CHARGEPOINT HOLDINGS, INC. The following discussion of the financial condition and results of operations ofChargePoint Holdings, Inc. ("ChargePoint" or the "Company") should be read in conjunction withChargePoint's condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report, and the audited consolidated financial statements for the year endedJanuary 31, 2022 and related notes included in the Company's Annual Report on Form 10-K filed with theSEC onApril 4, 2022 . This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties.ChargePoint's actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Risk Factors" in Part II, Item 1A of this report.
Overview
ChargePoint designs, develops and markets networked electric vehicle ("EV") charging system infrastructure ("Networked Charging Systems"), connected through cloud-based services ("Cloud" or "Cloud Services") which (i) enable charging system owners, or hosts, to manage their Networked Charging Systems, and (ii) enable consumers the ability to locate, reserve, authenticate and transact EV charging sessions.ChargePoint's Networked Charging Systems, subscriptions and other offerings provide an open platform that integrates with system hardware fromChargePoint and other manufacturers, connecting systems over an intelligent network that provides real-time information about charging sessions and full control, support and management of the Networked Charging Systems. This network provides multiple web-based portals for charging system owners, fleet managers, drivers and utilities.ChargePoint generates revenue primarily through the sale of Networked Charging Systems, Cloud Services and extended parts and labor warranties ("Assure"). The Company also generates revenue, in some instances, by providing customers use ofChargePoint's owned and operated systems, Cloud Services and Assure into a single subscription ("ChargePoint as a Service" or "CPaaS"). Cloud Services, Assure and CPaaS are typically paid for up front and revenue is recognized ratably over the term of the service.ChargePoint targets three key verticals: commercial, fleet and residential. Commercial customers have parking places largely within their workplaces and include retail, hospitality, healthcare, fueling and convenience and parking lot operators. Fleet includes municipal buses, delivery and work vehicles, port/airport/warehouse and other industrial applications, ridesharing services, and is expected to eventually include, autonomous transportation. Residential includes single family homes and multifamily residences. OnFebruary 26, 2021 ("Closing Date"),Switchback Energy Acquisition Corporation ("Switchback") consummated the previously announced transactions pursuant to whichLightning Merger Sub Inc. , a wholly owned subsidiary of Switchback ("Lightning Merger Sub"), merged withChargePoint, Inc. ("Legacy ChargePoint") pursuant to a Merger Agreement and Plan of Merger dated as ofSeptember 23, 2020 , by and among the Company,Lightning Merger Sub Inc. , and Switchback ("Merger Agreement"). LegacyChargePoint survived as a wholly-owned subsidiary of Switchback ("Merger" and, collectively with the other transactions described in the Merger Agreement, the "Reverse Recapitalization"). Further, as a result of the Merger, Switchback was renamed "ChargePoint Holdings, Inc. " References toChargePoint throughout this Quarterly Report prior to the Merger are references to Legacy ChargePoint. Since its inception in 2007,ChargePoint has been engaged in developing and marketing its Networked Charging Systems, subscriptions and other offerings, raising capital and recruiting personnel.ChargePoint has incurred net operating losses and negative cash flows from operations every year since its inception. As ofJuly 31, 2022 ,ChargePoint had an accumulated deficit of$993.6 million .ChargePoint has funded its operations primarily from customer payments, the issuance of redeemable convertible preferred stock and convertible notes, exercise proceeds from options and warrants, borrowings under loan facilities and proceeds from the Reverse Recapitalization.
Recent Developments
Issuance of 2027 Convertible Notes and ATM Facility
OnApril 12, 2022 , the Company completed a private placement of$300.0 million of convertible debt notes due 2027 (the "2027 Convertible Notes"), generating new proceeds of approximately$294.0 million after deducting the initial purchaser discounts and commissions and the Company's offering expenses. OnJuly 1, 2022 , the Company filed a registration statement on Form S-3 (File No. 333-265986) which permits the Company to offer up to$1.0 billion shares of Common Stock, preferred 38 -------------------------------------------------------------------------------- stock, debt securities, warrants and rights in one or more offerings and in any combination, including in units from time to time (the "Shelf Registration Statement"). As part of the Shelf Registration Statement, the Company filed a prospectus supplement registering for sale from time to time up to$500.0 million shares of Common Stock pursuant to a sales agreement (the "ATM Facility"). For a more complete description of the 2027 Convertible Notes and ATM Facility, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Sources of Liquidity" below.
Key Factors Affecting Operating Results
Growth in EV Adoption
ChargePoint's revenue growth is directly tied to the number of passenger and commercial EVs sold, which it believes drives the demand for charging infrastructure. The market for EVs is still rapidly evolving and although demand for EVs has grown in recent years, there is no guarantee of such future demand. Factors impacting the adoption of EVs include but are not limited to perceptions about EV features, quality, safety, performance and cost; perceptions about the limited range over which EVs may be driven on a single battery charge; volatility in the cost of oil and gasoline; availability of services for EVs; consumers' perception about the convenience and cost of charging EVs; and increases in fuel efficiency. In addition, macroeconomic factors, including governmental mandates and incentives, could impact demand for EVs, particularly since they can be more expensive than traditional gasoline-powered vehicles. Further, geopolitical factors, such as the COVID 19 pandemic and the invasion ofUkraine byRussia , may negatively impact the global automotive supply chain and reduce the manufacturing of automobiles, including EVs. If the market for EVs does not develop as expected or if there is any slow-down or delay in overall EV adoption or manufacturing rates,ChargePoint's financial condition and results of operations could be materially and adversely impacted.
Competition
ChargePoint is currently a market leader inNorth America in commercial Level 2 Alternating Current ("AC") charging.ChargePoint also offers AC chargers for use at home or multifamily settings and for fleet applications, and high-power Level 3 Direct Current ("DC") chargers for fast urban charging, corridor or long-trip charging and fleet applications.ChargePoint intends to expand its market share over time in its product categories, leveraging the network effect of its products and Cloud Services software. Existing competitors may expand their product offerings and sales strategies, and new competitors may enter the market. IfChargePoint's market share decreases due to increased competition, its financial condition and results of operations could be materially and adversely affected. Furthermore,ChargePoint's success could be negatively impacted if consumers and businesses choose other types of alternative fuel vehicles or high-fuel-economy gasoline powered vehicles.
Europe Expansion
ChargePoint operates inNorth America and 16 countries inEurope .Europe is expected to be a significant contributor toChargePoint's revenue in future years.ChargePoint has been and is investing heavily to succeed inEurope .ChargePoint is also working to grow its European business through partnerships with channel partners and car leasing companies and through its recently closed acquisitions ofViriCiti B.V. ("ViriCiti") and has•to•be gmbh ("HTB") (each as described in Note 3, Business Combination, to the Company's notes to the condensed consolidated financial statements). InEurope ,ChargePoint primarily competes with other providers of EV charging station networks. Many of these competitors have limited funding, which could cause poor customer experiences and have a negative impact on overall EV adoption inEurope .ChargePoint's growth inEurope requires differentiating itself as compared to these existing competitors. IfChargePoint is unable to continue penetrating the market inEurope , its financial condition and results of operations could be materially and adversely impacted. Fleet ExpansionChargePoint's future growth is also highly dependent upon success in fleet applications, where there is increasing competition, a high customer dependency on the expected increase in the arrival rate of new vehicles, and likely high concentrations and volatility of purchasing as fleet operators ultimately choose their key providers and make large commitments to build out their EV operations. If the Company is not successful in the fleet vertical, its financial condition and results of operation could be materially and adversely affected. 39 --------------------------------------------------------------------------------
Impact of New Product Releases and Investments in Growth
AsChargePoint introduces new products, such as the release of its Level 3 DC fast charger in fiscal year 2020, its gross margins may be initially negatively impacted by launch costs and lower volumes until it achieves targeted cost reductions. Cost reductions may not occur on the timelineChargePoint expects due to unanticipated supply chain difficulties, government mandates or certification requirements. For example, ongoing supply chain challenges and heightened logistic costs related to disruptions initially caused by the COVID-19 pandemic and related component shortages decreased gross margins in the three months endedJuly 31, 2022 , andChargePoint expects gross margins will continue to be adversely affected by increased material costs and freight and logistic expenses through the remainder of the fiscal year and likely into its fiscal year endingJanuary 31, 2024 . In addition,ChargePoint may accelerate its expenditures where it sees growth opportunities, which may impact gross margin until upfront costs and inefficiencies are absorbed and normalized operations are achieved. Further,ChargePoint continues to invest in prioritizing an assurance of supply of its products and new customer acquisition as part of its "land and expand" model, which in the current environment, puts pressure on gross margins and increases operating expenses.ChargePoint also continuously evaluates and may adjust its expenditures based on its launch plans for new products, as well as other factors including the pace and prioritization of current projects under development and the addition of new projects. AsChargePoint attains higher revenue, it expects operating expenses as a percentage of total revenue to decrease as it scales and focuses on increasing operational efficiency and process automation.
Government Mandates, Incentives and Programs
TheU.S. federal government, certain foreign governments and some state and local governments provide incentives to end users and purchasers of EVs and EV infrastructure in the form of rebates, tax credits and other financial incentives. These governmental rebates, tax credits and other financial incentives significantly lower the effective price of EVs and EV infrastructure to customers. For example, theInfrastructure Investment and Jobs Act signed into law onNovember 15, 2021 (the "Jobs Act") would provide additional funding for EVs and EV charging infrastructure through the creation of new programs and grants and the expansion of existing programs, including$7.5 billion for EV charging along highway corridors and communities. In addition, the Inflation Reduction Act of 2022 (the "IRA") signed into law onAugust 16, 2022 includes incentives and tax credits aimed at reducing the effects of climate change, such as the extension of electric vehicle charging infrastructure tax credits under Section 30C and tax credits for electric vehicles under Section 30D of the Internal Revenue Code of 1986, as amended (the "Code") through 2032. There are numerous restrictions and requirements associated with qualifying for the electric vehicle tax credits available under the IRA andChargePoint is still assessing how the IRA may impact its business and EV sales generally. Further, incentives such as the Jobs Act and IRA take time to be disbursed and to affect actual expenditure decisions. These incentives may also expire on specified dates, end when the allocated funding is no longer available, or be reduced or terminated as a matter of regulatory or legislative policy. Any reduction in rebates, tax credits or other financial incentives could reduce the demand for EVs and for charging infrastructure, including infrastructureChargePoint offers.ChargePoint also derives other revenue from fees received for regulatory credits earned for participating in low carbon fuel programs in someU.S. states,British Columbia and in the future, inGermany .ChargePoint claims these regulatory credits only if they are not claimed by purchasers of its EV charging stations. If a material percentage of its customers were to claim these regulatory credits,ChargePoint's revenue from this source could decline significantly, which could have an adverse effect on its revenue and overall gross margin. Prior to fiscal year 2021,ChargePoint derived a slight majority of its other revenue from these regulatory credits. However, revenue from this source as a percentage of total revenue has declined recently and may continue to decline over time. Further, the availability of such credits depends on continued governmental support for these programs. If these programs are modified, reduced or eliminated,ChargePoint's ability to generate this revenue in the future would be adversely impacted.
Supply Chain Disruptions and COVID-19
InMarch 2020 , theWorld Health Organization characterized COVID-19 as a pandemic. The impact of COVID-19, including changes in consumer and business behavior, pandemic fears and market downturns, and restrictions on business and individual activities, has created significant volatility in the global economy and led to reduced economic activity. The spread of COVID-19 has disruptedChargePoint's supply chain and heightened its freight and logistic costs, and has similarly disrupted manufacturing, delivery and overall supply chain of vehicle manufacturers and suppliers, which has led to fluctuations in EV sales in markets around the world. These ongoing supply chain challenges and heightened logistic costs decreased gross margins in the three and six months endedJuly 31, 2022 , andChargePoint expects that gross margins will continue to be 40 --------------------------------------------------------------------------------
adversely affected by increased material costs and freight and logistic expenses
through the remainder of the fiscal year ending
As a result of the COVID-19 pandemic,ChargePoint initially modified its business practices (including reducing employee travel, recommending that all non-essential personnel work from home and canceling or reducing physical participation in sales activities, meetings, events and conferences), implemented additional safety protocols for essential workers, and implemented temporary cost cutting measures in order to reduce its operating costs. InMay 2022 ,ChargePoint commenced a "return-to-office" plan, which included shifting to a hybrid model where employees have the flexibility to work from home or from the office. The ongoing COVID-19 pandemic has resulted in government authorities implementing numerous measures to try to contain the COVID-19 virus, such as travel bans and restrictions, quarantines, stay-at-home or shelter-in-place orders and business shutdowns. While these measures may be relaxed or revised in some areas, there is no guarantee these measures will not be reinstated or resumed due to additional variants of COVID-19 or the inability or ineffectiveness of public health measures to limit the further spread of COVID-19.ChargePoint may take further actions as may be required by government authorities or that it determines are in the best interests of its employees, customers, suppliers, vendors and business partners as the result of the COVID-19 pandemic. The ultimate full societal and economic impact of the COVID-19 pandemic remains unknown and its duration and extent depend on current and future developments that cannot be accurately predicted. It has already had an adverse effect on the global economy, the persistence of which has varied over time and across the geographies in whichChargePoint operates. The conditions caused by the COVID-19 pandemic, such as more prevalence of more permanent work-from-home policies, are likely to continue affecting the rate of global infrastructure spending, and thus to continue to adversely impactChargePoint's commercial business and its overall gross margin asChargePoint's commercial business contributes higher margins than its residential and fleet businesses. Further, the COVID-19 pandemic could continue to disrupt supply chains and heighten component and shipping pricing and logistics expenses and further adversely impactChargePoint's gross margins, adversely affect demand forChargePoint's platforms, lengthen its product development and sales cycles, reduce the value, renewal rate or duration of subscriptions, negatively impact collections of accounts receivable, reduce expected spending from new customers, cause some of its paying customers to go out of business and limit the ability of its direct sales force to travel to customers and potential customers, all of which could adversely affectChargePoint's business, results of operations and financial condition.
Results of Operations and Its Components
Revenue
Networked Charging Systems
Networked Charging Systems revenue consists of the deliveries of EV charging system infrastructure, which include a range of Level 2 AC products for use in residential, commercial and fleet applications, and Level 3 DC, or fast-charge products for use in commercial and fleet applications.ChargePoint generally recognizes revenue from sales of Networked Charging Systems upon shipment to the customer, at which pointChargePoint's performance obligation is satisfied.
Subscriptions
Subscriptions revenue consists of services related to Cloud, as well as extended maintenance service plans under Assure. Subscription revenue also includes CPaaS revenue which combines the customer's use ofChargePoint's owned and operated systems with Cloud and Assure programs into a single, typically multi-year subscription. In some instances, CPaaS subscriptions are considered for accounting purposes to contain a lease for the customer's use ofChargePoint's owned and operated systems unless the location allows the customer to receive incremental economic benefit from regulatory credits earned on that EV charging system. Lessor revenue relates to operating leases and historically has not been material. Subscription revenue is generally recognized over time on a straight-line basis asChargePoint has an ongoing obligation to deliver such services to the customer.
Other
Other revenue consists of fees received for transferring regulatory credits earned for participating in low carbon fuel programs in some states, charging related fees received from drivers using charging sites owned and operated byChargePoint , net transaction fees earned for processing payments collected on driver charging sessions at charging sites owned by its customers, and other professional services. Revenue from driver charging sessions and charging transaction fees is recognized when the charging session or transaction is completed. Revenue from regulatory credits is recognized when the regulatory 41 -------------------------------------------------------------------------------- credits are transferred. Revenue from fees for owned and operated sites is recognized over time on a straight-line basis over the performance period of the service contract asChargePoint has an ongoing obligation to operate the sites. Revenue from professional services is recognized as the services are rendered. For the remainder of fiscal year 2023,ChargePoint expects Networked Charging Systems and subscriptions revenue to grow due to an increasing arrival rate of EVs and the need for charging infrastructure to support them. July 31, Networked Charging Systems 2022 2021 Change (dollar amounts in thousands) Three months ended$ 84,148 $ 40,874 $ 43,274 105.9 % Percentage of total revenue 77.7 % 72.8 % Six months ended$ 143,699 $ 67,674 $ 76,025 112.3 % Percentage of total revenue 75.7 % 70.0 % Networked Charging Systems revenue increased during the three and six months endedJuly 31, 2022 compared to the three and six months endedJuly 31, 2021 primarily due to higher demand from customers in our three verticals, resulting in higher volumes of systems delivered acrossChargePoint's major product families. July 31, Subscriptions 2022 2021 Change (dollar amounts in thousands) Three months ended$ 20,244 $ 12,082 $ 8,162 67.6 % Percentage of total revenue 18.7 % 21.5 % Six months ended$ 37,890 $ 22,906 $ 14,984 65.4 % Percentage of total revenue 19.9 % 23.7 % Subscriptions revenue increased during the three and six months endedJuly 31, 2022 compared to the three and six months endedJuly 31, 2021 primarily due to growth in the number of Networked Charging Systems connected toChargePoint's network. July 31, Other Revenue 2022 2021 Change (dollar amounts in thousands) Three months ended$ 3,900 $ 3,165 $ 735 23.2 % Percentage of total revenue 3.6 % 5.6 % Six months ended$ 8,336 $ 6,051 $ 2,285 37.8 % Percentage of total revenue 4.4 % 6.3 % Other revenue increased during the three and six months endedJuly 31, 2022 compared to the three and six months endedJuly 31, 2021 mainly due to increased charging related fees received from drivers using charging sites owned and operated byChargePoint and net transaction fees earned for processing payments collected on driver charging sessions at charging sites owned byChargePoint's customers. Cost of Revenue Networked Charging SystemsChargePoint uses contract manufacturers to manufacture the substantial majority of its Networked Charging Systems.ChargePoint's in-house manufacturing is typically limited to initial development units and to early customer samples.ChargePoint's cost of revenue for the sale of Networked Charging Systems includes the contract manufacturer costs of finished goods and shipping and handling. Cost of revenue for the sale of Networked Charging Systems also consists of salaries and 42 -------------------------------------------------------------------------------- related personnel expenses, including stock-based compensation, warranty provisions, depreciation of manufacturing related equipment and facilities, amortization of capitalized internal-use software, and allocated facilities and information technology expenses. As revenue is recognized, ChargePoint accounts for estimated warranty cost as a charge to cost of revenue. The estimated warranty cost is based on historical and predicted product failure rates and repair expenses. Subscriptions Cost of Subscriptions revenue includes salaries and related personnel expenses, including stock-based compensation and third-party support costs to manage the systems and helpdesk services for site hosts, network and wireless connectivity costs for subscription services, field costs for Assure, depreciation of owned and operated systems used in CPaaS arrangements, amortization of capitalized internal-use software development costs, allocated facilities and information technology expenses. Other Cost of other revenue includes depreciation and other costs forChargePoint's owned and operated charging sites, charging related processing charges, salaries and related personnel expenses, including stock-based compensation, as well as costs of professional services and other costs. July 31, Cost of Networked Charging Systems Revenue 2022 2021 Change (dollar amounts in thousands) Three months ended$ 74,352 $ 35,384 $ 38,968 110.1 % Percentage of networked charging systems revenue 88.4 % 86.6 % Six months ended$ 130,618 $ 59,126 $ 71,492 120.9 % Percentage of networked charging systems revenue 90.9 % 87.4 % Cost of Networked Charging Systems revenue increased during the three and six months endedJuly 31, 2022 compared to the three and six months endedJuly 31, 2021 primarily due to an increase in the number of Networked Charging Systems delivered. July 31, Cost of Subscriptions Revenue 2022 2021 Change (dollar amounts in thousands) Three months ended$ 13,278 $ 7,830 $ 5,448 69.6 % Percentage of subscriptions revenue 65.6 % 64.8 % Six months ended$ 23,905 $ 13,470 $ 10,435 77.5 % Percentage of subscriptions revenue 63.1 % 58.8 % Cost of subscriptions revenue increased during the three and six months endedJuly 31, 2022 compared to the three and six months endedJuly 31, 2021 primarily due to increases in customer support headcount and resulting personnel compensation and stock-based compensation increase driven byChargePoint expanding its network of charging systems. July 31, Cost of Other Revenue 2022 2021 Change (dollar amounts in thousands) Three months ended$ 2,509 $ 2,130 $ 379 17.8 % Percentage of other revenue 64.3 % 67.3 % Six months ended$ 5,142 $ 4,041 $ 1,101 27.2 % Percentage of other revenue 61.7 % 66.8 % Other cost of revenue increased during the three and six months endedJuly 31, 2022 compared to the three and six months endedJuly 31, 2021 primarily related to increased other operating costs. 43 --------------------------------------------------------------------------------
Gross Profit and Gross Margin
Gross profit is revenue less cost of revenue and gross margin is gross profit as a percentage of revenue.ChargePoint offers a range of Networked Charging Systems products which vary widely in selling price and associated gross margin. For example the product mix inChargePoint's commercial business tends to contribute higher gross margins than its product mix in its residential and fleet businesses. Accordingly,ChargePoint's gross profit and gross margin have varied and are expected to continue to vary from period to period due to revenue levels; geographic, vertical and product mix; new product introductions, its efforts to optimize its operations and supply chain, and purchase price variances it may need to pay due to component shortages or supply chain disruptions. In the long term, improvements inChargePoint's gross profit and gross margin will depend on its ability to continue to optimize its operations and supply chain as it increases its revenue. However, at least in the short term, as mix continues to vary and asChargePoint continues to optimize for customer acquisition and prioritize assurance of supply of its products as part of its "land and expand" model, launch new Networked Charging Systems products, grow its presence inEurope where it has not yet achieved economies of scale, and expands its solutions for its fleet customers, gross margin will vary from period to period. In addition,ChargePoint expects gross margins will continue to be adversely affected by increased material costs due to industry-wide component supply shortages, particularly due to the shortage of semiconductors, and increased freight and logistic expenses through at least the remainder of the fiscal year as a result of ongoing worldwide supply chain disruptions. July 31, Gross Profit and Gross Margin 2022 2021 Change (dollar amounts in thousands) Three months ended$ 18,153 $ 10,777 $ 7,376 68.4 % Gross margin 16.8 % 19.2 % (2.4) % Six months ended$ 30,260 $ 19,994 $ 10,266 51.3 % Gross margin 15.9 % 20.7 % (4.8) % Gross profit increased during the three and six months endedJuly 31, 2022 compared to the three and six months endedJuly 31, 2021 primarily due to an increase in Networked Charging Systems sales resulting from a larger number of charging systems delivered and an increase in Subscriptions revenue.
Gross margin decreased during the three and six months ended
Research and Development Expenses
Research and development expenses consist primarily of salaries and related personnel expenses, including stock-based compensation, for personnel related to the development of improvements and expanded features forChargePoint's products and services, as well as quality assurance, testing, product management, amortization of capitalized internal-use software, and allocated facilities and information technology expenses. Research and development costs are expensed as incurred.
44
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July 31,
Research and Development Expenses 2022 2021 Change
(dollar amounts in thousands)
Three months ended $ 51,804 $ 40,410 $ 11,394 28.2 %
Percentage of total revenue 47.8 % 72.0 %
Six months ended $ 100,105 $ 65,784 $ 34,321 52.2 %
Percentage of total revenue 52.7 % 68.1 %
Research and development expenses increased during the three months ended
July 31, 2022 compared to the three months ended July 31, 2021 primarily due to
a $4.4 million increase in personnel expenses resulting from headcount growth,
and a $4.8 million increase in engineering materials and services costs.
Research and development expenses increased during the six months ended July 31,
2022 compared to the six months ended July 31, 2021 primarily due to a $17.0
million increase in personnel expenses resulting from headcount growth, and a
$12.9 million increase in engineering materials and services costs.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of salaries and related personnel expenses, including stock-based compensation, sales commissions, professional services fees, travel, marketing and promotional expenses, helpdesk services for drivers, amortization of capitalized internal-use software, credit loss expenses, and allocated facilities and information technology expenses.ChargePoint expects its sales and marketing expenses to increase on an absolute basis for the foreseeable future while it continues to add sales and marketing personnel, expand its sales channels and expand inEurope . July 31, Sales and Marketing Expenses 2022 2021 Change (dollar amounts in thousands) Three months ended$ 33,873 $ 21,923 $ 11,950 54.5 % Percentage of total revenue 31.3 % 39.1 % Six months ended$ 66,460 $ 37,897 $ 28,563 75.4 % Percentage of total revenue 35.0 % 39.2 % Sales and marketing expenses increased during the three months endedJuly 31, 2022 compared to the three months endedJuly 31, 2021 primarily due to a$6.8 million increase in personnel expenses resulting from headcount growth, as well as revenue growth, and a$2.2 million increase in amortization of acquired intangible assets. Sales and marketing expenses increased during the six months endedJuly 31, 2022 compared to the six months endedJuly 31, 2021 primarily due to a$15.1 million increase in personnel expenses resulting from headcount growth, as well as revenue growth, a$4.4 million increase in amortization of acquired intangible assets, a$2.5 million marketing and consulting expenses, and$2.1 million in credit loss reserves.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related personnel expenses, including stock-based compensation, related to finance, legal and human resource functions, contractor and professional services fees, audit and compliance expenses, insurance costs, amortization of capitalized internal-use software and general corporate expenses, including allocated facilities and information technology expenses.ChargePoint expects its general and administrative expenses to increase in absolute dollars as it continues to grow its business and to operate as a public company, including expenses necessary to comply with the rules and regulations applicable to companies listed on a national securities exchange and related to compliance and reporting obligations pursuant to the rules 45 --------------------------------------------------------------------------------
and regulations of the
July 31,
General and Administrative Expense 2022 2021 Change
(dollar amounts in thousands)
Three months ended $ 22,846 $ 22,732 $ 114 0.5 %
Percentage of total revenue 21.1 % 40.5 %
Six months ended $ 43,893 $ 37,199 $ 6,694 18.0 %
Percentage of total revenue 23.1 % 38.5 %
General and administrative expenses were flat during the three months ended
General and administrative expenses increased during the six months ended
Interest Income
Interest income consists primarily of interest earned on
July 31,
Interest Income 2022 2021 Change
(dollar amounts in thousands)
Three months ended $ 1,460 $ 25 $ 1,435 5740.0 %
Percentage of total revenue 1.3 % - %
Six months ended $ 1,566 $ 47 $ 1,519 3231.9 %
Percentage of total revenue 0.8 % - %
Interest income increased during the three and six months ended July 31, 2022 as
compared to the three and six months ended July 31, 2021 due to interest from
short-term investments.
Interest Expense
Interest expense consists primarily of the interest on ChargePoint's term loan,
which was paid off in March 2021 , and the 2027 Convertible Notes issued in April
2022 .
July 31,
Interest Expense 2022 2021 Change
(dollar amounts in thousands)
Three months ended $ (2,928) $ - $ (2,928) - %
Percentage of total revenue (2.7) % - %
Six months ended $ (3,862) $ (1,499) $ (2,363) 157.6 %
Percentage of total revenue (2.0) % (1.6) %
Interest expense increased during the three and six months ended July 31, 2022
compared to the three and six months ended July 31, 2021 primarily due to
interest expense on the 2027 Convertible Notes that were issued in April 2022 .
As of July 31, 2022 , ChargePoint had an aggregate of $300.0 million in
outstanding 2027 Convertible Notes, which mature in April 2027 .
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--------------------------------------------------------------------------------Change in Fair Value of Redeemable Convertible Preferred Stock Warrant Liability
Redeemable convertible preferred stock warrant liability was subject to remeasurement to fair value at each balance sheet date. Changes in fair value of redeemable convertible preferred stock warrant liability were recognized in the condensed consolidated statements of operations.ChargePoint adjusted the liability for changes in fair value until the earlier of the exercise or expiration of the warrants and conversion of redeemable convertible preferred stock into Common Stock.
There was no change in fair value of redeemable convertible preferred stock
warrant liability for the three months ended
July 31,
Change in Fair Value of Redeemable Convertible
Preferred Stock Warrant Liability 2022 2021 Change
(dollar amounts in thousands)
Six months ended $ - $ 9,237 $ (9,237) (100.0) %
Percentage of total revenue - % 9.6 %
The change in fair value of redeemable convertible preferred stock warrant
liability during the six months ended July 31, 2022 compared to the six months
ended July 31, 2021 was primarily due to changes in the fair value of Legacy
ChargePoint's redeemable convertible preferred stock through the date of the
Merger. As of July 31, 2022 , ChargePoint had no outstanding redeemable
convertible preferred stock warrant liabilities.
Change in Fair Value of Common Stock Warrant Liabilities
Common stock warrant liabilities consisted of publicly-traded warrants ("Public
Warrants") and private placement warrants issued to NGP Switchback, LLC .
("Private Placement Warrants") which ChargePoint assumed in connection with the
Merger and which were subject to remeasurement to fair value at each balance
sheet date. As of April 30, 2022 all Public Warrants and Private Placement
Warrants have been exercised or redeemed.
July 31,
Change in Fair Value of Common Stock
Warrant Liability 2022 2021 Change
(dollar amounts in thousands)
Three months ended $ - $ (10,421) $ 10,421 (100.0) %
Percentage of total revenue - % (18.6) %
Six months ended $ (24) $ 33,340 $ (33,364) (100.1) %
Percentage of total revenue - % 34.5 %
The change in fair value of common stock warrant liability during the three and
six months ended July 31, 2022 compared to the three and six months ended
July 31, 2021 was primarily due to changes in the fair value of Legacy
ChargePoint's common stock through the date of the Merger. As of July 31, 2022 ,
ChargePoint had no outstanding common stock warrant liabilities.
Change in Fair Value of Contingent Earnout Liability
Contingent earnout liability was accounted for as a liability as of the date of the Merger and remeasured to fair value until the Earnout Triggering Events (as described in Note 11, Stock Warrants and Earnouts, to the condensed consolidated financial statements) were met for the first two tranches inMarch 2021 and the corresponding Earnout Shares (as described in Note 11, Stock Warrants and Earnouts, to the condensed consolidated financial statements) were issued. InMarch 2021 , the remaining earnout liability converted to be accounted for as equity. The Earnout Triggering Event was met for the third and final tranche inJune 2021 , and inJuly 2021 the remaining Earnout Shares were issued. 47 --------------------------------------------------------------------------------
There was no change in fair value of contingent earnout liability for the three
months ended
July 31,
Change in Fair Value of Contingent Earnout
Liability 2022 2021 Change
(dollar amounts in thousands)
Six months ended $ -$ 84,420 $ (84,420) (100.0) % Percentage of total revenue - % 87.4 % The final Earnout Shares were issued inJuly 2021 , and as such, there were no remaining contingent earnout liability during the three and six months endedJuly 31, 2022 . The Company recorded zero and$84.4 million change in fair value of contingent earnout liability for the three and six months endedJuly 31, 2021 , respectively, due to the decrease in the fair value ofChargePoint's Common Stock after consummation of the Merger.
Transaction Costs Expensed
Transaction costs consist of legal, accounting, banking fees and other costs that were directly related to the consummation of the Merger. Transaction costs related to the issuance of shares were recognized in stockholders' equity (deficit) while costs associated with the warrant liabilities and non-capitalized amounts were expensed in the condensed consolidated statements of operations upon the completion of the Merger onFebruary 26, 2021 .
There was no transaction costs expensed for the three months ended
July 31,
Transaction Costs Expensed 2022 2021 Change
(dollar amounts in thousands)
Six months ended $ - $ (7,031) $ 7,031 (100.0) %
Percentage of total revenue - % (7.3) %
During the three and six months ended July 31, 2022 , ChargePoint incurred no
further transaction costs related to the consummation of the Merger; during the
three and six months ended July 31, 2021 , ChargePoint expensed zero and $7.0
million out of $36.5 million total transaction costs, respectively, related to
the warrant liabilities assumed as part of the Merger.
Other Income (Expense), Net
Other income (expense), net consists primarily of foreign currency transaction
gains and losses.
July 31,
Other Income (Expense), net 2022 2021 Change
(dollar amounts in thousands)
Three months ended $ (1,254) $ (189) $ (1,065) 563.5 %
Percentage of total revenue (1.2) % (0.3) %
Six months ended $ (1,702) $ (174) $ (1,528) 878.2 %
Percentage of total revenue (0.9) % (0.2) %
ChargePoint incurred higher net other expenses during the three and six months
ended July 31, 2022 as compared to the three and six months ended July 31, 2021 ,
due to loss from disposal of fixed asset and unfavorable changes in foreign
exchange rates.
48
--------------------------------------------------------------------------------Provision for (Benefit from) Income Taxes
ChargePoint's provision for income taxes consists of federal, state and foreign income taxes based on enacted federal, state and foreign tax rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in deferred tax assets and liabilities and changes in tax law. Due to the level of historical losses,ChargePoint maintains a valuation allowance againstU.S. federal and state deferred tax assets as it has concluded it is more likely than not that these deferred tax assets will not be realized. July 31, Provision for (Benefit from) Income Taxes 2022 2021 Change (dollar amounts in thousands) Three months ended$ (392) $ 65 $ (457) (703.1) % Percentage of loss before provision for income taxes 0.4 % (0.1) % Six months ended$ (2,254) $ 103 $ (2,357) (2288.3) % Percentage of loss before provision for income taxes 1.2 %
(4.0) %
The benefit from income taxes increased during the three and six months ended
Liquidity and Capital Resources
Sources of Liquidity
Historical Sources of Liquidity
ChargePoint has incurred net losses and negative cash flows from operations since its inception, which it anticipates will continue for the foreseeable future. To date,ChargePoint has funded its business primarily with proceeds from the issuance of redeemable convertible preferred stock, proceeds from the Merger, proceeds from the issuance of debt, including the 2027 Convertible Notes, proceeds from warrant and option exercises for cash, and from customer payments. As ofJuly 31, 2022 ,ChargePoint had cash and cash equivalents, short-term investments and restricted cash of$471.9 million .ChargePoint believes that its cash on hand and cash generated from sales to customers will satisfy its working capital and capital requirements for at least the next twelve months. From inception toJuly 31, 2022 ,ChargePoint has primarily raised cash proceeds from the sale of shares of redeemable convertible preferred stock and Common Stock, proceeds from debt, such as the 2027 Convertible Notes, and proceeds from the exercise of warrant and stock options.
In
2027 Convertible Notes
InApril 2022 , the Company completed a private placement of$300.0 million aggregate principal amount of 2027 Convertible Notes, which will mature onApril 1, 2027 . The net proceeds from the sale of the 2027 Convertible Notes were approximately$294.0 million after deducting initial purchaser discounts and commissions and the Company's estimated offering expenses. The Company expects to use the net proceeds for general corporate purposes. The 2027 Convertible Notes bear interest at 3.50% per annum, to the extent paid in cash ("Cash Interest"), which is payable semi-annually in arrears onApril 1st andOctober 1st of each year or 5.00% per annum through the issuance of additional 2027 Convertible Notes ("PIK Interest"). The 2027 Convertible Notes are convertible, based on the applicable conversion rate, into cash, shares of the Company's Common Stock or a combination thereof, at the Company's election. The initial conversion rate was 41.6119 shares per$1,000 principal amount of the 2027 Convertible Notes, subject to customary anti-dilution adjustment in certain circumstances, which represented an initial conversion price of approximately$24.03 per share. For additional details refer to Part I, Item 1, Note 8, "Debt," in the Company's notes to condensed consolidated financial statements in this Quarterly Report on Form 10-Q. 49 --------------------------------------------------------------------------------
Shelf Registration and ATM Facility
OnJuly 1, 2022 , the Company filed a registration statement on Form S-3 (File No. 333-265986) with theSEC (that was declared effective by theSEC onJuly 12, 2022 ), which permits the Company to offer up to$1.0 billion shares of Common Stock, preferred stock, debt securities, warrants and rights in one or more offerings and in any combination, including in units from time to time (the "Shelf Registration Statement"). As part of the Shelf Registration Statement, the Company filed a prospectus supplement registering for sale from time to time up to$500.0 million shares of Common Stock pursuant to the ATM Facility. As ofJuly 31, 2022 , the Company has not conducted any sales under the ATM Facility.
Long-Term Liquidity Requirements
UntilChargePoint can generate sufficient revenue to cover its cost of sales, operating expenses, working capital and capital expenditures, it expects to primarily fund cash needs through a combination of equity and debt financing. IfChargePoint raises funds by issuing equity securities or debt securities convertible into equity securities, dilution to stockholders may result. Any equity securities issued may also provide for rights, preferences or privileges senior to those of holders of Common Stock. IfChargePoint raises funds by issuing debt securities, these debt securities would have rights, preferences and privileges senior to those of holders of Common Stockholders. The terms of debt securities or borrowings could impose significant restrictions onChargePoint's operations. The capital markets have in the past, and may in the future, experience periods of higher volatility that could impact the availability and cost of equity and debt financing.ChargePoint's principal use of cash in recent periods has been funding its operations, the acquisitions of ViriCiti and HTB, and investing in capital expenditures.ChargePoint's future capital requirements will depend on many factors, including its revenue growth rate, the timing and the amount of cash received from customers, the expansion of sales and marketing activities, the timing and extent of spending to support development efforts, expenses associated with its international expansion, the introduction of network enhancements and the continuing market adoption of its Networked Charging Systems. In the future,ChargePoint may enter into arrangements to acquire or invest in complementary businesses, products and technologies.ChargePoint may be required to seek additional equity or debt financing. IfChargePoint requires additional financing, it may not be able to raise such financing on acceptable terms or at all. IfChargePoint is unable to raise additional capital or generate cash flows necessary to expand its operations and invest in continued innovation, it may not be able to compete successfully, which would harm its business, results of operations and financial condition. If adequate funds are not available,ChargePoint may need to reconsider its expansion plans or limit its research and development activities, which could have a material adverse impact on its business prospects and results of operations.
Cash Flows
For the Six Months Ended
The following table sets forth a summary ofChargePoint's cash flows for the periods indicated: Six Months Ended July 31, 2022 2021 (in thousands) Net cash (used in) provided by: Operating activities$ (133,672) $ (61,198) Investing activities (296,463) (7,788) Financing activities 303,629 541,590
Effects of exchange rates on cash, cash equivalents, and restricted cash
(1,067) (6)
Net increase in cash, cash equivalents, and restricted cash
During the six months endedJuly 31, 2022 , net cash used in operating activities was$133.7 million , consisting primarily of a net loss of$182.0 million and an increase in net operating assets of$14.7 million , partially offset by non-cash charges of$63.0 million . The increase in net operating assets was primarily due to a$36.2 million increase in accounts receivable, an$18.2 million increase in inventories, a$10.0 million increase in prepaid expenses and other assets and a$2.5 million decrease 50 -------------------------------------------------------------------------------- in operating lease liabilities partially offset by a$20.8 million increase in deferred revenue, a$16.5 million increase in accrued and other liabilities and a$14.9 million increase in accounts payable. The non-cash charges primarily consisted of$41.9 million of stock-based compensation expense,$13.6 million of depreciation, amortization expense and amortization of deferred contract acquisition costs,$2.5 million of non-cash operating lease cost and$5.0 million of other costs. During the six months endedJuly 31, 2021 , net cash used in operating activities was$61.2 million , consisting primarily of a net loss of$2.6 million and non-cash charges of$74.5 million , partially offset by a decrease in net operating assets of$15.9 million . The decrease in net operating assets was primarily attributable to a$3.0 million increase in accrued and other liabilities, a$9.3 million increase in accounts payable, a$5.6 million decrease in inventories and a$15.9 million increase in deferred revenue, partially offset by a$9.3 million increase in prepaid expenses and other assets, a$7.7 million increase in accounts receivable and a$1.0 million decrease in operating lease liabilities. The non-cash charges primarily consisted of a$84.4 million change in fair value of contingent earnout liability, a$33.3 million change in fair value of common stock warrant liabilities and a$9.2 million change in fair value of redeemable convertible preferred stock warrant liability, partially offset by$35.9 million of stock-based compensation expense,$7.0 million of transaction costs expensed,$5.6 million of depreciation and amortization expense, and$2.0 million of non-cash operating lease cost.
During the six months endedJuly 31, 2022 , net cash used in investing activities was$296.5 million consisting of cash paid for purchases of short-term investments, consisting of marketable debt securities, of$284.8 million , purchases of property and equipment of$8.9 million and cash paid for acquisitions (net of cash acquired) related to the acquisition of HTB in the prior year of$2.8 million .
During the six months ended
Net Cash Provided by Financing Activities
During the six months endedJuly 31, 2022 , net cash provided by financing activities was$303.6 million , consisting of net proceeds from issuance of convertible debt of$294.0 million , proceeds from the issuance of common stock under employee equity plans of$5.4 million , net of tax withholdings, and change in driver funds and amounts due to customers of$4.2 million . During the six months endedJuly 31, 2021 , net cash provided by financing activities was$541.6 million consisting of net proceeds from Merger and PIPE financing of$511.6 million , proceeds from the exercise of warrants of$117.6 million and proceeds from exercises of vested and unvested stock options of$1.8 million , partially offset by payment of transaction costs related to the Merger of$32.5 million , issuance of earnout shares, payment of tax withholding obligations on settlement of earnout shares of$20.9 million and repayment of borrowings of$36.1 million .
Off-Balance Sheet Arrangements
Critical Accounting Policies and Estimates
The Company's discussion and analysis of its financial condition and results of operations are based upon its condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles inthe United States . The preparation of these condensed consolidated financial statements requiresChargePoint to make estimates and assumptions that affect the reported amounts of assets, liabilities, net sales and expenses. The Company evaluates its estimates and assumptions on an ongoing basis, and base its estimates on historical experience and on various other assumptions thatChargePoint believes to be reasonable under the circumstances, the results of which form the basis for the judgmentsChargePoint makes about the carrying value of assets and liabilities that are not readily apparent from other sources. Because these estimates can vary depending on the situation, actual results may differ from these estimates. Making estimates and judgments about future events is inherently unpredictable and is subject to significant uncertainties, some of which are beyondChargePoint's control. Should any of these estimates and assumptions change or prove to have been incorrect, it could have a material impact onChargePoint's results of operations, financial position and statement of cash flows. Other than the policies noted in Part I, Item 1, Note 2, "Summary of Significant Accounting Policies," in the Company's notes to condensed consolidated financial statements in this Quarterly Report on Form 10-Q, there have been no material changes to its critical accounting policies and estimates as compared to those disclosed in its audited consolidated financial 51 --------------------------------------------------------------------------------
statements as of
Recent Accounting Pronouncements
For a description of recent accounting pronouncements, including the expected
dates of adoption and estimated effects, if any, on
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