||||
| Accrued and other liabilities |
( |
) | ||||||
| Deferred revenue |
||||||||
| |
|
|
|
|||||
| Net cash used in operating activities |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
Cash flows from investing activities |
||||||||
| Purchases of property and equipment |
( |
) | ( |
) | ||||
| Maturities of investments |
— | |||||||
| |
|
|
|
|||||
| Net cash (used in) provided by investing activities |
( |
) | ||||||
| |
|
|
|
|||||
Cash flows from financing activities |
||||||||
| Proceeds from issuance of redeemable convertible preferred stock |
— | |||||||
| Proceeds from the exercise of public warrants |
||||||||
| Merger and PIPE financing |
— | |||||||
| Payments of transaction costs related to Merger |
( |
) | — | |||||
| Payment of tax withholding obligations on settlement of earnout shares |
( |
) | — | |||||
| Repayment of borrowings |
( |
) | — | |||||
| Proceeds from exercises of vested and unvested stock options |
||||||||
| |
|
|
|
|||||
| Net cash provided by financing activities |
||||||||
| |
|
|
|
|||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash |
( |
) | ||||||
| Net increase in cash, cash equivalents, and restricted cash |
||||||||
| Cash, cash equivalents, and restricted cash at beginning of period |
||||||||
| |
|
|
|
|||||
| Cash, cash equivalents, and restricted cash at end of period |
$ | $ | ||||||
| |
|
|
|
|||||
11
ChargePoint Holdings, Inc.
Condensed Consolidated Statements of Cash Flows - (continued)
Six Months Ended July 31, 2021 and 2020 (Unaudited)
Six Months Ended July 31, |
||||||||
2021 |
2020 |
|||||||
(in thousands) |
||||||||
Supplementary cash flow information |
||||||||
| Cash paid for interest |
$ | $ | ||||||
| Cash paid for taxes |
$ | $ | ||||||
Supplementary cash flow information on noncash investing and financing activities |
||||||||
| Accretion of beneficial conversion feature of redeemable convertible preferred stock |
$ | — | $ | |||||
| Conversion of redeemable convertible preferred stock into common stock in connection with the reverse recapitalization |
$ | $ | — | |||||
| Reclassification of Legacy ChargePoint redeemable convertible preferred stock warrant liability upon the reverse capitalization |
$ | $ | — | |||||
| Contingent earnout liability recognized upon the closing of the reverse recapitalization |
$ | $ | — | |||||
| Reclassification of remaining contingent earnout liability upon triggering event |
$ | $ | — | |||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
12
ChargePoint Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. |
Description of Business |
ChargePoint Holdings, Inc. (“ChargePoint” or the “Company,” “it,” “its”) designs, develops, and markets networked electric vehicle (“EV”) charging system infrastructure (“Networked Charging Systems”) and cloud-based services which enable consumers the ability to locate, reserve, authenticate and transact EV charging sessions (“Cloud” or “Cloud Services”). As part of ChargePoint’s Networked Charging Systems, subscriptions and other offerings, it provides an open platform that integrates with system hardware from ChargePoint and other manufacturers, connecting systems over an intelligent network that provides real-time information about charging sessions and full control, support and m
a
nagement of the Networked Charging Systems. This network provides multiple web-based portals
for charging system owners, fleet managers, drivers, and utilities. In addition, the Company offers extended parts and labor warranty (“Assure”) that includes proactive monitoring, fast response times, expert advice and robust reporting. The ChargePoint as a Service (“CPaaS”) program combines the customer’s use of ChargePoint’s owned and operated systems with Cloud Services, Assure and other benefits available to subscribers into one subscription.
The Company’s fiscal year ends on January 31. References to fiscal year 2021 relate to the fiscal year ended January 31, 2021 and to fiscal year 2022 refer to the fiscal year ending January 31, 2022.
Basis of Presentation
The condensed consolidated financial statements and accompanying notes are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial reporting. The Company’s condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated upon consolidation. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended January 31, 2021 and the related notes included in the Company’s Registration Statement on Form S-1 filed with the SEC on July 12, 2021, which provides a more complete discussion of the Company’s accounting policies and certain other information. The information as of January 31, 2021 included on the condensed consolidated balance sheets was derived from the Company’s audited consolidated financial statements. The condensed consolidated financial statements were prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments necessary for a fair statement of the Company’s financial position as of July 31, 2021 and the results of operations for the three and six months ended July 31, 2021 and 2020, and cash flows for the six months ended July 31, 2021 and 2020. The results of operations for the three and six months ended July 31, 2021 are not necessarily indicative of the results that may be expected for the year ending January 31, 2022.
The Company’s condensed consolidated financial statements have been prepared on the basis of continuity of operations, the realization of assets, and the satisfaction of liabilities in the ordinary course of business. Since inception, the Company has been engaged in developing its product offerings, raising capital, and recruiting personnel. The Company’s operating plan may change as a result of many factors currently unknown and there can be no assurance that the current operating plan will be achieved in the time frame anticipated by the Company, and it may need to seek additional funds sooner than planned. If adequate funds are not available to the Company on a timely basis, it may be required to delay, limit, reduce, or terminate certain commercial efforts, or pursue merger or acquisition strategies, all of which could adversely affect the holdings or the rights of the Company’s stockholders. The Company has incurred net operating losses and negative cash flows from operations in every year since inception and expects this to continue for the foreseeable future. As of July 31, 2021, the Company had an accumulated deficit of $682.1 million.
The Company has funded its operations primarily with proceeds from the issuance of redeemable convertible preferred stock, borrowings under its loan facilities, customer payments and proceeds from the Reverse Recapitalization (as defined below). The Company had cash, cash equivalents, and restricted cash of $618.5 million as of July 31, 2021. As of September 10, 2021, the date on which these condensed consolidated financial statements were available to be issued, the Company believes that its cash on hand, together with cash generated from sales to customers, will satisfy its working capital and capital requirements for at least the next twelve months.
13
ChargePoint Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
The Company’s assessment of the period of time through which its financial resources will be adequate to support its operations is a forward-looking statement and involves risks and uncertainties. The Company’s actual results could vary as a result of, and its near- and long-term future capital requirements will depend on, many factors, including its growth rate, subscription renewal activity, the timing and extent of spending to support its acquisitions, infrastructure and research and development efforts, the expansion of sales and marketing activities, the timing of new introductions of products or features, the continuing market adoption of its Networked Charging Systems platform, and the overall market acceptance of EVs. The Company has and may in the future enter into arrangements to acquire or invest in complementary businesses, services, and technologies, including intellectual property rights. The Company has based its estimates on assumptions that may prove to be wrong, and it could use its available capital resources sooner than it currently expects. The Company may be required to seek additional equity or debt financing. Future liquidity and cash requirements will depend on numerous factors, including market penetration, the introduction of new products, and potential acquisitions of related businesses or technology. In the event that additional financing is required from outside sources, the Company may not be able to raise it on acceptable terms or at all. If the Company is unable to raise additional capital when desired, or if it cannot expand its operations or otherwise capitalize on its business opportunities because it lacks sufficient capital, its business, operating results, and financial condition would be adversely affected.
On February 26, 2021 (“Closing Date”), Switchback Energy Acquisition Corporation (“Switchback”) consummated the previously announced transactions pursuant to which Lightning Merger Sub Inc., a wholly owned subsidiary of Switchback incorporated in the State of Delaware (“Lightning Merger Sub”), merged with ChargePoint, Inc., a Delaware corporation (“Legacy ChargePoint”); Legacy ChargePoint survived as a wholly-owned subsidiary of Switchback (such transactions, the “Merger,” and, collectively with the other transactions described in the Merger Agreement (as defined below), the “Reverse Recapitalization”). Further, as a result of the Merger, Switchback was renamed “ChargePoint Holdings, Inc.”
Please refer to Note 3 “Reverse Recapitalization” for further details of the Merger.
2. |
Summary of Significant Accounting Policies |
Other than policies noted below, there have been no significant changes to the significant accounting policies disclosed in Note 2 of the audited consolidated financial statements as of January 31, 2021 and 2020 and for the years ended January 31, 2021, 2020, and 2019.
Common Stock Warrants Liabilities
The Company assumed 10,470,562 publicly-traded warrants (“Public Warrants”) and 6,521,568 private placement warrants issued to NGP Switchback, LLC (“Private Placement Warrants” and, together with the Public Warrants, the “Common Stock Warrants”) upon the Merger, all of which were issued in connection with Switchback’s initial public offering and subsequent overallotment (other than 1,000,000 Private Placement Warrants one share of the Company’s Common stock, par value $0.0001 (“Common Stock”) at an exercise price of $11.50 per share. During the six months ended July 31, 2021, 10,226,081 Public Warrants and 4,347,712 Private Placement Warrants were exercised and 244,481 Public
which
were issued in connection with the closing of the Merger) and entitle the holder to purchase the remaining
Warrants outstanding as of the July 6, 2021 redemption date were redeemed for cash. The Public Warrants, prior to their redemption, were publicly traded and were exercisable for cash unless certain conditions occurred, such as the failure to have an effective registration statement related to the shares issuable upon exercise or redemption by the Company under certain conditions, at which time the warrants could be cashlessly exercised. The Private Placement Warrants are not redeemable for cash so long as they are held by the initial purchasers or their permitted transferees but may be redeemable for common stock if certain other conditions are met. If the Private Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Placement Warrants are redeemable by the Company and exercisable by such holders on the same
basis as the Public Warrants.
14
ChargePoint Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
The Company evaluated the Common Stock Warrants and concluded that they do not meet the criteria to be classified within stockholders’ equity. The agreement governing the Common Stock Warrants includes a provision (“Replacement of Securities Upon Reorganization”), the application of which could result in a different settlement value for the Common Stock Warrants depending on their holder. Because the holder of an instrument is not an input into the pricing of a option on the Company’s ordinary shares, the Private Placement Warrants are not considered to be “indexed to the Company’s own stock.” In addition, the provision provides that in the event of a tender or exchange offer accepted by holders of more than 50 % of the outstanding shares of the Company’s ordinary shares, all holders of the Common Stock Warrants (both the Public Warrants and the Private Placement Warrants) would be entitled to receive cash for all of their Common Stock Warrants. Specifically, in the event of a qualifying cash tender offer (which could be outside of the Company’s control), all Common Stock Warrant holders would be entitled to cash, while only certain of the holders of the Company’s ordinary shares may be entitled to cash. These provisions preclude the Company from classifying the C
fixed-for-fixed
o
mmon Stock Warrants in stockholders’ equity. As the Common Stock Warrants meet the definition of a derivative, the Company recorded these warrants as liabilities on the consolidated balance sheet at fair value, with subsequent changes in their respective fair values recognized in the condensed consolidated statements of operations and comprehensive loss at each reporting date
. Contingent Earnout Liability
In connection with the Reverse Recapitalization and pursuant to the Merger Agreement and Plan of Merger dated as of September 23, 2020 by and among the Company, Lightning Merger Sub Inc., and Switchback (“Merger Agreement”), eligible ChargePoint equity holders were entitled to receive as additional merger consideration shares of the Company’s Common Stock upon the Company achieving certain Earnout Triggering Events (as described in the Merger Agreement and Note 9). In accordance with ASC
815-40,
the earnout shares were not indexed to the Common Stock and therefore were accounted for as a liability at the Reverse Recapitalization date and subsequently remeasured at each reporting date with changes in fair value recorded as a component of other income (expense), net in the condensed consolidated statements of operations. The estimated fair value of the contingent consideration was determined using a Monte Carlo simulation using a distribution of potential outcomes on a monthly basis over the Earnout Period (as defined in Note 9) prioritizing the most reliable information available. The assumptions utilized in the calculation were based on the achievement of certain stock price milestones, including the current Company Common Stock price, expected volatility, risk-free rate, expected term and dividend rate.
Until its settlement the contingent earnout liability was categorized as a Level 3 fair value measurement (see Fair Value of Financial Instruments accounting policy as described above) because the Company estimated projections during the Earnout Period utilizing unobservable inputs. Contingent earnout payments involve certain assumptions requiring significant judgment and actual results can differ from assumed and estimated amounts.
15
ChargePoint Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Use of Estimates
The preparation of the accompanying condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenue and expenses. Actual results and outcomes could differ significantly from the Company’s estimates, judgments, and assumptions. Significant estimates include determining standalone selling price for performance obligations in contracts with customers, the estimated expected benefit period for deferred contract acquisition costs, allowances for doubtful accounts, inventory reserves, the useful lives of long-lived assets, the determination of the incremental borrowing rate used for operating lease liabilities, the valuation of redeemable convertible preferred stock warrants and common stock warrants, including Common Stock Warrants as a result of the Merger, contingent earnout liability, the value of common stock and other assumptions used to measure stock-based compensation, and the valuation of deferred income tax assets and uncertain tax positions. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. The Company adjusts such estimates and assumptions when facts and circumstances dictate. Changes in those estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods. As future events and their effects cannot be determined with precision, actual results could materially differ from those estimates and assumptions.
Concentration of Credit Risk and Other Risks and Uncertainties
Financial instruments that potentially subject the Company to credit risk consist primarily of cash and cash equivalents and accounts receivable. Cash and cash equivalents are held in domestic and foreign cash accounts with large, creditworthy financial institutions. The Company has not experienced any losses on its deposits of cash and cash equivalents through deposits with federally insured commercial banks and at times cash balances may be in excess of federal insurance limits.
Accounts receivable are stated at the amount the Company expects to collect. The Company generally does not require collateral or other security in support of accounts receivable. To reduce credit risk, management performs ongoing credit evaluations of its customers’ financial condition.
Concentration of credit risk with respect to trade accounts receivable is considered to be limited due to the diversity of the Company’s customer base and geographic sales areas. As of July 31, 2021 and January 31, 2021, one customer individually accounted for 9 % and 16 % of accounts receivable, net, respectively. For the six months ended July 31, 2021 and 2020, there were no customers that represented 10
The Company’s revenue is concentrated in the infrastructure needed for charging EVs, an industry which is highly competitive and rapidly changing. Significant technological changes within the industry or customer requirements, or the emergence of competitive products with new capabilities or technologies, could adversely affect the Company’s operating results.
Impact of
COVID-19
In March 2020, the World Health Organization characterized
COVID-19
as a pandemic. The impact of COVID-19,
including changes in consumer and business behavior, pandemic fears and market downturns, and restrictions on business and individual activities, has created significant volatility in the global economy and led to reduced economic activity. The spread of COVID-19
has disrupted ChargePoint’s supply chain and heightened its freight and logistic costs, and has similarly disrupted manufacturing, delivery and overall supply chain of vehicle manufacturers and suppliers, which has led to fluctuations in EV sales around the world. 16
ChargePoint Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
As a result of the
COVID-19
pandemic, ChargePoint initially modified its business practices (including reducing employee travel, recommending that all
non-essential
personnel work from home and cancelling or reducing physical participation in sales activities, meetings, events and conferences), implemented additional safety protocols for essential workers, and implemented temporary cost cutting measures in order to reduce its operating costs
.
The Company may take further actions as may be required by government authorities or that it determines are in the best interests of its employees, customers, suppliers, vendors and business partners.
While the ultimate duration and extent of the
COVID-19
pandemic depends on current and future developments that cannot be accurately predicted, such as the extent and effectiveness of containment actions and vaccinations, it has already had an adverse effect on the global economy, the ultimate societal and economic impact of the COVID-19
pandemic remains unknown. The effect of the COVID-19 pandemic can also vary over time and across the geographies in which ChargePoint operates. For example, variations in work-from-home policies can cause fluctuations in ChargePoint’s revenues, and the Company believes that since people are not yet fully back to work it has not yet seen the full return of commercial customer demand for its products. The conditions caused by the COVID-19 pandemic, such as more permanent work-from-home policies, are likely to continue affecting the rate of global infrastructure spending, and thus to continue to adversely impact ChargePoint’s gross margins as the Company’s commercial business contributes higher margins than its residential and fleet businesses. Further, the COVID-19 pandemic could continue to heighten supply chain pricing and logistics expenses, and could, for example, adversely impact ChargePoint’s gross margins through heightened supply chain expenses, and could adversely affect demand for ChargePoint’s platforms, lengthen its sales cycles, reduce the value, renewal rate or duration of subscriptions, negatively impact collections of accounts receivable, reduce expected spending from new customers, cause some of its paying customers to go out of business and limit the ability of its direct sales force to travel to customers and potential customers, all of which could adversely affect its business, results of operations and financial condition. Segment Reporting
The Company operates as one operating segment because its
Chief Executive Officer, as the Company’s chief operating decision maker reviews its financial information on a consolidated basis for purposes of making decisions regarding allocating resources and assessing performance.
Fair Value of Financial Instruments
Fair value is defined as an exchange price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. Assets and liabilities measured at fair value are classified into the following categories based on the inputs used to measure fair value:
• |
(Level 1) — Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date; |
• |
(Level 2) — Inputs other than quoted prices in active markets that are observable for the asset or liability, either directly or indirectly; and |
• |
(Level 3) — Inputs that are unobservable for the asset or liability. |
The Company classifies financial instruments in Level 3
of the fair value hierarchy when there is reliance on at least one significant unobservable input to the valuation model. In addition to these unobservable inputs, the valuation models for Level 3
financial instruments typically also rely on a number of inputs that are readily observable, either directly or indirectly. The Company’s assessment of a particular input to the fair value measurement requires management to make judgments and consider factors specific to the asset or liability. The fair value hierarchy requires the use of observable market data when available in determining fair value. The Company recognizes transfers between levels within the fair value hierarchy, if any, at the end of each period. There were no transfers between levels during the periods presented. The Company had no material
non-financial assets
valued on a
non-recurring basis
that resulted in an impairment in any period presented.
The carrying values of the Company’s cash equivalents, accounts receivable, net, accounts payable, and accrued and other current liabilities approximate fair value based on the highly liquid, short-term nature of these instruments.
17
ChargePoint Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Remaining Performance Obligations
Remaining performance obligations represents the amount of contracted future revenue not yet recognized as the amounts relate to undelivered performance obligations, including both deferred revenue and 118.2 million as of July 31, 2021, of which 42 % is expected to be recognized over the next twelve months
non-cancellable contracted
amounts that will be invoiced and recognized as revenue in future periods. The Company’s Assure, Cloud, and CPaaS subscription terms typically range from one to five yearsand are paid up-front
. Revenue expected to be recognized from remaining performance obligations was $.
Deferred Revenue
Deferred revenue represents billings or payments received in advance of revenue recognition and is recognized in revenue upon transfer of control. Balances consist primarily of Cloud Services and Assure services not yet provided as of the balance sheet date. Contract assets, which represent services provided or products transferred to customers in advance of the date the Company has a right to invoice, are netted against deferred revenue on a Deferred revenue that will be recognized during the succeeding
customer-by-customer basis.
twelve-month
period is recorded as current deferred revenue with the remainder recorded as deferred revenue, non-current
on the condensed consolidated balance sheets. Total current and non-current deferred revenue was
$million as of July 31, 2021 and January 31, 2021, respectively. The Company recognized $7.7 million and $4.6 million of revenue during the three months ended July 31, 2021 and July 31, 2020, and
million of revenue during the six months ended July 31, 2021 and July 31, 2020, respectively, that was included in the deferred revenue balance
at the beginning of the period.
Accounting Pronouncements
The Company can adopt new or revised accounting guidance as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”) either (1) within the same periods as those otherwise applicable to public business entities, or (2) within the same time periods as
non-public business
entities, including early adoption when permissible. With the exception of standards the Company elected to early adopt when permissible, the Company has elected to adopt new or revised accounting guidance within the same time period as non-public business
entities, as indicated below. Based on the Company’s public float as of July 31, 2021, it will become a large accelerated filer, and lose emerging growth company status, as of January 31, 2022. As of January 31, 2022, the Company will be required to adopt new or revised accounting standards when they are applicable to public companies that are not emerging growth companies. Recently Issued Accounting Standards Not Yet Adopted
In June 2016, the FASB issued and has since released various amendments including ASU
ASU 2016-13,
Financial Instruments
— Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,
No. 2019-04.
The guidance modifies the measurement of expected credit losses on certain financial instruments. The Company will become a large accelerated filer effective January 31, 2022, at which point the Company will follow the timeline for adoption of new accounting pronouncements for public companies. As a result, the Company will adopt ASU 2016-13 for the January 31, 2022 annual period, with a modified retrospective application to all outstanding instruments and a cumulative effect adjustment recorded to opening retained earnings as of February 1, 2021 and is currently assessing the impact the guidance will have on its condensed consolidated financial statements. In December 2019, the FASB issued ASU which enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as the elimination of exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period, the recognition of deferred tax liabilities for outside basis differences, ownership changes in investments, and tax basis
2019-12,
Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,
step-up in
goodwill obtained in a transaction that is not a business combination. The guidance will be effective for annual reporting periods beginning after December 15, 2020, including interim periods therein. As a result, the Company will adopt ASU 2019-12 for the January 31, 2022 annual period and is currently assessing the impact the guidance will have on its condensed consolidated financial statements. 18
ChargePoint Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
In August 2020, the FASB issued ASU which modifies and simplifies accounting for convertible instruments. The new guidance eliminates certain separation models that require separating embedded conversion features from convertible instruments. The guidance also addresses how convertible instruments are accounted for in the diluted earnings per share calculation. The guidance will be effective for annual reporting periods beginning after December 15, 2020. As a result, the Company will adopt ASU 2020-06 for the January 31, 2022 annual period and is currently assessing the impact the guidance will have on its condensed consolidated financial statements.
2020-06,
Debt — Debt with Conversion and Other Options (Subtopic
470-20)
and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40),
19
ChargePoint Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
3. |
Reverse Recapitalization |
On February 26, 2021, Lightning Merger Sub, a wholly-owned subsidiary of Switchback, merged with Legacy ChargePoint, with Legacy ChargePoint surviving as a wholly-owned subsidiary of Switchback. As a result of the Merger, Switchback was renamed “ChargePoint Holdings, Inc.” Immediately prior to the closing of the Merger:
| • | all H-1 redeemable convertible preferred stock were converted into an equivalent number of shares of Legacy ChargePoint common stock on a one-to-one H-1 redeemable convertible preferred stockholders of $ |
| • | all were converted into an equivalent number of shares of Legacy ChargePoint common stock on a one-to-one |
| • | all were converted into an equivalent number of shares of Legacy ChargePoint common stock on a |
| • | all were converted into an equivalent number of shares of Legacy ChargePoint common stock on a |
| • | all were converted into an equivalent number of shares of Legacy ChargePoint common stock on a |
At the Merger, eligible ChargePoint equity holders received or 10.00 per share after giving effect to the exchange ratio of 0.9966 as defined in the Merger Agreement (“Exchange Ratio”). Accordingly, immediately following the consummation of the Merger, Legacy ChargePoint common stock exchanged into 217,021,368 68,896,516
had
the right to receive shares of Common Stock at a deemed value of $,
In connection with the execution of the Merger Agreement, Switchback entered into separate subscription agreements (each a “Subscription Agreement”) with a number of investors (each a “New PIPE Investor”), pursuant to which the New PIPE Investors agreed to purchase, and Switchback agreed to sell to the New PIPE Investors, an aggregate of 22,500,000 shares of Common Stock (“PIPE Shares”), for a purchase price of $10.00 per share and an aggregate purchase price of $225.0 million, in a private placement pursuant to the subscription agreements (“PIPE Financing”). The PIPE Financing closed simultaneously with the consummation of the Merger.
Pursuant to the terms of a letter agreement the initial Switchback stockholders entered into in connection with the execution of the Merger Agreement (“Founders Stock Letter”), the initial stockholders surrendered 984,706 of Switchback Class B common stock shares purchased by NGP Switchback, LLC, a Delaware limited liability company (“Sponsor”) prior to Switchback Public Offering on May 16, 2019 ( “Founder Shares”) for no consideration, whereupon such Founder Shares were immediately cancelled. Additionally, 900,000 Founder Earn Back Shares, which were previously subjected to potential forfeiture until the closing volume weighted average price per share of Common Stock 12.00 for any within any period during the five-year period following the Closing (“Founder Earn Back Triggering Event”), met the Earn Back Triggering Event on March 12, 2021.
achieved
$At the Closing, the Sponsor exercised its right to convert a portion of the working capital loans made by the Sponsor to Switchback into an additional 1,000,000 Private Placement Warrants at a price of $1.50 per warrant in satisfaction of $1.5 million principal amount of such loans.
20
ChargePoint Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
The number of shares of Common Stock issued immediately following the consummation of the Merger was
as follows:
Shares |
||||
| Common stock of Switchback, outstanding prior to Merger |
||||
| Less redemption of Switchback shares |
( |
) | ||
| Less surrender of Switchback Founder Shares |
( |
) | ||
| |
|
|||
| Common stock of Switchback |
||||
| Shares issued in PIPE |
||||
| |
|
|||
| Merger and PIPE financing shares (1) |
||||
| Legacy ChargePoint shares (2) |
||||
| |
|
|||
| Total shares of common stock immediately after Merger |
||||
| |
|
|||
The Merger is accounted for as a reverse recapitalization under U.S. GAAP. This determination is primarily based on Legacy ChargePoint stockholders comprising a relative majority of the voting power of ChargePoint and having the ability to nominate the members of the Board, Legacy ChargePoint’s operations prior to the acquisition comprising the only ongoing operations of ChargePoint, and Legacy ChargePoint’s senior management comprising a majority of the senior management of ChargePoint. Under this method of accounting, Switchback is treated as the “acquired” company for financial reporting purposes. Accordingly, for accounting purposes, the financial statements of ChargePoint represent a continuation of the financial statements of Legacy ChargePoint with the Merger being treated as the equivalent of ChargePoint issuing stock for the net assets of Switchback, accompanied by a recapitalization. The net assets of Switchback are stated at historical costs, with no goodwill or other intangible assets recorded. Operations prior to the Merger are presented as those of ChargePoint. All periods prior to the Merger have been retrospectively adjusted using the Exchange Ratio for the equivalent number of shares outstanding immediately after the Merger to effect the reverse recapitalization. Additionally, upon the consummation of the Merger, the Company gave effect to the issuance of 60,746,989 shares of Common Stock for the previously issued Switchback common stock and PIPE Shares that were outstanding at the Closing Date.
In connection with the Merger, the Company raised $511.6 million of proceeds including the contribution of $286.6 million of cash held in Switchback’s trust account from its initial public offering, net of redemptions of Switchback public stockholders of $0.3 million, and $225.0 million of cash in connection with the PIPE financing. The Company incurred $36.5 million of transaction costs, consisting of banking, legal, and other professional fees, of which $29.5 million was recorded as a reduction to additional 7.0 million was expensed in the condensed consolidated statements of operations.
paid-in
capital of proceeds and the remaining $| (1) | This includes 900,000 contingently forfeitable Founder Earn Back Shares pending the occurrence of the Founder Earn Back Triggering Event, which was met on March 12, 2021 |
| (2) | The number of Legacy ChargePoint shares was determined from the |
21
ChargePoint Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
4. |
Fair Value Measurements |
The Company’s assets and liabilities that were measured at fair value on a recurring basis were as follows:
Fair Value Measured as of July 31, 2021 |
||||||||||||||||
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||
(in thousands) |
||||||||||||||||
| Assets |
||||||||||||||||
| Money market funds |
$ | $ | — | $ | — | $ | ||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total financial assets |
$ |
$ |
— |
$ |
— |
$ |
||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Liabilities |
||||||||||||||||
| Common stock warrant liabilities (Private Placement) |
$ |
— |
$ |
— |
$ |
$ |
||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total financial liabilities |
$ |
$ |
— |
$ |
$ |
|||||||||||
| |
|
|
|
|
|
|
|
|||||||||
Fair Value Measured as of January 31, 2021 |
||||||||||||||||
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||
(in thousands) |
||||||||||||||||
| Assets |
||||||||||||||||
| Money market funds |
$ | $ | — | $ | — | $ | ||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total financial assets |
$ |
$ |
— |
$ |
— |
$ |
||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Liabilities |
||||||||||||||||
| Redeemable convertible preferred stock warrant liability |
$ |
— |
$ |
— |
$ |
$ |
||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total financial liabilities |
$ |
— |
$ |
— |
$ |
$ |
||||||||||
| |
|
|
|
|
|
|
|
|||||||||
The money market funds were classified as cash and cash equivalents on the condensed consolidated balance sheets. The aggregate fair value of the Company’s money market funds approximated amortized cost and, as such, there were no
As of July 31, 2021 and January 31, 2021, the Company had no investments with a contractual maturity of greater than one year.
22
ChargePoint Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
The following table presents a summary of the changes in the fair value of the Company’s Level 3 financial instruments:
Redeemable convertible preferred stock warrant liability |
Private placement warrant liability |
Earnout liability |
||||||||||
(in thousands) |
||||||||||||
| Fair value as of January 31, 2021 |
$ | ( |
) | $ | — | $ | — | |||||
| Private placement warrant liability acquired as part of the merger |
— | ( |
) | — | ||||||||
| Contingent earnout liability recognized upon the closing of the reverse recapitalization |
— | — | ( |
) | ||||||||
| Change in fair value included in other income (expense), net |
||||||||||||
| Reclassification of warrants to stockholders’ equity (deficit) due to exercise |
— | — | ||||||||||
| Reclassification of Legacy ChargePoint preferred stock warrant liability upon the reverse capitalization |
— | — | ||||||||||
| Issuance of earnout shares upon triggering events |
— | — | ||||||||||
| Reclassification of remaining contingent earnout liability upon triggering event |
— | — | ||||||||||
| |
|
|
|
|
|
|||||||
| Fair value as of July 31, 2021 |
$ |
— |
$ |
( |
) |
$ |
— |
|||||
| |
|
|
|
|
|
|||||||
The fair
values
of the private placement warrant liability, redeemable convertible preferred stock warrant liability and earnout liability are based on significant unobservable inputs, which represent Level 3 measurements within the fair value hierarchy. The significant unobservable inputs used in the fair value measurements of the private placement warrant liability, the redeemable convertible preferred stock warrant liability and the earnout liability include the expected volatility and dividend yield. In determining the fair value of the private placement warrant liability, the Company used the Binomial Lattice Model (“BLM”) that assumes optimal exercise of the Company’s redemption option at the earliest possible date (Note 9). In determining the fair value of the redeemable convertible preferred stock warrant liability, the Company used the
Black-Scholes Option Pricing Model (“Black-Scholes”) to estimate the fair value using unobservable inputs including the expected term, expected volatility, risk-free interest rate and dividend yield (see Note 9). In determining the fair value of the earnout liability, the Company used the Monte Carlo simulation valuation model using a distribution of potential outcomes on a monthly basis over the Earnout Period using the most reliable information available (see Note 9). 5. |
Composition of |
Inventories
Inventories consisted of the following:
July 31, 2021 |
January 31, 2021 |
|||||||
(in thousands) |
||||||||
| Raw materials |
$ | $ | ||||||
| Work-in-progress |
||||||||
| Finished goods |
||||||||
| |
|
|
|
|||||
| Total Inventories |
$ |
$ |
||||||
| |
|
|
|
|||||
23
ChargePoint Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Property and equipment, net
Property and equipment, net consisted of the following:
July 31, 2021 |
January 31, 2021 |
|||||||
(in thousands) |
||||||||
| Furniture and fixtures |
$ | $ | ||||||
| Computers and software |
||||||||
| Machinery and equipment |
||||||||
| Tooling |
||||||||
| Leasehold improvements |
||||||||
| Owned and operated systems |
||||||||
| Construction in progress |
||||||||
| |
|
|
|
|||||
| |
|
|
|
|||||
| Less: Accumulated depreciation |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Total Property and Equipment, Net |
$ | $ | ||||||
| |
|
|
|
|||||
Depreciation expense for the three months ended July 31, 2021 and 2020 was $2.9 million and $2.4 million, respectively.
Depreciation expense for the six months ended July 31, 2021 and 2020 was $5.6 million and $4.7 million, respectively.
Accrued and other current liabilities
Accrued and other current liabilities consisted of the following:
July 31, 2021 |
January 31, 2021 |
|||||||
(in thousands) |
||||||||
| Accrued expenses |
$ | $ | ||||||
| Refundable customer deposits |
||||||||
| Taxes payable |
||||||||
| Payroll and related expenses |
||||||||
| Warranty accruals |
||||||||
| Operating lease liabilities, current |
||||||||
| Other liabilities |
||||||||
| |
|
|
|
|||||
| Total Accrued and Other Current Liabilities |
$ | $ | ||||||
| |
|
|
|
|||||
24
ChargePoint Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Revenue
Revenue consisted of the following:
Three Months Ended July 31, |
Six Months Ended July 31, |
|||||||||||||||
2021 |
2020 |
2021 |
2020 |
|||||||||||||
(in thousands) |
(in thousands) |
|||||||||||||||
| United States |
$ | $ | $ | $ | ||||||||||||
| Rest of World |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total revenue |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
6. |
Debt |
In July 2018, the Company entered into a term loan facility with certain lenders (“2018 Loan”) with a borrowing capacity of $45.0 million to finance working capital and repay all outstanding amounts owed under previous loans. The Company borrowed $35.0 million, with issuance costs of $1.1 million and net proceeds of $33.9 million. The 2018 Loan was secured by substantially all of the Company’s assets, contained customary affirmative and negative covenants, and required the Company to maintain minimum cash balances and attain certain customer billing targets. The 2018 Loan had a LIBOR plus 6.55 % . The 2018 Loan agreement was amended on March 20, 2019 to extend the interest only monthly payments through June 30, 2021 to be followed by equal monthly payments of principal and interest. As of January 31, 2021, the Company was in compliance with all financial and
five
-yearnon-financial
debt covenants. Transaction costs upon entering into the 2018 Loan were recorded as debt discount and were amortized over the term of the 2018 Loan.
There was no interest expense incurred during the three months ending July 31, 2021; the interest expense incurred during the three months ended July 31, 2020 was $0.8 million.
Total interest expense incurred during the six months ended
July 31, 2021 and 2020 was $1.5 million and $1.6 million, respectively. There was no
In March 2021, the Company repaid the entire loan balance of $35.0 million plus accrued interest and prepayment fees of $1.2 million.
7. |
Commitments |
Purchase Commitments
Open purchase commitments are for the purchase of goods and services related to, but not limited to, manufacturing, facilities, and professional services under 133.7 million, all of which are expected to be received by June 30, 2024.
non-cancellable
contracts. As of July 31, 2021, the Company had open purchase commitments for goods and services of $25
ChargePoint Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Legal Proceedings
The Company may be involved in various lawsuits, claims, and proceedings, including intellectual property, commercial, securities, and employment matters that arise in the normal course of business. The Company accrues a liability when management believes information available prior to the issuance of the condensed consolidated financial statements indicates it is probable a loss has been incurred as of the date of the condensed consolidated financial statements and the amount of loss can be reasonably estimated. The Company adjusts its accruals to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case. Legal costs are expensed as incurred.
26
ChargePoint Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
The Company believes it has recorded adequate provisions for any such lawsuits, claims, and proceedings and, as of July 31, 2021, it was not reasonably possible that a material loss had been incurred in excess of the amounts recognized in the condensed consolidated financial statements. Based on its experience, the Company believes that damage amounts claimed in these matters are not meaningful indicators of potential liability. Given the inherent uncertainties of litigation, the ultimate outcome of the ongoing matters described herein cannot be predicted with certainty. While litigation is inherently unpredictable, the Company believes it has valid defenses with respect to the legal matters pending a
g
ainst it. Nevertheless, the condensed consolidated financial statements could be materially adversely affected in a particular period by the resolution of one or more of these contingencies. Liabilities established to provide for contingencies are adjusted as further information develops, circumstances change, or contingencies are resolved; and such changes are recorded in the accompanying condensed consolidated statements of operations during the period of the change and reflected in accrued and other current liabilities on the accompanying condensed consolidated balance sheets. Guarantees and Indemnifications
The Company has service level commitments to its customers warranting certain levels of uptime reliability and performance and permitting those customers to receive credits if the Company fails to meet those levels. To date, the Company has not incurred any material costs as a result of such commitments.
The Company’s arrangements generally include certain provisions for indemnifying customers against liabilities if its products or services infringe a third-party’s intellectual property rights. Additionally, the Company may be required to indemnify for claims caused by its negligence or willful misconduct. It is not possible to determine the maximum potential amount under these indemnification obligations due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. To date, the Company has not incurred any material costs as a result of such obligations and has not accrued any liabilities related to such obligations in the condensed consolidated financial statements.
The Company has also agreed to indemnify its directors and executive officers for costs associated with any fees, expenses, judgments, fines, and settlement amounts incurred by them in any action or proceeding to which any of them are, or are threatened to be, made a party by reason of their service as a director or officer. The Company maintains director and officer insurance coverage that would generally enable it to recover a portion of any future amounts paid. The Company also may be subject to indemnification obligations by law with respect to the actions of its employees under certain circumstances and in certain jurisdictions.
Leases
The Company leases its office facilities under
non-cancelable
operating leases with various lease terms. The Company also leases certain office equipment under operating lease agreements. 27
ChargePoint Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
The following table presents future payments of lease liabilities under the Company’s
non-cancelable
operating leases as of July 31, 2021 (in thousands): (in thousands) |
||||
2022 (remaining six months) |
$ | |||
2023 |
||||
2024 |
||||
2025 |
||||
2026 |
||||
Thereafter |
||||
| |
|
|||
| Total undiscounted operating lease payments |
||||
| Less: imputed interest |
( |
) | ||
| |
|
|||
| Total operating lease liabilities |
||||
| Less: current portion of operating lease liabilities |
( |
) | ||
| |
|
|||
| Operating lease liabilities, noncurrent |
$ | |||
| |
|
|||
8. Common Stock
On February 26, 2021, the Merger was consummated and the Company issued 60,746,989 shares for an aggregate purchase price of $200.5 million, net of issuance costs of $29.4 million. Immediately following the Merger, there were 277,768,357 shares of Common Stock outstanding with a par value of $0.0001 . The holder of each share of Common Stock is entitled to one vote.
The Company has retroactively adjusted the shares issued and outstanding prior to February 26, 2021 to give effect to the 484,951,532 shares were authorized to issue at $0.0001 par value, with 299,771,284 shares designated as Common Stock and 185,180,248 shares of redeemable convertible preferred stock.
Exchange Ratio
established in the Merger Agreement to determine the number of shares of Common Stock into which they were converted. Immediately prior to the Merger, Common Stock Reserved for Future Issuance
Shares of Common Stock reserved for future issuance, on an
as-if converted
basis, were as follows: July 31, 2021 |
||||
| Stock options issued and outstanding |
||||
| Restricted stock units outstanding |
||||
| Common stock warrants outstanding |
||||
| Shares available for grant under 2021 Equity Incentive Plan |
||||
| Shares available for grant under 2021 ESPP |
||||
| |
|
|||
| Total shares of common stock reserved |
||||
| |
|
|||
On February 26, 2021, upon the closing of the Merger (Note 3), all of the outstanding redeemable convertible preferred stock was converted to Common Stock pursuant to the conversion rate effective immediately prior to the Merger and the remaining amount was reclassified to additional
paid-in
capital. 28
ChargePoint Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
9. |
Stock Warrants and |
Redeemable Convertible Preferred Stock Warrants
Warrants to purchase a total of 2,358,528 shares of Series B, D and E redeemable convertible preferred stock were initially recognized as a
liability recorded at fair value upon issuance and were subject to remeasurement to fair value at each balance sheet date. As part of the Merger, Legacy ChargePoint redeemable convertible preferred stock was converted into Legacy ChargePoint common stock pursuant to the conversion rate effective immediately prior to the Merger while all related Legacy ChargePoint preferred stock warrants were converted into warrants exercisable for shares of Common Stock with terms consistent with the Legacy ChargePoint preferred stock warrants except for the number of shares exercisable therefor and the exercise price, each of which was adjusted using the Exchange Ratio. At that time, the redeemable convertible preferred stock warrant liability was remeasured and reclassified to
additional paid-in capital.
The liability associated with these warrants was subject to remeasurement at each balance sheet date using the Level 3 fair value inputs. See Note 4 for further details.
The Level 3 fair value inputs used in the recurring valuation of the redeemable convertible preferred stock warrant liability were as follows:
February 26, 2021 (Merger Date) |
January 31, 2021 |
|||||||
Expected volatility |
% | % | ||||||
Risk-free interest rate |
% | % | ||||||
Dividend rate |
% | % | ||||||
Expected term (years) |
||||||||
Common Stock Warrants
In addition to the warrants to purchase 2,358,528 shares of Legacy ChargePoint preferred stock described above, Legacy ChargePoint had outstanding warrants to purchase 36,402,503 shares of Legacy ChargePoint common stock (collectively, “Legacy Warrants”), which now represent warrants to purchase Common Stock. During the three months ended July 31, 2021, 587,880 Legacy Warrants were net exercised resulting in the issuance of 558,100 shares of Common Stock. During the six months ended July 31, 2021, 1,685,185 Legacy Warrants were net exercised resulting in the issuance of 1,480,080 shares of Common Stock. As of July 31, 2021, there were 37,075,846 Legacy Warrants outstanding which are classified as equity.
Private Placement Warrants
The Private Placement Warrants were initially recognized as a liability on February 26, 2021, at a fair value of $127.9 million and the Private Placement Warrant liability was remeasured to fair value as of any respective exercise dates and as of July 31, 2021. The Company recorded a gain of $3.8 million and $49.2 million for the three and six months ended July 31, 2021, respectively, classified within change in fair value of warrant liabilities in the condensed consolidated statements of operations.
the
BLM that assumes optimal exercise of the Company’s redemption option at the earliest possible date:29
ChargePoint Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
July 31, 2021 |
February 26, 2021 |
|||||||
Market price of public stock |
$ | $ |
||||||
Exercise price |
$ | $ |
||||||
Expected term (years) |
||||||||
Volatility |
% | % | ||||||
Risk-free interest rate |
% | % | ||||||
Dividend rate |
% | % | ||||||
Public Warrants
The Public Warrants may only be exercised for a whole number of shares. The Public Warrants became exercisable 30 days after the completion of the Merger.
The Public Warrants were initially recognized as a liability on February 26, 2021 at a fair value of $153.7 million and the public warrant liability was remeasured to fair value based upon the market price as warrants were exercised. July 6, 2021, the Company redeemed the remaining 244,481 Public Warrants0.01 per warrant. The Company recognized a loss of $14.3 million for the three months ended July 31, 2021 and a loss of $15.9 million for the six months ended July 31, 2021, classified within change in fair value of warrant liabilities in the condensed consolidated statements of operations.
On June 4, 2021 the Company issued a redemption notice pursuant to which all but 244,481 Public Warrants were exercised by the Public Warrant holders. At the conclusion of the redemption notice period on
outstanding
for $During the six months ended July 31, 2021, proceeds received for the exercise of Public Warrants were $117.6 million. As of July 31, 2021, no Public Warrants remained outstanding.
Activity of warrants is set forth below:
Legacy Common and Preferred Stock Warrants (1) |
Private Placement Warrants |
Public Warrants |
Total Common Stock Warrants (1) |
|||||||||||||
Outstanding as of January 31, 2021 |
— | — | ||||||||||||||
Common Stock Warrants as Part of the Merger |
— | |||||||||||||||
Warrants Exercised |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Warrants Redeemed |
— | — | ( |
) | ( |
) | ||||||||||
Outstanding as of July 31, 2021 |
||||||||||||||||
| (1) | The shares (and the warrants’ exercise prices) subject to the Company’s Legacy common and preferred stock warrants were restated to reflect the exchange ratio of approximately |
Contingent Earnout Liability
During the five year period starting at the closing of the Merger (“Earnout Period”), eligible former equity holders of Legacy ChargePoint 27,000,000 additional shares of Common Stock (“Earnout Shares”) in the aggregate in three equal tranches if certain Earnout Triggering Events (as described in the Merger Agreement) are fully satisfied. An “Earnout Triggering Event” means the date on which the closing volume weighted-average price (“VWAP”) per share of common stock quoted on the NYSE (or the exchange on which the shares of common stock are then listed) is greater or equal to $15.00 , $20.00 and $30.00 for any trading days within any 20 consecutive trading day period within the Earnout Period.
could
receive up to 30
ChargePoint Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Upon the closing of the Merger, the contingent obligation to issue Earnout Shares was accounted for as a liability because the Earnout Triggering Events that determine the number of Earnout Shares required to be issued include events that are not solely ind828.2 million based on a Monte Carlo simulation valuation model using a distribution of potential outcomes on a monthly basis over the Earnout Period using the most reliable information available. Assumptions used in the valuation are described below.
e
xed to the common stock of ChargePoint. The estimated fair value of the total Earnout Shares at the closing of the Merger on February 26, 2021, was $March 12, 2021 |
February 26, 2021 |
|||||||
| Current stock price |
$ | $ | ||||||
| Expected volatility |
% | % | ||||||
| Risk-free interest rate |
% | % | ||||||
| Dividend rate |
% | % | ||||||
| Expected term (years) |
||||||||
The first two Earnout Triggering Events for up to 18,000,000 of the Earnout Shares occurred on March 12, 2021, and, after withholding some of these Earnout Shares17,539,657 Earnout Shares were issued on March 19, 2021, and the estimated fair value of the earnout liability was remeasured to $743.7 million, including (i) $501.1 million related to the Earnout Shares issuable upon the occurrence of the Earnout Triggering Event associated with the $15.00 and $20.00 VWAP per share thresholds based on the Common Stock price as of March 12, 2021, and (ii) $242.6 million related to the estimated fair value of earnout liability related to the remaining 9,000,000 Earnout Shares issuable upon the occurrence of the Earnout Triggering Event associated with the $30.00 VWAP per share threshold based on a Monte Carlo simulation valuation model as of March 12, 2021, as described above. The change in fair value resulted in a gain of $84.4 million recognized in the condensed consolidated statement of operations for the three months ended April 30, 2021. Upon settlement of the first two tranches, the classification of the remaining 9,000,000 Earnout Shares of the third tranche was changed to equity on March 12, 2021, because the Earnout Shares became an instrument contingently issuable upon the occurrence of the Earnout Triggering Event into a fixed number of Common Shares that is not based on an observable market price or index other than the Company’s own stock price.
to cover
tax withholding obligations,
The third and final Earnout Triggering Event for up to 9,000,000 of the Earnout Shares associated with the $30.00 VWAP per share threshold occurred on June 29, 2021, and, after the withholding of some of these Earnout Shares 8,773,596 Earnout Shares were issued on July 1, 2021
to cover
tax withholding obligations,
.
No
further Earnout Shares remained contingently issuable as of July 31, 2021. 10. |
Equity Plans and Stock-based Compensation |
On February 25, 2021, the stockholders of the Company approved the 2021 Equity Incentive Plan (“2021 EIP”) and the 2021 Employee Stock Purchase Plan (“2021 ESPP”). As of July 31, 2021, 40,878,653 and 8,177,683 shares of Common Stock were available under the 2021 EIP and 2021 ESPP, respectively. On the first day of each March, beginning on March 1, 2021 and continuing through March 1, 2030, the 2021 EIP reserve will automatically increase by a number of shares equal to the lesser of (a) 5% of the total number of shares actually issued and outstanding on the last day of the preceding month and (b) a number determined by the Company’s Board of Directors. Further, on the first day of each March during the term of the 2021 ESPP, commencing on March 1, 2021 and ending on (and including) March 1, 2040, the aggregate number of shares of stock that may be issued under the 2021 ESPP shall automatically increase by a number equal to the lesser of (i) one percent (1%) of the total number of shares of stock issued and outstanding on the last day of the preceding month, (ii) 5,400,000 shares of stock (subject to standard anti-dilution adjustments), or (iii) a number of shares of stock determined by the Company’s Board of Directors.
31
ChargePoint Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Under the 2021 EIP, the Company can grant stock options, stock appreciation rights, restricted stock, restricted stock units (“RSU”) and certain other awards which are Under the 2021 ESPP, eligible employees are permitted to purchase shares of the Company’s Common Stock at 85% of the lower of fair market value the Company’s Common Stock on the first trading day of an offering period or on the purchase date.
s
ettled in the form of common shares issued under this 2021 EIP. No further awards will be granted under Legacy ChargePoint’s 2017 Stock Plan (“2017 Plan”) and 24,259,238 shares of Common Stock remain reserved for outstanding awards issued under the 2017 Plan at the time of adoption of the 2021 EIP and the 2021 ESPP. Additionally, no other awards can be granted under Legacy ChargePoint’s 2007 Stock Incentive Plan (“2007 Plan”) and 5,143,849 shares of Common Stock remained reserved for outstanding awards issued under the 2007 Plan at the time of the adoption of the 2021 EIP and the 2021 ESPP.
The Company’s stock option awards activity is set forth below:
Number of Stock Option Awards |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual term (in years) |
Aggregate Intrinsic Value (in thousands) |
|||||||||||||
| Outstanding as of January 31, 2021 |
$ | $ | ||||||||||||||
| Options exercised |
( |
) | $ | |||||||||||||
| Options forfeited |
( |
) | $ | |||||||||||||
| Options expired |
( |
) | $ | |||||||||||||
| |
|
|||||||||||||||
| Outstanding as of July 31, 2021 |
$ | $ | ||||||||||||||
| |
|
|||||||||||||||
| Options vested and expected to vest as of July 31, 2021 |
$ | $ | ||||||||||||||
| |
|
|||||||||||||||
| Exercisable as of July 31, 2021 |
$ | $ | ||||||||||||||
| |
|
|||||||||||||||
The options outstanding as of July 31, 2021, include the June 2020 grant of a stock option to purchase a total of 1.5 million shares of Common Stock subject to both service and performance-based vesting conditions to the Chief Executive Officer under the 2017 Plan (“CEO Award”). No stock-based compensation expense had been recorded as the CEO awards were improbable of vesting before and after two modifications in each of September 2020 and December 2020, because the performance-based vesting condition was contingent upon the closing of the Merger. Accordingly, the Company commenced recognition of stock-based compensation expense for such CEO Award following the Merger in February 2021. As of July 31, 2021, the total unrecognized compensation expense related to these unvested CEO Award was $35.3 million, which is expected to be recognized over a period of 2.5 years
.
The Company’s RSU activity is set forth below:
Number of Shares |
Weighted Average Grant Date Fair Value per Share |
|||||||
| Outstanding as of January 31, 2021 |
$ | |||||||
| RSU granted |
$ | |||||||
| RSU vested |
( |
) | $ | |||||
| RSU forfeited |
( |
) | $ | |||||
| |
|
|||||||
| Outstanding as of July 31, 2021 |
$ | |||||||
| |
|
|||||||
32
ChargePoint Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
As of July 31, 2021, total unrecognized stock-based compensation 41.0 million, including the CEO Award, and is expected to be recognized over a weighted-average period of 1.9 years. As of July 31, 2021, t86.3 million and is expected to be recognized over a weighted-average period of 3.1 years.
expense
related to stock options was $o
tal unrecognized stock-based compensation expense
related to RSU was $The following sets forth the total stock-based compensation expense for the Company’s stock options (including the CEO Award) and RSU included in the Company’s condensed consolidated statements of operations:
Three Months Ended July 31, |
Six Months Ended July 31, |
|||||||||||||||
2021 |
2020 |
2021 |
2020 |
|||||||||||||
(in thousands) |
(in thousands) |
|||||||||||||||
| Cost of revenue |
$ | $ | $ | $ | ||||||||||||
| Research and development |
||||||||||||||||
| Sales and marketing |
||||||||||||||||
| General and administrative |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total stock-based compensation expense |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
33
ChargePoint Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
11. |
Income |
The income tax provision for interim periods is determined using an estimate of the Company’s annual effective tax rate as adjusted for discrete items arising in that quarter. The effective income tax rate was nil
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was enacted and signed into law in the United States. The CARES Act includes measures to assist companies, including temporary changes to income and
non-income-based tax
laws. The Company did not receive a stimulus payment related to the CARES Act. 12. |
Related Party Transactions |
Daimler AG and its affiliated entities (“Daimler”) are investors in the Company and one of its employees is a member of the Company’s Board of Directors. The following revenue transactions took place between the Company and Daimler during the periods presented:
Three Months Ended July 31, |
Six Months Ended July 31, |
|||||||||||||||
2021 |
2020 |
2021 |
2020 |
|||||||||||||
(in thousands) |
(in thousands) |
|||||||||||||||
| Daimler |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Revenue from related parties |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
Related party accounts receivable as of July 31, 2021 and January 31, 2021 from Daimler was $2.5 million and $1.2 million, respectively.
34
ChargePoint Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
13. Basic and Diluted Net Loss per Share
The following table sets forth the computation of the Company’s ba
s
ic and diluted net loss per sh
are attributable to common stockholders for the three and six months ended July 31, 2021 and 2020: Three Months Ended July 31, |
Six Months Ended July 31, |
|||||||||||||||||||
2021 |
2020 |
2021 |
2020 |
|||||||||||||||||
(in thousands, except share and per share data) |
(in thousands, except share and per share data) |
|||||||||||||||||||
| Numerator: |
||||||||||||||||||||
| Net income (loss) |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||||||
| Adjust: Accretion of beneficial conversionfeature of redeemable convertible preferred stock |
( |
) | ( |
) | ||||||||||||||||
| Adjust: redeemable convertible preferred stock |
— | ( |
) | — | ||||||||||||||||
| Adjust: |
— | ( |
) | — | ||||||||||||||||
| Adjust: |
— | ( |
) | — | ||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||||||
| Net loss attributable to common stockholders - Basic |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||
| Less: |
— | ( |
) | — | ||||||||||||||||
| Less: |
( |
) | — | ( |
) | — | ||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||||||
| Net loss attributable to common stockholders - Diluted |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||||||
| Denominator: |
||||||||||||||||||||
| Weighted average common shares outstanding |
||||||||||||||||||||
| Less: restricted shares and shares subject to repurchase |
( |
) | ( |
) | ( |
) | ||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||||||
| Weighted average shares outstanding - Basic |
||||||||||||||||||||
| Add: |
||||||||||||||||||||
| Add: |
||||||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||||||
| Weighted average shares outstanding - Diluted |
||||||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||||||
| Net loss per share - Basic |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||||||
| Net loss per share - Diluted |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||||||
As a result of the Merger, the Company has retroactively adjusted the weighted-average number of shares of Common Stock outstanding prior to 0.9966 used to determine the number of shares of Common Stock into which they converted. The Common Stock issued as a result of the redeemable convertible preferred stock conversion on the Closing Date was included in the basic net loss per share calculation on a prospective basis.
the
Closing Date by multiplying them by the Exchange Ratio
of 35
ChargePoint Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Redeemable convertible preferred stock and preferred stock warrants outstanding prior to the Merger Closing Date were excluded from the diluted net loss per share calculation for the
six-months
period ended July 31, 2021, because including them would have had an antidilutive effect.
The potential shares of Common Stock that were excluded from the computation of diluted net loss per share attributable to common stockholders at each period end because including them would have had an antidilutive effect were as follows:
July 31, 2021 |
July 31, 2020 |
|||||||
| Redeemable convertible preferred stock (on an as-converted basis) |
||||||||
| Options to purchase common stock |
||||||||
| Restricted stock units |
||||||||
| Unvested early exercised common stock options |
||||||||
| Common stock and preferred stock warrants |
||||||||
| |
|
|
|
|||||
| Total potentially dilutive common share equivalents |
||||||||
| |
|
|
|
|||||
14. Acquisitions and Subsequent Events
On July 20, 2021, the Company entered into a definitive agreement to acquire all of the outstanding shares of has•to•be gmbh (“has•to•be” or “HTB”) for approximately
Euro 250.0 million
in cash and Company common stock subject to adjustments.
has•to•be
is an Austria-based
e-mobility
provider with a European charging software platform. The acquisition is intended to expand the Company’s access to the European market. The Company currently expects the transaction to close as early as October 2021.
On August 11, 2021, the Company acquired all of the outstanding shares of ViriCiti B.V. (“ViriCiti”) for approximately
Euro
million in cash,
subject to adjustments. ViriCiti is a Netherlands-based provider of electrification solutions for eBus and commercial fleets with offices in the Netherlands and the United States. The acquisition is expected to enhance ChargePoint’s fleet solutions portfolio of hardware, software and services by integrating information sources to optimize electric fleet operations.
As permitted by ASU
805-10-50,
the Company is not able to include certain required disclosures in its quarterly report on Form
10-Q
for the three and six months ended July 31, 2021, because the information necessary to complete the preliminary purchase price allocation related to the acquisition was not yet available.
36
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the results of operations and financial condition of ChargePoint Holdings, Inc. (“ChargePoint” or the “Company”) should be read in conjunction with ChargePoint’s condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report and the audited consolidated financial statements for the year ended January 31, 2021 and the related notes included in the Company’s Registration Statement on
Form S-1
filed with the SEC on July 12, 2021. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. ChargePoint’s actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” in Part II, Item 1A of this report. Overview
ChargePoint designs, develops and markets networked electric vehicle (“EV”) charging system infrastructure (“Networked Charging Systems”) and cloud-based services which enable consumers the ability to locate, reserve, authenticate and transact EV charging sessions (“Cloud” or “Cloud Services”). As part of ChargePoint’s Networked Charging Systems, subscriptions and other offerings, it provides an open platform that integrates with system hardware from ChargePoint and other manufacturers, connecting systems over an intelligent network that provides real-time information about charging sessions and full control, support and management of the Networked Charging Systems. This network provides multiple
web-based
portals for charging system owners, fleet managers, drivers and utilities. ChargePoint generates revenue primarily through the sale of Networked Charging Systems, Cloud Services and extended parts and labor warranty (“Assure”), which are typically paid for upfront. Assure also includes proactive monitoring, fast response times, expert advice and robust reporting. The ChargePoint as a Service (“CPaaS”) program combines the customer’s use of ChargePoint’s owned and operated systems with Cloud Services, Assure and other benefits available to subscribers into one subscription. ChargePoint targets three key customer markets: commercial, fleet and residential. Commercial customers have parking places largely within their workplaces and includes retail, hospitality, and parking lot operators. Fleet includes municipal buses, delivery and work vehicles, port/airport/warehouse and other industrial applications, ridesharing services, and is expected to eventually include autonomous transportation. Residential includes single family homes and multifamily residences.
Since ChargePoint’s inception in 2007, it has been engaged in developing and marketing its Networked Charging Systems, subscriptions and other offerings, raising capital and recruiting personnel. ChargePoint has incurred net operating losses and negative cash flows from operations every year since its inception. As of July 31, 2021, ChargePoint had an accumulated deficit of $682.1 million. ChargePoint has funded its operations primarily from sales of its solutions, with proceeds from the issuance of redeemable convertible preferred stock and common stock and historically from borrowings under its prior loan facilities.
Recent Developments
Acquisitions
On July 20, 2021, the Company entered into a definitive agreement to acquire all of the outstanding shares of has.to.be gmbh (“has.to.be” or “HTB”) for approximately Euro 250.0 million in cash and Company common stock subject to adjustments. has.to.be is an Austria-based
e-mobility
provider with a European charging software platform. The acquisition is intended to expand the Company’s access to the European market. The Company currently expects the transaction to close as early as October 2021. 37
On August 11, 2021, the Company acquired all of the outstanding shares of ViriCiti B.V. (“ViriCiti”) for approximately Euro 75.0 million in cash, subject to adjustments. ViriCiti is a Netherlands-based provider of electrification solutions for eBus and commercial fleets with offices in the Netherlands and the United States. The acquisition is expected to enhance ChargePoint’s fleet solutions portfolio of hardware, software and services by integrating information sources to optimize electric fleet operations.
Earnout Shares
On February 26, 2021 (“Closing Date”), Switchback Energy Acquisition Corporation (“Switchback”) consummated the previously announced transactions pursuant to which Lightning Merger Sub Inc., a wholly owned subsidiary of Switchback incorporated in the State of Delaware (“Lightning Merger Sub”), merged with ChargePoint, Inc., a Delaware corporation (“Legacy ChargePoint”); Legacy ChargePoint survived as a wholly-owned subsidiary of Switchback (“Merger,” and, collectively with the other transactions described in the Merger Agreement (as defined below), the “Reverse Recapitalization”). Further, as a result of the Merger, Switchback was renamed “ChargePoint Holdings, Inc.”.
Pursuant to the terms of the Merger Agreement, each stockholder of Legacy ChargePoint received 0.9966 shares of the Company’s common stock, par value $0.0001 per share (“Common Stock”) and the contingent right to receive as additional merger consideration certain Earnout Shares (as defined below), for each share of Legacy ChargePoint common stock, par value $0.0001 per share, owned by such Legacy ChargePoint stockholder that was outstanding immediately prior to the Closing (other than any shares of Legacy ChargePoint restricted stock). In addition, certain investors purchased an aggregate of 22,500,000 shares of Common Stock (such investors, the “PIPE Investors”) concurrently with the Closing for an aggregate purchase price of $225,000,000.
In addition, pursuant to the terms of the Merger Agreement, at the effective time of the Merger (“Effective Time”), (1) warrants to purchase shares of capital stock of Legacy ChargePoint were converted into warrants to purchase an aggregate of 38,761,031 shares of Common Stock and the contingent right to receive certain Earnout Shares, (2) options to purchase shares of common stock of Legacy ChargePoint were converted into options to purchase an aggregate of 30,135,695 shares of Common Stock and, with respect to vested options, the contingent right to receive certain Earnout Shares and (3) unvested restricted shares of common stock of Legacy ChargePoint that were outstanding pursuant to the “early exercise” of Legacy ChargePoint options were converted into an aggregate of 345,689 restricted shares of ChargePoint (“Restricted Shares”).
During the time period between the Closing and the five-year anniversary of the Closing Date, eligible former equity holders could receive up to 27,000,000 additional shares of ChargePoint’s common stock (“Earnout Shares”) in the aggregate in three equal tranches if the volume-weighted average closing sale price of ChargePoint’s common stock is greater than or equal to $15.00, $20.00 and $30.00 for any 10 trading days within any 20 consecutive trading day period (“Trigger Events”). On March 19, 2021, a total of approximately 18,000,000 shares of Common Stock were released to eligible former equity holders of Legacy ChargePoint pursuant to the Earnout Shares provisions of the Merger Agreement, as the first two Trigger Events had been met. The Trigger Events were met by virtue of the volume-weighted average closing sale price of Common Stock having been greater than or equal to $15.00 and $20.00 for ten (10) trading days out of twenty (20) consecutive trading days following the closing of the Merger. The holders of Legacy ChargePoint common stock (other than restricted stock), warrants and vested options as of the closing of the Merger received their pro rata portion of the Earnout Shares. On July 1, 2021, a total of approximately 9,000,000 shares of Common Stock were released to eligible former equity holders of Legacy ChargePoint pursuant to the Earnout Shares provision of the Merger Agreement, as the third Trigger Event had been met. The Trigger Event was met by virtue of the volume-weighted average closing sale price of Common Stock having been greater than or equal to $30.00 for ten (10) trading days out of twenty (20) consecutive trading days following the closing of the Merger.
Key Factors Affecting Operating Results
ChargePoint believes its performance and future success depend on several factors that present significant opportunities for it but also pose risks and challenges, including those discussed below.
38
Growth in EV Adoption
ChargePoint’s revenue growth is directly tied to the number of passenger and commercial EVs sold, which it believes drives the demand for charging infrastructure. The market for EVs is still rapidly evolving and although demand for EVs has grown in recent years, there is no guarantee of such future demand. Factors impacting the adoption of EVs include but are not limited to: perceptions about EV features, quality, safety, performance and cost; perceptions about the limited range over which EVs may be driven on a single battery charge; volatility in the cost of oil and gasoline; availability of services for EVs; consumers’ perception about the convenience and cost of charging EVs; and increases in fuel efficiency. In addition, macroeconomic factors, including government mandates and incentives, could impact demand for EVs, particularly since they can be more expensive than traditional gasoline-powered vehicles when the automotive industry globally has been experiencing a recent decline in sales. If the market for EVs does not develop as expected or if there is any slow-down or delay in overall EV adoption rates, this would impact ChargePoint’s ability to increase its revenue or grow its business.
Competition
ChargePoint is currently a market leader in North America in commercial Level 2 Alternating Current (“AC”) charging. ChargePoint also offers chargers for use at home or multifamily settings, and high-power Level 3 Direct Current (“DC”) chargers for fast urban charging, corridor or long-trip charging and fleet applications. ChargePoint intends to expand its market share over time in its product categories, leveraging the network effect of its products and Cloud Services software. Existing competitors may expand their product offerings and sales strategies, and new competitors may enter the market. Furthermore, ChargePoint’s competition includes other types of alternative fuel vehicles and high fuel-economy gasoline powered vehicles. If ChargePoint’s market share decreases due to increased competition, its financial condition and results of operations in the future may be impacted.
Europe Expansion
ChargePoint operates in North America and selected countries in Europe. Europe is expected to be a significant contributor to ChargePoint’s revenue in future years. ChargePoint is using a portion of the proceeds from the Merger to increase its sales and marketing activities in Europe. ChargePoint is also positioned to grow its European business through existing partnerships with car leasing companies, its recently closed acquisition of ViriCiti, and its pending acquisition of has.to.be. In Europe ChargePoint primarily competes with smaller providers of EV charging station networks. Many of these competitors have limited funding, which could cause poor experiences and have a negative impact on overall EV adoption in Europe. ChargePoint’s growth in Europe requires differentiating itself as compared to these existing competitors. If ChargePoint is unable to continue penetrating the market in Europe, its financial condition and results of operations may be impacted.
Fleet Expansion
ChargePoint’s future growth is highly dependent upon fleet applications. Because fleet operators often make large purchases of EVs, volatility may be more pronounced and any significant decline from these customers reduces ChargePoint’s potential for future growth.
Impact of New Product Releases and Investments in Growth
As ChargePoint introduces new products, its gross margins may be initially impacted by launch costs and lower volumes until its supply chain achieves targeted cost reductions, such as the market introduction of its Level 3 DC fast charger in fiscal year 2020. In addition, ChargePoint may accelerate its operating expenditures where it sees growth opportunities, which may impact gross margin until upfront costs and inefficiencies are absorbed and normalized operations are achieved. ChargePoint also continuously evaluates and may adjust its operating expenditures based on its launch plans for its new products, as well as other factors including the pace and prioritization of current projects under development and the addition of new projects. As ChargePoint attains higher revenue, it expects operating expenses as a percentage of total revenue to decrease as it scales and focuses on increasing operational efficiency and process automation.
Government Mandates, Incentives and Programs
The U.S. federal government, certain foreign governments and some state and local governments provide incentives to end users and purchasers of EVs and EV infrastructure in the form of rebates, tax credits and other financial incentives. These
39
governmental rebates, tax credits and other financial incentives significantly lower the effective price of EVs and EV infrastructure to customers. However, these incentives may expire on specified dates, end when the allocated funding is no longer available, or be reduced or terminated as a matter of regulatory or legislative policy. In particular, the credits under Section 30C of the Code which benefit investments in EV infrastructure may be reduced or become unavailable if not extended in future years. Any reduction in rebates, tax credits or other financial incentives could reduce the demand for EVs and for charging infrastructure, including infrastructure ChargePoint offers.
ChargePoint also derives Other revenue from fees received for regulatory credits earned for participating in low carbon fuel programs in approved U.S. states. ChargePoint claims these regulatory credits only if they are not claimed by purchasers of its EV charging stations; only a small percentage of its customers currently elect to claim such credits. If a material percentage of its customers were to claim these regulatory credits, ChargePoint’s revenue from this source could decline significantly, which could have an adverse effect on its revenue and overall gross margin. Prior to fiscal year 2021 ChargePoint derived a slight majority of its Other revenue from these regulatory credits. However, revenue from this source as a percentage of total revenue has declined in recent quarters and it may continue to decline over time. Further, the availability of such credits depends on continued governmental support for these programs. If these programs are modified, reduced or eliminated, ChargePoint’s ability to generate this revenue in the future would be adversely impacted.
Impact of
COVID-19
In March 2020, the World Health Organization (the “WHO”) characterized
COVID-19
as a pandemic. The impact of COVID-19,
including changes in consumer and business behavior, pandemic fears and market downturns, and restrictions on business and individual activities, has created significant volatility in the global economy and led to reduced economic activity. The spread of COVID-19
has disrupted ChargePoint’s supply chain and heightened its freight and logistic costs, and has similarly disrupted manufacturing, delivery and overall supply chain of vehicle manufacturers and suppliers, which has led to fluctuations in EV sales in markets around the world. These ongoing supply chain challenges and heightened logistic costs decreased gross margins in the three and six months ended July 31, 2021 and ChargePoint expects gross margins will continue to be adversely affected by increased component, freight and logistic expenses through the remainder of the fiscal year. As a result of the
COVID-19
pandemic, ChargePoint initially modified its business practices (including reducing employee travel, recommending that all non-essential
personnel work from home and canceling or reducing physical participation in sales activities, meetings, events and conferences), implemented additional safety protocols for essential workers, and implemented temporary cost cutting measures in order to reduce its operating costs. The Company may take further actions as may be required by government authorities or that it determines are in the best interests of its employees, customers, suppliers, vendors and business partners. While the ultimate duration and extent of the
COVID-19
pandemic depends on current and future developments that cannot be accurately predicted, such as the extent and effectiveness of containment actions and vaccinations, it has already had an adverse effect on the global economy, the ultimate societal and economic impact of the COVID-19
pandemic remains unknown. The effect of the COVID-19
pandemic can also vary over time and across the geographies in which ChargePoint operates. For example, variations in work-from-home policies can cause fluctuations in ChargePoint’s revenues, and the Company believes that since people are not yet fully back to work it has not yet seen the full return of commercial customer demand for its products. The conditions caused by the COVID-19
pandemic, such as more permanent work-from-home policies, are likely to continue affecting the rate of global infrastructure spending, and thus to continue to adversely impact ChargePoint’s gross margins as the Company’s commercial business contributes higher margins than its residential and fleet businesses. Further, the COVID-19
pandemic could continue to heighten supply chain pricing and logistics expenses, and could, for example, adversely impact ChargePoint’s gross margins through heightened supply chain expenses, and could adversely affect demand for ChargePoint’s platforms, lengthen its sales cycles, reduce the value, renewal rate or duration of subscriptions, negatively impact collections of accounts receivable, reduce expected spending from new customers, cause some of its paying customers to go out of business and limit the ability of its direct sales force to travel to customers and potential customers, all of which could adversely affect its business, results of operations and financial condition. 40
Results of Operations & its Components
Revenue
Networked Charging Systems
Networked Charging Systems revenue includes revenue related to the deliveries of EV charging system infrastructure, which include lower priced Level 1 home chargers typically sold to drivers, Level 2 AC chargers for commercial use and Level 3 DC fast charging systems for urban/corridor charging and for fleet operators. A majority of ChargePoint’s Networked Charging Systems revenue is presently derived from the sale of Level 2 AC chargers. ChargePoint recognizes revenue from sales of Networked Charging Systems upon shipment to the customer, which is when the performance obligation has been satisfied.
Subscriptions
Subscriptions revenue consists of services related to Cloud, as well as extended maintenance service plans under Assure. Subscriptions revenue also consists of CPaaS revenue which combines the customer’s use of ChargePoint’s owned and operated systems with Cloud and Assure programs into a single subscription. CPaaS subscriptions are considered to contain a lease for the customer’s use of ChargePoint’s owned and operated systems unless the location allows the customer to receive incremental economic benefit from regulatory credits earned on that EV charging system. Lessor revenue relates to operating leases and historically has not been material. Subscriptions revenue is recognized over time on a straight-line basis as ChargePoint has a stand-ready obligation to deliver such services to the customer.
Other
Other revenue consists of fees received for transferring regulatory credits earned for participating in low carbon fuel programs in approved states, charging related fees received from drivers using charging sites owned and operated by ChargePoint, net transaction fees earned for processing payments collected on driver charging sessions at charging sites owned by its customers, and other professional services. Revenue from regulatory credits is recognized at the point in time the regulatory credits are transferred. Revenue from fees for owned and operated sites is recognized over time on a straight-line basis over the performance period of the service contract as ChargePoint has a stand-ready obligation to deliver such services. Revenue from driver charging sessions and charging transaction fees is recognized at the point in time the charging session or transaction is completed. Revenue from professional services is recognized as the services are rendered.
For the remainder of fiscal year 2022, ChargePoint expects revenue to grow in both networked charging systems and subscriptions due to increased demand in EV and its related charging infrastructure market.
July 31, |
|
|||||||||||||||
| Networked Charging Systems |
2021 |
2020 |
Change |
|||||||||||||
| (dollar amounts in thousands) | ||||||||||||||||
| Three months ended |
$ | 40,874 | $ | 21,368 | $ | 19,506 | 91.3 | % | ||||||||
| Percentage of total revenue |
72.8 | % | 61.1 | % | ||||||||||||
| Six months ended |
$ | 67,674 | $ | 41,025 | $ | 26,649 | 65.0 | % | ||||||||
| Percentage of total revenue |
70.0 | % | 60.6 | % | ||||||||||||
Networked Charging Systems revenue increased during the three and six months ended July 31, 2021, compared to the three and six months ended July 31, 2020, primarily due to higher demand from customers resulting in higher volumes of systems delivered across all of ChargePoint’s major product families.
41
July 31, |
|
|||||||||||||||
| Subscriptions |
2021 |
2020 |
Change |
|||||||||||||
| (dollar amounts in thousands) | ||||||||||||||||
| Three months ended |
$ | 12,082 | $ | 9,811 | $ | 2,271 | 23.1 | % | ||||||||
| Percentage of total revenue |
21.5 | % | 28.1 | % | ||||||||||||
| Six months ended |
$ | 22,906 | $ | 18,815 | $ | 4,091 | 21.7 | % | ||||||||
| Percentage of total revenue |
23.7 | % | 27.8 | % | ||||||||||||
Subscriptions revenue increased during the three and six months ended July 31, 2021, compared to the three and six months ended July 31, 2020, primarily due to growth in the number of charging systems connected to ChargePoint’s network.
July 31, |
|
|||||||||||||||
| Other revenue |
2021 |
2020 |
Change |
|||||||||||||
| (dollar amounts in thousands) | ||||||||||||||||
| Three months ended |
$ | 3,165 | $ | 3,778 | $ | (613 | ) | (16.2 |
)% | |||||||
| Percentage of total revenue |
5.6 | % | 10.8 | % | ||||||||||||
| Six months ended |
$ | 6,051 | $ | 7,893 | $ | (1,842 | ) | (23.3 |
)% | |||||||
| Percentage of total revenue |
6.3 | % | 11.7 | % | ||||||||||||
Other revenue decreased during the three and six months ended July 31, 2021, compared to the three and six months ended July 31, 2020 mainly due to fewer regulatory credits transferred.
Cost of Revenue
Networked Charging Systems
ChargePoint uses contract manufacturers to manufacture the majority of its Networked Charging Systems. ChargePoint conducts the remainder of its manufacturing
in-house.
ChargePoint’s cost of revenue for the sale of Networked Charging Systems includes the contract manufacturer costs of finished goods. For ChargePoint’s limited in-house
production, cost of revenue for the sale of Networked Charging Systems also includes parts, labor, manufacturing costs, and allocated facilities and information technology expenses. Cost of revenue for the sale of Networked Charging Systems also consists of salaries and related personnel expenses, including stock-based compensation, warranty provisions, depreciation of manufacturing related equipment and facilities, amortization of capitalized internal-use
software, and allocated facilities and information technology expenses. As revenue is recognized, ChargePoint accounts for estimated warranty cost as a charge to cost of revenue. The estimated warranty cost is based on historical and predicted product failure rates and repair expenses. Costs incurred for shipping and handling are recorded in cost of revenue. Subscriptions
Cost of subscriptions revenue includes salaries and related personnel expenses, including stock-based compensation and third-party support costs to manage the systems and helpdesk services for drivers and site hosts, network and wireless connectivity costs for subscription services, field maintenance costs for Assure to support ChargePoint’s network of systems, depreciation of owned and operated systems used in CPaaS arrangements, amortization of capitalized
internal-use
software development costs, allocated facilities and information technology expenses. 42
Other
Cost of other revenue includes depreciation and other costs for ChargePoint’s owned and operated charging sites, salaries and related personnel expenses, including stock-based compensation, as well as costs of professional services.
July 31, |
|
|||||||||||||||
| Cost of networked charging systems revenue |
2021 |
2020 |
Change |
|||||||||||||
| (dollar amounts in thousands) | ||||||||||||||||
| Three months ended |
$ | 35,384 | $ | 20,408 | $ | 14,976 | 73.4 | % | ||||||||
| Percentage of networked charging systems revenue |
86.6 | % | 95.5 | % | ||||||||||||
| Six months ended |
$ | 59,126 | $ | 39,024 | $ | 20,102 | 51.5 | % | ||||||||
| Percentage of networked charging systems revenue |
87.4 | % | 95.1 | % | ||||||||||||
Cost of Networked Charging Systems revenue increased during the three and six months ended July 31, 2021, compared to the three and six months ended July 31, 2020, primarily due to an increase in the number of Networked Charging Systems delivered.
July 31, |
|
|||||||||||||||
| Cost of subscriptions revenue |
2021 |
2020 |
Change |
|||||||||||||
| (dollar amounts in thousands) | ||||||||||||||||
| Three months ended |
$ | 7,830 | $ | 4,452 | $ | 3,378 | 75.9 | % | ||||||||
| Percentage of subscriptions revenue |
64.8 | % | 45.4 | % | ||||||||||||
| Six months ended |
$ | 13,470 | $ | 9,225 | $ | 4,245 | 46.0 | % | ||||||||
| Percentage of subscriptions revenue |
58.8 | % | 49.0 | % | ||||||||||||
Cost of subscriptions revenue increased during the three and six months ended July 31, 2021, compared to the three and six months ended July 31, 2020, primarily resulting from an increase in stock-based compensation and ChargePoint expanding its network of charging systems.
July 31, |
|
|||||||||||||||
| Cost of other revenue |
2021 |
2020 |
Change |
|||||||||||||
| (dollar amounts in thousands) | ||||||||||||||||
| Three months ended |
$ | 2,130 | $ | 1,069 | $ | 1,061 | 99.3 | % | ||||||||
| Percentage of other revenue |
67.3 | % | 28.3 | % | ||||||||||||
| Six months ended |
$ | 4,041 | $ | 2,692 | $ | 1,349 | 50.1 | % | ||||||||
| Percentage of other revenue |
66.8 | % | 34.1 | % | ||||||||||||
Other cost of revenue increased during the three and six months ended July 31, 2021, compared to the three and six months ended July 31, 2020, primarily related to higher depreciation on owned and operated charging sites.
43
Gross Profit and Gross Margin
Gross profit is revenue less cost of revenue and gross margin is gross profit as a percentage of revenue. ChargePoint offers a range of Networked Charging Systems products which vary widely in selling price and associated margin. Accordingly, ChargePoint’s gross profit and gross margin have varied and are expected to continue to vary from period to period due to revenue levels; geographic, vertical and product mix; new product introductions, and its efforts to optimize its operations and supply chain.
In the long term, improvements in ChargePoint’s gross profit and gross margin will depend on its ability to increase its revenue and continue to optimize its operations and supply chain. However, at least in the short term, as ChargePoint launches new Networked Charging Systems products, grows its presence in Europe where it has not yet achieved economies of scale, and expands its solutions for its fleet customers, it expects gross margin to experience variability from period to period. In addition, ChargePoint expects gross margins will continue to be adversely affected by increased freight and logistic expense as a result of ongoing supply chain disruptions caused by
COVID-19
and related measures. July 31, |
|
|||||||||||||||
| Gross Profit and Gross Margin |
2021 |
2020 |
Change |
|||||||||||||
| (dollar amounts in thousands) | ||||||||||||||||
| Three months ended |
$ | 10,777 | $ | 9,028 | $ | 1,749 | 19.4 | % | ||||||||
| Gross margin |
19.2 | % | 25.8 | % | ||||||||||||
| Six months ended |
$ | 19,994 | $ | 16,792 | $ | 3,202 | 19.1 | % | ||||||||
| Gross margin |
20.7 | % | 24.8 | % | ||||||||||||
Gross profit increased during the three and six months ended July 31, 2021, compared to the three and six months ended July 31, 2020, primarily due to an increase in Networked Charging Systems sales resulting from a larger number of charging systems delivered.
Gross margin decreased during the three and six months ended July 31, 2021, compared to the three and six months ended July 31, 2020, primarily due to an increase in stock-based compensation expense and a decrease in other revenue in the form of regulatory credits transferred.
Research and Development Expenses
Research and development expenses consist primarily of salaries and related personnel expenses, including stock-based compensation, for personnel related to the development of improvements and expanded features for ChargePoint’s services, as well as quality assurance, testing, product management, amortization of capitalized
internal-use
software, and allocated facilities and information technology expenses. Research and development costs are expensed as incurred. ChargePoint expects its research and development expenses to increase on an absolute basis and they may increase as a percentage of total revenue for the foreseeable future as ChargePoint continues to invest in research and development activities to achieve its technology and product roadmap.
44
July 31, |
|
|||||||||||||||
| Research and development expenses |
2021 |
2020 |
Change |
|||||||||||||
| (dollar amounts in thousands) | ||||||||||||||||
| Three months ended |
$ | 40,410 | $ | 17,126 | $ | 23,284 | 136.0 | % | ||||||||
| Percentage of total revenue |
72.0 | % | 49.0 | % | ||||||||||||
| Six months ended |
$ | 65,784 | $ | 35,152 | $ | 30,632 | 87.1 | % | ||||||||
| Percentage of total revenue |
68.1 | % | 51.9 | % | ||||||||||||
Research and development expenses increased during the three months ended July 31, 2021, compared to the three months ended July 31, 2020, primarily attributable to a $19.6 million increase in personnel costs related to a $13.2 million increase in stock-based compensation expense from restricted stock unit (“RSU”) grants and a $6.4 million increase in salary and bonus expenses due to headcount growth.
Research and development expenses increased during the six months ended July 31, 2021, compared to the six months ended July 31, 2020, primarily attributable to a $23.0 million increase in personnel costs related to a $13.6 million increase in stock-based compensation expense from RSU grants and a $9.4 million increase in salary and bonus expenses due to headcount growth.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of salaries and related personnel expenses, including stock-based compensation, sales commissions, professional services fees, travel, marketing and promotional expenses amortization of capitalized
internal-use
software and allocated facilities and information technology expenses. ChargePoint expects its sales and marketing expenses to increase on an absolute basis and they may increase as a percentage of total revenue for the foreseeable future while it continues to add sales and marketing personnel, expand its sales channels and expand in Europe.
July 31, |
|
|||||||||||||||
| Sales and marketing expenses |
2021 |
2020 |
Change |
|||||||||||||
| (dollar amounts in thousands) | ||||||||||||||||
| Three months ended |
$ | 21,923 | $ | 10,966 | $ | 10,957 | 99.9 | % | ||||||||
| Percentage of total revenue |
39.1 | % | 31.4 | % | ||||||||||||
| Six months ended |
$ | 37,897 | $ | 25,167 | $ | 12,730 | 50.6 | % | ||||||||
| Percentage of total revenue |
39.2 | % | 37.2 | % | ||||||||||||
Sales and marketing expenses increased during the three months ended July 31, 2021, compared to the three months ended July 31, 2020, primarily attributable to an $8.7 million increase in personnel costs related to a $4.9 million increase in salary, bonus and commissions due to headcount growth as well as revenue growth and a $3.8 million increase in stock-based compensation expense resulting from RSU grants.
Sales and marketing expenses increased during the six months ended July 31, 2021, compared to the six months ended July 31, 2020, primarily attributable to a $10.1 million increase in personnel costs related to a $6.0 million increase in salary, bonus and commissions due to headcount growth as well as revenue growth and a $4.1 million increase in stock-based compensation expense resulting from RSU grants.
45
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related personnel expenses, including stock-based compensation, related to finance, legal and human resource functions, contractor and professional services fees, audit and compliance expenses, insurance costs, bad debt expenses, amortization of capitalized
internal-use
software and general corporate expenses, including allocated facilities and information technology expenses. ChargePoint expects its general and administrative expenses to increase in absolute dollars as it continues to grow its business. ChargePoint also expects to incur additional expenses as a result of operating as a public company, including expenses necessary to comply with the rules and regulations applicable to companies listed on a national securities exchange and related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, as well as higher expenses for director and officer insurance, investor relations and legal, accounting and other professional services.
July 31, |
|
|||||||||||||||
| General and administrative expenses |
2021 |
2020 |
Change |
|||||||||||||
| (dollar amounts in thousands) | ||||||||||||||||
| Three months ended |
$ | 22,732 | $ | 4,466 | $ | 18,266 | 409.0 | % | ||||||||
| Percentage of total revenue |
40.5 | % | 12.8 | % | ||||||||||||
| Six months ended |
$ | 37,199 | $ | 9,555 | $ | 27,644 | 289.3 | % | ||||||||
| Percentage of total revenue |
38.5 | % | 14.1 | % | ||||||||||||
General and administrative expenses increased during the three months ended July 31, 2021, compared to the three months ended July 31, 2020, primarily attributable to a $9.7 million increase in personnel costs related to a $7.9 million increase in stock-based compensation expense resulting from RSU grants and stock option grants, a $1.8 million increase in salary expense due to headcount growth, a $2.8 million increase in consulting expenses as well as a $5.4 million increase in professional services fees related to acquisitions and expenses associated with an underwritten secondary offering of shares held by certain selling stockholders in July 2021 (“Secondary Stock Offering”).
General and administrative expenses increased during the six months ended July 31, 2021, compared to the six months ended July 31, 2020, primarily attributable to a $15.7 million increase in personnel costs related to a $13.9 million increase in stock-based compensation expense resulting from RSU grants and stock option grants, a $1.8 million increase in salary expense due to headcount growth, a $5.2 million increase in consulting expenses as well as a $5.4 million increase in professional services fees related to acquisitions and the Secondary Stock Offering.
Interest Income
Interest income consists primarily of interest earned on ChargePoint’s cash, cash equivalents and short-term investments.
July 31, |
|
|||||||||||||||
| Interest Income |
2021 |
2020 |
Change |
|||||||||||||
| (dollar amounts in thousands) | ||||||||||||||||
| Three months ended |
$ | 25 | $ | 37 | $ | (12 | ) | (32.4 | )% | |||||||
| Percentage of total revenue |
— | % | 0.1 | % | ||||||||||||
| Six months ended |
$ | 47 | $ | 280 | $ | (233 | ) | (83.2 | )% | |||||||
| Percentage of total revenue |
— | % | 0.4 | % | ||||||||||||
46
Interest income decreased during the three and six months ended July 31, 2021 as compared to the three and six months ended July 31, 2020 due to lower returns on investments.
Interest Expense
Interest expense consists primarily of the interest on ChargePoint’s term loan which was paid off in March 2021.
July 31, |
|
|||||||||||||||
| Interest Expense |
2021 |
2020 |
Change |
|||||||||||||
| (dollar amounts in thousands) | ||||||||||||||||
| Three months ended |
$ | — | $ | (793 | ) | $ | 793 | (100.0 | )% | |||||||
| Percentage of total revenue |
— | % | (2.3 | )% | ||||||||||||
| Six months ended |
$ | (1,499 | ) | $ | (1,628 | ) | $ | 129 | (7.9 | )% | ||||||
| Percentage of total revenue |
(1.6 | )% | (2.4 | )% | ||||||||||||
Interest expense decreased during the three and six months ended July 31, 2021, compared to the three and six months ended July 31, 2020, primarily due to repayment of the term loan in March 2021. As of July 31, 2021, ChargePoint had no outstanding loans.
Change in Fair Value of Redeemable Convertible Preferred Stock Warrant Liability
Redeemable convertible preferred stock warrant liability is subject to remeasurement to fair value at each balance sheet date. Changes in fair value of redeemable convertible preferred stock warrant liability are recognized in the condensed consolidated statements of operations. ChargePoint adjusts the liability for changes in fair value until the earlier of the exercise or expiration of the warrants and conversion of redeemable convertible preferred stock into the Company’s Common Stock.
July 31, |
|
|||||||||||||||
| Change in fair value of redeemable convertible preferred stock warrant liability |
2021 |
2020 |
Change |
|||||||||||||
| (dollar amounts in thousands) | ||||||||||||||||
| Three months ended |
$ | — | $ | (11,516 | ) | $ | 11,516 | (100.0 | )% | |||||||
| Percentage of total revenue |
— | % | (32.9 | )% | ||||||||||||
| Six months ended |
$ | 9,237 | $ | (10,981 | ) | $ | 20,218 | (184.1 | )% | |||||||
| Percentage of total revenue |
9.6 | % | (16.2 | )% | ||||||||||||
The change in fair value of redeemable convertible preferred stock warrant liability during the three and six months ended July 31, 2021 compared to the three and six months ended July 31, 2020 was primarily due to changes in the fair value of Legacy ChargePoint’s redeemable convertible preferred stock through the date of the Merger. As of July 31, 2021, ChargePoint had no outstanding redeemable convertible preferred stock warrant liabilities.
47
Change in Fair Value of Common Stock Warrant Liabilities
Common stock warrant liabilities consist of publicly-traded warrants (“Public Warrants”) and private placement warrants issued to NGP Switchback, LLC (“Private Placement Warrants”) which ChargePoint assumed in connection with the Merger and are subject to remeasurement to fair value at each balance sheet date. ChargePoint expects to incur an incremental income (expense) in the condensed consolidated statements of operations for the fair value adjustments for the outstanding common stock warrant liabilities at the end of each reporting period or through the exercise of such warrants.
July 31, |
|
|||||||||||||||
| Change in fair value of common stock warrant liability |
2021 |
2020 |
Change |
|||||||||||||
| (dollar amounts in thousands) | ||||||||||||||||
| Three months ended |
$ | (10,421 | ) | $ | — | $ | (10,421 | ) | — | % | ||||||
| Percentage of total revenue |
(18.6 | )% | — | % | ||||||||||||
| Six months ended |
$ | 33,340 | $ | — | $ | 33,340 | — | % | ||||||||
| Percentage of total revenue |
34.5 | % | — | % | ||||||||||||
ChargePoint recognized a $10.4 million loss during the three months ended July 31, 2021 due to the change in the fair value of common stock warrants during the respective period the warrants were outstanding.
ChargePoint recognized a $33.3 million gain during the six months ended July 31, 2021 due to the change in the fair value of common stock warrants during the respective period the warrants were outstanding.
Change in Fair Value of Contingent Earnout Liability
Contingent earnout liability was accounted for as a liability as of the date of the Merger and remeasured to fair value until the Earnout Triggering Event was met for the first two tranches in March 2021 and the Earnout Shares issued. In March 2021, the remaining earnout liability for the third tranche converted to be accounted for as equity. The Earnout Triggering Event was met for the third and final tranche in June 2021 and in July 2021 the Earnout Shares were issued.
July 31, |
|
|||||||||||||||
| Change in fair value of contingent earnout liability |
2021 |
2020 |
Change |
|||||||||||||
| (dollar amounts in thousands) | ||||||||||||||||
| Three months ended |
$ | — | $ |
— |
|
$ | — | — | % | |||||||
| Percentage of total revenue |
— | % | — | % | ||||||||||||
| Six months ended |
$ | 84,420 | $ |
— |
|
$ | 84,420 | — | % | |||||||
| Percentage of total revenue |
87.4 | % | — | % | ||||||||||||
ChargePoint recognized a change in fair value of contingent earnout liability of $84.4 million for the six months ended July 31, 2021, due to the decrease in the fair value of ChargePoint’s common stock after consummation of the Merger.
Transaction Costs Expensed
Transaction costs consist of legal, accounting, banking fees and other costs that were directly related to the consummation of the Merger. Transaction costs related to the issuance of shares were recognized in stockholders’ equity (deficit) while costs associated with the warrant liabilities and
non-capitalized
amounts were expensed in the condensed consolidated statements of operations upon the completion of the Merger on February 26, 2021. 48
July 31, |
|
|||||||||||||||
| Transaction costs expensed |
2021 |
2020 |
Change |
|||||||||||||
| (dollar amounts in thousands) | ||||||||||||||||
| Three months ended |
$ | — | $ | — | $ | — | — | % | ||||||||
| Percentage of total revenue |
— | % | — | % | ||||||||||||
| Six months ended |
$ | (7,031 | ) | $ | — | $ | (7,031 | ) | — | % | ||||||
| Percentage of total revenue |
(7.3 | )% | — | % | ||||||||||||
During the six months ended July 31, 2021 ChargePoint expensed $7.0 million out of $36.5 million total transaction costs, that related to the warrant liabilities assumed as part of the Merger.
Other Income (Expense), Net
Other income (expense), net consists primarily of foreign currency transaction gains and losses.
July 31, |
|
|||||||||||||||
| Other income (expense), net |
2021 |
2020 |
Change |
|||||||||||||
| (dollar amounts in thousands) | ||||||||||||||||
| Three months ended |
$ | (189 | ) | $ | 563 | $ | (752 | ) | (133.6 | )% | ||||||
| Percentage of total revenue |
(0.3 | )% | 1.6 | % | ||||||||||||
| Six months ended |
$ | (174 | ) | $ | 131 | $ | (305 | ) | (232.8 | )% | ||||||
| Percentage of total revenue |
(0.2 | )% | 0.2 | % | ||||||||||||
Other income (expense) decreased during the three and six months ended July 31, 2021 as compared to the three and six months ended July 31, 2020 due to unfavorable changes in foreign exchange rates.
Provision for income taxes
ChargePoint’s provision for income taxes consists of an estimate of federal, state and foreign income taxes based on enacted federal, state and foreign tax rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in deferred tax assets and liabilities and changes in tax law. Due to the level of historical losses, ChargePoint maintains a valuation allowance against U.S. federal and state deferred tax assets as it has concluded it is more likely than not that these deferred tax assets will not be realized.
49
July 31, |
|
|||||||||||||||
| Provision for income taxes |
2021 |
2020 |
Change |
|||||||||||||
| (dollar amounts in thousands) | ||||||||||||||||
| Three months ended |
$ | 65 | $ | 48 | $ | 17 | 35.4 | % | ||||||||
| Percentage of profit/(loss) before provision for income taxes |
(0.1 | )% | (0.1 | )% | ||||||||||||
| Six months ended |
$ | 103 | $ | 105 | $ | (2 | ) | (1.9 | )% | |||||||
| Percentage of profit/(loss) before provision for income taxes |
(4.0 | )% | (0.2 | )% | ||||||||||||
The provision for income taxes did not significantly fluctuate during the three and six months ended July 31, 2021 as compared to the three and six months ended July 31, 2020.
Liquidity and Capital Resources
Sources of Liquidity
ChargePoint has incurred net losses and negative cash flows from operations since its inception which it anticipates will continue for the foreseeable future. To date, ChargePoint has funded its operations primarily with proceeds from the issuance of redeemable convertible preferred stock, proceeds from warrant and option exercises for cash, borrowings under its loan facilities, customer payments and proceeds from the Merger. As of July 31, 2021, ChargePoint had cash, cash equivalents and restricted cash of $618.5 million. ChargePoint believes that its cash on hand, together with cash generated from sales to customers will satisfy its working capital and capital requirements for at least the next twelve months.
From inception to July 31, 2021, ChargePoint has raised aggregate net cash proceeds of $615.7 million from the sale of shares of redeemable convertible preferred stock and $477.5 million from the Merger and the concurrent purchase by certain investors of shares of Common Stock pursuant to separate subscription agreements (the “PIPE financing”). During the six months ended July 31, 2021, ChargePoint received $117.6 million in proceeds from the Public Warrants.
In March 2021, ChargePoint repaid the entire loan balance of $35.0 million plus accrued interest and prepayment fees of $1.2 million.
Long-Term Liquidity Requirements
Until ChargePoint can generate sufficient revenue to cover its cost of sales, operating expenses, working capital and capital expenditures, it expects to primarily fund cash needs through a combination of equity and debt financing. If ChargePoint raises funds by issuing equity securities, dilution to existing stockholders may result. Any equity securities issued may also provide for rights, preferences or privileges senior to those of holders of Common Stock. If ChargePoint raises funds by issuing debt securities, these debt securities would have rights, preferences and privileges senior to those of holders of Common Stock. The terms of debt securities or borrowings could impose significant restrictions on ChargePoint’s operations. The capital markets have in the past, and may in the future, experience periods of upheaval that could impact the availability and cost of equity and debt financing.
ChargePoint’s principal use of cash in recent periods has been funding its operations and investing in capital expenditures. ChargePoint’s future capital requirements will depend on many factors, including its revenue growth rate, the timing and the amount of cash received from customers, the expansion of sales and marketing activities, the timing and extent of spending to support development efforts, expenses associated with its international expansion, the introduction of network enhancements and the continuing market adoption of its network. ChargePoint has and may in the future enter into arrangements to acquire or invest in complementary businesses, products and technologies. ChargePoint may be required to seek additional equity or debt financing. In the event that ChargePoint requires additional financing, it may not be able to raise such financing on acceptable terms or at all. If ChargePoint is unable to raise additional capital or generate cash flows necessary to expand its
50
operations and invest in continued innovation, it may not be able to compete successfully, which would harm its business, results of operations and financial condition. If adequate funds are not available, ChargePoint may need to reconsider its expansion plans or limit its research and development activities, which could have a material adverse impact on its business prospects and results of operations.
Cash Flows
For the Six Months Ended July 31, 2021 and 2020
The following table sets forth a summary of ChargePoint’s cash flows for the periods indicated:
Six Months Ended July 31, |
||||||||
2021 |
2020 |
|||||||
(in thousands) |
||||||||
| Net cash (used in) provided by: |
||||||||
| Operating activities |
$ | (61,198 | ) | $ | (50,069 | ) | ||
| Investing activities |
(7,788 | ) | 41,052 | |||||
| Financing activities |
541,590 | 125,365 | ||||||
| Effects of exchange rates on cash, cash equivalents, and restricted cash |
(6 | ) | 36 | |||||
| |
|
|
|
|||||
| Net increase in cash, cash equivalents, and restricted cash |
$ | 472,598 | $ | 116,384 | ||||
| |
|
|
|
|||||
Net Cash Used in Operating Activities
During the six months ended July 31, 2021, net cash used in operating activities was $61.2 million, consisting primarily of a net loss of $2.6 million and
non-cash
charges of $74.5 million, partially offset by a decrease in net operating assets of $15.9 million. The decrease in net operating assets was primarily due to a $3.0 million increase in accrued and other liabilities, a $9.3 million increase in accounts payable, a $5.6 million decrease in inventories and a $15.9 million increase in deferred revenue, partially offset by a $9.3 million increase in prepaid expenses and other assets, a $7.7 million increase in accounts receivable and a $1.0 million decrease in operating lease liabilities. The non-cash
charges primarily consisted of $84.4 million change in fair value of contingent earnout liability, $33.3 million change in fair value of common stock warrant liability and $9.2 million change in fair value of redeemable convertible preferred stock warrant liability, partially offset by $35.9 million of stock-based compensation expense, $7.0 million of transaction costs expensed, $5.6 million of depreciation and amortization expense, and $2.0 million of non-cash
operating lease cost. During the six months ended July 31, 2020, net cash used in operating activities was $50.1 million, consisting primarily of a net loss of $65.4 million and an increase in net operating assets of $5.4 million, partially offset by
non-cash
charges of $20.7 million. The increase in net operating assets was primarily attributable to a $9.3 million decrease in accounts payable, a $7.4 million increase in inventories, a $2.0 million decrease in operating lease liabilities, a $4.1 million decrease in accrued and other liabilities and a $3.3 million increase in prepaid expenses and other assets, partially offset by a $16.2 million decrease in accounts receivable and $4.6 million increase in deferred revenue. The non-cash
charges primarily consisted of $4.7 million of depreciation and amortization expense, $2.1 million of stock-based compensation expense and $1.7 million of non-cash
operating lease cost and $11.0 million change in fair value of common stock warrant liability. 51
Net Cash (Used In) Provided By Investing Activities
During the six months ended July 31, 2021, net cash used in investing activities was $7.8 million for purchases of property and equipment.
During the six months ended July 31, 2020, net cash provided by investing activities was $41.1 million, consisting of maturities of investments of $47.0 million, partially offset by purchases of property and equipment of $6.0 million.
Net Cash Provided by Financing Activities
During the six months ended July 31, 2021, net cash provided by financing activities was $541.6 million, consisting of net proceeds from the Merger and PIPE financing of $511.6 million, proceeds from the exercise of warrants of $117.6 million and proceeds from exercises of vested and unvested stock options of $1.8 million, partially offset by payment of transaction costs related to the Merger of $32.5 million, issuance of earnout shares, payment of tax withholding obligations on settlement of earnout shares of $20.9 million and repayment of borrowings of $36.1 million.
During the six months ended July 31, 2020, net cash provided by financing activities was $125.4 million consisting of proceeds from issuance of redeemable convertible preferred stock of $92.4 million, proceeds from the exercise of public warrants of $31.4 million and proceeds from exercises of vested and unvested stock options of $1.5 million.
Off-Balance
Sheet Arrangements ChargePoint is not a party to any
off-balance
sheet arrangements. Critical Accounting Policies and Estimates
The Company’s discussion and analysis of its financial condition and results of operations are based upon its condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these condensed consolidated financial statements requires ChargePoint to make estimates and assumptions that affect the reported amounts of assets, liabilities, net sales and expenses. The Company evaluates its estimates and assumptions on an ongoing basis, and base its estimates on historical experience and on various other assumptions that ChargePoint believes to be reasonable under the circumstances, the results of which form the basis for the judgments ChargePoint makes about the carrying value of assets and liabilities that are not readily apparent from other sources. Because these estimates can vary depending on the situation, actual results may differ from these estimates. Making estimates and judgments about future events is inherently unpredictable and is subject to significant uncertainties, some of which are beyond ChargePoint’s control. Should any of these estimates and assumptions change or prove to have been incorrect, it could have a material impact on ChargePoint’s results of operations, financial position and statement of cash flows.
Other than the policies noted in Part I, Item 1, Note 2, “Summary of Significant Accounting Policies,” in the Company’s notes to condensed consolidated financial statements in this Quarterly Report on Form
10-Q,
there have been no material changes to its critical accounting policies and estimates as compared to those disclosed in its audited consolidated financial statements as of January 31, 2021 and 2020 and for the years ended January 31, 2021, 2020 and 2019. Recent Accounting Pronouncements
For a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on ChargePoint’s condensed consolidated financial statements, see Part I, Item 1, Note 2, “Summary of Significant Accounting Policies,” in its notes to condensed consolidated financial statements in this Quarterly Report on Form
10-Q.
52
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
ChargePoint had cash, cash equivalents and restricted cash totaling $618.5 million as of July 31, 2021. Cash equivalents were invested primarily in money market funds. ChargePoint’s investment policy is focused on the preservation of capital and supporting its liquidity needs. Under the policy, ChargePoint invests in highly rated securities, issued by the U.S. government or liquid money market funds. ChargePoint does not invest in financial instruments for trading or speculative purposes, nor does it use leveraged financial instruments. ChargePoint utilizes external investment managers who adhere to the guidelines of its investment policy.
A hypothetical 10% change in interest rates would not have a material impact on the value of ChargePoint’s cash, cash equivalents, net loss or cash flows.
Foreign Currency Risk
ChargePoint has foreign currency risks related to its revenue and operating expenses denominated in currencies other than the U.S. dollar, primarily the euro, causing both its revenue and its operating results to be impacted by fluctuations in the exchange rates.
Gains or losses from the revaluation of certain cash balances, accounts receivable balances and intercompany balances that are denominated in these currencies impact ChargePoint’s net loss. A hypothetical decrease in all foreign currencies against the U.S. dollar of 10% would not result in a material foreign currency loss on foreign-denominated balances, as of July 31, 2021. As ChargePoint’s foreign operations expand, its results may be more materially impacted by fluctuations in the exchange rates of the currencies in which it does business.
At this time, ChargePoint does not enter into financial instruments to hedge its foreign currency exchange risk, but it may in the future.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in ChargePoint’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including ChargePoint’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
As required by Rules
13a-15
and 15d-15
under the Exchange Act, ChargePoint’s Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures as of July 31, 2021. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, due to the material weaknesses in internal control over financial reporting described below, ChargePoint’s disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e)
under the Exchange Act) were not effective at the reasonable assurance level as of such date. Notwithstanding these material weaknesses, management has concluded that the condensed consolidated financial statements included in this quarterly report on Form 10-Q
are fairly stated in all material respects in accordance with U.S. GAAP. 53
Material Weaknesses in Internal Control over Financial Reporting
In connection with the preparation and audit of ChargePoint’s consolidated financial statements, material weaknesses were identified in its internal control over financial reporting as of January 31, 2021. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of ChargePoint’s annual or interim financial statements will not be prevented or detected on a timely basis.
ChargePoint did not design and maintain an effective control environment commensurate with its financial reporting requirements. Specifically, ChargePoint did not maintain a sufficient complement of personnel with an appropriate degree of accounting knowledge, experience and training to appropriately analyze, record and disclose accounting matters commensurate with its accounting and reporting requirements. This material weakness contributed to the following additional material weaknesses:
| • | ChargePoint did not design and maintain formal accounting policies, procedures and controls over significant accounts and disclosures to achieve complete, accurate and timely financial accounting, reporting and disclosures, including accounting for complex features associated with warrants, segregation of duties and adequate controls related to the preparation and review of journal entries; and |
| • | ChargePoint did not design and maintain effective controls over certain information technology (“IT”) general controls for information systems that are relevant to the preparation of its consolidated financial statements. Specifically, ChargePoint did not design and maintain (a) program change management controls to ensure that IT program and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized and implemented appropriately and (b) user access controls to ensure appropriate segregation of duties and that adequately restrict user and privileged access to its financial applications and data to appropriate company personnel. |
The material weaknesses related to the control environment and lack of formal accounting policies, procedures and controls resulted in material adjustments to warrant liabilities, stockholders’ equity and related accounts and disclosures and immaterial adjustments to several other account balances and disclosures in the historical consolidated financial statements.
The IT deficiencies did not result in a misstatement to the consolidated financial statements however, the deficiencies, when aggregated, could impact maintaining effective segregation of duties, as well as the effectiveness of
IT-dependent
controls (such as automated controls that address the risk of material misstatement to one or more assertions, along with the IT controls and underlying data that support the effectiveness of system-generated data and reports) that could result in misstatements potentially impacting all financial statement accounts and disclosures that would not be prevented or detected. Additionally, each of these material weaknesses could result in a misstatement of account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected. Remediation Plan
ChargePoint has continued implementation of a plan to remediate these material weaknesses. These remediation measures are ongoing and include the following:
| • | Hiring additional finance and accounting personnel to bolster the accounting capabilities and capacity, and to establish and maintain internal control over financial reporting; |
| • | Designing and implementing controls to formalize roles and review responsibilities to align with the staff’s skills and experience and designing and implementing controls over segregation of duties; |
| • | Providing ongoing training for personnel on accounting, financial reporting and internal control over financial reporting; |
| • | Engaging an external advisor to assist with evaluating and documenting the design and operating effectiveness of internal control over financial reporting and assist with the remediation of deficiencies, as necessary; |
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| • | Designing and implementing controls over the preparation and review of journal entries and account reconciliations, including controls over the segregation of duties; and |
| • | Designing and implementing IT general controls, including controls over the provisioning and monitoring of user access rights and privileges and change management processes and procedures. |
ChargePoint is remediating the material weaknesses as efficiently and effectively as possible and remediation efforts could continue beyond the fiscal year ending January 31, 2023. At this time, ChargePoint cannot provide an estimate of costs expected to be incurred in connection with implementing this remediation plan; however, these remediation measures will be time consuming, will result in it incurring significant costs, and will place significant demands on its financial and operational resources.
In order to maintain and improve the effectiveness of its internal control over financial reporting, ChargePoint has expended, and anticipates to continue to expend, significant resources, including accounting-related costs and significant management oversight.
Changes in Internal Control Over Financial Reporting
There were no changes in ChargePoint’s internal control over financial reporting covered by this Quarterly Report on
Form 10-Q,
other than the changes discussed above, that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting. 55
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, ChargePoint may be involved in legal proceedings or subject to claims incident to the ordinary course of business. Regardless of the outcome, such proceedings or claims can have an adverse impact on ChargePoint because of defense and settlement costs, diversion of resources and other factors, and there can be no assurances that favorable outcomes will be obtained.
ITEM 1A. RISK FACTORS
An investment in ChargePoint’s securities involves a high degree of risk. You should carefully consider the risks described below before making an investment decision. ChargePoint’s business, prospects, financial condition, or operating results could be harmed by any of these risks, as well as other risks not known to ChargePoint or that it considers immaterial as of the date of this Quarterly Report. The trading price of ChargePoint’s securities could decline due to any of these risks, and, as a result, you may lose all or part of your investment.
Summary of Principal Risks Associated with ChargePoint’s Business
| • | ChargePoint is an early-stage company with a history of losses and expects to incur significant expenses and continuing losses for the near term. |
| • | ChargePoint has experienced rapid growth and expects to invest in growth for the foreseeable future. If it fails to manage growth effectively, its business, operating results and financial condition could be adversely affected. |
| • | ChargePoint currently faces competition from a number of companies, particularly in Europe, and expects to face significant competition in the future as the market for EV charging develops. |
| • | ChargePoint faces risks related to health pandemics, including the COVID-19 pandemic, which could have a material and adverse effect on its business and results of operations. |
| • | ChargePoint relies on a limited number of suppliers and manufacturers for its charging stations. A loss of any of these partners could negatively affect its business. |
| • | ChargePoint’s business is subject to risks associated with construction, cost overruns and delays, and other contingencies that may arise in the course of completing installations, and such risks may increase in the future as ChargePoint expands the scope of such services with other parties. |
| • | Acquisitions or strategic investments could be difficult to identify and integrate, divert the attention of key management personnel, disrupt ChargePoint’s business, dilute stockholder value and adversely affect its results of operations and financial condition. |
| • | If ChargePoint is unable to attract and retain key employees and hire qualified management, technical engineering and sale personnel, its ability to compete and successfully grow its business would be harmed. |
| • | ChargePoint is expanding operations internationally, which will expose it to additional tax, compliance, market and other risks. |
| • | Some members of ChargePoint’s management have limited experience in operating a public company. |
| • | ChargePoint may need to raise additional funds and these funds may not be available when needed. |
| • | ChargePoint’s future revenue growth will depend in significant part on its ability to increase sales of its products and services to fleet operators. |
| • | Computer malware, viruses, ransomware, hacking, phishing attacks and similar disruptions could result in security and privacy breaches and interruption in service, which could harm ChargePoint’s business. |
| • | ChargePoint’s headquarters and other facilities are located in an active earthquake zone; an earthquake or other types of natural disasters or resource shortages, including public safety power shut-offs that have occurred and will continue to occur in California, could disrupt and harm its operations and those of ChargePoint’s customers. |
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| • | ChargePoint has never paid cash dividends on its capital stock, and does not anticipate paying dividends in the foreseeable future. |
| • | The price of ChargePoint’s Common Stock may be subject to wide fluctuations. |
| • | Concentration of ownership among ChargePoint’s existing executive officers, directors and their affiliate may prevent new investors from influencing significant corporate decisions. |
| • | ChargePoint’s future growth and success is highly correlated with and thus dependent upon the continuing rapid adoption of EVs for passenger and fleet applications. |
| • | The EV market currently benefits from the availability of rebates, tax credits and other financial incentives from governments, utilities and others to offset the purchase or operating cost of EVs and EV charging stations. |
| • | ChargePoint’s business may be adversely affected if it is unable to protect its technology and intellectual property from unauthorized use by third parties. |
| • | ChargePoint has identified material weaknesses in its internal control over financial reporting. If ChargePoint is unable to remediate these material weaknesses, or if ChargePoint identifies additional material weaknesses in the future or otherwise fails to maintain an effective system of internal control over financial reporting, this may result in material misstatements of ChargePoint’s consolidated financial statements or cause ChargePoint to fail to meet its periodic reporting obligations. |
Risks Related to ChargePoint’s Business
ChargePoint is an early-stage company with a history of losses, and expects to incur significant expenses and continuing losses for the near term.
ChargePoint incurred a net loss of $197.0 million for the fiscal year ended January 31, 2021 and had net loss of $2.6 million for the six months ended July 31, 2021. As of July 31, 2021 ChargePoint had an accumulated deficit of approximately $682.1 million. ChargePoint believes it will continue to incur significant operating expenses and net losses in future quarters for the near term. There can be no assurance that it will be able to maintain profitability in the future. ChargePoint’s potential profitability is particularly dependent upon the continued adoption of EVs by consumers and fleet operators, the widespread adoption of electric trucks and other vehicles and other electric transportation modalities, which may not occur.
ChargePoint has experienced rapid growth and expects to invest in growth for the foreseeable future. If it fails to manage growth effectively, its business, operating results and financial condition could be adversely affected.
ChargePoint has experienced rapid growth in recent periods. For example, the number of employees has grown from 743 as of January 31, 2020 to 834 as of January 31, 2021 and to 1,045 as of July 31, 2021, including 77 employees in Europe as of January 31, 2020 to 101 as of January 31, 2021 and to 150 as of July 31, 2021. The growth and expansion of its business has placed and continues to place a significant strain on management, operations, financial infrastructure and corporate culture. In the event of further growth, ChargePoint’s information technology systems and ChargePoint’s internal control over financial reporting and procedures may not be adequate to support its operations and may introduce opportunities for data security incidents that may interrupt business operations and permit bad actors to obtain unauthorized access to business information or misappropriate funds. ChargePoint may also face risks to the extent such bad actors infiltrate the information technology infrastructure of its contractors.
To manage growth in operations and personnel, ChargePoint will need to continue to improve its operational, financial and management controls and reporting systems and procedures. Failure to manage growth effectively could result in difficulty or delays in attracting new customers, declines in quality or customer satisfaction, increases in costs, difficulties in introducing new products and services or enhancing existing products and services, loss of customers, information security vulnerabilities or other operational difficulties, any of which could adversely affect its business performance and operating results.
ChargePoint currently faces competition from a number of companies, particularly in Europe, and expects to face significant competition in the future as the market for EV charging develops.
The EV charging market is relatively new and competition is still developing. ChargePoint primarily competes with smaller providers of EV charging station networks for installations, particularly in Europe. Large early stage markets, such as
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Europe, require early engagement across verticals and customers to gain market share, and ongoing effort to scale channels, installers, teams and processes. Some European customers require solutions not yet available and ChargePoint’s recent entrance into Europe requires establishing itself against existing competitors. In addition, there are multiple competitors in Europe with limited funding, which could cause poor experiences, hampering overall EV adoption or trust in any particular provider.
In addition, there are other means for charging EVs, which could affect the level of demand for onsite charging capabilities at businesses. For example, Tesla Inc. continues to build out its supercharger network across the United States for its vehicles, which could reduce overall demand for EV charging at other sites. Also, third-party contractors can provide basic electric charging capabilities to potential customers seeking to have on premise EV charging capability, including for home charging. In addition, many EV charging manufacturers, including ChargePoint, are offering home charging equipment, which could reduce demand for on premise charging capabilities of potential customers and reduce the demand for onsite charging capabilities if EV owners find charging at home to be sufficient.
Further, ChargePoint’s current or potential competitors may be acquired by third parties with greater available resources. In addition, certain of ChargePoint’s competitors are engaging in a process similar to the Merger and may have ready access to the capital markets for additional funding. As a result, competitors may be able to respond more quickly and effectively than ChargePoint to new or changing opportunities, technologies, standards or customer requirements and may have the ability to initiate or withstand substantial price competition. In addition, competitors may in the future establish cooperative relationships with vendors of complementary products, technologies or services to increase the availability of their solutions in the marketplace. This competition may also materialize in the form of costly intellectual property disputes or litigation.
New competitors or alliances may emerge in the future that have greater market share, more widely adopted proprietary technologies, greater marketing expertise and greater financial resources, which could put ChargePoint at a competitive disadvantage. Future competitors could also be better positioned to serve certain segments of ChargePoint’s current or future target markets, which could create price pressure. In light of these factors, even if ChargePoint’s offerings are more effective and higher quality than those of its competitors, current or potential customers may accept competitive solutions. If ChargePoint fails to adapt to changing market conditions or continue to compete successfully with current charging providers or new competitors, its growth will be limited which would adversely affect its business and results of operations.
Failure to effectively expand ChargePoint’s sales and marketing capabilities could harm its ability to increase its customer base and achieve broader market acceptance of its solutions.
ChargePoint’s ability to grow its customer base, achieve broader market acceptance, grow revenue, and achieve and sustain profitability will depend, to a significant extent, on its ability to effectively expand its sales and marketing operations and activities. Sales and marketing expenses represent a significant percentage of its total revenue, and its operating results will suffer if sales and marketing expenditures do not contribute significantly to increasing revenue.
ChargePoint is substantially dependent on its direct sales force to obtain new customers. ChargePoint plans to continue to expand its direct sales force both domestically and internationally but it may not be able to recruit and hire a sufficient number of sales personnel, which may adversely affect its ability to expand its sales capabilities. New hires require significant training and time before they achieve full productivity, particularly in new sales territories. Recent hires and planned hires may not become as productive as quickly as anticipated, and ChargePoint may be unable to hire or retain sufficient numbers of qualified individuals. Furthermore, hiring sales personnel in new countries can be costly, complex and time-consuming, and requires additional set up and upfront costs that may be disproportionate to the initial revenue expected from those countries. There is significant competition for direct sales personnel with strong sales skills and technical knowledge. ChargePoint’s ability to achieve significant revenue growth in the future will depend, in large part, on its success in recruiting, training, incentivizing and retaining a sufficient number of qualified direct sales personnel and on such personnel attaining desired productivity levels within a reasonable amount of time. ChargePoint’s business will be harmed if continuing investment in its sales and marketing capabilities does not generate a significant increase in revenue.
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ChargePoint faces risks related to health pandemics, including the recent coronavirus
(“COVID-19”)
pandemic, which could have a material and adverse effect on its business and results of operations. The
COVID-19
pandemic, including the actual or contemplated return of stringent restrictions on social gatherings or commerce, has created significant volatility in the global economy. Global trade conditions and consumer trends that have originated during the pandemic continue to persist and may have a long-lasting adverse impact on ChargePoint and its industry. The pandemic has resulted in government authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, or orders and business shutdowns. These measures may adversely impact ChargePoint’s employees and operations and the operations of its customers, suppliers, vendors and business partners, and may negatively impact demand for EV charging stations, particularly at workplaces. These measures by government authorities may remain in place for a significant period of time and may adversely affect manufacturing and building plans, sales and marketing activities, business and results of operations.
stay-at-home
shelter-in-place
Disruptions in the manufacturing, delivery and overall supply chain of vehicle manufacturers and suppliers, such as exacerbated port congestion and intermittent supplier shutdowns and delays, have resulted in additional costs and, to a lesser extent, component shortages, and have led to fluctuations in EV sales in markets around the world. Increased demand for personal electronics has also created a shortfall of semiconductor chips, which has caused additional supply challenges both within and outside of ChargePoint’s industry. These ongoing challenges and heightened costs have decreased ChargePoint’s gross margins in recent quarters and ChargePoint expects gross margin improvements will continue to be offset by increased freight and logistic expense as a result of ongoing supply chain disruptions caused by
COVID-19
and related measures. Costs incurred to expedite delivery of components used in charging stations or in providing installation or maintenance services or to proactively increase inventory could cause ChargePoint to raise its prices, impose surcharges or other fees or refuse to negotiate discounts. Further, any sustained downturn in demand for EVs would also harm ChargePoint’s business. During 2020, ChargePoint modified its business practices by recommending that all orders or otherwise have substantial numbers of their employees working remotely for sustained periods of time, user demand for charging stations and services will decline. In addition, measures imposed by governments, may adversely impact ChargePoint’s employees and operations and the operations of its customers, suppliers, vendors and business partners, and may negatively impact demand for EV charging stations, particularly at workplaces.
non-essential
personnel work from home and cancelling or reducing physical participation in sales activities, meetings, events and conferences. ChargePoint has also implemented additional safety protocols for workers and cost cutting measures to reduce operating costs. ChargePoint may take further actions as may be required by government authorities or that it determines are in the best interests of its employees, customers, suppliers, vendors and business partners, including acting to lift or re-impose
initiatives. There is no certainty that such actions will be sufficient to mitigate the risks posed by the pandemic or otherwise be satisfactory to government authorities. If significant portions of ChargePoint’s workforce are unable to work effectively, including due to illness, quarantines, social distancing, government actions or other restrictions in connection with the COVID-19
pandemic, its operations will be negatively impacted. Furthermore, if significant portions of its customers’ or potential customers’ workforces are subject to stay-at-home
The effect of the
COVID-19
pandemic on ChargePoint’s business, prospects and results of operations will depend on the direction and duration of current global trends and their sustained impact. Difficult macroeconomic conditions, such as decreases in per capita income and level of disposable income, increased and prolonged unemployment or a decline in consumer confidence as a result of the COVID-19
pandemic, as well as reduced spending by businesses, could have a material adverse effect on the demand for ChargePoint’s products and services. The effect of the COVID-19
pandemic can also vary over time and across the geographies in which ChargePoint operates. For example, variations in work-from-home policies can cause fluctuations in revenues, and ChargePoint believes that as people are not yet fully back to work ChargePoint has not yet seen the full return of commercial customer demand for ChargePoint products. Even after the COVID-19
pandemic has subsided, ChargePoint may continue to experience an adverse impact to its business as a result of its global economic impact, including any recession that has occurred or may occur in the future. 59
ChargePoint relies on a limited number of suppliers and manufacturers for its charging stations. A loss of any of these partners could negatively affect its business.
ChargePoint relies on a limited number of suppliers to manufacture its charging stations, including in some cases only a single supplier for some products and components. This reliance on a limited number of manufacturers increases ChargePoint’s risks, since it does not currently have proven reliable alternatives or replacement manufacturers beyond these key parties. In the event of interruption, including or resulting in a sudden failure by a supplier to meet its obligation, ChargePoint may not be able to increase capacity from other sources or develop alternate or secondary sources without incurring material additional costs and substantial delays. Thus, ChargePoint’s business could be adversely affected if one or more of its suppliers is impacted by any interruption at a particular location.
During the three months ended July 31, 2021, ChargePoint experienced slightly increased demand, which, due to failure by certain suppliers to meet their obligations, prevented it from making an immaterial number of shipments. If ChargePoint experiences a significant increase in demand for its charging stations in future periods, or if it needs to replace an existing supplier, it may not be possible to supplement or replace them on acceptable terms, which may undermine its ability to deliver products to customers in a timely manner. For example, it may take a significant amount of time to identify a manufacturer that has the capability and resources to build charging stations in sufficient volume. Identifying suitable suppliers and manufacturers could be an extensive process that requires ChargePoint to become satisfied with their quality control, technical capabilities, responsiveness and service, financial stability, regulatory compliance, and labor and other ethical practices. Accordingly, a loss of any significant suppliers or manufacturers could have an adverse effect on ChargePoint’s business, financial condition and operating results. In addition, ChargePoint’s suppliers may face supply chain risks and constraints of their own, which may impact the availability and pricing of its products. For example, supply chain challenges related to the
COVID-19
pandemic and the global chip shortages that have impacted companies worldwide both within and outside of ChargePoint’s industry may have adverse effects on its suppliers and, as a result, ChargePoint. In addition, as a result of the Merger, ChargePoint became subject to requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) to diligence, disclose, and report whether or not its products contain minerals originating from the Democratic Republic of the Congo and adjoining countries, or conflict minerals. ChargePoint will incur additional costs to comply with these disclosure requirements, including costs related to determining the source of any of the relevant minerals and metals used in ChargePoint’s products. These requirements could adversely affect the sourcing, availability, and pricing of minerals used in the components used in ChargePoint’s products. It is also possible that ChargePoint’s reputation may be adversely affected if it determines that certain of its products contain minerals not determined to be conflict-free or if it is unable to alter its products, processes or sources of supply to avoid use of such materials. ChargePoint may also encounter
end-customers
who require that all of the components of the products be certified as conflict free. If ChargePoint is not able to meet this requirement, such end-customers
may choose to purchase products from a different company. ChargePoint’s business is subject to risks associated with construction, cost overruns and delays, and other contingencies that may arise in the course of completing installations, and such risks may increase in the future as ChargePoint expands the scope of such services with other parties.
ChargePoint does not typically install charging stations at customer sites. These installations are typically performed by ChargePoint partners or electrical contractors with an existing relationship with the customer and/ or knowledge of the site. The installation of charging stations at a particular site is generally subject to oversight and regulation in accordance with state and local laws and ordinances relating to building codes, safety, environmental protection and related matters, and typically requires various local and other governmental approvals and permits that may vary by jurisdiction. In addition, building codes, accessibility requirements or regulations may hinder EV charger installation because they end up costing the developer or installer more in order to meet the code requirements. Meaningful delays or cost overruns may impact ChargePoint’s recognition of revenue in certain cases and/or impact customer relationships, either of which could impact ChargePoint’s business and profitability.
Furthermore, ChargePoint may in the future elect to install charging stations at customer sites or manage contractors, likely as part of offering customers a turnkey solution. Working with contractors may require ChargePoint to obtain licenses or require it or its customers to comply with additional rules, working conditions and other union requirements, which can add costs and complexity to an installation project. In addition, if these contractors are unable to provide timely, thorough and quality installation-related services, customers could fall behind their construction schedules leading to liability to ChargePoint or cause customers to become dissatisfied with the solutions ChargePoint offers and ChargePoint’s overall reputation would be harmed.
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Acquisitions or strategic investments could be difficult to identify and integrate, divert the attention of key management personnel, disrupt ChargePoint’s business, dilute stockholder value and adversely affect its results of operations and financial condition.
As part of ChargePoint’s business strategy, ChargePoint has made and continues to consider making acquisitions of, or investments in, businesses, services or technologies that are complementary to its existing business. The process of identifying and consummating acquisitions, investments, and the subsequent integration of new assets and businesses into ChargePoint’s own business requires attention from management and could result in a diversion of resources from its existing business, which in turn could have an adverse effect on its operations. Acquired assets or businesses may not generate the expected financial results. Acquisitions or investments could also result in the use of cash, potentially dilutive issuances of equity securities, the occurrence of goodwill impairment charges, amortization expenses for other intangible assets and exposure to potential unknown liabilities of the acquired business or investment. ChargePoint may also incur costs and management time on transactions that are ultimately not completed. In addition, ChargePoint’s due diligence may fail to identify all of the problems, liabilities or other shortcomings or challenges of an acquired business, product, technology or investment, including issues related to intellectual property, product quality or product architecture, regulatory compliance practices, revenue recognition or other accounting practices or issues with employees or customers.
ChargePoint’s acquisitions or investments may not ultimately strengthen its competitive position or achieve its goals and business strategy; ChargePoint may be subject to claims or liabilities assumed from an acquired company, product, or technology; acquisitions or investments ChargePoint completes could be viewed negatively by its customers, investors, and securities analysts; and ChargePoint may incur costs and expenses necessary to address an acquired company’s failure to comply with laws and governmental rules and regulations. Additionally, ChargePoint may be subject to litigation or other claims in connection with the acquired company, including claims from terminated employees, former stockholders or other third parties, which may differ from or be more significant than the risks ChargePoint’s business faces. An acquired company may also need to implement or improve its controls, procedures and policies, and ChargePoint may face risks associated if any of those controls, procedures or policies are insufficiently effective. ChargePoint may also face retention or cultural challenges associated with integrating employees from the acquired company into its organization. If ChargePoint is unsuccessful at integrating acquisitions or investments, in a timely manner, the revenue and operating results of the combined company could be adversely affected. Any integration process may require significant time and resources, which may disrupt ChargePoint’s ongoing business and divert management’s attention, and ChargePoint may not be able to manage the integration process successfully or in a timely manner. ChargePoint may not successfully evaluate or utilize the acquired technology or personnel, realize anticipated synergies from the acquisition or investment, or accurately forecast the financial impact of an acquisition or investment transaction or the related integration of such acquisition or investment, including accounting charges and any potential impairment of goodwill and intangible assets recognized in connection with such transaction. ChargePoint may have to pay cash, incur debt, or issue equity or equity-linked securities to pay for any acquisitions or investments, each of which could adversely affect its financial condition or the market price of its Common Stock. Furthermore, the sale of equity or issuance of equity-linked debt to finance any such transactions could result in dilution to ChargePoint’s stockholders. The occurrence of any of these risks could harm ChargePoint’s business, operating results, and financial condition.
If ChargePoint is unable to attract and retain key employees and hire qualified management, technical, engineering and sales personnel, its ability to compete and successfully grow its business would be harmed.
ChargePoint’s success depends, in part, on its continuing ability to identify, hire, attract, train and develop and retain highly qualified personnel. The inability to do so effectively would adversely affect its business. ChargePoint’s future performance also depends on the continued services and continuing contributions of its senior management to execute on its business plan and to identify and pursue new opportunities and product innovations. The loss of services of senior management, or the ineffective management of any leadership transitions, especially within ChargePoint’s sales organization, could significantly delay or prevent the achievement of its development and strategic objectives, which could adversely affect its business, financial condition, and operating results.
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Competition for employees can be intense, particularly in Silicon Valley where ChargePoint is headquartered, and the ability to attract, hire and retain them depends on ChargePoint’s ability to provide competitive compensation. ChargePoint may not be able to attract, assimilate, develop or retain qualified personnel in the future, and failure to do so could adversely affect its business, including the execution of its global business strategy.
ChargePoint is expanding operations internationally, which will expose it to additional tax, compliance, market and other risks.
ChargePoint’s primary operations are in the United States and it maintains contractual relationships with parts and manufacturing suppliers in Asia, Mexico and other locations. Also, ChargePoint is continuing to invest to increase its presence in Europe and to expand a primarily software development team in India. Managing this expansion requires additional resources and controls, and could subject ChargePoint to risks associated with international operations, including:
| • | conformity with applicable business customs, including translation into foreign languages and associated expenses; |
| • | lack of availability of government incentives and subsidies; |
| • | challenges in arranging, and availability of, financing for customers; |
| • | potential changes to its established business model; |
| • | cost of alternative power sources, which could vary meaningfully outside the United States; |
| • | difficulties in staffing and managing foreign operations in an environment of diverse culture, laws, and customers, and the increased travel, infrastructure, and legal and compliance costs associated with international operations; |
| • | installation challenges; |
| • | differing driving habits and transportation modalities in other markets; |
| • | different levels of demand among commercial, fleet and residential customers; |
| • | compliance with multiple, potentially conflicting and changing governmental laws, regulations, certifications, and permitting processes including environmental, banking, employment, tax, information security, privacy, and data protection laws and regulations such as the California Consumer Privacy Act (“CCPA”) and newer state privacy laws in the U.S., the European Union (the “EU”) General Data Protection Regulation (“GDPR”), national legislation implementing the same and changing requirements for legally transferring data out of the European Economic Area; |
| • | compliance with U.S. and foreign anti-bribery laws including the Foreign Corrupt Practices Act (“FCPA”) and the United Kingdom Anti-Bribery Act; |
| • | conforming products to various international regulatory and safety requirements as well as charging and other electric infrastructures; |
| • | difficulty in establishing, staffing and managing foreign operations; |
| • | difficulties in collecting payments in foreign currencies and associated foreign currency exposure; |
| • | restrictions on repatriation of earnings; |
| • | compliance with potentially conflicting and changing laws of taxing jurisdictions and compliance with applicable U.S. tax laws as they relate to international operations, the complexity and adverse consequences of such tax laws, and potentially adverse tax consequences due to changes in such tax laws; and |
| • | regional economic and political conditions. |
As a result of these risks, ChargePoint’s current expansion efforts and any potential future international expansion efforts may not be successful.
Some members of ChargePoint’s management have limited experience in operating a public company.
Some of ChargePoint’s executive officers have limited experience in the management of a publicly-traded company. The management team may not successfully or effectively manage the transition to a public company that will be subject to significant regulatory oversight and reporting obligations under federal securities laws. Their limited experience in dealing with the increasingly complex laws pertaining to public companies could be a significant disadvantage in that it is likely that an increasing amount of their time may be devoted to these activities, which will result in less time being devoted to the management and growth of ChargePoint. ChargePoint may not have adequate personnel with the appropriate level of knowledge, experience and training in the accounting policies, practices or internal control over financial reporting required of public companies. The development and implementation of the standards and controls and the hiring of experienced personnel necessary to achieve the level of accounting standards required of a public company may require costs greater than expected.
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ChargePoint may need to raise additional funds and these funds may not be available when needed.
ChargePoint may need to raise additional capital in the future to further scale its business and expand to additional markets. ChargePoint may raise additional funds through the issuance of equity, equity-related or debt securities, or through obtaining credit from government or financial institutions. ChargePoint cannot be certain that additional funds will be available on favorable terms when required, or at all. If ChargePoint cannot raise additional funds when needed, its financial condition, results of operations, business and prospects could be materially and adversely affected. If ChargePoint raises funds through the issuance of debt securities or through loan arrangements, the terms of which could require significant interest payments, contain covenants that restrict ChargePoint’s business, or other unfavorable terms. In addition, to the extent ChargePoint raises funds through the sale of additional equity securities, ChargePoint stockholders would experience additional dilution.
ChargePoint’s future revenue growth will depend in significant part on its ability to increase sales of its products and services to fleet operators.
ChargePoint’s future revenue growth will depend in significant part on its ability to increase sales of its products and services to fleet operators. The electrification of fleets is an emerging market, and fleet operators may not adopt EVs on a widespread basis and on the timelines ChargePoint anticipates. In addition to the factors affecting the growth of the EV market generally, transitioning to an EV fleet can be costly and capital intensive, which could result in slower than anticipated adoption. The sales cycle could also be longer for sales to fleet operators, as they are often larger organizations, with more formal procurement processes than smaller commercial site hosts. Fleet operators may also require significant additional services and support, and if ChargePoint is unable to provide such services and support, it may adversely affect its ability to attract additional fleet operators as customers. Any failure to attract and retain fleet operators as customers in the future would adversely affect ChargePoint’s business and results of operations.
Computer malware, viruses, ransomware, hacking, phishing attacks and similar disruptions could result in security and privacy breaches and interruption in service, which could harm ChargePoint’s business.
Computer malware, viruses, physical or electronic
break-ins
and similar disruptions could lead to interruption and delays in ChargePoint’s services and operations and loss, misuse or theft of data. Computer malware, viruses, ransomware, hacking and phishing attacks against online networks have become more prevalent and may occur on ChargePoint’s systems in the future. Any attempts by cyber attackers to disrupt ChargePoint’s services or systems, if successful, could harm its business, introduce liability to data subjects, result in the misappropriation of funds, be expensive to remedy, subject ChargePoint to substantial fines, penalties, damages and other liabilities under applicable laws and regulations, lead to a loss of protection of its intellectual property or trade secrets and damage its reputation or brand. Insurance may not be sufficient to cover significant expenses and losses related to cyber-attacks. Efforts to prevent cyber attackers from entering computer systems are expensive to implement, and ChargePoint may not be able to cause the implementation or enforcement of such preventions with respect to its third-party vendors. Though it is difficult to determine what, if any, harm may directly result from any specific interruption or attack, any failure to maintain performance, reliability, security and availability of systems and technical infrastructure may, in addition to other losses, harm ChargePoint’s reputation, brand and ability to attract customers. ChargePoint has previously experienced, and may in the future experience, service disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, third-party service providers, human or software errors and capacity constraints. If ChargePoint’s services are unavailable when users attempt to access them, they may seek other services, which could reduce demand for its solutions from target customers.
ChargePoint has processes and procedures in place designed to enable it to quickly recover from a disaster or catastrophe and continue business operations and has tested this capability under controlled circumstances. However, there are several factors ranging from human error to data corruption that could materially impact the efficacy of such processes and procedures, including by lengthening the time services are partially or fully unavailable to customers and users. It may be difficult or impossible to perform some or all recovery steps and continue normal business operations due to the nature of a particular disaster or catastrophe, especially during peak periods, which could cause additional reputational damages, or loss of revenue, any of which could adversely affect its business and financial results.
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ChargePoint’s headquarters and other facilities are located in an active earthquake zone; an earthquake or other types of natural disasters or resource shortages, including public safety power shut-offs that have occurred and will continue to occur in California, could disrupt and harm its operations and those of ChargePoint’s customers.
ChargePoint conducts a majority of its operations in the San Francisco Bay area in an active earthquake zone. The occurrence of a natural disaster such as an earthquake, drought, flood, fire (such as the recent extensive wildfires in California), localized extended outages of critical utilities (such as California’s public safety power shut-offs) or transportation systems, or any critical resource shortages could cause a significant interruption in its business, damage or destroy its facilities or inventories, and cause it to incur significant costs, any of which could harm its business, financial condition and results of operations. The insurance ChargePoint maintains against fires, earthquakes and other natural disasters may not be adequate to cover losses in any particular case.
In addition, rolling public safety power shut offs in California or other states can affect user acceptance of EVs, as charging may be unavailable at the desired times, or at all during these events. These shut offs could also affect the ability of fleet operators to charge their EVs, which, for example, could adversely affect transportation schedules or any service level agreements to which either ChargePoint or the fleet operator may be a party. If these events persist, the demand for EVs could decline, which would result in reduced demand for charging solutions.
Seasonality may cause fluctuations in ChargePoint’s revenue.
ChargePoint believes there are seasonal factors that may cause ChargePoint to record higher revenue in some quarters compared with others. A significant share of ChargePoint’s annual revenues are typically generated in the fourth fiscal quarter, which coincides with customers with a December 31
year-end
choosing to spend remaining unused portions of their budgets and its sales commission plans which provide year-end
accelerators. ChargePoint’s revenues are typically lower in its fiscal first quarter than its preceding fourth quarter, due to unfavorable weather conditions which result in a decrease in construction activity during the winter months, periods of wet weather and times when other weather and climate conditions would impair construction activity. While ChargePoint believes it has visibility into the seasonality of its business, various factors, including difficult weather conditions (such as flooding, hurricanes, prolonged rain or periods of unseasonably cold or snow storms) in any quarter, may materially and adversely affect its business, financial condition and results of operations. Risks Related to the EV Market
Changes to fuel economy standards or the success of alternative fuels may negatively impact the EV market and thus the demand for ChargePoint’s products and services.
As regulatory initiatives have required an increase in the mileage capabilities of cars, consumption of renewable transportation fuels, such as ethanol and biodiesel, and consumer acceptance of EVs and other alternative vehicles has been increasing. If fuel efficiency of
non-electric
vehicles continues to rise, whether as the result of regulations or otherwise, and affordability of vehicles using renewable transportation fuels improves, the demand for electric and high energy vehicles could diminish. In addition, the EV fueling model is different than gas or other fuel models, requiring behavior change and education of influencers, consumers and others such as regulatory bodies. Developments in alternative technologies, such as advanced diesel, ethanol, fuel cells or compressed natural gas, or improvements in the fuel economy of the internal combustion engine, may materially and adversely affect demand for EVs and EV charging stations. For example, fuel which is abundant and relatively inexpensive in the United States, such as compressed natural gas, may emerge as a preferred alternative to petroleum-based propulsion. Regulatory bodies may also adopt rules that substantially favor certain alternatives to petroleum-based propulsion over others, which may not necessarily be EVs. This may impose additional obstacles to the purchase of EVs or the development of a more ubiquitous EV market. Finally, the current litigation between the state of California and the National Highway Traffic Safety Administration (“NHTSA”) could impact California’s ability to set fuel economy standards that 64
encourage the adoption of EVs, and could be followed by many other states. If any of the above cause or contribute to consumers or businesses to no longer purchase EVs or purchase them at a lower rate, it would materially and adversely affect ChargePoint’s business, operating results, financial condition and prospects.
ChargePoint’s future growth and success is highly correlated with and thus dependent upon the continuing rapid adoption of EVs for passenger and fleet applications.
ChargePoint’s future growth is highly dependent upon the adoption of EVs by businesses and consumers. The market for EVs is still rapidly evolving, characterized by rapidly changing technologies, competitive pricing and competitive factors, evolving government regulation and industry standards and changing consumer demands and behaviors, changing levels of concern related to environmental issues and governmental initiatives related to climate change and the environment generally. Although demand for EVs has grown in recent years, there is no guarantee of continuing future demand. If the market for EVs develops more slowly than expected, or if demand for EVs decreases, ChargePoint’s business, prospects, financial condition and operating results would be harmed. The market for EVs could be affected by numerous factors, such as:
| • | perceptions about EV features, quality, safety, performance and cost; |
| • | perceptions about the limited range over which EVs may be driven on a single battery charge; |
| • | competition, including from other types of alternative fuel vehicles, plug-in hybrid electric vehicles and high fuel-economy internal combustion engine vehicles; |
| • | volatility in the cost of oil and gasoline; |
| • | concerns regarding the stability of the electrical grid; |
| • | the decline of an EV battery’s ability to hold a charge over time; |
| • | availability of service for EVs; |
| • | consumers’ perception about the convenience and cost of charging EVs; |
| • | increases in fuel efficiency; |
| • | government regulations and economic incentives, including adverse changes in, or expiration of, favorable tax incentives related to EVs, EV charging stations or decarbonization generally; |
| • | relaxation of government mandates or quotas regarding the sale of EVs; and |
| • | concerns about the future viability of EV manufacturers. |
In addition, sales of vehicles in the automotive industry can be cyclical, which may affect growth in acceptance of EVs. It is uncertain how macroeconomic factors will impact demand for EVs, particularly since they can be more expensive than traditional gasoline-powered vehicles, when the automotive industry globally has been experiencing a recent decline in sales. Furthermore, because fleet operators often make large purchases of EVs, this cyclicality and volatility in the automotive industry may be more pronounced with commercial purchasers, and any significant decline in demand from these customers could reduce demand for EV charging and ChargePoint’s products and services in particular.
Demand for EVs may also be affected by factors directly impacting automobile prices or the cost of purchasing and operating automobiles, such as sales and financing incentives, prices of raw materials and parts and components, cost of fuel and governmental regulations, including tariffs, import regulation and other taxes. Volatility in demand may lead to lower vehicle unit sales, which may result in reduced demand for EV charging solutions and therefore adversely affect ChargePoint’s business, financial condition and operating results.
The EV market currently benefits from the availability of rebates, tax credits and other financial incentives from governments, utilities and others to offset the purchase or operating cost of EVs and EV charging stations. In particular, ChargePoint’s marketing efforts have heavily relied upon federal tax credits available to purchasers of its EV charging stations that effectively provide purchasers with a significantly discounted purchase price. The reduction, modification, or elimination of such benefits could cause reduced demand for EVs and EV charging stations, which would adversely affect ChargePoint’s financial results.
The U.S. federal government, foreign governments and some state and local governments provide incentives to end users and purchasers of EVs and EV charging stations in the form of rebates, tax credits and other financial incentives, such as
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payments for regulatory credits. The EV market relies on these governmental rebates, tax credits and other financial incentives to significantly lower the effective price of EVs and EV charging stations to customers. However, these incentives may expire on a particular date, end when the allocated funding is exhausted, or be reduced or terminated as a matter of regulatory or legislative policy. In particular, ChargePoint has heavily relied upon the availability of federal tax credits to purchasers under Section 30C of the Code to market its EV charging stations, which can effectively provide such purchasers with up to a 30% discount off the purchase price of ChargePoint’s EV charging stations. The credits under Section 30C of the Code are set to expire on December 31, 2021 and thus would not be available to ChargePoint’s customers unless extended. There can be no assurance that the credits under Section 30C of the Code will be extended, or if extended, will not be otherwise reduced. Any reduction in rebates, tax credits or other financial incentives, including the credit under Section 30C of the Code, could materially reduce the demand for EVs and ChargePoint’s solutions and, as a result, may adversely impact ChargePoint’s business and expansion potential.
ChargePoint also derives other revenue from regulatory credits. If government support of these credits declines, ChargePoint’s ability to generate this other revenue in the future would be adversely affected. In years prior to fiscal year 2021 ChargePoint has derived a slight majority of its other revenue from regulatory credits. However, revenue from this source as a percentage of Other and total revenue has declined in recent quarters and it may continue to decline over time. Further, the availability of such credits may decline even with general governmental support of the transition to EV infrastructure. For example, in September 2020, California Governor Gavin Newsom issued Executive Order (the “EO”), announcing a target for all
N-79-20
in-state
sales of new passenger cars and trucks to be zero-emission
by 2035. While the EO calls for the support of EV infrastructure, the form of this support is unclear. If California or other jurisdictions choose to adopt regulatory mandates instead of establishing or continuing green energy credit regimes for EV infrastructure, ChargePoint’s revenue from these credits would be adversely impacted. The EV charging market is characterized by rapid technological change, which requires ChargePoint to continue to develop new products and product innovations. Any delays in such development could adversely affect market adoption of its products and ChargePoint’s financial results.
Continuing technological changes in battery and other EV technologies could adversely affect adoption of current EV charging technology and/or ChargePoint’s products. ChargePoint’s future success will depend upon its ability to develop and introduce a variety of new capabilities and innovations to its existing product offerings, as well as introduce a variety of new product offerings, to address the changing needs of the EV charging market. As new products are introduced, gross margins tend to decline in the near term and improves as the product become more mature and with a more efficient manufacturing process.
As EV technologies change, ChargePoint may need to upgrade or adapt its charging station technology and introduce new products and services in order to serve vehicles that have the latest technology, in particular battery cell technology, which could involve substantial costs. Even if ChargePoint is able to keep pace with changes in technology and develop new products and services, its research and development expenses could increase, its gross margins could be adversely affected in some periods and its prior products could become obsolete more quickly than expected.
ChargePoint cannot guarantee that any new products will be released in a timely manner, or at all, or achieve market acceptance. Delays in delivering new products that meet customer requirements could damage ChargePoint’s relationships with customers and lead them to seek alternative providers. Delays in introducing products and innovations or the failure to offer innovative products or services at competitive prices may cause existing and potential customers to purchase ChargePoint’s competitors’ products or services.
If ChargePoint is unable to devote adequate resources to develop products or cannot otherwise successfully develop products or services that meet customer requirements on a timely basis or that remain competitive with technological alternatives, its products and services could lose market share, its revenue will decline, it may experience higher operating losses and its business and prospects will be adversely affected.
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Certain statements ChargePoint makes about estimates of market opportunity and forecasts of market growth may prove to be inaccurate.
From time to time, ChargePoint makes statements with estimates of the addressable market for ChargePoint’s solutions and the EV market in general. Market opportunity estimates and growth forecasts, whether obtained from third-party sources or developed internally, are subject to significant uncertainty and are based on assumptions and estimates that may prove to be inaccurate. This is especially so at the present time due to the uncertain and rapidly changing projections of the severity, magnitude and duration of the
COVID-19
pandemic. The estimates and forecasts relating to the size and expected growth of the target market, market demand and adoption, capacity to address this demand and pricing may also prove to be inaccurate. In particular, estimates regarding the current and projected market opportunity are difficult to predict. The estimated addressable market may not materialize for many years, if ever, and even if the markets meet the size estimates and growth forecasts, ChargePoint’s business could fail to grow at similar rates. Risks Related to ChargePoint’s Technology, Intellectual Property and Infrastructure
ChargePoint expects to incur research and development costs and devote significant resources to developing new products, which could significantly reduce its profitability and may never result in revenue to ChargePoint.
ChargePoint’s future growth depends on penetrating new markets, adapting existing products to new applications and customer requirements, and introducing new products that achieve market acceptance. ChargePoint plans to incur significant research and development costs in the future as part of its efforts to design, develop, manufacture and introduce new products and enhance existing products. ChargePoint’s research and development expenses were $65.8, million, $75.0 million, $69.5 million and $50.5 million during the six months ended July 31, 2021, and during the fiscal years ended January 31, 2021, 2020 and 2019, respectively, and are likely to grow in the future. Further, ChargePoint’s research and development program may not produce successful results, and its new products may not achieve market acceptance, create additional revenue or become profitable.
ChargePoint may need to defend against intellectual property infringement or misappropriation claims, which may be time-consuming and expensive.
From time to time, the holders of intellectual property rights may assert their rights and urge ChargePoint to take licenses, and/or may bring suits alleging infringement, misappropriation or other violation of such rights. There can be no assurance that ChargePoint will be able to mitigate the risk of potential suits or other legal demands by competitors or other third parties. Accordingly, ChargePoint may consider entering into licensing agreements with respect to such rights, although no assurance can be given that such licenses can be obtained on acceptable terms or that litigation will not occur, and such licenses and associated litigation could significantly increase ChargePoint’s operating expenses. In addition, if ChargePoint is determined to have or believes there is a high likelihood that it has infringed upon, misappropriated or otherwise violated a third party’s intellectual property rights, it may be required to cease making, selling or incorporating certain key components or intellectual property into the products and services it offers, to pay substantial damages and/or royalties, to redesign its products and services, and/or to establish and maintain alternative branding. In addition, to the extent that ChargePoint’s customers and business partners become the subject of any allegation or claim regarding the infringement, misappropriation or other violation of intellectual property rights related to ChargePoint’s products and services, ChargePoint may be required to indemnify such customers and business partners. If ChargePoint were required to take one or more such actions, its business, prospects, operating results and financial condition could be materially and adversely affected. In addition, any litigation or claims, whether or not valid, could result in substantial costs, negative publicity and diversion of resources and management attention.
ChargePoint’s business may be adversely affected if it is unable to protect its technology and intellectual property from unauthorized use by third parties.
ChargePoint’s success depends, at least in part, on ChargePoint’s ability to obtain, maintain, enforce and protect its core technology and intellectual property. To accomplish this, ChargePoint relies on, and plans to continue relying on, a combination of patents, trade secrets (including
know-how),
employee and third-party nondisclosure agreements, copyright, trademarks, intellectual property licenses and other contractual rights to retain ownership of, and protect, its technology. Despite 67
ChargePoint’s efforts to obtain, maintain, enforce and protect intellectual property rights, there can be no assurance that these steps will be available in all cases or will be adequate to prevent ChargePoint’s competitors or other third-parties from copying, reverse engineering, or otherwise obtaining and using its technology or products or seeking court declarations that they do not infringe, misappropriate or otherwise violate its intellectual property. Failure to adequately protect its technology and intellectual property could result in competitors offering similar products, potentially resulting in the loss of some of ChargePoint’s competitive advantage and a decrease in revenue which would adversely affect its business, prospects, financial condition and operating results.
The measures ChargePoint takes to protect its technology intellectual property from unauthorized use by others may not be effective for various reasons, including the following:
| • | any patent applications ChargePoint submits may not result in the issuance of patents; |
| • | the scope of issued patents may not be broad enough to protect proprietary rights; |
| • | any issued patents may be challenged by competitors and/or invalidated by courts or governmental authorities; |
| • | ChargePoint may not be the first inventor of the subject matter to which it has filed a particular patent application, and it may not be the first party to file such a patent application; |
| • | Patents have a finite term, and competitors and other third-parties may offer identical or similar products after the expiration of ChargePoint’s patents that cover such products; |
| • | the costs associated with enforcing patents, confidentiality and invention agreements or other intellectual property rights may make aggressive enforcement impracticable; |
| • | current and future competitors may circumvent patents or independently develop similar trade secrets or works of authorship, such as software; |
| • | know-how and other proprietary information ChargePoint purports to hold as a trade secret may not qualify as a trade secret under applicable laws; |
| • | ChargePoint’s employees, contractors or business partners may breach their confidentiality, non-disclosure, and non-use obligations; and |
| • | proprietary designs and technology embodied in ChargePoint’s products may be discoverable by third-parties through means that do not constitute violations of applicable laws. |
Patent, trademark, and trade secret laws vary significantly throughout the world. Some foreign countries do not protect intellectual property rights to the same extent as do the laws of the United States. Further, policing the unauthorized use of its intellectual property in foreign jurisdictions may be difficult or impossible. Therefore, ChargePoint’s intellectual property rights may not be as strong or as easily enforced outside of the United States.
Certain patents in the EV space may come to be considered “standards essential.” If this is the case with respect to any of ChargePoint’s patents, it may be required to license certain technology on “fair, reasonable and
non-discriminatory”
terms, decreasing revenue. Further, competitors, vendors, or customers may, in certain instances, be free to create variations or derivative works of ChargePoint technology and intellectual property, and those derivative works may become directly competitive with ChargePoint’s offerings. Finally, ChargePoint may not be able to leverage, or obtain ownership of, all technology and intellectual property developed by ChargePoint’s vendors in connection with design and manufacture of ChargePoint’s products, thereby jeopardizing ChargePoint’s ability to obtain a competitive advantage over its competitors. It is ChargePoint’s policy to enter into confidentiality and invention assignment agreements with its employees and contractors that have developed material intellectual property for ChargePoint, but these agreements may not be self-executing and may not otherwise adequately protect ChargePoint’s intellectual property, particularly with respect to conflicts of ownership relating to work product generated by employees and contractors. Furthermore, ChargePoint cannot be certain that these agreements will not be breached and that third-parties will not gain access to its trade secrets,
know-how
and other proprietary technology. Third-parties may also independently develop the same or substantially similar proprietary technology. Monitoring unauthorized use of ChargePoint’s intellectual property is difficult and costly, as are the steps ChargePoint has taken or will take to prevent misappropriation. 68
To prevent unauthorized use of ChargePoint’s intellectual property, it may be necessary to prosecute actions for infringement, misappropriation or other violation of ChargePoint’s intellectual property against third-parties. Any such action could result in significant costs and diversion of ChargePoint’s resources and management’s attention, and there can be no assurance that ChargePoint will be successful in any such action. Furthermore, many of ChargePoint’s current and potential competitors have the ability to dedicate substantially greater resources to enforce their intellectual property rights than ChargePoint does. Accordingly, despite its efforts, ChargePoint may not be able to prevent third-parties from infringing, misappropriating or otherwise violating its intellectual property. Any of the foregoing may adversely affect ChargePoint’s revenues or results of operations.
The current lack of international standards may lead to uncertainty, additional competition and further unexpected costs.
Lack of industry standards for EV station management, coupled with utilities and other large organizations mandating their own adoption of specifications that have not become widely adopted in the industry, may hinder innovation or slow new product or new feature introduction.
In addition, automobile manufacturers may choose to utilize their own proprietary systems, which could lock out competition for EV charging stations, or to use their size and market position to influence the market, which could limit ChargePoint’s market and reach to customers, negatively impacting its business.
Further, should regulatory bodies later impose a standard that is not compatible with ChargePoint’s infrastructure, it may incur significant costs to adapt its business model to the new regulatory standard, which may require significant time and, as a result, may have a material and adverse effect on its revenue or results of operations.
ChargePoint’s technology could have undetected defects, errors or bugs in hardware or software which could reduce market adoption, damage its reputation with current or prospective customers, and/or expose it to product liability and other claims that could materially and adversely affect its business.
ChargePoint may be subject to claims that charging stations have malfunctioned and persons were injured or purported to be injured. Any insurance that ChargePoint carries may not be sufficient or it may not apply to all situations. Similarly, to the extent that such malfunctions are related to components obtained from third-party vendors, such vendors may not assume responsibility for such malfunctions. In addition, ChargePoint’s customers could be subjected to claims as a result of such incidents and may bring legal claims against ChargePoint to attempt to hold it liable. Any of these events could adversely affect ChargePoint’s brand, relationships with customers, operating results or financial condition.
Across ChargePoint’s product line, ChargePoint develops equipment solutions based on preferred second source or common vendors. However, due to its designs, ChargePoint does rely on some single source vendors, the unavailability or failure of which can pose risks to supply chain or product shipping situations.
off-the-shelf
Furthermore, ChargePoint’s software platform is complex, developed for over a decade by many developers, and includes a number of licensed third-party commercial and open-source software libraries. ChargePoint’s software has contained defects and errors and may in the future contain undetected defects or errors. ChargePoint is continuing to evolve the features and functionality of its platform through updates and enhancements, and as it does, it may introduce additional defects or errors that may not be detected until after deployment to customers. In addition, if ChargePoint’s products and services, including any updates or patches, are not implemented or used correctly or as intended, inadequate performance and disruptions in service may result.
Any defects or errors in product or services offerings, or the perception of such defects or errors, or other performance problems could result in any of the following, each of which could adversely affect ChargePoint’s business and results of its operations:
| • | expenditure of significant financial and product development resources, including recalls, in efforts to analyze, correct, eliminate or work around errors or defects; |
| • | loss of existing or potential customers or partners; |
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| • | interruptions or delays in sales; |
| • | delayed or lost revenue; |
| • | delay or failure to attain market acceptance; |
| • | delay in the development or release of new functionality or improvements; |
| • | negative publicity and reputational harm; |
| • | sales credits or refunds; |
| • | exposure of confidential or proprietary information; |
| • | diversion of development and customer service resources; |
| • | breach of warranty claims; |
| • | legal claims under applicable laws, rules and regulations; and |
| • | an increase in collection cycles for accounts receivable or the expense and risk of litigation. |
Although ChargePoint has contractual protections, such as warranty disclaimers and limitation of liability provisions, in many of its agreements with customers, resellers and other business partners, such protections may not be uniformly implemented in all contracts and, where implemented, may not fully or effectively protect from claims by customers, resellers, business partners or other third parties. Any insurance coverage or indemnification obligations of suppliers may not adequately cover all such claims or cover only a portion of such claims. A successful product liability, warranty, or other similar claim could have an adverse effect on ChargePoint’s business, operating results and financial condition. In addition, even claims that ultimately are unsuccessful could result in expenditure of funds in litigation, divert management’s time and other resources and cause reputational harm.
In addition, ChargePoint relies on some open-source software and libraries issued under the General Public License (or similar “copyleft” licenses) for development of its products and may continue to rely on similar copyleft licenses. Third-parties may assert a copyright claim against ChargePoint regarding its use of such software or libraries, which could lead to the adverse results listed above. Use of such software or libraries may also force ChargePoint to provide third parties, at no cost, the source code to its proprietary software, which may decrease revenue and lessen any competitive advantage ChargePoint has due to the secrecy of its source code.
Some of ChargePoint’s products contain open-source software, which may pose particular risks to its proprietary software, products and services in a manner that could harm its business.
ChargePoint uses open-source software in its products and anticipates using open-source software in the future. Some open-source software licenses require those who distribute open-source software as part of their own software product to publicly disclose all or part of the source code to such software product or to make available any derivative works of the open-source code on unfavorable terms or at no cost, and ChargePoint may be subject to such terms. The terms of many open-source licenses have not been interpreted by U.S. or foreign courts, and there is a risk that open source software licenses could be construed in a manner that imposes unanticipated conditions or restrictions on ChargePoint’s ability to provide or distribute ChargePoint’s products or services.
In addition, ChargePoint relies on some open-source software and libraries issued under the General Public License (or similar “copyleft” licenses) for development of its products and may continue to rely on similar copyleft licenses. Third-parties may assert a copyright claim against ChargePoint regarding its use of such software or libraries, which could lead to the adverse results listed above. Use of such software or libraries may also force ChargePoint to provide third-parties, at no cost, the source code to its proprietary software, which may decrease revenue and lessen any competitive advantage ChargePoint has due to the secrecy of its source code.
ChargePoint could face claims from third-parties claiming ownership of, or demanding release of, the open-source software or derivative works that ChargePoint developed using such software, which could include ChargePoint’s proprietary source code, or otherwise seeking to enforce the terms of the applicable open-source license. These claims could result in litigation and could require ChargePoint to make its software source code freely available, purchase a costly license or cease offering the implicated products or services unless and until ChargePoint can
re-engineer
them to avoid infringement, which may be a costly and time-consuming process, and ChargePoint may not be able to complete the re-engineering
process successfully. 70
Additionally, the use of certain open-source software can lead to greater risks than use of third-party commercial software, as open-source licensors generally do not provide warranties or controls on the origin of software. There is typically no support available for open-source software, and ChargePoint cannot ensure that the authors of such open-source software will implement or push updates to address security risks or will not abandon further development and maintenance. Many of the risks associated with the use of open-source software, such as the lack of warranties or assurances of title or performance, cannot be eliminated, and could, if not properly addressed, could have an adverse effect on ChargePoint’s business and results.
Interruptions, delays in service or inability to increase capacity, including internationally, at third-party data center facilities could impair the use or functionality of ChargePoint’s subscription services, harm its business and subject it to liability.
ChargePoint currently serves customers from third-party data center facilities operated by Amazon Web Services (“AWS”) located in the United States, Europe and Canada. In addition to AWS, some ChargePoint services are housed in third-party data centers operated by Rackspace Technology in the United States. Any outage or failure of such data centers could negatively affect ChargePoint’s product connectivity and performance. ChargePoint’s primary environments are behind the Content Delivery Network operated by Cloudflare, Inc. (“Cloudfare”), and any interruptions of Cloudflare’s services could negatively affect ChargePoint’s product connectivity and performance. Furthermore, ChargePoint depends on connectivity from its charging stations to its data centers through cellular service providers, such as Verizon. Any incident affecting a data center facility’s or a cellular service provider’s infrastructure or operations, whether caused by fire, flood, severe storm, earthquake, power loss, telecommunications failures, breach of security protocols, computer viruses and disabling devices, failure of access control mechanisms, natural disasters, war, criminal act, military actions, terrorist attacks and other similar events could negatively affect the use, functionality or availability of ChargePoint’s services.
Any damage to, or failure of, ChargePoint’s systems, or those of its third-party providers, could interrupt or hinder the use or functionality of its services. Impairment of or interruptions in ChargePoint’s services may reduce revenue, subject it to claims and litigation, cause customers to terminate their subscriptions, and adversely affect renewal rates and its ability to attract new customers. ChargePoint’s business will also be harmed if customers and potential customers believe its products and services are unreliable.
Customer-Related Risks
ChargePoint may be unable to leverage customer data in all geographic locations, and this limitation may impact research and development operations.
ChargePoint relies on data collected through charging stations or its mobile application, including usage data and geolocation data. ChargePoint uses this data in connection with the research, development and analysis of its technologies. ChargePoint’s inability to obtain necessary rights to use this data or freely transfer this data out of, for example, the European Economic Area, could result in delays or otherwise negatively impact ChargePoint’s research and development efforts.
If ChargePoint fails to offer high-quality support to station owners and drivers, its business and reputation will suffer.
Once a customer has installed ChargePoint charging stations and subscribed to ChargePoint’s services, station owners and drivers will rely on ChargePoint to provide support services to resolve any issues that might arise in the future. Rapid and high-quality customer support is important so station owners can provide charging services and drivers can receive reliable charging for their EVs. The importance of high-quality customer support will increase as ChargePoint seeks to expand its business and pursue new customers and geographies. If ChargePoint does not quickly resolve issues and provide effective support, its ability to retain customers or sell additional products and services to existing customers could suffer and its brand and reputation could be harmed.
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ChargePoint’s business will depend on customers renewing their services subscriptions. If customers do not continue to use its subscription offerings or if they fail to add more stations, its business and operating results will be adversely affected.
In addition to selling charging station hardware, ChargePoint also depends on customers continuing to subscribe to its EV charging services and extended warranty coverages. Therefore, it is important that customers renew their subscriptions when the contract term expires and add additional charging stations and services to their subscriptions. Customers may decide not to renew their subscriptions with a similar contract period, at the same prices or terms or with the same or a greater number of users, stations or level of functionality. Customer retention may decline or fluctuate as a result of a number of factors, including satisfaction with software and features, functionality of the charging stations, prices, features and pricing of competing products, reductions in spending levels, mergers and acquisitions involving customers and deteriorating general economic conditions.
If customers do not renew their subscriptions, if they renew on less favorable terms or if they fail to add products or services, ChargePoint’s business and operating results will be adversely affected.
Changes in subscriptions or pricing models may not be reflected in near-term operating results.
ChargePoint generally recognizes subscription revenue from customers ratably over the terms of their contracts. As a result, most of the subscription revenue reported in each quarter is derived from the recognition of deferred revenue relating to subscriptions entered into during previous quarters. Consequently, a decline in new or renewed subscriptions in any single quarter will likely have only a small impact on revenue for that quarter. However, such a decline will negatively affect revenue in future quarters. In addition, the severity and duration of events may not be predictable and their effects could extend beyond a single quarter. Accordingly, the effect of significant downturns in sales and market acceptance of subscription services, and potential changes in pricing policies or rate of renewals, may not be fully apparent until future periods.
Financial, Tax and Accounting-Related Risks
ChargePoint’s financial condition and results of operations are likely to fluctuate on a quarterly basis in future periods, which could cause its results for a particular period to fall below expectations, resulting in a decline in the price of its Common Stock.
ChargePoint’s financial condition and results of operations have fluctuated in the past and may continue to fluctuate in the future due to a variety of factors, many of which are beyond its control.
In addition to the other risks described herein, the following factors could also cause ChargePoint’s financial condition and results of operations to fluctuate on a quarterly basis:
| • | the timing and volume of new sales; |
| • | fluctuations in service costs, particularly due to unexpected costs of servicing and maintaining charging stations; |
| • | the timing of new product introductions, which can initially have lower gross margins; |
| • | the introduction of new products by competitors, changes in pricing or other factors impacting competition; |
| • | weaker than anticipated demand for charging stations, whether due to changes in government incentives and policies or due to other conditions; |
| • | fluctuations in sales and marketing or research and development expenses; |
| • | supply chain interruptions and manufacturing or delivery delays; |
| • | the timing and availability of new products relative to customers’ and investors’ expectations; |
| • | the length of the sales and installation cycle for a particular customer; |
| • | the impact of the COVID-19 pandemic on ChargePoint’s workforce, or those of its customers, suppliers, vendors or business partners; |
| • | disruptions in sales, production, service or other business activities or ChargePoint’s inability to attract and retain qualified personnel; and |
| • | unanticipated changes in federal, state, local or foreign government incentive programs, which can affect demand for EVs. |
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Fluctuations in operating results and cash flow could, among other things, give rise to short-term liquidity issues. In addition, revenue, and other operating results in future quarters may fall short of the expectations of investors and financial analysts, which could have an adverse effect on the price of the Common Stock.
Changes to applicable U.S. tax laws and regulations or exposure to additional income tax liabilities could affect ChargePoint’s business and future profitability.
ChargePoint is a U.S. corporation and thus subject to U.S. corporate income tax on its worldwide operations. Moreover, the majority of ChargePoint’s operations and customers are located in the United States, and as a result, ChargePoint is subject to various U.S. federal, state and local taxes. New U.S. laws and policy relating to taxes may have an adverse effect on ChargePoint’s business and future profitability. Further, existing U.S. tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to ChargePoint.
For example, on December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“Tax Act”), was signed into law making significant changes to the Internal Revenue Code of 1986, as amended, or the Code, and certain provisions of the Tax Act may adversely affect ChargePoint. In particular, sweeping changes were made to the U.S. taxation of foreign operations. Changes include, but are not limited to, a permanent reduction to the corporate income tax rate, limiting interest deductions, a reduction to the maximum deduction allowed for net operating losses generated in tax years after December 31, 2017, the elimination of carrybacks of net operating losses, adopting elements of a territorial tax system, assessing a repatriation tax or “toll-charge” on undistributed earnings and profits of U.S.-owned foreign corporations, and introducing certain anti-base erosion provisions, including a new minimum tax on global intangible
low-taxed
income and base erosion and anti-abuse tax. The Tax Act could be subject to potential amendments and technical corrections, and is subject to interpretations and implementing regulations by the U.S. Treasury and Internal Revenue Service (“IRS”), any of which could mitigate or increase certain adverse effects of the legislation. In addition, the Tax Act may impact taxation in other jurisdictions, including with respect to state income taxes as state legislatures respond to the Tax Act. Additionally, other foreign governing bodies have and may enact changes to their tax laws in reaction to the Tax Act that could result in changes to ChargePoint’s global tax position and materially adversely affect its business and future profitability.
As a result of ChargePoint’s plans to expand operations, including to jurisdictions in which the tax laws may not be favorable, ChargePoint’s tax rate may fluctuate, ChargePoint’s tax obligations may become significantly more complex and subject to greater risk of examination by taxing authorities or ChargePoint may be subject to future changes in tax law, the impacts of which could adversely affect ChargePoint’s
after-tax
profitability and financial results. Because ChargePoint does not have a long history of operating at its present scale and it has significant expansion plans, ChargePoint’s effective tax rate may fluctuate in the future. Future effective tax rates could be affected by operating losses in jurisdictions where no tax benefit can be recorded under U.S. GAAP, changes in the composition of earnings in countries with differing tax rates, changes in deferred tax assets and liabilities, or changes in tax laws. Factors that could materially affect ChargePoint’s future effective tax rates include, but are not limited to: (a) changes in tax laws or the regulatory environment, (b) changes in accounting and tax standards or practices, (c) changes in the composition of operating income by tax jurisdiction and (d) ChargePoint’s operating results before taxes.
Additionally, ChargePoint’s operations are subject to significant income, withholding and other tax obligations in the United States and may become subject to taxes in numerous additional state, local and
non-U.S.
jurisdictions with respect to its income, operations and subsidiaries related to those jurisdictions. ChargePoint’s after-tax
profitability and financial results could be subject to volatility or be affected by numerous factors, including (a) the availability of tax deductions, credits, exemptions, refunds (including refunds of value added taxes) and other benefits to reduce ChargePoint’s tax liabilities, (b) changes in the valuation of ChargePoint’s deferred tax assets and liabilities, (c) expected timing and amount of the release of any tax valuation allowances, (d) tax treatment of stock-based compensation, (e) changes in the relative amount of ChargePoint’s earnings subject to tax in the various jurisdictions in which ChargePoint operates or has subsidiaries, (f) the potential expansion of ChargePoint’s business into or otherwise becoming subject to tax in additional jurisdictions, (g) changes 73
to ChargePoint’s existing intercompany structure (and any costs related thereto) and business operations, (h) the extent of ChargePoint’s intercompany transactions and the extent to which taxing authorities in the relevant jurisdictions respect those intercompany transactions and (i) ChargePoint’s ability to structure ChargePoint’s operations in an efficient and competitive manner. Due to the complexity of multinational tax obligations and filings, ChargePoint may have a heightened risk related to audits or examinations by U.S. federal, state, local and
non-U.S.
taxing authorities. Outcomes from these audits or examinations could have an adverse effect on ChargePoint’s after-tax
profitability and financial condition. Additionally, the IRS and several foreign tax authorities have increasingly focused attention on intercompany transfer pricing with respect to sales of products and services and the use of intangibles. Tax authorities could disagree with ChargePoint’s intercompany charges, cross-jurisdictional transfer pricing or other matters and assess additional taxes. If ChargePoint does not prevail in any such disagreements, its profitability may be affected. ChargePoint’s
after-tax
profitability and financial results may also be adversely impacted by changes in the relevant tax laws and tax rates, treaties, regulations, administrative practices and principles, judicial decisions and interpretations thereof, in each case, possibly with retroactive effect. For example, the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting recently entered into force among the jurisdictions that have ratified it, although the United States has not yet entered into this convention. These recent changes could negatively impact ChargePoint’s taxation, especially as ChargePoint expands its relationships and operations internationally. The ability of ChargePoint to utilize net operating loss and tax credit carryforwards is conditioned upon ChargePoint attaining profitability and generating taxable income. ChargePoint has incurred significant net losses since inception and it is anticipated that ChargePoint will continue to incur significant losses. Additionally, ChargePoint’s ability to utilize net operating loss and tax credit carryforwards to offset future taxable income may be limited.
As of January 31, 2021, ChargePoint had $434.7 million of U.S. federal and $229.7 million of California net operating loss carryforwards available to reduce future taxable income, of which $281.9 million of the U.S. federal net operating loss carryforwards can be carried forward indefinitely. The U.S. federal and California state net operating loss carryforwards begin to expire in 2028. In addition, ChargePoint had net operating loss carryforwards for other states of $134.7 million, which begin to expire in 2022. The Tax Act included a reduction to the maximum deduction allowed for net operating losses generated in tax years after December 31, 2017 and the elimination of carrybacks of net operating losses. Under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, which modified the Tax Act, U.S. federal net operating loss carryforwards generated in taxable periods beginning after December 31, 2017, may be carried forward indefinitely, but the deductibility of such net operating loss carryforwards in taxable years beginning after December 31, 2020, is limited to 80% of taxable income. It is possible that ChargePoint will not generate taxable income in time to utilize the net operating loss carryforwards. In addition, net operating loss carryforwards and certain tax credits may be subject to significant limitations under Section 382 and Section 383 of the Code, respectively, and similar provisions of state law. Under those sections of the Code, if a corporation undergoes an “ownership change,” the corporation’s ability to use its
pre-change
net operating loss carryforwards and other pre-change
attributes, such as research tax credits, to offset its post-change income or tax may be limited. In general, an “ownership change” will occur if there is a cumulative change in ownership by “5% stockholders” that exceeds 50 percentage points over a rolling three-year period. If ChargePoint has experienced an ownership change at any time since its incorporation, ChargePoint may already be subject to limitations on its ability to utilize its existing net operating loss carryforwards and other tax attributes to offset taxable income or tax liability. In addition, future changes in ChargePoint’s stock ownership, which may be outside of ChargePoint’s control, may trigger an ownership change. Similar provisions of state tax law may also apply to limit ChargePoint’s use of accumulated state tax attributes. As a result, even if ChargePoint earns net taxable income in the future, its ability to use its pre-change
net operating loss carryforwards and other tax attributes to offset such taxable income or tax liability may be subject to limitations, which could potentially result in increased future income tax liability to ChargePoint. ChargePoint performed an analysis to assess whether an “ownership change,” as defined by Section 382 of the Code, has occurred from its inception through January 31, 2021 and expects to complete this Section 382 analysis during the fiscal year ending January 31, 2022. Based on this analysis, ChargePoint has experienced “ownership changes,” limiting the utilization of the net operating loss carryforwards or research and development tax credit carryforwards under Section 382 of the Code by first multiplying the value of the ChargePoint’s stock at the time of the ownership change by the applicable long-term
tax-exempt
rate, and then applying additional adjustments, as required. Any limitation may result in expiration of a portion of the 74
net operating loss carryforwards or research and development tax credit carryforwards before utilization. In addition, the Merger, may constitute an ownership change under Sections 382 and 383 of the Code. ChargePoint’s net operating losses or credits may also be impaired under state law. Accordingly, ChargePoint may not be able to utilize a material portion of the net operating losses or credits. The ability of ChargePoint to utilize ChargePoint’s net operating losses or credits is conditioned upon ChargePoint attaining profitability and generating U.S. federal and state taxable income. ChargePoint has incurred significant net losses since inception and will continue to incur significant losses; and therefore, ChargePoint does not know whether or when the combined carryforwards may be or may become subject to limitation by Sections 382 and 383 of the Code.
ChargePoint’s reported financial results may be negatively impacted by changes in U.S. GAAP.
U.S. GAAP is subject to interpretation by the Financial Accounting Standards Board’s Accounting Standards Codification, the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on reported financial results, and may even affect the reporting of transactions completed before the announcement or effectiveness of a change.
ChargePoint is an “emerging growth company” and it cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make its Common Stock less attractive to investors and may make it more difficult to compare performance with other public companies.
ChargePoint is currently an emerging growth company as defined in the U.S. legislation Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), but as of January 31, 2022 it expects to be a large accelerated filer and, as a result, will no longer be an emerging growth company as of that date. Until then, ChargePoint intends to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), reduced disclosure obligations regarding executive compensation in periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. Investors may find the Common Stock less attractive because ChargePoint will continue to rely on these exemptions. If some investors find the Common Stock less attractive as a result, there may be a less active trading market for their Common Stock, and the stock price may be more volatile.
An emerging growth company may elect to delay the adoption of new or revised accounting standards. With Switchback making this election, Section 102(b)(2) of the JOBS Act allows ChargePoint to delay adoption of new or revised accounting standards until those standards apply to
non-public
business entities. As a result, the financial statements contained in this Quarterly Report and those that ChargePoint will file in the future may not be comparable to companies that comply with public business entities revised accounting standards effective dates. ChargePoint incurs significant increased expenses and administrative burdens as a public company, which could have an adverse effect on its business, financial condition and results of operations.
ChargePoint faces increased legal, accounting, administrative and other costs and expenses as a public company that it did not incur as a private company. Sarbanes-Oxley, including the requirements of Section 404, as well as rules and regulations subsequently implemented by the SEC, the Dodd-Frank Act and the rules and regulations promulgated and to be promulgated thereunder, the Public Company Accounting Oversight Board and the securities exchanges, impose additional reporting and other obligations on public companies. Compliance with public company requirements increases costs and make certain activities more time-consuming. A number of those requirements require it to carry out activities ChargePoint has not done previously. In addition, expenses associated with SEC reporting requirements will be incurred. Furthermore, if any issues in complying with those requirements are identified, such as the restatement of ChargePoint’s previously issued consolidated financial statements, and related material weakness as described in the Form
10-K/A
(see also “Risks Related to Legal Matters and Regulations — ChargePoint may face litigation and other risks as a result of the material weakness in its internal control over financial reporting and the restatement of its financial statements,” and “ — ChargePoint has identified material weaknesses in its internal control over financial reporting. If ChargePoint is unable to remediate these material weaknesses, or if ChargePoint identifies additional material weaknesses in the future or otherwise fails to maintain an effective system of 75
internal control over financial reporting, this may result in material misstatements of ChargePoint’s consolidated financial statements or cause ChargePoint to fail to meet its periodic reporting obligations,” for more detail), ChargePoint has incurred and could incur additional costs to rectify those or new issues, and the existence of these issues could adversely affect its reputation or investor perceptions. In addition, as a public company, ChargePoint maintains director and officer liability insurance, for which it must pay substantial premiums. The additional reporting and other obligations imposed by these rules and regulations increase legal and financial compliance costs and the costs of related legal, accounting and administrative activities. Advocacy efforts by stockholders and third parties may also prompt additional changes in governance and reporting requirements, which could further increase costs.
ChargePoint has identified material weaknesses in its internal control over financial reporting. If ChargePoint is unable to remediate these material weaknesses, or if ChargePoint identifies additional material weaknesses in the future or otherwise fails to maintain an effective internal control over financial reporting, this may result in material misstatements of ChargePoint’s consolidated financial statements or cause ChargePoint to fail to meet its periodic reporting obligations.
As a public company, ChargePoint is required to provide management’s attestation on internal controls pursuant to Section 404 of Sarbanes-Oxley. The standards required for a public company under Section 404(a) of Sarbanes-Oxley are significantly more stringent than those previously required of ChargePoint as a privately-held company. When ChargePoint ceases to be an emerging growth company, it will also be subject to auditor attestation requirements of Section 404(b) of Sarbanes-Oxley and the relevant increased disclosure obligations.. Management may not be able to effectively and timely implement controls and procedures that adequately respond to the increased regulatory compliance and reporting requirements of Section 404(a) and/or Section 404(b) of Sarbanes-Oxley. If ChargePoint is not able to implement these additional requirements in a timely manner or with adequate compliance, it may not be able to assess whether its internal control over financial reporting is effective, which may subject it to adverse regulatory consequences and could harm investor confidence.
In connection with the preparation and audit of ChargePoint’s consolidated financial statements, material weaknesses were identified in its internal control over financial reporting as of January 31, 2021. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of ChargePoint’s annual or interim financial statements will not be prevented or detected on a timely basis.
ChargePoint did not design and maintain an effective control environment commensurate with its financial reporting requirements. Specifically, ChargePoint did not maintain a sufficient complement of personnel with an appropriate degree of accounting knowledge, experience and training to appropriately analyze, record and disclose accounting matters commensurate with its accounting and reporting requirements. This material weakness contributed to the following additional material weaknesses:
| • | ChargePoint did not design or maintain formal accounting policies, procedures and controls over significant accounts and disclosures to achieve complete, accurate and timely financial accounting, reporting and disclosures, including accounting for complex features associated with warrants, segregation of duties and adequate controls related to the preparation and review of journal entries; and |
| • | ChargePoint did not design and maintain effective controls over certain information technology (“IT”) general controls for information systems that are relevant to the preparation of its consolidated financial statements. Specifically, ChargePoint did not design and maintain (a) program change management controls to ensure that information technology program and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized and implemented appropriately and (b) user access controls to ensure appropriate segregation of duties and that adequately restrict user and privileged access to its financial applications and data to appropriate company personnel. |
The material weaknesses related to the control environment and lack of formal accounting policies, procedures and controls resulted in material adjustments to warrant liabilities, stockholders’ equity and related accounts and disclosures and immaterial adjustments to a number of other account balances and disclosures in the historical consolidated financial statements.
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The IT deficiencies did not result in a misstatement to the consolidated financial statements, however, the deficiencies, when aggregated, could impact maintaining effective segregation of duties, as well as the effectiveness of
IT-dependent
controls (such as automated controls that address the risk of material misstatement to one or more assertions, along with the IT controls and underlying data that support the effectiveness of system-generated data and reports) that could result in misstatements potentially impacting all financial statement accounts and disclosures that would not be prevented or detected. Additionally, each of these material weaknesses could result in a misstatement of account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected. ChargePoint has continued implementation of a plan to remediate these material weaknesses. These remediation measures are ongoing and include the following:
| • | hiring additional finance and accounting personnel to bolster the accounting capabilities and capacity, and to establish and maintain internal control over financial reporting; |
| • | designing and implementing controls to formalize roles and review responsibilities to align with the staff’s skills and experience and designing and implementing controls over segregation of duties; |
| • | providing ongoing training for personnel on accounting, financial reporting and internal control over financial reporting; |
| • | engaging an external advisor to assist with evaluating and documenting the design and operating effectiveness of internal control over financial reporting and assist with the remediation of deficiencies, as necessary; |
| • | designing and implementing controls over the preparation and review of journal entries and account reconciliations, including controls over the segregation of duties; and |
| • | designing and implementing IT general controls, including controls over the provisioning and monitoring of user access rights and privileges and change management processes and procedures. |
ChargePoint’s remediation efforts could continue beyond the fiscal year ending January 31, 2023. At this time, ChargePoint cannot provide an estimate of costs expected to be incurred in connection with implementing this remediation plan; however, these remediation measures will be time consuming, will result in it incurring significant costs, and will place significant demands on its financial and operational resources.
In order to maintain and improve the effectiveness of its internal control over financial reporting, ChargePoint has expended, and anticipates that ChargePoint will continue to expend, significant resources, including accounting-related costs and significant management oversight. At such time, ChargePoint’s independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which its internal control over financial reporting is documented, designed or operating. Any failure to maintain effective disclosure controls and internal control over financial reporting could adversely affect the business and operating results and could cause a decline in the price of ChargePoint’s Common Stock.
Risks Related to Legal Matters and Regulations
Privacy concerns and laws, or other domestic or foreign regulations, may adversely affect ChargePoint’s business.
ChargePoint relies on data collected through charging stations or its mobile application, including usage data and geolocation data. ChargePoint uses this data in connection with the research, development and analysis of its technologies. Accordingly, ChargePoint may be subject to or affected by a number of federal, state, local and international laws and regulations, as well as contractual obligations and industry standards, that impose certain obligations and restrictions with respect to data privacy and security and govern its collection, storage, retention, protection, use, processing, transmission, sharing and disclosure of personal information including that of ChargePoint’s employees, customers and other third-parties with whom ChargePoint conducts business.
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National and local governments and agencies in the countries in which ChargePoint operates and in which customers operate have adopted, are considering adopting, or may adopt laws and regulations regarding the collection, use, storage, processing and disclosure of information regarding consumers and other individuals, which could impact its ability to offer services in certain jurisdictions. Laws and regulations relating to the collection, use, storage, disclosure, security and other processing of individuals’ information can vary significantly from jurisdiction to jurisdiction and are particularly stringent in Europe. The costs of compliance with, and other burdens imposed by, laws, regulations, standards and other obligations relating to privacy, data protection and information security are significant. In addition, some companies, particularly larger enterprises, often will not contract with vendors that do not meet these rigorous standards. Accordingly, the failure, or perceived inability, to comply with these laws, regulations, standards and other obligations may limit the use and adoption of ChargePoint’s solutions, reduce overall demand, lead to regulatory investigations, litigation and significant fines, penalties or liabilities for actual or alleged noncompliance, or slow the pace at which it closes sales transactions, any of which could harm its business. Moreover, if ChargePoint or any of its employees or contractors fail or are believed to fail to adhere to appropriate practices regarding customers’ data, it may damage its reputation and brand.
Additionally, existing laws, regulations, standards and other obligations may be interpreted in new and differing manners in the future, and may be inconsistent among jurisdictions. Future laws, regulations, standards and other obligations, and changes in the interpretation of existing laws, regulations, standards and other obligations could result in increased regulation, increased costs of compliance and penalties for
non-compliance,
and limitations on data collection, use, disclosure and transfer for ChargePoint and its customers. Additionally, the EU adopted the GDPR in 2016, and it became effective in May 2018. The GDPR establishes requirements applicable to the handling of personal data and imposes penalties for
non-compliance
of up to the greater of €20 million or 4% of worldwide revenue. The costs of compliance with, and other burdens imposed by, the GDPR may limit the use and adoption of ChargePoint’s products and services and could have an adverse impact on its business. Further, California adopted the CCPA and the California State Attorney General has begun enforcement actions. Although ChargePoint initiated a compliance program designed to ensure CCPA compliance after consulting with outside privacy counsel, ChargePoint may remain exposed to ongoing legal risks and compliance costs related to CCPA and the new California Privacy Rights Act (“CPRA”), which will become effective in most material respects starting on January 1, 2023. The costs of compliance with, and other burdens imposed by, laws and regulations relating to privacy, data protection and information security that are applicable to the businesses of customers may adversely affect ability and willingness to process, handle, store, use and transmit certain types of information, such as demographic and other personal information. The EU and the United States agreed in 2016 to the
EU-US
Privacy Shield Framework, which provided one mechanism for lawful cross-border transfers of personal data between the EU and the United States. However, the Court of Justice of the EU issued a decision on July 16, 2020 invalidating the EU-US
Privacy Shield Framework, thereby creating additional legal risk for ChargePoint. In addition, the other bases on which ChargePoint and its customers rely for the transfer of personal data across national borders, such as the Standard Contractual Clauses promulgated by the EU Commission Decision 2010/87/EU, commonly referred to as the Model Clauses, continue to be subjected to regulatory and judicial scrutiny. If ChargePoint or its customers are unable to transfer data between and among countries and regions in which it operates, it could decrease demand for its products and services or require it to modify or restrict some of its products or services. In addition to government activity, privacy advocacy groups, the technology industry and other industries have established or may establish various new, additional or different self-regulatory standards that may place additional burdens on technology companies. Customers may expect that ChargePoint will meet voluntary certifications or adhere to other standards established by them or third parties. If ChargePoint is unable to maintain these certifications or meet these standards, it could reduce demand for its solutions and adversely affect its business.
Failure to comply with anticorruption and anti-money laundering laws, including the FCPA and similar laws associated with activities outside of the United States, could subject ChargePoint to penalties and other adverse consequences.
ChargePoint is subject to the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, the Anti-Bribery Act and possibly other anti-bribery and anti-money laundering laws in countries in which it conducts activities. It faces significant risks if it fails to comply with the FCPA and other anti-corruption laws that
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prohibit companies and their employees and third-party intermediaries from promising, authorizing, offering or providing, directly or indirectly, improper payments or benefits to foreign government officials, political parties and private-sector recipients for the purpose of obtaining or retaining business, directing business to any person or securing any advantage. Any violation of the FCPA, other applicable anti-corruption laws, and anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, loss of export privileges, or severe criminal or civil sanctions, which could have a materially adverse effect on ChargePoint’s reputation, business, operating results and prospects. In addition, responding to any enforcement action may result in a significant diversion of management’s attention and resources, significant defense costs and other professional fees.
Failure to comply with laws relating to employment could subject ChargePoint to penalties and other adverse consequences.
ChargePoint is subject to various employment-related laws in the jurisdictions in which its employees are based. It faces risks if it fails to comply with applicable U.S. federal or state wage laws, or wage laws applicable to its employees outside of the United States. In addition, ChargePoint implemented a reduction in force and furloughed employees in 2020, and the attendant layoffs and/or furloughs could create an additional risk of claims being made on behalf of affected employees. Any violation of applicable wage laws or other labor- or employment-related laws could result in complaints by current or former employees, adverse media coverage, investigations and damages or penalties which could have a materially adverse effect on ChargePoint’s reputation, business, operating results and prospects. In addition, responding to any such proceeding may result in a significant diversion of management’s attention and resources, significant defense costs and other professional fees.
Existing and future environmental health and safety laws and regulations could result in increased compliance costs or additional operating costs or construction costs and restrictions. Failure to comply with such laws and regulations may result in substantial fines or other limitations that may adversely impact ChargePoint’s financial results or results of operation.
ChargePoint and its operations, as well as those of ChargePoint’s contractors, suppliers and customers, are subject to certain environmental laws and regulations, including laws related to the use, handling, storage, transportation and disposal of hazardous substances and wastes as well as electronic wastes and hardware, whether hazardous or not. These laws may require ChargePoint or others in ChargePoint’s value chain to obtain permits and comply with procedures that impose various restrictions and obligations that may have material effects on ChargePoint’s operations. If key permits and approvals cannot be obtained on acceptable terms, or if other operational requirements cannot be met in a manner satisfactory for ChargePoint’s operations or on a timeline that meets ChargePoint’s commercial obligations, it may adversely impact ChargePoint’s business.
Environmental and health and safety laws and regulations can be complex and may be subject to change, such as through new requirements enacted at the supranational, national,
sub-national
and/or local level or new or modified regulations that may be implemented under existing law. The nature and extent of any changes in these laws, rules, regulations and permits may be unpredictable and may have material effects on ChargePoint’s business. Future legislation and regulations or changes in existing legislation and regulations, or interpretations thereof, including those relating to hardware manufacturing, electronic waste or batteries, could cause additional expenditures, restrictions and delays in connection with ChargePoint’s operations as well as other future projects, the extent of which cannot be predicted. Further, ChargePoint currently relies on third parties to ensure compliance with certain environmental laws, including those related to the disposal of hazardous and
non-hazardous
wastes. Any failure to properly handle or dispose of such wastes, regardless of whether such failure is ChargePoint’s or its contractors, may result in liability under environmental laws, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), under which liability may be imposed without regard to fault or degree of contribution for the investigation and clean-up
of contaminated sites, as well as impacts to human health and damages to natural resources. Additionally, ChargePoint may not be able to secure contracts with third parties to continue their key supply chain and disposal services for ChargePoint’s business, which may result in increased costs for compliance with environmental laws and regulations. 79
ChargePoint may face litigation and other risks as a result of the material weakness in its internal control over financial reporting and the restatement of its financial statements.
Following the issuance of the SEC’s Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies on April 12, 2021, the audit committee of the Board, after considering the recommendations of management, determined that it was appropriate to restate ChargePoint’s previously filed financial statements for certain periods of
non-reliance.
As part of this restatement, ChargePoint identified a material weakness in its internal control over financial reporting. As a result of such material weakness, such restatement, the change in accounting for the Public Warrants and the Private Placement Warrants, and other matters raised or that may in the future be raised by the SEC, ChargePoint faces potential for litigation or other disputes which may include, among others, claims invoking the federal and state securities laws, contractual claims or other claims arising from the restatement and material weaknesses in its internal control over financial reporting and the preparation of its financial statements. As of the date of this Quarterly Report, ChargePoint has no knowledge of any such litigation or dispute. However, ChargePoint can provide no assurance that such litigation or dispute will not arise in the future. Any such litigation or dispute, whether successful or not, could have a material adverse effect on its business, results of operations and financial condition.
Risks Related to Ownership of ChargePoint’s Securities
Concentration of ownership among ChargePoint’s existing executive officers, directors and their affiliates may prevent new investors from influencing significant corporate decisions.
As of July 9, 2021, ChargePoint’s directors, executive officers and their affiliates in the aggregate beneficially owned approximately 38.8% of the outstanding Common Stock. As a result, these stockholders are able to exercise a significant level of control over all matters requiring stockholder approval, including the election of directors, any amendment of the certificate of incorporation and approval of significant corporate transactions. This control could have the effect of delaying or preventing a change of control or changes in management and will make the approval of certain transactions difficult or impossible without the support of these stockholders.
ChargePoint has never paid cash dividends on its capital stock, and does not anticipate paying dividends in the foreseeable future.
ChargePoint has never paid cash dividends on its capital stock and currently intends to retain any future earnings to fund the growth of its business. Any determination to pay dividends in the future will be at the discretion of the Board and will depend on financial condition, operating results, capital requirements, general business conditions and other factors that the Board may deem relevant. As a result, capital appreciation, if any, of Common Stock will be the sole source of gain for the foreseeable future.
The price of ChargePoint’s Common Stock may be subject to wide fluctuations.
The trading price of the Common Stock will be volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond ChargePoint’s control. These factors include:
| • | actual or anticipated fluctuations in operating results; |
| • | failure to meet or exceed financial estimates and projections of the investment community or that ChargePoint provides to the public; |
| • | issuance of new or updated research or reports by securities analysts or changed recommendations for the industry in general; |
| • | changes in competitive factors; |
| • | operating and share price performance of other companies in the industry or related markets; |
| • | sales of shares of ChargePoint’s Common Stock into the market after the expiration of lock-up agreements or pursuant to the exercise of registration rights; |
| • | the timing and magnitude of investments in the growth of the business; |
| • | actual or anticipated changes in laws and regulations; |
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| • | additions or departures of key management or other personnel; |
| • | increased labor costs; |
| • | disputes or other developments related to intellectual property or other proprietary rights, including litigation; |
| • | the ability to market new and enhanced solutions on a timely basis; |
| • | sales of substantial amounts of the Common Stock by the Board, executive officers or significant stockholders or the perception that such sales could occur; |
| • | changes in capital structure, including future issuances of securities or the incurrence of debt; and |
| • | general economic, political and market conditions, including uncertainty surrounding COVID-19 and its resurgence. |
In addition, the stock market in general, and the stock prices of technology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors may seriously affect the market price of ChargePoint’s Common Stock, regardless of actual operating performance. In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted, could result in substantial costs and a diversion of management’s attention and resources.
The coverage of ChargePoint’s business or its securities by securities or industry analysts or the absence thereof could adversely affect the trading price and volume of ChargePoint’s Common Stock, Warrants and other securities.
The trading market for ChargePoint’s securities is influenced in part by the research and other reports that industry or securities analysts publish about ChargePoint or its business or industry from time to time. ChargePoint does not control these analysts or the content and opinions included in their reports. As a former shell company, ChargePoint may be slow to attract equity research coverage, and the analysts who publish information about ChargePoint’s securities will have had relatively little experience with ChargePoint, which could affect their ability to accurately forecast ChargePoint’s results and make it more likely that ChargePoint fails to meet their estimates. If no or few analysts commence equity research coverage of ChargePoint, the trading price and volume of ChargePoint’s securities would likely be negatively impacted. If analysts do cover ChargePoint and one or more of them downgrade its securities, or if they issue other unfavorable commentary about ChargePoint or its industry or inaccurate research, the trading price of ChargePoint’s Common Stock, Warrants and other securities would likely decline. Furthermore, if one or more of these analysts cease coverage or fail to regularly publish reports on ChargePoint, it could lose visibility in the financial markets. Any of the foregoing would likely cause the trading price and volume of ChargePoint’s Common Stock, Warrants and other securities to decline.
Anti-takeover provisions contained in ChargePoint’s governing documents and applicable laws could impair a takeover attempt.
ChargePoint’s Second A&R Charter and Second A&R Bylaws afford certain rights and powers to the Board that could contribute to the delay or prevention of an acquisition that it deems undesirable. ChargePoint is also subject to Section 203 of the DGCL and other provisions of Delaware law that limit the ability of stockholders in certain situations to effect certain mergers. Any of the foregoing provisions and terms that has the effect of delaying or deterring a change in control could limit the opportunity for stockholders to receive a premium for their shares of their Common Stock, and could also affect the price that some investors are willing to pay for the Common Stock.
ChargePoint’s Second A&R Charter provides, subject to limited exceptions, that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for certain stockholder litigation matters, which could limit stockholders’ ability to obtain a more favorable judicial forum for disputes with ChargePoint or its directors, officers, employees or stockholders.
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The Second A&R Charter requires, to the fullest extent permitted by law, that derivative actions brought on behalf of the company, actions against current or former directors, officers, stockholders or, subject to certain exceptions, employees for breach of fiduciary duty and certain other actions may be brought in the Court of Chancery in the State of Delaware or, if that court lacks subject matter jurisdiction, another federal or state court situated in the State of Delaware. Any person or entity purchasing or otherwise acquiring or holding any interest in shares of capital stock of ChargePoint shall be deemed to have notice of and consented to the forum provisions in the certificate of incorporation. In addition, the Second A&R Charter and Second A&R Bylaws provide that, unless ChargePoint consents in writing to another forum, the federal district courts of the United States shall, to the fullest extent of the law, be the exclusive forum for the resolution of any complaint asserting a cause of action under the Securities Act or the Exchange Act.
In March 2020, the Delaware Supreme Court issued a decision in Salzburg et al. v. Sciabacucchi, which found that an exclusive forum provision providing for claims under the Securities Act to be brought in federal court is facially valid under Delaware law. It is unclear whether this decision will be appealed, or what the final outcome of this case will be. ChargePoint intends to enforce this provision, but it does not know whether courts in other jurisdictions will agree with this decision or enforce it.
This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with ChargePoint or any of its directors, officers, other employees or stockholders, which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provision contained in the certificate of incorporation to be inapplicable or unenforceable in an action, ChargePoint may incur additional costs associated with resolving such action in other jurisdictions, which could harm its business, operating results and financial condition.
Sales or the perception of future sales of a substantial number of shares of Common Stock by ChargePoint’s existing stockholders could cause the price of the Common Stock to decline.
Sales of a substantial number of shares of ChargePoint’s Common Stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of ChargePoint’s Common Stock.
On July 12, 2021, ChargePoint filed a resale registration statement on Form
S-1
(No. 333-257855)
that relates to the offer and sale from time to time by the selling security holders named in that prospectus of up to 12,000,000 shares of ChargePoint’s Common Stock (the “Secondary Offering”). ChargePoint’s directors, executive officers and certain stockholders entered into lock-up
agreements with the representatives of the several underwriters, in connection with the offering, which expire 75 days from the date of the offering prospectus. The representatives may, in their sole discretion, release all or some portion of the shares subject to the lock-up
agreements at any time, for any reason and with or without notice. As of July 9, 2021, 224,656,707 shares of ChargePoint’s Common Stock or 69.9% of all outstanding shares of its Common Stock were currently prohibited or otherwise restricted from being sold in the public market under securities laws or
lock-up
agreements entered into in connection with the Merger (which subsequently expired August 26, 2021) or Secondary Offering; however, subject to applicable securities law restrictions and the lock-up
agreements, and excluding shares of Common Stock issued pursuant to the early exercise of unvested stock options that will remain unvested, the shares of Common Stock outstanding at the time of the closing of the Merger that are so restricted will be able to be sold in the public market under Rule 144 beginning on March 1, 2022. Shares issued upon the exercise of stock options outstanding under ChargePoint’s equity incentive plans or pursuant to future awards granted under those plans will become available for sale in the public market to the extent permitted by the provisions of applicable vesting schedules, any applicable market standoff and lock-up
agreements, a registration statement on Form S-8
and Rule 144 and Rule 701 under the Securities Act. Moreover, as of July 9, 2021, holders of 218,988,521 shares of Common Stock and 38,314,712 Public Warrants and Private Placement Warrants have rights, subject to conditions, to require ChargePoint to file registration statements with the SEC covering such shares, Public Warrants and Private Placement Warrants or the shares underlying the Public Warrants and Private Placement Warrants or to include their shares in registration statements that ChargePoint may file 246,020,583 shares of Common Stock and 6,521,568 Private Warrants are included on a resale registration statement filed with the SEC that was
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declared effective by the SEC. During the six months ended July 31, 2021, 10,226,081 Public Warrants and 4,347,712 Private Placement Warrants were exercised and the remaining 244,481 Public Warrants outstanding as of. On July 6, 2021 all outstanding Public Warrants were redeemed for cash and none remain outstanding.
Warrants are exercisable for ChargePoint’s Common Stock, which would increase the number of shares eligible for future resale in the public market and result in dilution to ChargePoint’s stockholders.
As of July 31, 2021, the Private Placement Warrants were exercisable for 2,173,856 shares of Common Stock at a weighted average exercise price of $11.50 per share and there were additional warrants issued by Legacy ChargePoint that were converted into warrants of ChargePoint in the Merger outstanding exercisable for 37,075,846 shares of Common Stock at a weighted average exercise price of $7.00 per share. Any shares of ChargePoint’s Common Stock issued upon exercise of the Private Placement Warrants and other outstanding warrants will result in dilution to the then existing holders of Common Stock and increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market could adversely affect the market price of its Common Stock.
The Private Placement Warrants are accounted for as a warrant liability and recorded at fair value with changes in fair value each period reported in earnings, which may have an adverse effect on the market price of the Company’s Common Stock.
Under U.S. GAAP, the Company is required to evaluate the Private Placement Warrants to determine whether they should be accounted for as a warrant liability or as equity. The Company has concluded that the Private Placement Warrants contain provisions requiring liability classification as of July 31, 2021. Therefore, the Company is accounting for the Private Placement Warrants as a warrant liability at fair value upon issuance. The Company records any subsequent changes in fair value as of the end of each reporting period. The impact of changes in fair value on earnings may have an adverse effect on its results of operations based on factors that are outside of its control.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
On May 19, 2021, prior to filing its registration statement on Form
S-8
(File No. 333-256566),
ChargePoint issued 36,601 shares of restricted Common Stock upon the exercise of certain options granted under the Legacy ChargePoint’s 2017 Stock Plan. ChargePoint received an aggregate of $26,571.16. ChargePoint issued the foregoing securities in transactions not involving an underwriter and not requiring registration under Section 5 of the Securities Act, in reliance on the exemption afforded by Section 4(a)(2) thereof. Issuer Purchases of Equity Securities
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
(a) |
Exhibits: |
| Exhibit No. |
Description | |
| 10.1+ | ChargePoint Holdings, Inc. 2021 Equity Incentive Plan and related form agreements.* | |
| 31.1 | Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a)* | |
| 31.2 | Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a)* | |
| 32.1 | Certification of Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350** | |
| 32.2 | Certification of the Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350** | |
| 101.INS | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because iXBRL tags are embedded within the Inline XBRL document). | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | The Cover Page Interactive Data File, formatted in Inline XBRL (included within the Exhibit 101 attachments). | |
| * | Filed herewith |
| ** | Furnished herewith |
| + | Denotes management compensatory plan, contract or arrangement. |
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SIGNATURES
Pursuant to the requirements of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
September 10, 2021
| CHARGEPOINT HOLDINGS, INC. | ||
| By: | /s/ Rex S. Jackson | |
| Name: | Rex S. Jackson | |
| Title: | Chief Financial Officer and Principal Financial Officer | |
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