Good afternoon, ladies and gentlemen. My name is Bo, and I'll be your conference operator for today. At this time, I would like to welcome everyone to the ChargePoint's Second Quarter Fiscal 2024 Earnings Conference Call and Webcast. All participant's phone lines have been placed in a listen-only mode to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. I would now like to turn the call over Mr. Patrick Hamer, 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 call to discuss ChargePoint's second quarter of fiscal 2024 earnings results. This call is being webcast 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 Chief Executive Officer; and Rex Jackson, our Chief Financial Officer. This afternoon, we issued a press release announcing results for the quarter ended July 31, 2023, which can also be found on the Investors section of our website. We'd like to remind you that during the conference call, management will be making forward-looking statements, including our outlook for our third quarter and full fiscal year 2024. These forward-looking statements involve risks and uncertainties, many of which are beyond our control and could cause actual results to differ materially from our expectations. 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 certain factors that could cause actual results to differ, please refer to our Form 10-Q filed with the SEC on June 8, 2023, and our earnings release, which posted today on our website as well as filed with the SEC on Form 8-K. Also, please note that we use certain non-GAAP financial measures on this call, which we've reconciled to GAAP in our earnings release and for certain historical periods in the investor presentation posted on the Investors section of our website. And finally, we will be posting the transcript of this call to our Investor Relations website within the Quarterly Results section. With that, I'll turn it over to Pasquale.

Thank you, Patrick, and thank you all for joining us today. Before we get to the results for the quarter, I'd like to address four key points that are likely top of mind. First, we have announced the strategic corporate reorganization that we've been working on for months, with a goal of achieving higher operational efficiency as we scale, while reducing our operating expenses by an estimated $30 million on an annualized basis. As part of this reorganization, we've reduced our headcount by 10% and reducing our non-personnel expenses as well. Second, we've taken an inventory impairment charge on our first generation DC charging products. During the supply chain crisis, we saw the assurance of supply versus costs and are now adjusting our stranded costs to current values given inventory levels. Third, let me address growth. We believe conversion of the world's vehicle fleet to EVs remains inevitable as does the need for infrastructure to charge them. U.S. EV sales were up 48% year-over-year in Q2, a record for any quarter and Europe is experiencing a similar pace of adoption. Correspondingly, usage of our existing chargers on our network is up significantly. In short, this puts utilization pressure on infrastructure and we believe that will turn into demand for our products. Fourth, I'd like to underscore our continued commitment to positive adjusted EBITDA in Q4 of calendar 2024 and we believe we have sufficient cash for each to achieve that core objective. Moving on to Q2. We delivered revenue within our guidance range at $150 million, up 39% year-over-year and 16% sequentially, all done in an environment where many businesses are delaying discretionary spend. In the U.S., we continue delivering on several major projects we have mentioned during previous calls. We are finishing construction of the Volvo-Starbucks project, a 1,300-mile corridor from Seattle to Denver, connected by ChargePoint DC fast charging solutions at Starbucks locations along the route. We also began shipping our charging stations for a much larger project is a Mercedes-Benz fast-charging network, which we announced at CES in January. As Mercedes recently stated, the first of these 400 plus charging hubs will open in the fall. In Q2, we also delivered a large amount of products to the United States Postal Service with our partner Rexel Energy Solutions, supporting the ongoing growth of our fleet business. Transit deployment scaled nicely in the quarter, including a project with the MTA in San Francisco, among others. We've now over 18 -- excuse me, 8,000 electric buses served by our charging management software and our telematic solutions. Just last week, we received a FedRAMP unique entity ID from the U.S. government, a designation achieved after a long process. This permits us to bid for tens of millions of dollars in potential U.S. government RFPs. I'd also like to reiterate our commentary on what is perceived as a major market development, adoption of the NACS connector. Seeing the market need to support this connector type, we began product development well ahead of the recent OEM announcements and are finalizing our NACS connector solutions to begin shipping in November. That being said, we remain committed to maintain -- to making sure our customers do not need to dedicate parking spaces to cars equipped with a specific connector type. Customers' existing investments in ChargePoint technology are protected and will remain so into the future via an optional, cost effective upgrade program to NACS cables for their chargers. Our goal is to enable drivers to charge any vehicle anywhere, at any time. Turning to Europe. Our business continues to expand with a clear highlight being our collaboration with leasing companies. For those unfamiliar with the European car market, the majority of new vehicles sold are delivered as a leased company car benefit. During the quarter, we added Arval, a part of the BNP Group and a European leader in full service vehicle leasing, to the list of these companies that have chosen ChargePoint. With the same strategic lens through which we approach leasing company relationships, we also are fostering our partnerships with fuel card providers like WEX, UTA, Voyager and others. These customers are building substantial charging businesses based on ChargePoint's software. Overall, our European revenue grew 78% year-over-year and we have now surpassed 500,000 roaming ports for drivers there in addition to our own installations. Globally, we are progressing our fortified contract manufacturing strategy. We expect these changes to give us increased capacity and improved cost structure and reliable supply. Finally, to give you a snapshot of ChargePoint's global momentum, here are our latest network, customer and environmental statistics. We finished the quarter with over 225,000 active ports under management, including more than 22,000 DC fast ports. Approximately one-third of our managed ports are in Europe, and we now provide drivers access to more than 532,000 roaming ports globally. We count 76% of the 2022 Fortune 50, and 57% of the 2022 Fortune 500 as our customers. From an environmental perspective, as of the end of the quarter, we estimate that our network has now fueled approximately 7 billion electric miles, avoiding approximately 280 million cumulative gallons of gasoline and over 1.4 million metric tons of greenhouse gas emissions. And before I hand it over to Rex, I just want to correct one thing that I may have misspoken, we finished the quarter with 255,000 active ports under management. Apologize for the mistake. Rex, over to you.

Thanks, Pasquale, and good afternoon, everyone. As a reminder, please see our earnings release where we reconcile our non-GAAP results to GAAP and recall that we continue to report revenue along three lines, network charging systems, subscriptions and other. Network charging systems refer to our connected hardware. Subscriptions include our cloud services connecting that hardware; Assure warranties and our ChargePoint -- sorry, connecting that hardware, Assure warranties and our ChargePoint-as-a-Service offerings where we bundle hardware, software and warranty coverage into recurring subscriptions. Other consists of professional services and certain non-material revenue items. For Q2, revenue was $150 million, up 39% year-on-year and 16% sequentially, within our guidance range of $148 million to $158 million. Network charging systems at $115 million was 76% of Q2 revenue, up 36% year-on-year. Subscription revenue at $30 million was 20% of total revenue, up 48% year-on-year. Other revenue at $6 million and 4% of total revenue increased 51% year-on-year. Our deferred revenue continues to grow, this is future recurring subscription revenue from existing customer commitments and payments, and finished the quarter at $220 million, up from $205 million at the end of Q1. Turning to verticals. As you know, we report them from a billings perspective, which approximates the revenue split. Q2 billings percentages were commercial 75%; fleet 16%; residential 7%; and other 1%. Commercial was healthy and fleet continued execution against large programs. Despite the smaller contribution to Q2 billings relative to 24% in Q1, fleet grew over 50% year-on-year. In residential, we saw demand building for our home products through dealer, retailer and utility programs. The shipments were slower than expected. From a geographic perspective, North America's Q2 revenue was 79% and Europe was 21%, consistent with our first quarter of this year. In the second quarter, Europe delivered $32 million in revenue, grew 78% year-on-year and sequentially increased 17%. Turning to gross margin. Non-GAAP gross margin for Q2 was 3%. As Pasquale indicated, this reflects a $28 million or 19 margin point impairment to cost of goods sold. This was taken to address supply chain related higher component costs and supply overruns for our first generation DC charging products. In addition to this quarter end impairment, our non-GAAP gross margin for the quarter also included 3 points of headwind from selling this first generation product at the pre-impairment cost structure. We see continued demand for this product. Non-GAAP operating expenses for Q2 were $89 million, a year-on-year increase of 11% and a sequential increase of 4%. From an operating leverage perspective, this represents a 6 point improvement against the first quarter. For reasons Pasquale mentioned, today, we took actions reducing our operating expenses. I will speak to the implications when I give guidance shortly. Stock-based compensation in Q2 was $35 million, up from $24 million in Q1. We typically do our annual refresh grants in Q2, which explains the stair step. Q2 non-GAAP adjusted EBITDA loss pre-impairment was $53 million. This was a 5% improvement year-on-year, but higher than our expectations due to revenue landing towards the low end of our range and a lower-than-expected gross margin. Our non-GAAP adjusted EBITDA, inclusive of the impairment, was a loss of $81 million, 44% higher than last year's second quarter. We continued to build inventory during the quarter. As mentioned last quarter, we are working through inventory associated with earlier supply commitments. We finished the quarter with $144 million in inventory, which is net of the Q2 impairment discussed earlier and up from $115 million at the end of Q1. We do not expect this level to increased significantly over the rest of this year. We are managing through these commitments and vectoring in on our turns goals. Looking at cash, we finished the quarter with $264 million in hand. This balance includes $38 million raised through our ATM program, which has generated a total of $105 million over the past three quarters. During Q2, we also entered into a $150 million revolving credit facility, with four leading global banks. This facility is currently undrawn and provides non-dilutive liquidity. It will be strategically deployed alongside or at the market program to maintain a strong balance sheet as we drive towards becoming cash flow positive next year. This is our capital plan. We had approximately 360 million shares outstanding as of July 31, 2023. Turning to guidance. For the third quarter of fiscal 2023, we expect revenue to be $150 million to $165 million, up 26% year-on-year and up 5% sequentially at the midpoint. For the full fiscal year, we are guiding to $605 million to $630 million, up 32% year-on-year at the midpoint. Regarding gross margin, for the third quarter, we expect to be between 22% and 25% on a non-GAAP basis as we work through the inventory levels discussed earlier. With the inventory issue behind us and aggressive programs for improving our cost structure on supply and manufacturing, we would expect to resume continued improvement in gross margin next year. Though we don't typically guide on operating expenses, given the reorganization we announced today, we want to help reset everyone on a new level for the remainder of this year. Therefore, we expect non-GAAP operating expenses to be $81 million to $84 million in Q3, and $79 million to $82 million in Q4. Finally, regarding our goal of reducing our non-GAAP adjusted EBITDA by two-thirds from our Q1 level this year of $49 million, we are being prudent in our revenue guidance, while managing gross margin and operating expenses. Accordingly, we are targeting to have the Q1 adjusted EBITDA loss in Q4. And with that, I'll turn it back to Pasquale for closing remarks.

Thanks, Rex. In summary, we delivered on our revenue guidance for the quarter and expanded operating leverage. We're the clear leader in EV charging infrastructure across two continents and recognize that to be successful. Our solutions seem to be everywhere, easy to find, easy to use and highly reliable. ChargePoint is at the front of a long-term growth cycle. We are well-positioned and well-capitalized for the future, leaving us confident we will hit our goal of profitability on an adjusted EBITDA basis by the end of next year. Thank you for tuning in today. Operator, let's proceed to questions.

Thank you. [Operator Instructions] We'll take our first question this afternoon from James West of Evercore ISI.

Hey. Good afternoon, guys.

Hey, James.

Hey, James.

Hey. So, Pat, you're going to be shipping the new products here in a couple of months. I know you had already started to do engineering work and things like that. Is it going to cause a change at all in kind of the ASP for your products, or is it a relatively minor kind of adjustment just to add next to the existing portfolio?

It doesn't have an ASP, in fact.

Okay. Got it. Thanks. And then maybe for Rex, on the 3 points of headwind on the margin, is that -- I guess what are the main drivers of that? I believe it's just the new -- getting ready for the new sales. But are those just a this quarter issue? Do they go away in the next couple of quarters, or they're here for the rest of the fiscal year?

So, James, those should go away going forward. It was an in-quarter item. We only flag it just because we did the impairments effective as of the end of the quarter. And therefore, it didn't affect any of the underlying margin for that product during the quarter. We just want people to understand what the impact was. But with the impairment, that goes away.

Right. Got it. Okay. Thanks, guys.

Thank you. We go next now to Colin Rusch at Oppenheimer.

Thanks so much, guys. With the restructuring, can you talk about areas where you're going to focus some of those cuts, or is it really just generally across the board? And then the follow-up question is really about the pathway to the cash flow breakeven. If you could walk us through that, at the secondary question here.

I'll take the first part, Colin. So, I want to -- I just want to make sure that something is well understood. We've been working on this restructuring for months and it's quite distinct from many of the other financial parameters in the company. It does have some bearing on the back half of the year. But it's largely something we've done as we've continued to optimize how we execute internally. And I'll point out that over the last eight quarters or so, operating expenses have been operating in a fairly tight band and we've been improving operating leverage over that period of time. And so, to specifically answer your question, we made a restructuring a few weeks ago as Phase 1 of this, where we changed how we organize the go-to-market organizations with respect to North America and Europe due to scale just to improve our execution velocity and move some of the product portfolio organization closer to the regions to enable them to operate faster. Today, we added to that some restructuring with respect to how we are organized in the R&D operations and product management organizations. We did quite a bit of consolidation and reorganization in those areas again from an execution perspective, it will improve our velocity. And then we also did some things in other areas of the company across sales and marketing and G&A in addition to those, where we did address reducing some of the OpEx on a go-forward basis. So, it's really a combination of all of the above. Hope that answers your question.

That's super helpful. And then the follow-up question is really just what I asked. The pathway to get into the cash flow breakeven looks like kind of at midpoint, you're about $180 million in revenue for the fourth quarter, plus or minus. And so, thinking about a 30% to 35% growth rate, and -- would require substantial margin expansion. And I just wanted to get a sense of how you guys see that path moving forward to getting into the 30% to 35% gross margin range?

Yeah. So, good work on the model. Bottom line is we've declared again today that we're bound and determined to get to that results by the -- by Q4 of next year. I think the reorganization we did today is an indication of our commitment to that target. If you run the numbers, yeah, there needs to be some gross margin improvement. I think I alluded to that in my commentary. We've got some short-term things that we need to grind through from a, call it, the supply chain hangover standpoint, which we will do. But again, I think, we've shown consistently from an execution standpoint that we can generally hit our top-line guidance and we're bound and determined to hit that target in Q4.

Okay. Thanks so much guys.

We'll go next now to Matt Summerville at D.A. Davidson.

Thanks. Couple of questions. First, Pat, on your prepared remarks, you mentioned the qualification you received from the U.S. government. What's involved in that qualification and what distinguishes your ability to compete on some of these deals versus others in the market?

Yeah. So, as a point of clarification, that is a -- the FedRAMP is largely centered around the federal governments internal -- or controls requirements on software systems that are controlling assets that are sold to the federal government in certain agencies. It's one of the qualification programs. Receiving that ID is -- and being listed on the website basically is the milestone that effectively says we've been through all of the process at the federal government with respect to meeting the controls and audit requirements that they have across the board. So, think about it as control, security, other things associated largely with software. And remember, for us, we always lead with those with a software-first approach and that pulls through obviously the hardware that we have that works in conjunction with that software to deliver the entire solution.

Got it. And then just a quick follow-up. I think you guys have been doing some belt tightening ahead of this formal cost out program. So, when you think about it holistically, is that $30 million number actually higher in terms of OpEx take-outs? And when do you expect to hit that $30 million run rate? What would be the timing on that? Thank you.

Yeah. So, the $30 million is an annualized number. We pulled the trigger today. Today is the reorder took effect today. What you'll see is, in Q3, you will see some impact of that, hence my guidance for Q3 OpEx. The full impact of it will hit in Q4, because obviously today is September -- whatever today is September 5th -- 6th, thank you. So, we don't get the full impact in Q3, we'll get the full impact in Q4, and then obviously that's again that keeps on giving as we move into next year. And, I think, the main thing that people should focus on is, if you look at what we've been doing, I think we've been pretty responsible in terms of managing our operating expenses. We added some acceleration back in calendar '21, we leveled out in '22, had some exploration beginning of the year, but recognized to hit some of the profitability targets that we put out, we needed to ratchet back. But we've actually done a great job I think of significantly expanding the top-line while holding the operating expense level really constant, net-net. And so, we feel confident that we're going to get to our targets next year.

Thanks, Rex.

Thank you. We'll go next now to Alex Vrabel at Bank of America.

Thanks for taking my question, guys. Maybe just a higher level. And I think you mentioned at the outset, talking about sort of utilization on the infrastructure portends sort of more demand to come. I'm just curious, right, there's a lot of sort of noise out there about EV sitting on lots. I think fleet EVs are still relatively delayed around backlog. You guys obviously have a broad scope and a broad view. So, just curious how you would sort of paint the real picture from what you're seeing out there and how things have evolved sort of from the start of the year to today? Thanks.

Yeah. So, let me take your two part question kind of backwards. On the fleet side, definitely vehicle limited, very consistent with the comments that I've made on previous earnings calls. So, continuing to win customers just sets us up for an expand later when that starts to de-compress. And from a customer base perspective, I think, if you pulled large fleet customers, they would express some frustration with respect to the availability of vehicles. On the passenger car side, while there are some makes and models that are moving. I think what you're seeing is some price sensitivity in the consumer market with respect to the higher priced side of the electric vehicle market in general, and probably the vehicle market overall, given where interest rates are. And then what you're also seeing frankly is variable take up with respect to the models introduced based on consumer preference. So, not all cars are winners regardless of the drivetrain technology, so some things will sit in an oversupply state. What you have is -- I believe the number is, in my prepared remarks, 48% Q2 to Q2 the prior year increase in electric vehicle sales, and that's I think the more indicative number, it's overall up. There are some hotspots and cold spots, but it's overall up. And I just think that's just the normal development of what is a very -- like, the vehicle market is not satisfied by two or three models. It's a very large model base that's required to cover everything. And again not everything is going to win and also not everything is going to be aligned to the economic -- the macroeconomic conditions out there for consumers.

Got it. Super helpful. Just a quick clarification on the cash that you guys mentioned sufficient cash position to reach that EBITDA inflection later in '24. I'm just curious you guys now have the revolver on top of the ATM. Any thoughts about why you would use one over the other timing around sort of your capital sourcing strategy from now until, that would be helpful? Thanks.

Yeah. I think it's sort of an either or thing, it's not preference for A or B. So, I think what we've said previously is the ATM, we'd like to do that on a consistent low level basis to match very loosely in our adjusted EBITDA loss as we progress into next year. That's not a fixed formula, but it is something that's aspirational. And then as far as the revolving credit facility, as you would draw that down when we need to, we have numbers in mind that we'd like to maintain on the balance sheet, and if we need to pull it down, but it does depend on how the ATM shakes out.

Got it. Thanks, guys. Take the rest offline

We'll next go now to Bill Peterson, JPMorgan.

Yeah. Thanks for taking the questions. So, if we think about your second half demand outlook, can you help us understand how the trends should look across residential, commercial, including workplace and fleet? I mean we saw here in the second quarter that commercials had some nice growth, while fleet and residential kind of took a step back. But how should we think about the trends amongst the segments in the second half?

Yeah. I mean the perfect kind of copy of the way to answer the previous question is backwards, start with the fleet one. On the fleet side of our business is, the fleet customers are inherently, quote-unquote, lumpy (ph) with respect to revenue. And so -- and that has a lot to do with not only vehicle availability, but their own construction plans for their depots et cetera. So, I would look at our fleet business on a more than one quarter trended basis, given the fact that you could get some quarter-to-quarter variance, but overall is an indicative of any specific market change in condition. The commercial side, with respect to growth, while you said there was nice growth there, which there was, the growth was not where utilization would say it should be. So, you've got a little bit of a dislocation between where commercial buyers, general businesses effectively when we refer to commercial, are viewing the priority of investing in EV charging right now, given where their own businesses are and the difficult decisions that all businesses are making in general in the current environment. So, while the growth that you commented on is good in commercial, it should have been better if it weren't for the overhang that exists, but the utilization pressure is there. So, the response will come, because the response has to come to that utilization pressure. And on home, it's going to go largely with vehicle sales. There is a bit of seasonality. We'll probably see some increase take-up in the back half of this year due to normal seasonal trends. William R. Peterson: Okay. Thanks for that. And recently, the seven OEMs announced that they'd like to build their own charging network, 30,000 chargers maybe around the summer of '24 starting. You also mentioned that you started your, I guess, Mercedes-Benz build-out. And they are one of the OEMs that's part of this. I guess, are there any particular implications of this charging network? Is this an opportunity for ChargePoint? I mean how would your relationship with Mercedes-Benz potentially benefit this program? Is this something that you're actively pursuing?

So, what I can say being fairly close to all the OEMs that are involved in the broader set in general is that, they're sorting out amongst themselves how they want to organize and progress that business. To answer your question specifically regarding on opportunity, we view it is absolutely an opportunity for us. We're very proud of what we've done on the Mercedes-Benz project to date. You'll see that, as I said in the fall, Mercedes made an announcement with respect to when they expect sites to go live in the fall. And we'll be eager to hear customer perception of that project. We've been working very hard at it. We hope that bodes well for us with respect to any opportunities that the auto consortium would bring to market. And frankly, I'll remind you that we've also done a lot more with auto OEMs historically. We've done a lot with state programs historically. We've done an awful lot of VW Appendix D statewide programs, we rebuilt our corridors. I mentioned in my remarks that we did a project with Volvo and Starbucks, 1,300-mile corridor from Seattle to Denver. So, we've got a lot of experience building these things out. And related to that, you saw us make some announcements relative to double down on our investment with respect to uptime performance, bullet-proof availability, et cetera. We think that's just critical. It's critical for this phase of expansion for consumers. It's got to be reliable. It's got to be easy to find. It's got to be easy to use. And we're making actually quite large investments relative to where most of these corridor builds-out especially in those areas. So, we hope to be well ahead of the curve. William R. Peterson: Okay. Thanks for the color.

Thank you. We'll go next now to Joseph Osha at Guggenheim.

Thank you. Hello, and I apologize, I'm in a car. Two questions. First, obviously, some of the intermediate term challenges you're seeing presumably exist elsewhere in the business also. Is there any thought around opportunities for inorganic growth or consolidation? Or is that just not something you would ever think about? And then I do have a follow-up.

Well, frankly, if I told you we would ever enter a period where we wouldn't think about that, you'd probably question me, because obviously, if we were to come across something that were to meet not only the financial parameters that we would outline -- guardrail deal, but also the customer acquisition parameters and the talent acquisition parameters. We would certainly do it. It's just that right now, managing the business, we have a very high bar with respect to achieving our profitability goals by the end of next year. We've doubled down on that, on multiple earnings calls and we are hell bent to make that happen. So, as a test with respect to any inorganic growth that would make sense potential on a go-forward basis, it would have to not derail that.

Okay. That makes sense. And then my second question. Speaking to the NACS issue, obviously, you anticipated this. But, yeah, I mean the competitive landscape in NACS and wire extension DC fast has evolved. So, I'm just wondering, since the beginning of the year, has your thought around the sort of the optimum mix for ChargePoint in terms of L2 versus DC fast changed or evolved at all, or is it still just completely what it was?

Well, I think the question is a valid question to check in with us on, do you see any fundamental market driver that would change the proportion of DC versus AC. The NACS component of your question, doesn't really change my answer. The NACS component is simply, it's a connector. It doesn't change functionality whatsoever. It's just a -- the way we think about it as it's a different shape. It's something we have to contend with. And frankly, we've made an investment to make sure that we don't put our customers in a position where they have to dedicate some percentage of parking spaces to NACS and some percentage to CCS, that would be complete failure, because you'll never get that percentage right. And if you didn't get it right today, it will change over time. And so, it'll put an undue burden on essentially remodeling risk with respect to a charging site, which is not what you want to have happened in the early days of the market. So, because of that connector, again, doesn't change functionality whatsoever or change consumer behavior whatsoever, we see no fundamental split or shift, I should say in what would an AC business moving to DC or back, doesn't really affect anything.

Okay. That's clear. Thank you.

We'll go next now to Stephen Gengaro at Stifel.

Thanks. Good afternoon, everybody. Two things for me. The first maybe for Rex. When we think about your target of getting to EBITDA breakeven. I know this was asked a little bit earlier, but can you talk us through in a little more detail to maybe increase the comfort level on kind of what type of revenue growth you need? I mean, I guess, it's about mid-30s gross margins and kind of what has to happen on the operating cost side? I mean we're just trying to get a kind of what's behind this path, to this number with a little more detail?

Sure. And by the way, it's not EBITDA breakeven, it's EBITDA positive, sorry.

Okay. Well, that seems good (ph).

I couldn't resist. Sorry, Stephen. There are -- but we're definitely thinking about the target. So, I think the best way for you to progress on that is to do what we do, which is we obviously model things out. We clearly have a lot more visibility than you do from a pipeline and a big deal perspective as we go into next year. But there's a certain revenue level associated with a certain gross margin level. You know we have the levers to control from an OpEx perspective, which obviously we demonstrated today. It is -- there are a set of assumptions, I think, are realistic that are very doable by the end of next year. If for some reason, the industry slows down considerably, which we wouldn't expect, but just a thought experiment that could happen, yeah, it's going to be a problem. But we think we're on the front end of a big wave and we're going to move into continued growth next year. God forbid, fleet vehicles should actually show up. Prayer is a good thing. Hopefully, that happens. And we'll have a strong year in the gross margin challenges that we've seen over the last quarter or so will be behind us. So, I think it's very difficult. That's all I'd say. I can't really guide you more to it. I think that would be inappropriate.

Okay. Thanks. And the other question -- and one of the things we get from investors a bit is when we think about NEVI funding, right, the -- what the brain goes to is like the owner operators. And so, then when we think about your exposure to NEVI funding, how that kind of impacts ChargePoint, what should we be looking for? Should it be certain customers of yours who are basically utilizing you to put their NEVI dollars to work, like how should we think about exactly how ChargePoint gets the benefit from as leverage to the NEVI funding and when do you think we start to see that in the numbers?

So there's -- I'll give you some hints on how to process that. We are not directly an asset owner. In many cases, much like we did in the VW Appendix D days, the NEVI bids are structured at a very high level in a very similar vein. We may organize a collection of our customers to ultimately own and house the assets and continue to care for them on an ongoing basis and integrate them with their business. And in some cases, our name is on the particular NEVI proposal into a state. In many cases, our name is not on the proposal. And in also in many cases, there are multiple proposals from multiple parties that all are based on our technology because they've selected us as the technology partner for their bid. So, when you look at the results from a -- when a state finally decides how they're going to allocate their funds across the different bidders, you have to double-click one step deeper into the awards to check because we may be the awardee on multiple, which has been the case even recently. There are four states that have decided how they want to allocate the Phase 1. And in Pennsylvania, for example, we're named in one of them, but we're also the technology supplier for 12, right? So, on the surface, it looks like we didn't do very well. But when you peel the onion one more layer, we did quite well. And just to give you a data point, and again, you've got only four states that have made decisions, and this is only relevant to the first phase, we've got about a third or so win rate there on the monies that have been appropriated by the state. So, the win rate, we think is pretty good. It's pretty consistent with what we've seen in other programs. And again, we're getting behind businesses that want to build their charging presence on ChargePoint. That's the way to think about us. Some of these companies even branded themselves with us as an ingredient brand. So, in many cases, when they make announcements, they make announcements about their charging service because of the investments that they're making. That's a very -- I would do the same thing. We're very proud of the -- being kind of a leading edge company making those investments. We are the technology behind a lot of businesses that build -- they are building their charging business. And I think it's very easy to overlook that.

Okay. Well, that's why I asked the question. That's good color. Thank you.

Thank you. We'll go next now to Shreyas Patil at Wolfe Research.

Hey. Thanks a lot for taking my question. Maybe just following up on an earlier question. And if I were to rephrase it, so as you think about getting to positive EBITDA, do you need to see a reacceleration in the top-line growth? And I ask because we've now seen three quarters of decelerating top-line growth and the guidance for Q3 is to decelerate further. So, just trying to think about that trajectory of revenue.

Yeah. So, two things. One, to clarify, Shreyas, because I wasn't sure Stephen and I were 100% aligned on this. But pardon me, he said -- is he talking full year, or is he talking just Q4? Our target is to get there for the fourth quarter. We can do it sooner, obviously, that would be nice, but it is for the fourth quarter, it's not for the full year. Separately, from a revenue perspective, I think when you say acceleration, I think if we do sort of as well as we're doing now, you are -- you could be in the gun-sight. So, I don't think we need to see -- last year, we're at 94%, 96%, I forgot the exact number -- 94% year-on-year growth. This year, we're going to be in the mid -- high end to the mid-30s. If we can keep that going off of what should be a much bigger base as we exit the year, that's a good pretty good spot to be. I don't think we have to get back to a 60% growth rate. I don't think that's necessary.

Okay. That's very helpful. And then just if I guess just to clarify. We -- if I adjust out the entire impact of the legacy DC charger, both the inventory charge and also the impact to margin ex that, it looks like gross margins would have been about 25% in the quarter. I just want to make sure I'm thinking about that right. And then when I think about the Q3 guide, which would be implying flat to maybe down margin sequentially, just how would I think about that bridge, excluding the impact of this legacy DC charger?

Yeah. So, Shreyas, I think your view of Q2 is accurate. Obviously, with the charge, it was 3%. Without the charge, it's 22%. This is a 19-point hit. And then if you eliminated the headwind on the product because, obviously, we carry the old cost structure in the quarter, you'd be looking more like 25%, and that's consistent with what we did in Q1. So, that's -- when we talk about the underlying health of the business, I think that's where -- that's the explanation on that. As you look forward, we said -- we gave you a range on gross margin. And frankly -- and I -- you've been with us for a while, we are a mix sensitive. I hate to admit that, but it's true. We have historically had more AC than DC, and that's at 50-50, and indeed maybe crossing over to DC, which is a lower margin product for us. So, I wouldn't have put a big range on -- meaningful range on Q3. And we got to bank through the product availability, because we had a supply overrun, as we indicated in our prepared remarks. We need to bank through that until it makes it a little unpredictable because you're going to do that onesies, twosies, or you're going to cut a deal for 50 to 100, hard to say. So, I tried to leave that open. But as I said, I do think, as we look into next year and we clean through these issues in the next six months, we should have a clear line of sight to steadily improve the gross margin next year.

Okay. Great. Thanks so much.

All right.

Thank you. We'll go next now to Chris Pierce at Needham.

Hey. Good afternoon. You just talked about commercial customers, say, utilization was 20% and then that would leave the order a new charger. Like, where are we seeing it now? Like, where can you kind of frame it at? Are they waiting to get to 30%, or is it still TBD? And is there anything you can do to kind of incentivize them to move sooner rather than later?

It depends on the segment. So, if you look at the utilization, your numbers are pretty consistent with utilization thresholds for passenger car, long haul trip, fast charge. And that's just because humans are synchronized. So, the times of day that fast charge sites tend to see congestion are synchronized and then there are broad swaths of the day that they're underutilized. So, your numbers generally correct for that segment. If you look at -- I'll take workplace, for example. Workplace measured over the hours of operation of the workplace itself for days in office. Now we have to adjust that post-COVID for the synchronized days in office. We are seeing utilization rates adjusted for the session gap in time between -- if they're using our waitlist feature, one car leaving and the next car arriving to take over that charging point, we're seeing them approach effectively the theoretical max cap. So, multiple of our largest workplace customers have come to us and said, can we think of a creative way of decompressing this because we effectively don't have discretionary spend capability on things that are noncore to their business to their customers. And so, again, that's an indicator that we're kind of beyond the point of overutilization in a lot of commercial settings. And on mass, what they're telling us is they're waiting for budget relief to be able to adjust that. So, it really depends on the segment.

Okay. And just to clarify, are we talking about budget flush in the year-end or budget relief where you haven't done that deep with them?

Yeah. I mean I haven't personally had the conversation in specific detail, but my sense from talking to our sales force broadly is that it is less of a budget flush and more of a restricted spend policy on discretionary items within many companies that are kind of sitting here in a hesitant macroeconomic environment, deciding how they want to basically put assurances around their balance sheet.

Okay. Could we just go one deeper then? Is it right to think of that as California-based large tech companies? Is that the right way to think about it? And that's sort of an indicator of...

No.

Okay.

No. It's -- I mean that's a component. I mean California being the state with the highest EV penetration is certainly going to be the poster child for impaction when it comes to most things associated with charging infrastructure, but other states have a similar profile. So, it's -- I don't think it's related to a particular geography. It has more to do with how penetrated EVs are into the geography.

Okay. And then just last question for me. Rex just kind of highlighted the gross margin guidance in Q3 was around mixed AC to DC. That sort of assumes that these customers are going to hold your planning for them to still be at hold in the next three months. Is it the right way to think about it over the next two months or beyond?

Not quite. If you look at the percent of total ports. AC, DC, if you look at it on a technology basis and not on a segment basis, but you just look at DC ports, AC ports and then we always break home out because it is on a different kind of volumetric scale, because it's much more one-to-one with vehicles where they're single-family residence anyway. The percentages haven't moved around that much in a long-term trend. The difference is the ASPs on the DC products have risen. And the reason the ASPs have risen is not because they're getting more expensive, is that the power levels that are being delivered on average occur parking stall have gone up from early days. So, the cents per watt delivered, if you want to reduce it to its most basic metric, although I would argue that that's not the only metric you should look at, that has clearly come down with efficiency. But the overall kilowatts delivered has gone up significantly with respect to that technology. So, that causes a mix shift in dollar. And then if you look at the fleet business, which is growing quite nicely for us, it also in the early days, especially associated with transit and I made some comments with respect to transit, medium and heavy, etc., those are much more DC heavy businesses. So, when you add that mix in, that's what's behind Rex's comments on mix sensitivity.

Okay. Perfect. Appreciate it.

Thank you. We'll go next now to Steven Fox at Fox Advisors.

Hey. Good afternoon. Just one big picture question from me. If we step back, I know you guys weren't providing guidance for the second half, but I mean you've implied that the revenues are lower than you would have thought 90 days ago. So, can you sort of force rank why the disappointment in the top-line? And then as a follow-up to that, can you talk about why you would think about a reacceleration in revenues for next year? Because if I do the math, your revenues are decelerating to 10% to 20% sales growth, which obviously is not a bad number in this environment. But you're talking about getting back to like 30% for next year. So, I'd love to understand like the biggest drivers of the down and then the backup? Thanks.

Yeah. So, first of all, just to emphasize, Q2, we were within our guidance range, nice year-over-year growth. So, strong performance there. 9% to 10% from a guidance perspective, I think we're doing pretty well. Looking forward to the second half, as I said in my prepared remarks, we wanted to be prudent in terms of our guide. We just implemented a reorganization. We had the impairment charge that we referenced. Things are interesting and choppy in the real world out there. So, we want people -- we want to say what we're going to do and then do it. So, we're being very prudent from a Q3 perspective. Obviously, there's an implied number from a Q4 perspective, same prudent supplies. Do we think next year will be better? As I said earlier, we're looking at mid-30s in terms of percentage year-over-year this year versus last year. And there's a reason to expect that that's going to decelerate next year. It don't need to accelerate, as I said, in terms of getting to our Q4 goals. So, I think we feel pretty good about where we are. And Europe is performing beautifully. I just had a nice conversation day about it. If I told you two years ago that this is what Europe would be doing today, would you believe me, and people would be like, maybe not. So, Europe is doing a really great job. We do need to get home strengthened again relative to what its performance was at 7%. It's usually 10% to 12%. So, we see that picking up in Q3, Q4. People need to get back to work. We do see pressure building on the infrastructure we have on the commercial side, not just workplace but everywhere else. And fleet is chunky. And as the vehicles show, I think that we're down to our benefit. So, I remain very optimistic about next year. I can't put numbers on it. But I don't see us as talking about slowdowns and challenges. It's a prudent finish to the end of the year and a good outlook for next year, and we'll guide you when we get there.

Okay. Thank you.

And we'll go next now to Brett Castelli at Morningstar.

Hi. Thank you. I just wanted to ask around the sales pipeline of larger fleet opportunities and what you're seeing there sort of deals like the USPS type of deal?

Yeah, I mean, as I made comments earlier, I think in response to a question, there is certainly a pipeline of large deals. The -- as Rex put it, the prudence we're trying to apply to the color we give you on that is, frankly, until we see all the ducks in a row with respect to both vehicle availability and all of the construction accoutrements associated with the deal, we're being fairly conservative as to where we expect things to show up. We can thanks to the supply chain crisis not being upon us anymore whatsoever, we are not supply constrained. So, we'll have plenty of response runway as we see things firming up. So, the summary is, yeah, there's much bigger deals, much like USPS, et cetera., in the pipe. Timing is hard to call. And so, we are just being -- we are just trying to be measured with respect to that. Because as I said in my closing remarks, getting to that profitability number at the end of next year, it can't include wishful thinking on our part. It's got to include stuff that we have visibility into. So, while we're pretty confident that, that fleet number is going to continue to surprise us all as a positive as a long-term trend. In the short term, call on the timing, it's just too dangerous.

Yeah. Thank you. That's all I had.

Thank you. And ladies and gentlemen, that will bring us to the conclusion of the ChargePoint second quarter fiscal 2024 earnings conference call. I'd like to thank you all so much for joining us this afternoon and wish you all a great remainder of your day. Goodbye.