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

Yes. Good morning, and welcome to the first day of our Energy, Power and Renewables Conference. My name is Bill Peterson, U.S. Clean Tech and Metals and Mining analyst. Really pleased to have the team from ChargePoint here with us this morning. We have Michael Hughes, the Chief Revenue Officer, and we have Patrick Hamer from Investor Relations. So before we go into Q&A and encourage anyone in the audience have any questions to ask, too, Michael is going to just kind of give an introduction to the company. What does ChargePoint do? Where is your position in the value chain? And maybe just kind of like what are the just key differentiators of ChargePoint as a company and your hardware and software offerings?

So yes, so Michael Hughes, nice to see everybody. Let me just talk a little bit about ChargePoint. So ChargePoint's a Silicon Valley-based company, about 1,800 employees, doing business in 2 markets, Europe and North America. And our notion or our ambition is to move all goods and people on electric. So -- electricity is fuel. So that means we're participating in enabling passenger cars, all fleet vehicles, buses, all of that. And our unique value proposition is really that we do all of our own engineering, including hardware and software, so integrating the hardware with the software to enable a superior experience. And so that means if anybody drives electric, you probably have the ChargePoint app that allows you to find, use and pay at charging stations, whether they're on your own employee's property, at a fueling convenience location, wherever it might be. And that model extends itself into the fleet world, where they need to operate in a depot, on the road, from home, all of the above and have a single payment mechanism across all of those things. So that's ChargePoint business, enabling a journey for drivers that is simple, easy and allows them to make the transition to electric.

Let's just ask the question that I've been getting now...

The only question.

Times per day over the last couple of weeks. So a couple of weeks back, you had Ford announced they're going to move to the NACS standard, North American Charging Center of Tesla. And then you had GM, and that actually really created a lot more kind of excitement, if you will, Yesterday, it's now Rivian. I guess, break it down, what does it mean for OEM shifting to the NACS standard by roughly '25 as they're all talking about? Where does ChargePoint fit in this ecosystem? And I guess, just cutting right to, what are the implications, if any, for ChargePoint's market share in this space?

Yes. So let me set the table a little bit non-ChargePoint and then come back to ChargePoint. So it's been a multi-adapter world for a long time, right? There's been various connection types, and we try to get a standardization around CCS, and that's been going on for years. So largely in North America, with the exception of Tesla, it's been CCS communication standard for a long time. And so that's been great. And then every Tesla comes with an adapter, and then they charge. And we charge more Teslas than anybody else in the world because they charge at offices, and they go around town, and they use ChargePoint chargers. So we've been doing this for a long time, charging Teslas is part of what we do. And we -- thank goodness for them because they put electric cars on the road, which enable our business to grow. So we love everything about that. Now, so over the course of the last few months, the OEMs have been interested in enabling fast charging for their customers because that allows the customer to feel comfortable buying that vehicle. "Great, I can charge where I'm going on the road and my long trips and all those kinds of things." And so they're trying to figure out "how do I do that?" And there's been a lot of bad press about the public charging network out there, largely domain of companies like EVgo and Electrify America that have fast charging networks, which they own, and then they try to service those drivers. So -- but bad experiences, station's down, not operable, all kinds of other things. So GM and Ford, in my opinion, have basically said, "I have to find a way to give my drivers a great experience. And I can either write a check and build fast charging networks or contribute to the building of fast charging networks or I can team up with Tesla, which works, is reliable, and they've built out the network." They hit the easy button. And I think that's logical in a track driver short term. I'm not really sure the long-term brand value of having my customer of a Ford vehicle go to a Tesla charging station to see all they have the Teslas there and have that experience. So I'll leave that up to them. But that's effectively, I think, what's going on and how we got to where we are. And then as you said, it's been a waterfall ever since, and now everybody is on board. So I think what we will see is it's pretty consistent with our business model overall. We've had CHAdeMO connectors and CCS connectors, 2 different connector types on our fast charging devices for a long time. Adding a Tesla connector is really the next step. We've been trying to do it for a long time, and Tesla is now enabling that to occur. So nothing surprising to us. It's been in development, and we've been planning to do this for a long time. Happy to support it and have announced our support for NACS. I think what we're seeing now is a bunch of NACS washing, meaning everybody's saying, "I'm in. I'm in the pool" with no technical plan, no engineering testing, cables have to operate with the charging equipment. They have to operate with the vehicle. Nobody's done, in large part, much of that. They show a nice picture of, "Hey, here's my charging station with a NACS connector." But that's not enough. There's a ton of work to be done. So we're taking it pretty seriously. We're not going to NACS wash our way into this. So we'll come out with more news and tell you what we're doing. But from our business perspective, we can enable customers, regardless of the connector on their vehicle, to charge at any of our charging stations, and we'll offer choice to them. It will probably be an adapter world, meaning CCS vehicles will have an adapter to connect to NACS and NACS vehicles, i.e., only Teslas today. We'll then have an adapter, as they always have, to connect to CCS. So it has very little impact on our business. We do need to assure our customers that they're going to have a future-proof technology, but we're having those discussions today. It's going fine, and we feel like that's going to be the path, going forward. So it's going to be an adapter world for a while, and then it will centralize. But I mean, I think the OEMs surprised us in a way because they kind of gave up. But I think it's going to be good for us. I think we'll end up with one standard over the long term.

The comments that Michael made about the adapter world are important to understand because in North America, the majority of our charging stations are Tesla's because it's such a large portion of the market share, meaning that through an adapter, the Tesla speaks CCS to our charger. That's also important in thinking about where this is totally not an applicable discussion, which is Europe because Europe has CCS as an adopted standard, and Tesla speak CCS through the cables to the charger. So when you think about where this impacts the North American market, there are -- ChargePoint has predominantly modular cable architecture of our existing portfolio. So in the event that someone has one of our chargers and would like to retrofit it, they can purchase a retrofit from us. They don't have to because in Level 2 stuff, there's adapters. Level 3 stuff, there are adapters as well. However, there are performance implications at super high ends, which are not impactful this day and age where vehicles can't take that power. So I think it's just important for investors to understand that Tesla's already speaks CCS. It's a language between them and the charger. And this truly is just the end of the cable. And so that's something that we'll be able to serve the market with very quickly.

Just one thing, coming back to the question, the fear is that because of their network is the largest in the U.S., they can -- and their cost of capital is lower, it's kind of a side business, not their core business, they can just -- they can add capacity bigger, faster, stronger than anybody else. So I mean, how does ChargePoint grow -- how does ChargePoint maintain or even grow its market share in that scenario? And maybe you can tie it on to the broader areas like where charging is done because that's really a critical aspect to that question.

Yes. Like every day, I host customers at our headquarters. And every day, it's the same discussion. 5% of charging happens in the way we think of fueling today. You go somewhere to fuel, you fuel in a few minutes, and then you go on to your destination. That's like 5% of charging. I've had an EV for 6 years, I've charged -- fast charged on the way somewhere 6x, right? It just doesn't happen very often because every day I wake up, I'm fully charged at my home. I go to the office, I can charge there if I need to. If I go around town, I charge it in the parking structure or at the shopping mall or wherever it might be. So it's important to understand that this fast charging component, Tesla did for good reasons to enable drivers to get from place to place and long distance and feel comfortable. But that's still a tiny little bit of how the charge goes into the vehicle. We fuel where we sit, we don't go to fuel. And so for us, the NEVI funding is going to enable a bunch of fast charging, we can talk about NEVI, if you'd like, that will enable fast charging on highways. That will be ChargePoint, that will be Tesla. That will be a variety of other folks. Our belief is that enabling fast charging for drivers will enable more vehicles to hit the road. We're not dependent upon the NEVI funding. The bulk of our business happens at workplaces, in homes and around town and in fleet. So NEVI funding is interesting, and we think it's going to be a game changer for the environment of charging, and we will participate. But we don't think that's the bulk of the business. The bulk of the business is cars charge where they sit. They sit at home, they sit at the office, and they sit, sometimes around time, at a shopping mall, at a stadium or wherever. So that's where the bulk of the fuel enters the vehicle.

Yes. It totally makes sense. So let's take a step back and like talk about your customer engagement, your go-to-market strategy. And you guys have a pretty big distribution network, a lot of disties that you work with. So I guess, how do you expand it into new customers? How do you expand existing customers? How important is the distribution channel and your go-to-market efforts?

Yes, super important. So the bulk of customers today, be they workplace or fueling convenience or fleet, will start a conversation with either their EPC, which is going to help them build and design depots, and/or an electrical contractor. And those folks will access a distribution network, as you've noted, and say, "Hey, what should I do? What do you have in stock? How do I help these customers? How should I wire it?" All of that. And so we've taken, in the last year, a concerted effort to enable the distribution network. So whenever those electrical contractors and EPCs go to shop, effectively try to figure out what to help their customer with, the answer that the distributor gives is ChargePoint. And they've got it in stock, and they're ready to go and ready to help that customer. We don't expect them to drive the demand, we expect to capture the demand and provide reach for us as a company. And so that's been great for us. That means all of our customers and noncustomers have access to charging new equipment, the best design services, all of that in a moment's notice in their local area. So we think that's a differentiator for us long term. We think if we can maintain that channel to be a growth partner for us, we think it's going to make a big difference in our business. And the bulk of them, domestically and to some degree in Europe, are choosing ChargePoint and focusing on leveraging our technology that they're not going to carry everything. And so that makes a difference for providing access to customers. That being said, it's still on us, and we still do focus on spending time with the most important customers because each customer is an opportunity to land and then expand. You start with a couple of charging stations, more EVs show up, then you need more charging stations, then more EVs show up, then you need a lot more charging stations, right? When Google was an early customer, they bought a few charging stations, then they bought 50, and they thought they were done. They've got a lot more than 50 now because more EVs show up every day, they have to charge those cars, employees expect it, and that's part of the mantra. So that land and expand is really important for our customer base because once there's charging, EVs show up, and then more and more show up over time.

Are these -- are there Tesla's superchargers in Google's parking lots? Or are those your chargers?

Those are our chargers in those parking lots. And why would you have a supercharger at work?

Just trying to back there...

Exactly. Somehow, we have to get that message across. It's a hard one.

Yes. Just kind of going back to the near term, so you've had some sort of mixed sort of near-term demand trends, where some -- there's still some discretionary spend, where people are maybe, in this macro, not spending. You kind of think of charging growth needs to somewhat correlate over time with EV arrivals, right? But what are the demand trends you're seeing across your big verticals, whether it be residential, commercial and maybe within that, things like work, work sites and then, of course, fleet, which is something that people probably aren't really thinking about too much, but critically important as all these light commercial vehicles are starting to show up?

Yes. Yes. So let me try to knock those off, residential, commercial and fleet. So residential, cars are showing up, right? So residential is really a product of EVs that hit the road, and we're a derivative of that market. And so we see EVs hitting the road in a variety of different manufacturers. The Koreans producing in volume, North American automakers beginning and the Europeans producing and volume starting to ramp up. So EV shipments in the first quarter and in the second quarter continue to rise. And so we feel good about our residential business, which is really a derivative of that. And then the other part of residential that's a little bit harder, that we're going to enable more meaningfully is the multifamily part, so condos, apartments, all of that. And so it requires a different kind of charging, requires the condo association or the apartment owner to have a plan and build that out and decide if they're going to [ D ] those spots, use community charging, all of that. So we have a holistic approach for all of those folks to enable that to be a part of their offering to their customers. And it's really important, increasingly, as an amenity to multifamily dwelling. So that's a big piece of business that's going to -- a bit like the workplace business, land and expand. On the commercial sector, I think what's interesting, the biggest chunk of the commercial sector for us has been workplace for a long time. And of course, COVID doesn't really do great things for workplace. People haven't gone to the office up until recent times. So I think what we're going to see in workplace over the course of the remainder of the year is most folks, to do a poll in the room, are coming back to a 3-day a week in the office kind of program. But those 3 days are pretty consistent. So everybody is in the office Tuesday, everybody is in an office Wednesday, everybody is in the office Thursday or Monday, Tuesday, Thursday, whatever it is. But effectively, as they return to office, and we're seeing mandates, right, you're badging in, you're badging out, and that's required, and so that mandate is becoming clear, whether we like it or not. And as a result, you're going to get the same compression you had when it was everybody in the office, you're just going to get it on 3 days a week. So in effect, I think, in the second half of the year, we're going to see workplace return, it's never gone away. It's been an important piece of the business, will continue to be. But the compression on those charging stations, which leads to them buying more stations, will occur in the second half of the year. And then I'll just say this about fleet. Fleets are really exciting. Fleet is everything from FedEx, UPS, Amazon to rental car fleets, to transit buses, to the plumber and the electrician that drive around the neighborhood and all that kind of stuff, Uber, Lyft and everything. Fleet's been a really rich and interesting business that will grow bigger and bigger over time. It has been 100% vehicle limited for the most part. So there aren't trucks, there aren't step vans, there aren't heavy-duty vehicles that enable fleets to fully electrify today. So as you think about the multi-vehicle fleet, could they've got all of those things, they're beginning to electrify, right? So they've got some light-duty vehicles, they got some step vans. They're starting to ship this year, and they will electrify their depots as quickly as they can. So that will really foster long-term business for us because they'll start with a couple of vehicles, start with a handful of vehicles and then be hundreds or thousands of vehicles. What's happening -- so long term, that's really exciting for us, it's going to be massive. What's happening today is rental cars are really taken off, and it's a race for electrical capacity at the airports and then a race to provide a great experience for the driver. If anybody rented electric before, it's pretty crappy, and you don't have a great experience, and they don't guide you very well. So we're working with the rental car manufacturers -- rental car providers who have fleets over 0.5 million vehicles to enable charging at the airports, enable charging through the app that you can find charging and do all that stuff, that's moving pretty quickly. And then the one sector that actually has vehicles in volume is transit buses. And so we're electrifying tons of transit buses through all the local municipalities that service their residents with transport. And that's the one sector that has vehicles, like half the vehicle shipping today in the bus world are electric. It's not like that in any other sector, right? It's a lot of diesel still shipping, a lot of gas still shipping in the other sectors.

Yes. Fleet is really exciting in this current market today because it's not a discretionary purchase. If you have an availability to get the vehicles, it's a meaningful change to the cost structure of your business, so people can't defer that decision. So it's uniform, if the vehicles are available, people are just waving them in and they need the infrastructure, and it's highly dependent on the software that we can string it together with because of the multitasking and the demand and the utilization and the variation within the fleets of different types of vehicles with different routes, et cetera. So it's a really exciting space for us.

And just again, sorry to belabourthe point, of all those applications you said, I think I've seen Tesla destination chargers maybe at a hotel, but they're not in these applications. And just [ to make us there ].

Yes, right. I mean, think about renting a rental car, you're going to go stay in a hotel most likely, you're going to travel here and about. You need to have charging along the route, but you mostly are going to charge where you sit, again, back at the hotel. . You can't have the Tesla chargers today that they could provide to a hotel only charges a Tesla. So why would they do that? They can service all vehicles by putting in something, ChargePoint or other, that enables a CCS connector, which is the common standard, which allows all those vehicles to charge. So I think that journey of those rental car drivers has been pretty bad so far. We're going to try to make it better through their apps, through the experience and then through providing charging for them. But it's a funny little race at each of the airports because the airport authority has command, the rental car company is trying to get their stuff built. So it's a difficult set of decisions to make for them.

Yes. I want to move on to kind of the pricing margins cost, all the work you guys have been doing on that side. But I want to just make sure the audience, if anyone has any questions, we can take before that.

I just want to see your point on a bidirectional charging, like if you have any plans for the residential? And then also, how you're going to try to compete with all these incumbents, which are coming with like solar and they're already doing their own chargers? And basically, they're doing their own energy solution, total solution for the house. So any plans on that?

Yes. So bidirectional and solar partners, is that the question?

Bidirectional ]. How you're competing with those incumbents, which are already in the space, in the residential space?

Yes. Okay. So bidirectional charging, so let me just talk about that for a second. All of our equipment is capable of bidirectional charging, so V2G or V2X. And so certainly happy to support and enable that as required, and we'll see applications for that in a variety of different use cases. V2G is a little more complex, building the markets for that and determining the rates and how that works is going to be a little while. Utilities have a hand in that, and we'll shape and form that. So that will take a little while to be meaningful. V2X, meaning charging something else, I think, is possible, right, charging home, charging other things, leveraging a battery and leveraging solar. So we'll see more and more of that. All the technology is capable of supporting it. We have partnerships with solar companies and battery companies in order to enable a holistic approach to those markets, both home and in the office and in corporate. So again, I think it's the buzzword that everybody asks about, V2G, but it doesn't get implemented at scale for a number of years. So happy to support, doing all kinds of work to enable it, just don't see the application in mass for a few years. And then solar partners, we've got a handful of solar partners that we work with today, and they enable ChargePoint via their own websites, via their own applications and then integrate that into the battery that they generally provide with that. So -- and then the contractors are in common. So the folks that do install solar, we're leveraging those networks to install charging and -- in fact, ChargePoint chargers. So yes, so there's some incumbents out there, some of them they're going to choose their own. What they need is a smart charger that enables those things to communicate together. And that's one of the things that we offer and it is important for those solar providers. So more to do there, but we certainly are participating in that residential space.

A question on residential. I never quite understood the benefit to the customer, given that you buy a new EV, it comes to the charger, you plug it into your house. It has an app, it has a timer. I mean what does ChargePoint offer the customer in residential that the manufacturers don't?

Yes. So the charger that comes in the vehicle -- so most of the vehicles today have 250 to 400 miles range, right? The charger that comes in the vehicle gives you about 2 or 3 miles an hour. So you could do on a long journey that day, you plug in when you get home and you'll get 40, 50 miles overnight. You didn't get back to full.

No, that's not all true. I mean, they're all [ 40 ], 50 amp.

That ships with the vehicle?

Yes. I mean the ones that [indiscernible].

Give me an example. Will you?

Tesla, Porsche, VW, Audi.

Yes. So they're not shipping with the vehicle. You're not talking about the charger that's in the trunk.

Yes. That's...

Has to be installed at your home. Yes...

It's a Level 2 charger.

Okay. So I'm sorry, I misunderstood. I thought you were talking about the trickle charger that sits in the truck. You're talking about a home charger that gets installed in addition to the vehicle being bought, yes.

I mean the charging system comes with the car, you plug it into a 240 outlet at your house.

Yes. Yes. Okay. So I thought you were talking about a trickle charger, you know what I'm talking about?

Yes. Yes. Level 1.

Yes. So those Level 2 chargers, right, so we're shipping with Hyundai, with Mercedes Benz, with a variety of other vehicles that will have a home charger. I think -- so the speed is the reason to have a Level 2 charger at home, for sure. So if they're shipping with a Level 2 charger, we're certainly going to advocate for that. Having one tied to the vehicle makes sense. What we're going to do differently is enable integration with the utility rates and all the utility programs so that you can attach to your own individual utility program. So my particular program says, at 11:00 p.m. at night, the rate goes down, and I should charge them. So I plug in my vehicle at 5, if I ever got home at 5. I plug in my vehicle at 5. At 11:00, it starts charging because that's how it's set up to match the profile for me to the utility rate. And then I have other capabilities. I can tell Alexa, "Okay, Alexa start charging now because I need to go somewhere later." So the integration of that charger with the other services in the home that I'm going to leverage is a piece of the puzzle. And then -- I mean it's the highest rated -- from our home charging business, the highest-rated charger out there, people tend to love it, has all the software capabilities and is not tied to the vehicle necessarily, is tied to the network and the rest of my life. So there's reasons to do the charger from the manufacturer of the vehicle. And then, a lot of them are using our charger because it has that advanced set of capabilities.

It varies greatly by geography. And in many geographies, we are that home charger that's coming with a vehicle, where we're that preferred charging solution. The utility component is important because the utilities have to verify that there's a utility-grade meter embedded in the home charger, so if they were to test it to avail yourselves at those discounted rates, they could actually remove it, open it up and check what the meter says, right? So there's very few home chargers that are engineered into that, those utility systems and JCP&L out in New Jersey, and that's -- we're one of the 2 verified chargers for their structure. But there's a lot of future in this space for the company. That same kind of products suites usable in not only single-family residents but the multifamily stuff that Michael referenced. A lot of take-home fleet applications where people need to have -- be reimbursed for the power that they pay for, that's put on their fleet vehicle at home. But right now, it's 11% of billings.

Yes. This is something right in your wheelhouse. So last year, you were able to raise prices in inflationary environment, particularly in North America. Europe feels a bit more competitive. But a big fear or I'd say, bear thesis is that this hardware just gets commoditized. So I mean, how do you think about pricing trends? I mean are there more pricing increases on the come? I mean, how should investors think about pricing of these products long term?

Yes. So I mean, I think COVID and the supply chain crisis and all the excitement that, that generated, prices had to go up in order for things to continue. That's largely behind us. I mean supply chain is, at least in our case, largely, as a challenge, largely behind us. We've got assurance of supply, manufacturing dialed up, all of those things. So we're going to be in a position to maintain decreased costs over time of the goods -- of the manufacturing of our goods, and there's a ton of work going on in order to enable that. So great stuff happening on that side, which allows us to be -- have a little more pricing flexibility. My belief is the market will not commoditize because I think people use technology in an integrated way, right? Workplace is integrated with their employee enrollment system and you get access to charging. And then, they set up different pricing plans for employees and visitors and other things. Once it's integrated, it's hard to think about that being something that you would choose something else for or look at another offering. A fleet operator integrates it with his utility programs, his fleet scheduling programs, his power management, the telematics from the vehicle, when it comes back to the depot, recognizing its state of charge and then setting the charging profile based upon its requirements for its -- throughout the next day, maximizing dwell time and the charge required. So there's all kinds of integrations that occur that make it really sticky and not commoditized. So while I think the hardware will come down in cost, I think the commoditization won't occur. And to be honest, I think GM and Ford decided that software needs to be integrated with hardware in order to deliver the quality of service required. So all the ballyhoo about the bad public charging experiences out there is tied to somebody put a piece of hardware out there that they can't manage, see, control or understand. So if it's got a thermal event about to occur, if the cable is broken, if anything is wrong with that event, with that device and it's in a far-flung location, they don't know it until the driver shows up and goes, "I can't charge here." So our belief is software integrated with the hardware where you can actually proactively monitor, manage and then deliver services against that before you have a problem is the requirement, and I think we're uniquely positioned to do that. And I think people will pay for that.

Yes. Maybe just last question, try to hit really best, your path to profitability, trying to exit next year. Obviously, there's top line components. There's gross margin expansion expectations. There's operating leverage. You could summarize that and walk us through that path in the next, call it, whatever, 12 to 18 months, how does that look?

Yes. So importantly, with our last quarter, we thought the market needed a little bit more guidance on the path to profitability, which we've been consistent in reiterating that we'll be cash flow positive in the fourth quarter of calendar '24. We introduced an adjusted EBITDA metric to try and bring the top line, the margin and the operating expense lines kind of together to help people triangulate to that point. So essentially, with the adjusted EBITDA guidance we provided just now, we expect the adjusted EBITDA loss in the fourth quarter of this year to be cut by 2/3 versus what we just turned in, which is an adjusted EBITDA loss of $49 million. So you get that point in the trajectory and then you snap it to where we expect to be cash flow and adjusted EBITDA positive in the fourth quarter of next year. With that trajectory, you have a rapidly decreasing cash burn rate, right? So we've got a balance of $314 million at the end of last quarter. We have an ATM program in place that we've been using in a disciplined manner, right? Nobody loves their stock price, but the prudent thing to do is dollar cost average over time if you need to bolster the decreasing rate of cash burn, and we get there. But there's -- we have a lot of confidence in the different levers within those components that we can control. And the most important lever is the top line, which it's hard to deny that the market is coming at us really fast with all these vehicles showing up.

Yes. Well, firstly, we're out of time, and we've been going here for hours, I think, talking about this. But thanks a lot, Michael, and Pat, and we look forward to watching the progress. Thanks for joining us.

Thanks.