ChargePoint Holdings, Inc. (CHPT) Earnings Call Transcript & Summary

Okay. Good afternoon, and welcome to JPMorgan's 21st Annual CES Tech and Auto Forum. My name is Bill Peterson, the transportation and fuel transformation analyst here at the firm. Really pleased to have Pat Romano here from ChargePoint. ChargePoint's at CES, I think, for the first time, at least first time I remember but...

Oh, no. We've been at CES for literally every year running except for the COVID years. Yes.

Except for last year. Okay. Okay. Well, welcome back. Obviously, had a big announcement earlier today along with Mercedes-Benz. Hoping we could start off with that but maybe also just for the audience here, just a bit about ChargePoint, intro comments and maybe an update on the business as you kind of race to the end of your fiscal year. And again, just thanks for joining our conference.

Yes. So first of all, thank you and all the folks at JPMorgan for hosting us. We do this all the time with you and always enjoy it and always enjoy the investors in the audience. So a little bit about ChargePoint, we have -- we're coming up on our second anniversary of being a public company. That will be March 1. We are a Jan. 31 company on our -- so our fiscal year is -- end is approaching, so we're ending 2022. And we are, surprisingly, I think, a 15-year-old company that hasn't pivoted for 15 years. From a business model perspective, it's been certainly growing geographically. It's been growing in the sub-verticals that it's been attacking, but it's had one consistent theme, and that is we want to provide all the tech and services, software, hardware, consulting services, professional services, design, build services, et cetera, for our customers in all verticals. We're talking home, multifamily, workplace, all forms of retail, public and private parking, all the sub-verticals in fleet, everything from light commercial all the way through transit and heavy-duty vehicles. And we want all those customers to be able to come to us and buy tech and then pay us a recurring fee that's not proportional to utilization or energy. We stay out of the business model that the end customer wants to portray to their customers or their employees. So -- and the reason for that is we want to be relevant to drivers everywhere. And our customers' customer or our customers' employee may have a different relationship with the parking -- the site owner that's on the parking lot that we're at. And you have to be in every parking lot to be relevant, to make your service, your mobile app, to get the network effect out there, et cetera. So our business model is quite simple. It's anchored on the fact that we are -- we sell subscriptions to keep a port of charging on the ChargePoint network, depending on the vertical you're in. There's different packages you can buy. I'll leave out the details there. You can optionally buy hardware from us. Most of our customers do. In many cases, you can wrap that hardware into a higher subscription payment if you want to buy it all together. We do not sell hardware separately from software. We will sell software only with third-party hardware on it if that's what the customer wants, so it's a one-way ratchet there. And that's a little bit about the company. In terms of financials, what you're seeing is us mature the company now given that the market is increasingly more fluid with makes and models coming online in both the fleet and the commercial segment for passenger cars. Every day, there's a new announcement. What we've -- we're converging on cash flow breakeven sometime in 2024. We're seeing the operating leverage that we forecasted in the business. The growth rate of OpEx is obviously very much less than the growth rate of the revenue because we think we've reached a build-out stage with our infrastructure as a company as a whole to be able to address the markets we're in. We're in Europe as well as North America, so we're covering 2 continents. And again, we're in every vertical that we can think of anyway. So that's a little bit about the company, and midpoint of our guidance that we put out on the last earnings call is nearly a double year-over-year. And that's inside the worst supply chain environment we've ever seen. So we're pretty proud of what we've been able to accomplish.

So just -- and then the second part, Mercedes-Benz announcement, and you guys also put out a press release, I want to say, maybe about an hour ago. Maybe you could tell us a little bit about that announcement. What does it mean for ChargePoint? How should we think about it progressing? What does it mean for the financials? And what is the broader statement about what it means when Mercedes-Benz chooses to work with ChargePoint, among others, for this charging expansion?

I mean I think the headline of why is we have a very distinctive viewpoint that Mercedes-Benz is, I think, of like mind on in that the charging experience is not the experience the driver is looking for. It's the experience while refueling. What else is there to do? Now in the particular use case of this announcement, this announcement is to cover when you're driving beyond your battery range. Most of your fuel does not come onboard at a fast charger. Most of your fuel comes onboard at home, at work, when you're shopping, when you're around town, when you're parked. We've covered that market for years and years and years and years. We've also been in fast charge for a long time. And one of the things we've lamented is that the players in the 30-minute retail economy, something to do for about 20, 30 minutes, which is how long it takes to reload enough fuel to be able to get to your next waypoint or your ultimate destination, we've always said that drivers really want -- drivers really care about where they're stopping when they have to refuel. They don't -- that's the more important thing to get right, is bathroom, security, something to do aligned with the parking duration that you're likely to be sitting there on. And so we've always felt that way. Mercedes came at it from, "Hey, we're a premium brand." So we want to make sure that the experience is aligned with a premium brand. In their own words in the press conference we just had, what they said is chargers next to a dumpster in the back forty of a big box lot is not what we envision as aligned with our customers. And what you've seen to date, and this is something we've worked very diligently to try to not have happen, is the placement, the location of the chargers needs to be aligned with those amenity brands. It has to be because it's not going to charge and making money on power. That's something we've never touched. And the reason we've never touched it is the amenity brand has a whole other set of avenues to get money and gross margin out of the driver. If you buy a coffee, the gross margin on a coffee when you're captive, you don't mind paying $7 for a double pump caramel macchiato on your way to your grandmother's for Christmas dinner. And so you might have a $7 caramel macchiato, which I don't know, cost $1, if that, and a $7 charging session, which has 15% gross margin maybe. And so the amenity brand doesn't care about the gross margin on that charging session. They care about the gross margin on this because it's that combined business. The driver cares that, hey, I needed to stop and I'm safe. There's lights. There's a camera. There's a bathroom, that I could get a coffee. It's kind of a nice experience. And by the time my 2 macchiatos come out for yourself and your spouse and maybe your kids, right, you're back to your car. Your car is almost charged. You sit down. You kind of rearrange the seats a little bit. And by the time you're done, you're often doing what you want to do. And that's Mercedes-Benz' view. And it's aligned with what they're doing with respect to all the other things, with autonomy improvements, with in-dash entertainment improvements, et cetera. So that's the reason.

Well, don't need a macchiato after that. That's a great overview. No, I want to take a step back. We've obviously seen a lot of gyrations in the market. There's now concerns about EV demand. I mean, which we didn't really think about here last year, especially rapid growth. And we still expect rapid growth of EVs in your core markets, but again, there are some concerns. So I mean does ChargePoint have a view on the demand growth if we take a step back and look at the North American and European markets, your core markets?

Yes. And demand growth for our infrastructure or cars?

EVs and the infrastructure.

Yes. So the infrastructure demand follows cars. You could -- to give you an interesting anecdote, when I first joined ChargePoint -- I wish I was a founder, but I wasn't -- I joined it about -- almost 12 years ago, 12 years, the first week of February, and the company is about 15-year-old company. So when I first joined, the federal government in the Obama administration had the American Reinvestment and Recovery Act, ARRA, and they -- and ChargePoint had a grant out of the ARRA. We had a companion grant from the CEC in the State of California. And that grant covered -- when you combine the 2 grants, it covered the full cost plus the installation of a charger. Now there were very limited cars. There was the Nissan LEAF and the Chevy Volt at the time, not the Bolt, the Volt. I get the 2 confused. And so the -- they were trickling out, but there wasn't a lot of them on the road because these were new cars. It was hard to give away a charger, to give away a charger. Why? Because it's like I don't want to tie up a parking space with this thing and put a sign up saying EV only when I got the parking space next to the building, is not something I want to give up right now because there's no EVs. So where am I going with this? There's 0 demand for chargers unless there's cars. There is no build ahead. There's limited build ahead. You can stimulate a little bit. But it all comes from cars. Now let's look at cars. What drives demand for vehicles broadly in the consumer sector is make, model availability. So if all your offering in the early days of EVs is a Bolt and a LEAF, 2 fine -- a Volt and a LEAF, 2 fine cars, no issue with either 1 of those vehicles in the early days. They were where the state of the art was at the time. If you drive a pickup truck and you really want an electric pickup truck, but there isn't one available, I could give you 1 of those other 2 formats for an incredible discount, and you still won't want it because it doesn't fit your lifestyle. Cars are like fashion. You have to have enough to fit your lifestyle. You need all sizes, shapes, price points. You need a used market on it, et cetera. Where am I going with this? We are seeing, regardless of the macro, we are seeing a proliferation of releases because auto manufacturers take 5 to 7 years to get a new platform out. So the decisions that you're seeing today, they made a long time ago. The macro changing dynamically isn't going to -- they're not going to say, oh, we're going back to gas. They can't. They disabled all the investment in ICE vehicles. It's disabled, right? There is not a rich, robust pipeline of new stuff. European emission standards are not relaxing, right? They are not relaxing. It's a global market, so you have to sell everywhere. You can't afford the R&D and the support for 2 platforms, an ICE 1 and a BEV 1. So they're going to roll a larger percentage of their model base as EVs. What does that mean? If you have a declining auto market because of the macro but you have an increasing percentage of EVs out of the total number of cars sold, car sales aren't going to go to 0 because of the macro. They may take a hit, but they're not going to go to 0. We believe that the increase in EVs as a percentage of new cars sold will offset substantially the decrease in the number -- the total number of cars of sold, so we should still see growth to the degree -- we haven't forecasted next year yet for markets, so we can't comment on that. But we believe that there is a substantial offset there in the penetration rate of EVs relative to the decline in new car sales to the macro. So we think there should still be growth.

Okay. Great. And by the way, I should mention, if there's anybody who has a question, please let me know. We'll -- we can use a microphone since this is being webcasted. Maybe just wrapping up that point. So you've always discussed charging growth, tracking EV growth. And with that in mind, so we think about the mid to long term. How should we think about that? But maybe in addition, layering on things like the NEVI program or the IRA? How do they augment that mid- to long-term growth view?

So I think, relative to the example that I used in the beginning days of -- early days of ChargePoint where you could have a subsidy program that substantially offset cost, but if there wasn't real demand, no one's going to put the chargers in any way, I think things like the IRA will have a durable -- they will have a durable and lasting effect on accelerating -- greasing the skids for a need that's there. It's not going to drive a need. It's going to grease the skids for a need that's there. So you need the cars to be there. You do have vehicle incentives as part of the equation here, so that's a good thing. So I think NEVI helps seed the -- it helps subsidize things. Like the announcement we just made this morning is not mutually exclusive with NEVI. We're hopefully going to be able to work with M&A -- Mercedes-Benz to put proposals together for states that have programs that they've defined around NEVI and use some of that subsidy money to get even more sites, right, or to move the bar of where things pencil, the hurdle rate as to where things pencil, move it in because there is some subsidy there for the early days. NEVI is a great program to jump start the early days to get more and more structured coverage of long-haul corridors in North America. That's what it's good for. Awesome. If that was the only thing you got, you'd be out of business because, in a few years by the time that money is flowing -- let's say, you even want all of it, it's going to be relatively to an equipment and services company, which not all of that will go to equipment and services. A lot of it will go to O&Ms. Some of it will go to -- a lot of it will go to construction, et cetera -- you'll be irrelevant relative to the size of the charging market 3 years out because it's a constant amount of money for each year for 5 years, but the market's growing. So it is a wonderful early day enhancement, and it is a terrible thing if that's the only thing you got.

Yes. Want to come back to the business model and you kind of alluded to it earlier of why do you selling hardware and software and wrap it around rather than trying to monetize electrons. Why do you think that's the best model compared to others with either an operator model or maybe potentially a hybrid model or, in some cases, even an ad-based model?

So hybrid -- so let's take it in reverse order. We're not -- the ad-based model, we have partners that take our stuff into that market. There is a finite number of sites in a finite number of parking spaces within those sites where an ad-supported model will pencil. So our partners that are in that space typically have more than one vertical that are ad supporting so they can build a business -- they can build the infrastructure for ad supporting across a lot of different verticals, one of them maybe being charging. And then when the customer wants to add more ports, they can add more ChargePoint-conventional business model ports because as they need to grow and land and expand, you can't ad support everything. So it's a -- our partners enable with us a wonderful -- like you can seed it with some ad support and then you can expand it with [ not ], et cetera. So it provides the fluidity there. The overarching answer to your question as to why our business model is you have to be in every vertical, and you can't get in the way of what your customer wants to do. And our customer's the business, not the driver. So if our workplace customers want to give power as an employee benefit and I'm making money on energy, I'm in conflict with their desire. If a retailer wants to give free power to a rewards cardholder or change the hours of operation at a site to not make the chargers available after hours because they don't want to encourage people that aren't customers to be in those -- for liability reasons in the parking lot at night, you're in conflict with me as an asset owner because I need that asset utilization to be as high as possible. So we want to be in every vertical, so we're relevant to drivers, but we don't want to be in conflict with the business model. We don't want it to be a vending machine for electrons exclusively. There are some scenarios where that's a fine thing. Okay? In which case, our customers can use our technology, and they can make it a vending machine for electrons, and that's just fine. But we don't want to limit ourselves to that. It's the only way to be pervasive, we think, is to approach it the way we are.

Yes. I want to talk, I guess, expanding on, I guess, you say the competition. But first of all, you have the most scale, largest L2, one of the largest DC fast. How does that help you with the land-and-expand strategy at customers? And then on the competition side, like who do you view as the key competitors? I mean what -- and then maybe wrapping it up, why would they want to choose ChargePoint over either direct competitor or maybe even a different model?

Well, for -- okay. So the different model one is an easy one to, I think, answer simply. If the other models were more attractive than ours, they'd have our port growth. Pretty simple. Okay? Because you can -- we report our port growth every quarter. And that's activated ports under management by the way, so that's not sold. It's when they're in the ground, fully constructed, commissioned and activated. So you're seeing basically our growth rate in arrears when you do that, when we report that number because the sale of that unit happened months before because it's construction. You have to get things in the ground. So that's how I would answer that, is if the other models were driving volume and were more attractive broadly, then they would have our port growth and we would have pivoted to that, right? So that's why we didn't. Now with respect to -- what was the other?

The direct competitors.

The direct is we want, we think, to be relevant to drivers, to create a network effect. So businesses look at ChargePoint and say I want to put ChargePoint in because I know it works. I know drivers understand it. I know it's integrated with in-dash navigation systems, auto OEM, mobile apps. I can do my take-home fleets with it. I've got fuel card integration. We've already got fuel card integration. We're ecosystem integrated, Apple and CarPlay -- CarPlay and Android Auto, Apple Maps and Google Maps integrated. Just the numbers of integrations are broad. If you choose ChargePoint, I know it works with everything or as many things as possible. And if I choose someone else, it probably works with only a subset of those things. And I just don't want -- it's not -- charging in my parking lot is either an amenity or additive to my customer experience, but it is not my sole customer experience. Therefore, I want to make sure that every driver has the lowest friction experience. That's the network effect, is the more verticals we're in and the more use cases we cover, the more drivers say I just know what to do or the more the car already knows what to do. Like in the Mercedes-Benz case, it knows to reserve it and it knows to do what -- on a long trip, what to do. And so that is the driver right there, no pun intended. That is what drives the stickiness. That's what drives the competitive differentiation.

Maybe just going a layer deeper on that. The questions we get a lot of times is what's differentiated about ChargePoint's offerings, which would be software, hardware company. So -- and it's -- and you kind of alluded to earlier the broadness and the depth of the engagements. But any other examples of what can give confidence that there's some really different things under the hood?

Yes. I mean that would be a -- man, that's -- how long have you got?