Earnings Call: Q2 2022

Sep 1, 2021

Ladies and gentlemen, good afternoon. My name is Mai, and I'll be your conference operator for today. At this time, I would like to welcome everyone to the ChargePoint Second Quarter Fiscal 2022 Earnings Conference Call and Webcast. Trial noise. After the speakers' remarks, there will be a question and answer session. I would now like to turn the call over to Patrick Hanger, ChargePoint's Vice President of Capital Markets and Investor Relations. Patrick, please go ahead. Good afternoon and thank you for joining us on today's conference conference call to discuss ChargePoint's Q2 of fiscal 2022. This call is being broadcast over the web and can be accessed on the Investors section of our website at investors. Chargepoint.com. With me on today's call are Pasquale Romano, our President and Chief Executive Officer and Rex Jackson, our Chief Financial Officer. Conference call. This afternoon, we issued our press release announcing results for the Q2 of fiscal 2022 ended July 31, 2021, which can be found on our website. We'd like to remind you that during the conference call, management will be making forward looking statements, including our fiscal Q3 and full year 2022 outlook and our expected investment and growth initiatives. These forward looking statements involve risks These forward looking statements apply as of today, and we undertake no obligation to update these statements after the call. For a more detailed description of factors that could cause actual results to differ, please refer to our Form 10 Q filed with the SEC on June 11, 2021, conference call and our earnings release posted today on our website and filed with the SEC on Form 8 ks. Also, please note that financial measures we use on this call are non GAAP. We reconcile these non GAAP financial measures to GAAP financial measures Q and A session for the current quarter in our earnings release and for our historical periods in our investor presentation posted on the Investors section of our website. And finally, conference call. We'll be posting the transcript of our call today to our Investor Relations website under the Quarterly Results section. And with that, I'll turn the call over to Fesquiat. Thanks, Pat, and thanks to all for your interest in ChargePoint and joining us for our Q2 earnings call. I'll provide a business update to give you some perspective before turning the call over to Rex for financials and an update of our guidance reflecting our revenue momentum. We are pleased to share more about the execution against our plan and our strong quarter for ChargePoint. The results from this quarter can be described with one word, This quarter from both a quarter over quarter and year over year perspective exceeds revenue growth rates from the quarter that ended on July of 2019. We had strong commercial execution as businesses of all types continue to invest in EV charging for their customers, employees and visitors. Interest in EV charging solutions from fleet operators continues to be high. In June, we announced the industry's most comprehensive fleet charging portfolio. Earlier this month, we announced the acquisition of VIRISITY, a leading fleet vehicle management provider. We expect the addition of team, customers and technology from this acquisition to further strengthen our reach in e Bus and commercial fleet. Residential demand for home charging continues to be strong and our ability to serve all types of residential settings is a differentiator. From a geographical perspective, our North American execution remains strong as businesses continue to recover from the effects of COVID. Europe is growing quickly. Our activated port count is up 44% in Europe for the first half of the year versus Bloomberg NEF European Public Connector growth of 13% over the same period. We expect our position in Europe will expand meaningfully following the close of the acquisition of Has2Be post regulatory approval with the addition of their networked ports under management position added to our existing position. Has2Be has a talented team, robust technology and impressive base of customers, including Arval, Audi, GP JUUL, IONITY and Porsche, just to name a few. Before I jump into the business, I'll share a few comments on the market tailwinds supporting electrification more broadly. As we have said, ChargePoint's success is directly tied to the arrival of electric vehicles. Bloomberg NEF published electric vehicle outlook in June, which was the first major increase to their outlook in 5 years. Sales of EVs Sales were up 97% year over year for the first half and European EV sales were up 153%. We are witnessing more vehicles coming to market in exciting form factors for a broad array of use cases. We continue to test new vehicle models that run the gamut of passenger fleet and transit in our state of the art test facility in Campbell, California. Turning to policy, much continues to evolve. On vehicle and emissions policies, President Biden issued an executive order calling for half of all new vehicles sold to be zero emission by 2,030. The in July provides the sectoral policy tools to meet the 55% emission reduction ambition by 2,030. It's an effective mechanism to hasten the transition to BEVs. This collection of efforts has the support of many major automakers. It helps create category awareness and we expect the pace of electrification to continue to accelerate. We are also seeing unprecedented progress The Speaker of the House has committed to voting on this bill by September 27th. The Senate has also passed a 3.5 $1,000,000,000,000 budget framework, which is backed by the President and includes instructions for lawmakers around changes in the tax code to make the President's EV goal more attainable. The budget framework was adopted by the House last week. We are closely tracking the drafting of this legislation and other actions in Congress with potential incentives for EV charging for communities and fleet. States play an important part in infrastructure funding Independently and in crafting mechanisms for the disbursement of federal funds. California is a leader in an influential market. The passing of a state budget that included up to $3,900,000,000 for 0 emission vehicles and charging incentives over the next 3 years We'll support continued infrastructure build out. We believe we are well positioned to enable our customers to leverage public funding in addition to ongoing private investment. Our teams have more than a decade of grants management experience having worked with federal agencies, regional governments and local partners to Successfully build charging to support communities and connect corridors. Turning to our verticals, first let's look at what's happening in commercial. It enjoyed its best quarter yet with sequential billings growth of over 46% and year over year billings growth of over 90% from the same period last year. As a technology company with software at our core, we are pleased to report subscription revenue for the quarter grew 12% from the 1st quarter and 23% year over year. We finished the quarter with approximately 118,000 active ports on our network, an increase of about 6,000 ports This includes over 5,400 in Europe, up from over 4,700 ports last quarter, Not including the approximately 40,000 ports to be integrated on the close of the Has2Be acquisition. Exciting deployments with auto dealerships, Both North America and European as well as fueling and convenience locations like Kum and Go led to a record quarter for shipments of DC fast ports. The total fast charge ports in our network grew to over 3,700 as of quarter end. We continue to work with the industry to enable drivers to roam across networks In Fleet, we had a record quarter with growth of 187% year over year from a billings perspective. We believe Fleet represents an enormous opportunity for ChargePoint and we are seeing activity across the vertical, including delivery and logistics, transit and work vehicle fleets. RFP activity is widespread. In June, we successfully unveiled what we believe is the industry's most comprehensive charging portfolio that was designed with our fleet management software at its core to ensure cost effective operational readiness for fleets of all types and sizes. The recently closed Vuricity acquisition extends existing ChargePoint functionality with direct vehicle data, enabling additional functionality, including battery health monitoring, OEM agnostic telematics, vehicle maintenance support and vehicle operations data. Fleet managers are focused on integrated vehicle and charging visibility, access and control, and we believe that the combined offerings of ChargePoint and Bureaucity will be a force in this space. In the residential vertical, our strategy to serve all needs is paying off. These include single family residences, apartments and condominiums and employers who offer electric vehicles bundled with home charging made available through leasing companies. Crossing over from the fleet vertical, employers requiring employees to take work vehicles home overnight, use our home charging services that enable fuel cost reimbursement for overnight charging. Q2 residential billings were very strong, up over 79% year over year and 43% sequentially. We continue to offer seamless access EV charging with integrations into leading consumer platforms. This quarter with our strategic partner Mercedes Benz, we announced A new benchmark for EV charging in North America. With ChargePoint powering a Mercedes me Charge vehicle ecosystem to be launched with the all new EQS luxury sedan and included with all EQ future mobility products from Mercedes Benz. With our software, drivers can seamlessly find Navigate Connect and We pay for charging in the vehicle and from the Mercedes MEAC across the ChargePoint network and roaming partners, including charging strong start to the year where we eclipsed 5,000 customers. We continue to see a steady rebuy rate of well over 60%. We are adding customers quickly while growing with existing customers rapidly. ChargePoint continues to invest heavily in our team. We finished the quarter with over 1,000 employees. As a technology company, we are especially proud of our engineering and technical staff that tops more than 500, not including the capable team at Vricity and the additional expected team following the close of the Has2B acquisition. The teams managing our supply chain have navigated a dynamic environment. Rex will give you more color on margins and how ChargePoint is navigating through this global headwind, including responding to the demand for our product in the Q2 that exceeded our forecast. Before turning it to Rex, I'd like to reiterate the ChargePoint scaling of the new fueling network is generating notable environmental impact, having enabled over 3,000,000,000 electric miles driven and avoiding 462,000 metric tons of greenhouse gases and roughly 120,000,000 gallons of gasoline by the end of Q2. Conference call. Rex, over to you for financials. Thanks, Ms. Wall, and good afternoon, everyone. First, my comments are non GAAP where we principally associated with our secondary offering completed in July, our Vericity acquisition completed in August and our pending acquisition of Has2Be announced in July and expect to close later this calendar year. For a reconciliation of these non GAAP results to GAAP, Please see our earnings release. 2nd, after a quick review of our results, I will provide revenue estimates for fiscal Q3 and for the fiscal year. 3rd, consistent with our March June calls and as you can see in our earnings release, we report revenue along three lines: network charging systems, subscriptions and other. Network charging systems represents our hardware, all sold with our cloud services solutions. Subscriptions includes those cloud services, Other consists of energy credits, professional services and certain nonmaterial revenue streams. Q2 revenue was $56,000,000 up 61% year over year, well above the high end of our previously announced guidance range of $46,000,000 to 51,000,000 and up 39% sequentially. The top line success was across all verticals and geographies. Network charging systems at $41,000,000 was 73% of total revenue for the quarter and grew 91% year on year and 53% sequentially. Subscription revenue at $12,000,000 was 22% of total revenue and up 23% year on year and 12% sequentially. Subscription growth trails network charging systems revenue growth for 3 primary reasons. 1st, mix, as both DC network charging systems and home have a lower ratio of subscription to hardware revenue than our overall average. 2nd, our quarterly sales are typically strongest in the 3rd month of each quarter, which amplifies network charging systems revenue taken at shipments versus ratably recognized subscriptions. And 3rd, for most of our solutions, we begin revenues for subscriptions at a fixed time after the associated hardware shipment to accommodate installations. We are particularly pleased that our deferred revenue from our subscriptions representing recurring revenue from existing customer commitments and payments, we had $100,000,000 this quarter for the first time. Other revenue at $3,000,000 and 6 percent of total revenue decreased 16% year on year, which is lower utilization based energy credits, increased 10% sequentially. We look at verticals from a billings perspective. Billings by vertical for Q2 were commercial 75%, 12%, residential 11% and other 3%, consistent with billings by percentage for Q1. We are very pleased to see strong growth, total billings up 87% year on year and 42% sequentially on consistent mix, demonstrating strength across all our verticals. From a geographic perspective, Q2 revenue from North America was 91% and Europe was 9%, consistent with recent breakdowns by geography. Europe held its percentage in a high growth quarter with its best quarter ever at $5,000,000 in total revenue model and reflecting our land and expand strategy remained over 60% of total billings, a compelling indicator since we had hundreds of new commercial customers per quarter. And from a scale perspective, we also continued our channel success with approximately 62% of our business driven by our channel partners and continuing to add partners at a strong rate. Turning to gross margin. Non GAAP gross margin for Q2 was 23%, flat to Q1. Continued improvements in our costs of goods sold and renewed strength in commercial offset supply chain challenges, particularly incremental logistics costs, which had an approximately 3 point negative impact on gross margin for the quarter. Non GAAP operating expenses for Q2 were 53,000,000 a year over year increase of 70% compared to a COVID impacted prior year quarter and a sequential increase of 13%. We continue to invest heavily in sales and marketing to support our land and expand model in North America and Europe. Looking at cash, we finished the quarter with approximately $618,000,000 with approximately $44,000,000 in from warrant exercises resulting from the redemption of our And on completion of regulatory review, expect to fund the cash component of the Has2by acquisition at approximately 135,000,000 Ms. Squalls spoke about the strategic and operating merits of both transactions. From a financial perspective, we These two acquisitions combined to contribute approximately $4,000,000 in total revenue in Q4 to be generally accretive to gross margin to add approximately $8,000,000 to $10,000,000 in combined operating expenses in Q4 and to provide synergistic sales opportunities for both Our new guidance, which I'll provide shortly, reflects Vericiti's expected contributions since the August close the 4,400,000 shares of common stock in connection with warrant exercises and 3,900,000 shares under our employee stock plans. We finished the quarter with 322,000,000 shares outstanding. After giving effect to the acquisition of Has2B, we expect to have roughly 328,000,000 shares show. And finally, we completed an underwritten secondary offering in July for 13,800,000 outstanding shares held by existing stockholders in order to improve our flow and broaden our stockholder roster. ChargePoint offered no primary shares in this transaction. Turning now to guidance. As Pat mentioned, demand for our solutions in Q2 outstripped our expectations and production ramp, And we continue to watch as we all do the COVID situation, including its implications for ongoing supply chain challenges and heightened logistics costs. Despite these factors, we turned in a strong first half performance and are excited about our revenue momentum going into the second half. Accordingly, for fiscal Q3, we expect total revenue of $60,000,000 to $65,000,000 at midpoint an increase of 72% versus Q3 of last year and a sequential increase of over 11%. For the fiscal year, we are taking our revenue guidance of 15% from $195,000,000 to $205,000,000 to $225,000,000 to $235,000,000 at the new midpoint representing a 57 We are very proud of our quarter defined by broad and accelerating scale in North America and Europe across each of our 3 verticals. We believe our technology, capital light business model and market share position us well to continue to execute in this very exciting market. Conference call. The first question is from Gabe Daoud with Cowen. Please proceed. Hey, good afternoon, everyone. I was hoping we could maybe just start with the financials for a bit. Just noticed there is a margin degradation on the subscription line quarter over quarter. It looked like it was only 35% in 2Q. I think you've been closer to 50% in prior quarters. Is there anything that Rex you can maybe point to there as to what drove that degradation sequentially? So as you know, in the subscription line and you're talking about just the full line, yes. So the two things that we charge against that line From a COGS perspective are the call center costs, so where we're supporting house and drivers and then we also clearly when you have Assure warranties in your favor Sorry, in your contract, any cost of repair that we have go against that. I would say there's nothing unusual in the quarter That would suggest something that's a long term trend in that regard. So I think it's just an anomaly. Thank you. Got it. Thanks, Rex. And then I guess as a follow-up, could you maybe just talk a little bit about the supply chain situation currently. Obviously, you guys continue to do a nice job offsetting an increase in logistical costs. But just curious what you guys are anticipating moving throughout the rest of this year? So that's a great question. In Q2, I'd We did a nice job managing it. You could probably tell by looking at the balance sheet, we were not able to build inventories. So we're Very much procuring and shipping. We did run into a little bit of More demand than we could meet, so there are some shipments that didn't happen due to supply chain. The biggest issue is mostly higher logistics costs, But to a lesser degree, there are some component shortages out in the market. So I do again, I think we managed that really well. It hit us 3 points in Q2. Without that, we would have hit 26% gross margin showing some nice progression from Q1. If you look at the second half of the year, we've got a pretty steep ramp for Q2, Q3 from perspectives are putting an enormous amount of pressure on our operations team and our supply chain partners and CMs to meet those numbers. And so we have in our guidance, we've tried to take all of that into account. So I do think there's going to be X numbers of points, mid to low single digits pressure on us from a gross margin standpoint as we bang through that. I will just tell you and back me up on this. We've because of our model, which is land and expand with customer, You need to win we're pushing top line to make sure we capture the territories or the customers as we go. So that's where the emphasis is. And so if we have to make that trade off, we will. There's one more point on that. Because every port that we sell is associated with a subscription to software that's very low churn. And the way we look at the overall contribution from a margin perspective is over the lifetime of that port. And because the The software revenue accumulates nicely over the years. So it's imperative We ship as many ports as we humanly possibly can, so biasing our supply chain activities to making sure that we can not only acquiring customers, but expand within the footprint that we have. I think we get it back in spades over the years. We just Have to meet our customer demands right now. Understood. That makes sense. Thanks for the color, Max. Just one more, just now with diversity in the fold, could you maybe just talk about conversations with fleet operators? Obviously, there's Plenty of competition within that channel. Could you maybe just highlight how impactful having the vehicle telematics Well, From our perspective, especially given that it's very early innings in fleet and fleet operators don't Have a tremendous amount of experience with electrification, to say the least. The completeness of a portfolio and the pre integration, we think, is a huge differentiator in being able to establish ourselves early with these fleet customers as they convert their fleets from fossil fuels to electricity. So pursuant to that, what we're investing in both organically and with the Vuracity acquisition inorganically, is having as large a portfolio as possible. With respect to, Vuricity in particular, the functionality that they add on the vehicle side extends beyond just Rob Telematics. It includes higher level functionality, like battery health monitoring, and other driver vehicle support functions and reporting functions that they have. Where that comes into play is in specific sub verticals within the fleet space. Very, very large fleets Typically, we'll already have a telematics provider that they're working with and we're pretty integrated with all of those usual suspects there or continuing to integrate with the larger set. For the long tail fleets that It's often not the case and for Ebus, that is often not the case. So having the specific vehicle telematics offering in the portfolio really reduces the integration complexity For someone that's in one of the segments that is not has it currently picked a partner or that every plug in for that ERP system from ERP system vendor, but you like having the track that some customers have the ability to pick and choose from a basket of things that's TrinityRail. From a differentiation perspective, it's the completeness of offering, check. We think we've got a good one there And are continuing to invest, but most importantly, I'll draw your attention to the number of Really helpful. Thanks guys. Hey, Gabe. One thing, this is Rex. Rex again on your first question, you caught me a little flat footed So the driver on that from a GAAP Effectiveness, fundamentally stock based comp, which is a new thing for the company. Obviously, since we've gone public, if you look at it on a non GAAP basis, the sulfur margin is actually up a point sequentially. Sorry, I didn't rock that with you when you asked the question. No, no worries. Understood. Thank you, Scott. The $2,000,000 The $2,000,000 The delta is transaction. Without stock based comp, subscription gross margin went up. Okay. Okay. Thank you, Mr. Dowd. 2 questions at a time. The next question is from Colin Rusch with Oppenheimer. Please proceed. It's from the Trucking Solutions business. Collin, this is Rex. So our estimate for Q4 Was it the acquisitions would contribute approximately $4,000,000 and so the balance in Q4 would be us. And then for Q3, we do we have voracity for most of the quarter and hope to have that has to be in quarter. So consider it baked in, but we're sort of assuming in our view of the world that you should focus on the contribution in Q4. Okay. That's super helpful. And then just in terms of the pipeline activity, can you speak to the number of potential targets you're looking at and how that's grown year over year in terms of the land and expand model, getting any of those new customers in. So you started the acquisitions and you went to customer The acquisition is done. Yes. The second question is really about the pipeline and how that's growing up here for 1st time buyers of products. Yes. So on the acquisition front, super happy to have announced the 2 that we did. I can tell you, I think we followed beautifully what we as a management team insisted on, Just pick the 2 you like and make sure you get them. And the question is or I think the question is, are we looking at that going forward doing some additional or no? No, I think the question This is the whole customer growth question. So from a customer growth perspective, we had a stellar quarter in Q2. We're well into Well past the number that we've had out in the market before. As you know, we are investing heavily in sales and marketing to make sure that we keep that trend going. I think we said probably 6 months ago that we're around 500 new customers per quarter. We're handily beating that now. And that's organic, right? So obviously the 2 acquisitions bring some additional customers, particularly in Europe and particularly in the EBITDA segment Trust Capital Partners. Please proceed. Good evening and good evening. Today, I had the opportunity to look conference call. I'm very pleased to report that we're very pleased with our team and I have to say I'm really impressed, particularly from the TrinityRail that there may be an opportunity from a margin Can you maybe talk us through whether or not these and the simplicity of these products financial results. We'll be, quarterly results. And there were some questions Yes. It's a great set of questions that You were at the ACTrade Show? Is that where you saw it? Yes. So what's core to the strategy here is designing It's twofold. One is exactly what you're alluding to. It's long term manufacturing efficiency and volume scale to yield a favorable cost structure there. But there's a second factor, which is in most mission critical or all mission critical businesses fleet or passenger car, sparing capacity for self maintainers or our own Assure services are essentially our warranty services, Maintaining a simple inventory management system to enable rapid repair And very high uptime is the second reason. So it's a this is one of the few times in product where you get both the cost TrinityRail, that's the underpinning of what we've talked about in terms of our margin recovery curve Getting us back to previous historical levels on the margin. Excellent, excellent. My next question is about products for Europe. So my understanding also from looking at the products closely is that there's an opportunity for a very small number of components to be changed versus the designs that are now starting to ship into North America. And can you maybe clarify for us whether or not this Simplicity, this design approach that you've taken maybe accelerates the margin accretion as you look to serve Europe a lot more aggressively for growth over the next number of quarters. So we've taken a design approach across the board that wherever possible products are being designed to be world products either through simple final configuration steps in the factory or out of the box world products. The reason for that is exactly what you're alluding to, which is to combine scale between the two continents to drive not only supply chain efficiency, but common practices for repair and reliability. So we the fast charge products, for example, that you saw at ACT and even Some of the AC products, I don't remember exactly which ones we had exhibited there. The The fast charge products are world products. They are designed to work everywhere and the AC products for Fleet in particular and for Eurobar are designed at their core to operate Thank you. And then if I could squeeze another one in. Workplace has been a very important market ChargePoint over the last number of years. It's a particular point of strength for the company and a lot Can you maybe comment about recent conversations with your important customers in Workplace, Whether or not it's fair to expect some building of the momentum there, maybe a return to the really impressive growth that you saw And so what that says is that our modeling assumptions in that cars drive everything And in our revenue model, cars do drive everything. It's completely an attach rate model as to how we model our revenue forecasting and over the last three quarters, I think we've done a pretty good job even in a COVID environment forecasting our revenue. What we have seen is a mix shift due to COVID, but the overall growth in the space has been more than compensated for by the increased arrival rate in cars relative to the pre COVID levels that we have seen. So with all of that said, as workplace returns, it's all upside. Understood. Well, congratulations on the strong quarter. I'll hop back in the queue. Thank you, Mr. Irvin. The next question is from Shreyas Patel with Wolfe Research. Please proceed. Hey, thank you. So you mentioned earlier that you're having difficulty in meeting demand and that was an issue in the quarter. I just wanted to see How we should think about the ability to increase manufacturing if this were to continue for the next, let's say, the next few quarters? And is there any way to think about any upside potential to capacity for ChargePoint? So this is not a manufacturing capacity driven problem on the supply chain side for us. Our contract manufacturers can deploy the labor and the capital equipment necessary to build physical product. The issue is the random onset of Treasures deep focus on making sure that we exercise every potential source of supply and our engineering team Right behind them qualifying second, third, fourth sources in some cases so we can desensitize the risk. You can't drive 0, but sensitize the risk to sudden decommits where you think you have a source of supply, but suddenly they can't meet shipment into the factory, because as you've seen, the numbers are a bit higher than our original forecast. We've been able to scale on the component supply chain on the way and to generally meet that demand not completely, but to generally meet that demand and the team is working like crazy to put a belt and suspenders in place to drive materials into the factories, where the factory capacity again is not the problem, so we can Meet the new guidance that we've set for you for the back half of the year. So we're working it. We haven't been bitten by it Yes. But we're experienced enough in these matters to never take our eye off the ball and never advertise to you that Okay. And then I wanted to switch to the fleet side of the business. So you mentioned I think you mentioned 180% growth in the quarter, which is obviously really impressive. I wanted to as you're thinking about the opportunity, obviously, now with Versity, and you're I'm just trying to think through how the competitive landscape evolves here and how ChargePoint positions. And in particular, we've seen announcements from OEMs That are looking to offer fleet charging as part of their product offering. Ford and then recently GM are two examples. So how do you think about the ability to still provide a value add solution as those OEMs are indicating interest in trying to sell towards their own customers. Yes. So, we've addressed this question, I think on the I thought I think we got a very similar one on the last earnings call. There are almost no single OEM fleets out there. And so we're focusing on a solution that isn't tied to any one particular OEM and that is also Broadly open to all of the other business system partners that fleets tend to integrate with, so we can be as pre integrated as possible. And our Our focus from a competitive perspective is to be is to not have the customer be the integrator, is to enable a simple integration as possible by being pre integrated. There's never a perfect science here, but That's what we consider to be our differentiator in a big way. I think the OEMs need a default offering And we applaud that. I think they need to have that. But I think most of their customers don't buy from just them. So again, because most fleets are multi OEM, we don't see that Okay. Thanks a lot. Thank you, Mr. Patel. The next question is from David Kelley with Jefferies. Please proceed. Hi, good afternoon guys. Thanks for I guess 2 from my end and maybe starting with the fleet charging portfolio that you unveiled A couple of months ago, clearly software intensive. So maybe if you could walk us through how you're thinking about the longer term kind of subscription opportunity tied to the software for that product line, that'd be great. I mean, it would take more time than we have in this earnings call to give you a full rundown. It's something we should We'll certainly do as we have more technology specific days for the analyst community. But in brief, the way that you should think about it is that there's software that's proportional to charging ports, Which is pretty analogous to our traditional commercial charging commercial business for passenger cars and when we sell to workplaces or retailers, parking operators, etcetera. So something proportional to keeping a port of charging on the ChargePoint network, again, not power orient, not making money on the sale of power, not utilization dependent, etcetera. Then there's the additional fleet services for charger scheduling based on needs for next day routes next shift routes that is built on a per vehicle basis. So now you can think of a new service above and beyond the charter management services that can be billed on a per vehicle basis for those kinds of services. And then there's site wide Energy Management Services and come into play later. So you have generally things that are proportional to chargers, proportional to vehicles and proportional sites. In the commercial charging domain, that's it's changing as well except the proportion of the vehicle component and it isn't really as strong as the telematics doesn't play in there. I'll point out one more thing relative to our commercial and our residential businesses relevant to fleet. A lot of operators have take home component to their fleets. Our residential offerings and our business offerings for leasecos in Europe that provide cars to employees as part of their compensation. That same technology package is being pointed at take home fleets to the TrinityRail to enable electricity cost reimbursement when the employee takes the vehicle home and uses their own power essentially to charge a vehicle for work purposes. So we're seeing a lot of crossover there and that's the power of being involved in all these verticals is being in any one vertical leaves you uncovered for the use cases that cross into the other vertical. The last is that being able to offer the on route in the wild charging capabilities with fuel card integration, so the payments consolidated, etcetera, is another avenue where our commercial offerings For drivers like you and I who drive a vehicle and park it, a parking operator or an employer that uses those things. Well, imagine now we can bring that world where fleet drivers can use those services but have integrated billing back to their employer through integration with fuel card providers, etcetera. And we're going to keep expanding that leverage into that commercial segment. So really all these things play together and that's what's not really apparent yet to a lot of folks that are looking at the I'll pause there. So there will be a long answer if I keep going. Okay. No, great. That's super helpful. Really appreciate it. And maybe just kind of to switch gears a bit, a high level question on ESG and sustainability, and This might be a long answer as well, but clearly we're seeing a broader push in North America. So maybe could you give us window into the conversations you're having with existing and new customers, how they see charging fit into their strategy and Could ESG boost, let's call it, the longer term rebuy algorithm for ChargePoint as we think out several years into the future? Well, certainly could. I think businesses of all kinds are embracing charging For not only ESG reasons, but it's also good for their employees and good for their customers because driving electric is in the long term much more cost effective than Driving on fossil fuels, the car itself has a better cost profile over time and then fuel, well, it's the story there. And obviously, all these companies are now being measured on ESG. So it has to factor in. Just the question is, you don't really need any more charging than the cars in the parking lot So we can't make an estimate right now of how that's how much of that is pre baked into our attach rate model or not and we'll understand that as the market continues to unfold, but I agree with you. It's certainly a tailwind. The question is how much. Okay, got it. Thank you. Really appreciate the time. Thank you, Mr. Kelly. The next question is from Vikram Bagri with Needham. Please proceed. Good evening, everyone. I just have two questions. 1 about near term profitability and one about long term outlook and profitability. Rex, you highlighted increase in outlook by B and E and F recently, and I believe your long term outlook was based on their forecast. You made acquisitions which are margin accretive. How does that change your outlook to achieve profitability, which was fiscal 2025 at a few months back. Could you just talk about puts and takes there? And in terms of Near term profitability, the initial guidance at the beginning of the year was about 31%. You mentioned about 3% hit to gross margin this quarter due to supply chain issues. There has been a shift in mix and the impact of prolonged shutdown due to COVID. Could you also explain the near term sort of margin outlook using 31% as a base, what the puts and takes are, and if you can to the extent you can quantify them, that will be helpful. Thank you. So, Victor, based on your question, you clearly understand it really well already. But so what I would say So for this year, it's absolutely true we are running lighter on gross margin than we would have expected. I think we posted a decent number in Q1. We held it in Q2 despite some external factors, and we're going to bang through the 2nd half of the year and deal with those factors as well. As I said earlier, we are definitely making a commitment to ourselves to drive the top line harder Because land and expand is a ballgame and so getting customers now is super, super important. That obviously puts a little pressure. If your margin It's not performing that puts full pressure on you from a bottom line perspective. But again, for the long term health of the business, the topline is everything. And keep in mind, as we acquire customers, we're acquiring customers who become ongoing customers from a software perspective We don't give gross margin guidance specifically, but I think qualitatively you can tell that there's a gap between We thought we were going to be at the beginning of the year where we are now. And as you referenced, mix is a big, big, big component of that. So if the commercial business Turns in additional quarters like it did this quarter, because it came on extremely strong. That's a place where we get a lot of margin power. So, that can help us a lot. So you would need to stay tuned on that. I think you also asked a question about the acquisitions. I think the acquisitions are accretive with gross margin throughout. They will initially be more in terms of OpEx than the gross margin contributed, but I think that flips in the not too distant future and then there are also very positive benefits between stuff we do that drives more sales of the the software we just acquired and stuff they do with the software that we just acquired that drives more business from the ChargePoint side. So As that synergy kicks in, I think we should have a pretty good year with those 2 acquisitions next year. And then lastly, from an acquisition sorry, not acquisition From a profitability perspective, we've actually talked in terms of calendar 2024. We're I'm turning our models every day. I don't think the acquisitions or our current blending of or strategy of going for revenue and addressing gross margin issues is going to meaningfully change that. If we decide that that needs The next question is from Itay McCallie with Citi. Please proceed. Great. Thanks. Hi, everybody. Apologies if I missed it earlier, I did join a bit late. But did you have the strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic and strategic. Strategic review of the business. Is the gross margin higher on like incremental ports are installed at a particular customer? Meaning, is it worth We're remarkably consistent north of 60% of our business is revised. And that held this quarter, it bounces around 63%, 67%, 61%, but it's almost all it has a 6% in front And very consistently there. In terms of land and expand in its entirety, because over time, traditional and profitable component of the relationship with the customer that helps. But I've seen nothing that would Suggest that we need to go in less expensive, take a margin hit to secure the customers and then try to get it back over time. Obviously, we have a couple of number of customers that have a couple of 1,000 ports, pushing 3,000 ports. Obviously, they get benefits in terms of pricing. But in terms of the basic model, our TrinityRail and Competitive Situations to take that head up front I just want to remind everyone on the call of one thing as well related to that answer. Installation does not go through our book. That's true. And so any efficiencies that would happen as the from It's bigger at a particular customer because there are economies of scale there. We don't see that because that's not part of our revenue profile. Got it. That's very helpful. Sneak one more in, maybe back to the ESP discussion earlier. Do you have a rough sense of like what portion of your North America commercial customers kind of giveaway charging sessions for free, either all the time or at least partially. I don't have that. That number moves around a bit. I don't have that off the top of my head. I can certainly workplaces in general do not attempt to use their employees as a revenue source. They treat this as an employee benefit that's typically is there have been a couple of questions on this call with respect to ESG Thank you, Arne. And the cost structure associated with giving your employee power in a workplace setting is cost with respect to employee benefits on a site. For example, a cafeteria would be far more expensive if it was subsidized Treasurer, you're effectively lowering your employees' cost personal cost structure And because you're enabling them to drive an electric vehicle. So the status, it's not ours, but the general industry status, you're 6 So there's a pretty good indicator there for you in your thinking around the subject. With respect to retailers in general, they typically If they set a price, it's like a cost recovery. Typically, a retailer if they set a price at all, a retailer is more using it as a tool to the to engage a driver in the business, in their business. In the future, you'll see more and more integrations with loyalty card programs there to potentially stratify the charging benefits a bit to provide an incentive for you to sign up the There's a healthy amount of charging for charging going on, but I think in general, there's also very healthy amount of use of charging as an incentive for employee benefits. Perfect. That's very helpful. Thank you. Thank you, Mr. McCailey. The next question is from Matt Summerville with D. A. Davidson. Please proceed. Thanks. Just two quick ones. I was wondering, especially given all the new customer additions you've been talking about, what trends you've been seeing in uptake rates for ChargePoint as a service and how you'd expect that to scale from here going forward. Sure. So We've been running over the last sort of 4 to 5 quarters, it's anywhere from 4% to 7% of our billings. It's focused entirely on our L2 workplace product. So we're only just now rolling it out as to other products. So when you think about Our total billings, it's going to hover in the 4% to 6%, and we were consistent with that in Q2. So, but looking forward, we're aggressively looking at applying that to our DC products. It's also something that we think is going to be a meaningful component of our fleet business because fleets like 1 throat choke and financing too, so they're going to look at Multifamily. And multifamily will be another place. So I I think the places where we end up as a providing things as a service is going to expand nicely over the next couple of 3 years, But it's been very consistent in the range of just It's already almost there in multifamily. Yes. And it's got to we have to true that up a bit, But it's already a subscription based service for that segment. Got it. And then just as a follow-up, your cash burn rate in the quarter improved a bit sequentially. How should we be thinking about that looking out over the next couple of quarters, maybe talk about some of Sure. So we had a nice matching of the facts in Q2 where we generated about $44,000,000 from warrant redemptions in the quarter, which more or less matched the operational cash Vern, I think we're going to be in a cash consuming posture for the foreseeable future. And keep in mind the thing I said earlier about profitability that still holds. So if you look at Our current run rates, assume that's going to be consistent hope here is we should be fine from the cash perspective, at least for a few years from now. Clearly though and give the comments a minute earlier about how when we turn cash flow positive, given the fact that we've done acquisitions, we We obviously don't have sufficient cash to get the entire way, and we'll have to keep an eye on that. Got it. Thank you, guys. Thank you, Mr. Summerville. The next question is from James West with Evercore. Press. Please proceed. Hey, good afternoon, guys. Good afternoon. I wanted to ask I like something you mentioned right now from that scale. And clearly, you're selling the benefits of scale right now. But as you outlined, there's a lot of tailwinds in the business, whether that's EV sales and of course, many new models of EVs that are coming in the next 18 months. The policy tailwinds, the infrastructure tailwinds. How do you think longer term, not near term with the supply chain, the global in somewhat disarray, which we all kind of know about. But how do you think longer term about how you scale this business and what the risks are, what the opportunities are? And maybe given that your software is your base, of course, and we think of you more as a software company, maybe that's an easy answer because software is not hard to scale, but so maybe the question of any company in this space, which is, most of the markets in front of us and we're going to see an acceleration of adoption. So how do you deal with that? So I'll give you a couple of things to kind of illustrate how we think about it internally. Number 1 channel. You have to have a lot of muscle build in a company for a very long time selling through channels, which we do. That's already built into our margin structure, which is very important. You have to have a margin structure that survives more than 1 tier distribution. You also have to have the training and channel enablement capabilities so your product can be represented for its differentiation. You have to have all of the support capabilities in place to be able to deal with the scale. And then you have to have the supply chain partners to be able deal with the what is the delivery vehicle for software, the hardware products at the other end, contract manufacturers of which we have multiple that are partners of ours, not too many because we obviously don't want to spread ourselves too thin with respect to management bandwidth, but in chart in front of the growth of the company. And lastly, what I'll point out, we're going to be a very solid alert even though I believe that we will net new cars into a geography that's the real limiter. So we are Okay. Okay. That's very helpful. And if I could maybe ask one more transaction question, but I'm thinking about company acquisitions you made. I was thinking about the acquisition question, but I'm thinking about company acquisitions you made. I was thinking about the Are there areas that you're still looking at? Are you done for now or putting this on hold as you integrate? So how are you guys thinking about M and A? So, we have a pretty tight lens on that. Customer base, which is probably the most important factor is does it avail ourselves to a broader customer base inorganically? And then is the team and culture of the company a good fit for us because you're only as in an acquisition, you're only as good as how well you transition, the company being acquired. More specifically in terms of what the kinds of things to is how much even though our offerings are very complete, What are the other adjacencies we can add that either develop or that add to the offering that we have that enables us to sell more high margin software to our existing customer base or to new customers. So that's how we think about it. It's a very tight evaluator. We're not going to be we're going to be very measured about how we evaluate things, but That's sort of color on how we think about it. Understood. Very helpful. Thanks guys. Thank you. Conference. Thank you, Mr. West. I will now pass the conference back to the management team for additional remarks. So, great questions and thank you very much Thank you for your time. Really very thoughtful questions. I want to leave you with is just something that I tell the employees of recent in town halls. It's been an amazing 6 months for the company. In 6 months, we've become public on this call because the first one was right Pretty much after we had closed the transaction to take us public. We've announced 2 acquisitions, closed one of them. We marketed an equity offering for selling shareholders. We've had to deal with the COVID impacts in our supply chain, increased forecast over our or increased performance in the market over our forecast. So it's almost for us, it's been a very exciting start. We're really proud of the accomplishments. I couldn't be more proud of the team here at We're super excited about what the future holds and look very much forward to doing one of these things again in 3 months. So thank you. Conference call. That concludes the ChargePoint's Q2 fiscal 2022 earnings conference call and webcast. Enjoy the rest of your day.