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

My name is Chris Pierce. I'm with the Needham Research Teams. My pleasure to welcome ChargePoint, CFO, Rex Jackson. Rex, welcome.

Nice to meet everyone.

Dramatic entrance, I like it, through the side door and all that.

Sorry about that.

Why don't we just give us 30 seconds on the company and then we'll get into some fireside Q&A, and we'll give the last 5 to 10 minutes for any investor questions.

Sure. So Rex Jackson, CFO of ChargePoint. We are driving the electrification of transportation or mobility across all verticals. We do residential. We do commercial and we do fleet. We are a technology solutions provider. So we don't make money on power. We don't own assets. We don't try to monetize drivers. What we're trying to do is get the network up and properly supported. So we are -- if you look at the size of the company, we did [ 140, 145, 245 ] this year. If we can hit our guidance, we'll be roughly a double. So [ 480 ] would be midpoint of guidance. So fast growing. Doing a good job, I think, in sequentially improving our gross margins, doing a good job also in terms of managing our OpEx and trying to turn cash flow positive in '24. So that's the company.

All right. So as investors think about EV adoption rates in the United States, we had 2022 fluctuations in 2023 high single digits. Is that something that you think about or your customers pay attention to? Or is that the wrong question? It's about the longer term, the next 3 to 5 years as EV adoption kind of takes hold?

So I'd say a couple of things. I think one thing I would readily say and we say this all the time, that we are completely dependent in a good way or in a bad way on the adoption of EVs or the arrival rates of EVs, and that's both in the passenger space, which drives residential and commercial and also in the fleet space, where they're trying to get trucks and buses and yard tractors and that sort of thing. So we're very dependent on how that rolls out because if you look at our numbers historically, what you'll see is we correlate really closely to that data. So if there's a way to build a model, we'll build it that way because that's the best external piece of information that we could see. So asking about that question is super important. But I do think we've reached an inflection certainly in terms of the thought process, both the passenger vehicle drivers, so individuals like us. And in terms of fleet operators, I think people have really turned the corner to go. EV is going to happen. It's the right thing to have happened. The total cost of ownership, the joy of owning the vehicle, if you're a passenger vehicle owner, the cleanliness of it, I like mine because it's fast, it's quiet. All those things coming together are going to lead to an onset of a lot of additional vehicles. The auto OEMs seem to have turned the corner. I know -- if you watch television, you'll see ads all the time about the latest electric vehicle offering from name brand that's important. Obviously, the governments have now gotten behind everything from incentives to internal combustion engine car sunset dates, et cetera. So how things happen and how quickly things come off the production line over the next 2, 3, 4, 5 quarters, obviously, that will affect everything, but I think the momentum in terms of the thought process and the commitment of the various players in the ecosystem is uninterrupted.

Okay. How should investors think about the moat that you have in terms of being far and away the leader in installed chargers in the U.S. versus your customers out there? That current position you have now, what does that mean for the shift to DC? What does that mean for 3 to 5 years from now? I'm just kind of curious how you position that moat?

Sure. So I think obviously, we've -- our best moat is intellectual property, right? And the fact that we have multi years of investment in our software infrastructure. And then, obviously, we had a couple of big hardware platform introductions this year, one on the AC side and then our Express Plus, which is a modular architecture, and you can sort of pick your power as you go up the DC fast charge ramp in terms of total output. So the stuff that we've been doing and now have released, It's -- a, it's hard; b, design and reliability and serviceability and functionality are all super important. And I think we understand the software side of it and the importance of the network for everything from the driver experience to the functionality to payments, to remote monitoring, remote repair and that sort of thing. I mean we just -- we understand that, I think, better than anyone else. And so -- and then the other good thing is because we've been around for 12 to 15 years, we have the benefit of thinking this through and then having 12 years of investment in order to build these platforms. So when you say where are we relative to what we currently have and can sell into the market? We're just far and away, we think, in front of other competitors. And then there are a lot of things that people don't think about when they start to look at -- well, hey, for example, do I want to go by a charging station? Do I want to put this in my parking lot? Do I want to put it in my parking structure? Do I want to put it in my house? Do I want to put it in my depot? They don't think about the whole service and support and reliability side of it. So it's one thing to sell something, it's another thing to have it work and be reliable and be visible and be manageable. And I just think reproducing all the pieces of that, building a channel, building a direct sales force, all of those things are hard to do. They're expensive and -- but we're well along. And so now our biggest challenge as a company is scaling, whereas other people are still in the development release can I support a kind of mode.

Okay. What do you tell investors who worry about -- who focus on 70% of the charging market right now being at-home charging? Is that too shortsighted? Or kind of how do you kind of push back against that?

So the first thing I would say is, you're right, right? Because it is true. It's -- and it may even be a little bit higher than that. So the way we look at the market is, first of all, you want to charge your car using the right infrastructure because home chargers are $700, fast chargers can be more than $30,000. So which solution you choose is based on the dwell time of the vehicle. So where are passenger vehicles? They sit at home or they sit at work, or they sit at a retail center or whatever. So you want to charge your car while you're doing something else. And so we think it's absolutely natural and absolutely right that people are going to charge at home. So you leave your house fully charged. You charge at work, you can top it off if you need to. And the only time you access the very high power, very expensive DC infrastructure is when you're on the road going beyond your battery range. So 90% of charges are going to be on some form of AC architecture and 10% are going to be on DC fast. But we do both. We just think in terms of providing the customer what the customer actually needs it, that's going to be breakdown.

Okay. And you talked about partnerships and the sales channels that you have. Can you talk about your competitive process as you kind of win charger installs out there? How you kind of retain or kind of new customer adds and customer retention?

Yes. So by vertical, we're a B2C company when it comes to selling our residential home charger stuff. So there just needs to look better, be better and be priced appropriately. From a commercial standpoint, which is both AC and DC and that's whether it's workplace or a hotel or whatever, and I'm speaking mostly about North America right now, there's not a lot of head-to-head competition that happens there. And I think it's because this burgeoning market, you don't have a lot of companies out there. We're the biggest, but we're not the only. And so there are some places where a deal will happen that we never see. I think head-to-head, we very, very rarely lose when it comes to commercial deals. And I think our customer growth, which is extraordinary, shows that. And then on the fleet side, the fleet guys aren't stupid. So what they do is they had -- they almost always run it through procurement, always do an RFP process. And so there's a good bit more competition there. And I think the main reason for that is, a, procurement; and b, they're willing to be the integrator of the solution. So they'll look at saying, "Okay, well, I want to do an RFP to 10 people who might supply software and 10 people who might supply hardware, and I'll just pick and choose." And what they don't realize is that you don't want to be the integrator. If you want to get the right solution into your application, you're better off to do some with somebody -- do it with someone like us who has a unified stack from software all the way down to hardware. We do really, really well in the fleet RFP space. But that's the one place that I think we do bump into some other players who only do one thing.

Okay. And are you seeing these fleet or commercial customers kind of not necessarily a pause, but kind of a little more thought press into things as the economy, the macro slows down as EV sales can not necessarily the pace of growth slows considering the pace we saw in the last couple of years, or would you push back against that...

Short answer, I'd say was no. Because what's been happening thus far is there's enormous amount of RFP activity and essentially what the major players are doing is they're getting ready. And the go signal for the players in the fleet space is vehicles, right? So totally disregarding what's going on in the economic environment, it would be silly, who would do that? So there's always that impact. But frankly, there are so few electric vehicles in the fleet space right now that -- and the people who are motivated to get them out or still motivated irrespective of the economic environment and when they get them out, they will be purchased. I don't think that's going to slow down a lot. I really don't.

And you talked about deals might happen, you might not see, you might -- you tend to win deals. As the market leader, does that lead to rational pricing in the space then? Is that something where -- or are the pricing conversations...

Did you say rational or irrational?

Rational.

Rational pricing in the space.

From competitors?

You know what, it's funny because we don't go head-to-head very much. Our pricing has been fairly consistent over the years, and discounting is not great, meaning we don't do a lot of it. We do have the ability to support channel by providing appropriate compensation to partners and distributors. We were able to put in a price increase, actually 2 price increases last year, taking into account all factors like supply chain issues and inflation. So we've been -- had very resilient pricing and improving ASPs. And so -- and because we don't go head-to-head with a lot of people, I honestly don't know what they're going but that's what we're doing.

Okay. And just kind of how do you talk -- people might be very enthusiastic about the future of DC charging. You guys as the leader in AC, is that an advantage, a disadvantage? What do you think DC is sort of -- you talked about the right charger for the right person and AC is serving most people's need. So is the sort of -- DC sort of a shiny thing that is kind of getting too much hype? I'm just curious how you would think about that.

Well, it's -- I like the way you asked that question. So I think what a lot of people don't think about is the difference in cost between the port of AC and a port of DC. So a port of AC from us, call it, somewhere around $3,000. Also, you have to spend $3,000 in terms of an electric -- a contractor to actually put the stuff in the ground that you need and behind it. And then -- so that call it 6 all in. If you buy a DC charger, you're north of $30,000, Again, you got to pay the same amount to put it in. So now you're looking at $60,000 to $75,000 of putting a DC. So what we tell customers is absolutely DC is wonderful, right? Feeds and speeds wonderful. But you want to put it in where you need it. And then you also have the other issue, which is when you pay for power, you pay based on the fastest you pulled at the entire month, and then all of your power is fundamentally at that rate. So it's expensive from every angle, right? So what you do is you put in DC where you really need it, and that could be anywhere from corridor charging, so if I'm driving from LA to San Francisco or New York to Boston and I want to stop in between, pull off a freeway, boom, there is a DC. There's some behind-the-fence applications for meaning depot-type charging where you have big vehicles that come in and out and in and out and in and out like a UPS. And then you might have a valet service or something where you just go, "Hey, I got people coming in a parking lot. They're only going to be for 20 minutes, I can give them a jolt." So I think it's absolutely awesome where it's needed. And it's also the thing, I think, because it's point to point, it's going to fill in sooner, that's where the government is focused, for example. It's like you got to get DC in because we want to knit the -- this is the U.S., we want to knit the country together from a DC perspective. But all of the infill and all of the around town stuff, almost all of that is going to be AC. And we do both. So we just -- right solution in the right place, right time.

Can you touch on NEVI then because that will be -- we're talking about every 50 miles DC kind of network of the company on a DC basis, how this ChargePoint play there? And is ChargePoint benefited? Or like since you don't want to sell power, you just want to get these charging stations up or kind of how does that all play together?

So I would expect definitely to be a benefit to the company. So there's an analog to NEVI. I don't know if people remember the whole dieselgate thing where Volkswagen got themselves in trouble and there was a settlement in dollars allocated to the states. There's a process by which those dollars get spent on charging infrastructure. And so NEVI is going to go very much the same path. It's going to look like that and the same departments of transportation in the states are going to get that money and administer it. That process has started. We've mapped the country from our perspective in terms of where we think the best sites are along all the routes in all 50 states. So we're ready to go, and we have relationships to start. Bang on because the process is, you have you to win the money based on your ability to obviously have sites and build them out and provide the infrastructure. The money will actually go to the owner -- because we never own equipment, the money will go to the site host or the person who owns the piece of real estate, where their chargers live. And obviously, they will use that money to buy this stuff from us, so they will just be our customer. And I see that rolling out to our benefit maybe a little bit this year and then it's going to pick up steam next year, but it's a multiyear -- it's probably a 5-year program, I believe. So it's not something we count on it. I view it as an icing on our fundamental cake of the business that we're doing today. So it will be good for us, but it's not -- we're not dependent on it.

Okay. And on the last earnings call, ChargePoint, you spoke about bookings north of $1 million. What kind of entities are driving these bookings? And is that 100 charges and above type orders? Like is it commercial real estate like a mall that have multiple properties and multiple states, like who's driving those size orders?

It depends on the application, but it would be large returning commercial clients and principally that in fleet, but most of the fleet, I would expect. And I think we've said this in prior calls, when you think about our business today, it's about 12% to 15% residential, 60% to 70% commercial and the balance is fleet. There's a little bit of other. And we've said, I wouldn't be surprised if fleet is 40% of our business 2 or 3 years from now. And what that's going to do is because depots are big, that business is going to be very chunky, and you're going to get a lot of big deals like that. I mean $1 million in terms of the depot architecture necessary to drive a meaningfully sized depot is going to be way north of $1 million.

Okay.

Yes.

And can you talk about the Mercedes-Benz announcement. Like why wouldn't an OEM for the need to build their own charging network, co-branded? And how that RFP went considering -- you said you don't sort of bump up against competitors when you go out with these deals kind of just the genesis of it through what it might look like when it's installed?

Sure. So first and foremost, what Mercedes wants to do is sell electric vehicles, right? And they're a premium brand, so they want you to have a premium charging experience. Unlike Tesla, not to bash Tesla, it's not a criticism. They don't feel the need to have a closed system. They're willing to have one that is an open system. So yes, if you're an EV driver driving Mercedes, and you're registered as a Mercedes driver, you could get preferential treatment like the ability to reserve it before you get there, preferential pricing, maybe depending on where the installation is, benefits or promotions from the site host. It could be a Starbucks, it could be anybody. And so they view this as a way to provide a premium driver experience to their drivers but not have a closed system. So that was their motivation. They're doing it in such a way that it's obviously going to be quarter charging. They're thinking 400-ish sites, I believe, is the number.