ChargePoint Holdings Inc. (NYSE:CHPT) reported its third-quarter earnings on December 4, 2024, revealing a revenue of $100 million, surpassing forecasts. However, the company's earnings per share (EPS) fell slightly below expectations, contributing to a post-market dip in stock price. Despite these mixed results, ChargePoint's strategic initiatives and cost reductions show promise for future growth.
Key Takeaways
- ChargePoint's Q3 revenue exceeded expectations, reaching $100 million.
- EPS fell short of forecasts, reported at -$0.18 compared to the anticipated -$0.17.
- Stock price declined by 0.86% in after-hours trading.
- Significant cost reductions and strategic partnerships highlight future potential.
- The company maintains a strong position in the EV charging market.
Company Performance
ChargePoint's performance this quarter reflects its ongoing efforts to stabilize financials and expand its market presence. Revenue growth was driven by stronger-than-expected subscription sales and strategic partnerships. However, the decline in network charging systems revenue and a slight EPS miss indicate areas needing attention. ChargePoint's focus on cost reduction and operational efficiency is evident, as seen in their reduced cash consumption and operating expenses.
Financial Highlights
- Revenue: $100 million, exceeding guidance of $85-95 million.
- EPS: -$0.18, slightly below the forecast of -$0.17.
- Non-GAAP Gross Margin: 26%, consistent with the previous quarter.
- Cash Consumption: $24 million, a 64% decrease from Q1.
- Cash on Hand: $220 million.
Earnings vs. Forecast
ChargePoint reported an EPS of -$0.18, narrowly missing the forecast of -$0.17. This represents a minor deviation of approximately 5.9% from expectations. The revenue, however, surpassed predictions, coming in at $100 million compared to the anticipated $93.27 million. This revenue beat marks a positive shift from previous quarters, where the company struggled to meet forecasts.
Market Reaction
Following the earnings announcement, ChargePoint's stock price fell by 0.86% in after-hours trading, closing at $1.15. This decline reflects investor concerns over the EPS miss, despite the positive revenue performance. The stock remains near its 52-week low, indicating ongoing market challenges. Compared to broader market trends, ChargePoint's stock movement suggests specific investor apprehensions about its short-term profitability.
Company Outlook
Looking ahead, ChargePoint has set a Q4 revenue guidance of $95-105 million. The company aims to achieve positive non-GAAP adjusted EBITDA by fiscal 2026. Key growth drivers include expanding fleet deals, government contracts, and increased subscription revenues. ChargePoint's focus on innovation, such as launching next-generation software and hardware platforms, underscores its commitment to maintaining a competitive edge.
Executive Commentary
CEO Rick Wilmer emphasized the company's belief in the superiority of electric vehicles, stating, "We are firmly convinced and probably biased that EVs are far superior to internal combustion engine cars." CFO Mansi Kaithani expressed optimism, noting, "We believe the trough is behind us," suggesting a positive outlook for future quarters. Wilmer also highlighted the growing demand for charging infrastructure, reinforcing ChargePoint's strategic direction.
Q&A
During the earnings call, analysts inquired about ChargePoint's resilience in the face of political changes and its commitment to the European market. Executives assured no significant buyer hesitancy and reaffirmed their focus on Europe despite current challenges. Questions about inventory management were addressed with plans for continued drawdown and anticipated gross margin improvements.
Risks and Challenges
- Supply Chain Issues: Potential disruptions could impact hardware availability and costs.
- Market Saturation: Increasing competition in the EV charging space may pressure pricing and margins.
- Macroeconomic Pressures: Economic downturns could affect consumer spending and investment in EV infrastructure.
- European Market Challenges: Current difficulties in Europe may hinder growth prospects.
- Political Changes: Shifts in government policies could influence EV adoption and infrastructure development.
Full transcript - ChargePoint Holdings Inc (CHPT) Q3 2025:
Abby, Conference Operator: Ladies and gentlemen, good afternoon. My name is Abby, and I'll be your conference operator for today's call. At this time, I would like to welcome everyone to the ChargePoint Third Quarter Fiscal 2025 Earnings Conference Call and Webcast. All participants' 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.
And I would now like to turn the call over to Nandan Amladi, ChargePoint's Vice President of Finance and Investor Relations. Naman, please go ahead.
Nandan Amladi, Vice President of Finance and Investor Relations, ChargePoint: Good afternoon, and thank you for joining us on today's conference call to discuss ChargePoint's Q3 fiscal 2025 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 Rick Wilmer, our Chief Executive Officer and Mansi Kaithani, our Chief Financial Officer. This afternoon, we issued our press release announcing results for the quarter ended October 31, 2024, which can be found on our website.
We'd like to remind you that during the conference call, management will be making forward looking statements, including our outlook for our Q4 of fiscal 2025. 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 September 9, 2024, and our earnings release posted today on our website and filed with the SEC on Form 8 ks. Also, please note that we use certain non GAAP financial measures on this call, which we reconcile 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'll be posting a transcript of this call to our Investor Relations website under the Quarterly Results section. And with that, I'll turn the call over to Rick.
Rick Wilmer, Chief Executive Officer, ChargePoint: Good afternoon, and welcome to ChargePoint's Q3 fiscal 2025 earnings call. Today, I will walk through key financial results for the quarter, implications of the recent U. S. Elections and a review of progress made on our strategic plan. Let's start with the Q3.
Our relentless pursuit of operational excellence is translating into positive results as we align our business for growth and manage our operating expenses. We finished the quarter with revenue of $100,000,000 exceeding our guidance range of $85,000,000 to $95,000,000 Non GAAP gross margins remained steady at 26% and inventory was slightly lower than it was in the 2nd quarter. Operating expenses were also down at $59,000,000 compared to $66,000,000 in the 2nd quarter. In the quarter, we reduced our cash consumption to $24,000,000 which is down 64% from Q1 of this year. We continue to manage our cash with extreme rigor.
The 3rd quarter was notable for the expansion of our work with automotive manufacturers and partners. We completed a project for General Motors (NYSE:GM), deploying our software for a new use case with a major fast charging network in the USA. We expanded our footprint at U. S. Ports, doing a sizable deal with the Port of Stockton in California.
We recently joined forces with Sixt USA, a leading provider of premium mobility services. Sixt and ChargePoint will be working together to test ChargePoint solutions at select Sixt car rental locations in U. S. Markets with high EV adoption rates. With our partner Energy Efficiency Pros, we did a large installation for Red Bull's delivery fleet.
More installations at IKEA locations went live and we co hosted a fleet webinar with them to share the case study. The recent U. S. Election is likely on many of your minds, but ChargePoint currently does not see any dramatic changes on the horizon that we expect will materially impact our business. We have established our market leadership over 17 years amidst changing political environments, and we will continue to drive the secular shift towards clean transportation.
Significant investments have been made across sectors to prepare for this shift. We believe electric vehicles are far superior to their internal combustion counterparts, and we do not predict any reversals on the road to electrification. Last quarter, I mentioned green shoots in demand, and we continue to see encouraging signs in the market. Charging network operators have been reporting an upswing in charger utilization, a trend we are also seeing at ChargePoint. This is good for the industry as a whole and good for ChargePoint as a supplier of software and hardware to the aforementioned networks.
This all demonstrates a need for more infrastructure with our utilization outpacing our port growth yet again in the Q3. This pressure has prompted customer inquiries about incremental chargers. The utilization pressure is the result of more EVs on the road. The U. S.
Saw record EV sales in the 3rd quarter, up 11% year over year according to Cox Automotive. It was also a record quarter for the EV market share in the U. S, continuing the stable and sustainable growth pattern I mentioned in our last earnings call. In terms of our own growth, our managed port count now exceeds 329,000, representing 20% more active ports in the field year over year. We count 80% of the Fortune 50 companies as customers, and we estimate we have avoided the consumption of nearly 500,000,000 gallons of gasoline.
In our last call, I introduced ChargePoint's 3 year strategic plan. This plan remains anchored upon our four cornerstones of a class leading software platform, hardware innovation, delivering a world class driver experience and operational excellence. Year 1 goals included finalizing our leadership team, revising our product roadmap, rightsizing and ensuring operational excellence. 3 quarters into this fiscal year, we have accomplished all of this with the hiring of our new CRO, David Vice, being a recent highlight. David joined us in September and he is aligning the sales organization to drive growth.
Priority for year 2 of the strategic plan is the rollout of our next generation software and hardware products. Our next generation software aggregates our greatest features and capabilities into one formidable platform. Within this platform, a customer will be able to manage anything from a network of chargers to a corporate fleet of cars, trucks or buses. When we roll out these integrated capabilities, we expect to delight our CPO commercial and fleet customers with the first major proof points of this software first initiative. The new hardware solutions will be proof points of our enhanced product design and manufacturing strategy, which leverages partners to bring our products to market faster at a lower cost and at improved margins.
Year 3 of the plan is when we expect to reap the full benefits of a top performing organization, a next gen portfolio of innovative software and hardware products and operational excellence. To ensure a world class driver experience, we are continuously improving network reliability. Last quarter, we deployed an AI solution to make it easy for drivers to report problem stations with detailed and actionable information. We knew it would resonate with our drivers, but the results have far exceeded our expectations. Within the 1st 10 weeks, we received actionable reports that enabled us to resolve nearly half of all reported issues across thousands of stations more efficiently.
This tool is materially helping us improve station uptime and increase customer satisfaction. We continue to focus on operational excellence. Proof of this comes in the form of our 3rd quarter results. September sales and marketing focused reorg has opened the door for new ideas and approaches, and our CRO has been aligning the team for revenue growth and scalable processes. The financial benefits of September's rightsizing became evident at the end of the quarter and the additional benefits will materialize in the Q4 and beyond.
We are focused on driving revenue growth while carefully managing our operating expenses. Excellence is also defined by outstanding customer support, and our support capabilities are now winning us deals over the competition. In conclusion, we have accomplished the 1st year goals of our strategic plan and done so ahead of schedule. Our Q3 revenue and improved OpEx are proof of this. We are encouraged by the record EV sales in the industry, and we continue to see network utilization demonstrate the need for more charging infrastructure.
We are now concentrating on returning to growth and streamlining operations to continue on our path to positive non GAAP adjusted EBITDA, which is targeted for a quarter in fiscal year 2026. I will now hand the call over to our CFO, Mansi.
Mansi Kaithani, Chief Financial Officer, ChargePoint: Thanks, Rick. Revenue for the Q3 was $100,000,000 above our guidance range of $85,000,000 to 95,000,000 dollars Network Charging Systems at $53,000,000 accounted for 53% of 3rd quarter revenue. This was down 18% sequentially and down 29% year on year. Subscription revenue at $36,000,000 was 37% of total revenue, up 1% sequentially and up 19% year on year. Subscriptions continue to demonstrate healthy growth.
Other revenue at $11,000,000 was 10% of total revenue. This was up 28% sequentially and up 81% year on year due to growth in net transaction fees for processing payments and one time project revenue. Turning to verticals, which we report from a billings perspective, 3rd quarter billings percentages were Commercial, 61%, Fleet 15%, Residential 18% and Other 6%. The Commercial segment has normalized as a percentage of total billings after several large Express Plus DC shipments in the 2nd quarter. Fleet remains stable, but the push outs we outlined last quarter due to permitting and construction delays persist.
Note that this is business that we expect to capture in future quarters. Our highly rated home charger, the Home Flex (NASDAQ:FLEX), continued to be a best seller and contributed a strong share of billings in the 3rd quarter. From a geographic perspective, North America made up 83% of 3rd quarter revenue and Europe was at 17%. Europe remains challenging for the entire EV sector amidst policy and incentive uncertainties. Non GAAP gross margin for the 3rd quarter was 26%, consistent with the 2nd quarter.
Gross margin improved by 44 percentage points as compared to the Q3 last year, a quarter that was impacted by an inventory impairment charge. Non GAAP operating expenses for the Q3 were $59,000,000 down 12% sequentially and down 28% from $81,000,000 in the Q3 last year. In September, we reduced our non GAAP operating expenses by an estimated $38,000,000 on an annualized basis. In the Q3, we saw a partial impact of the September restructuring. The full impact on our run rate operating expense profile will be evident in the 4th quarter.
Non GAAP adjusted EBITDA loss for the Q3 was $29,000,000 a 4th consecutive quarter of improvement. This compares to a loss of $34,000,000 in the 2nd quarter and a loss of $97,000,000 in Q3 of last year. Stock based compensation in the 3rd quarter was $21,000,000 up from $19,000,000 in the 2nd quarter and down from $33,000,000 year on year. Our inventory balance decreased by $7,000,000 in the 3rd quarter from an all time high in the second quarter. As we continue to sell through finished goods on hand, this should release a significant amount of working capital and we expect to free up cash next year.
We ended the quarter with $220,000,000 cash on hand. We reduced net cash consumption to $24,000,000 for the 3rd quarter, which is down 64% from Q1 of this year and is lower than our adjusted EBITDA loss for the Q3. While we continue to rigorously focus on cash management, we have access to a $150,000,000 revolving credit facility, which remains undrawn. We have no debt maturities till 2028 and we have existing capacity on our ATM. Turning to guidance, for the Q4 of fiscal 2025, we expect revenue to be $95,000,000 to $105,000,000 While we are pleased with beating our guidance in the Q3, we continue to be prudent in our forward guidance as a result of our recent improvements to the sales and marketing organization.
In conclusion, our Q3 was solid with revenue beating our expectations. As Rick outlined in his remarks, we have taken meaningful steps throughout this year to improve operations and have achieved more efficient cost structure. This has improved our adjusted EBITDA each quarter this year and reduced our cash usage, a trend that we expect to continue as we progress towards profitability. We believe the trough is behind us. We are improving on all metrics within our control and with the recent reorganization of our sales structure, we are now well positioned to capitalize on the opportunity ahead of us.
With that, I will turn the call back to the operator for questions.
Abby, Conference Operator: Thank you. And we will now begin the question and answer session. And your first question comes from the line of Colin Rusch with Oppenheimer. Your line is open.
: Thanks so much, guys. Could you talk
Colin Rusch, Analyst, Oppenheimer: a little bit about the margin trajectory that you're expecting on the gross margin side? Obviously, you guys have adjusted some of the manufacturing, the component supplies shifted a little bit. But just want to get a sense of how that's trending for you and how we should think about that on a multi quarter basis?
Mansi Kaithani, Chief Financial Officer, ChargePoint: Yes. Hi, Colin. I can take that one. So from a gross margin perspective, we ended with at 26% in Q3. I expect it to be flattish to maybe improve slightly in Q4.
But the majority of improvement or meaningful margin improvement will be realized next year as we sell through our existing inventory and really start seeing the benefits of our Asia manufacturing.
Colin Rusch, Analyst, Oppenheimer: Okay. That's super helpful. And then just in terms of the sales process, can you talk a little bit about the efficiency per headcount that you're seeing with the sales team as well as the win rate that you guys are seeing in terms of the bids and how that's flowing through the sales funnel? Yes.
Rick Wilmer, Chief Executive Officer, ChargePoint: Thanks, Colin, for that question. I've really been pleased with our new leader, David Vice, and the impact he made in, quite frankly, a quarter that was disrupted through the restructuring that we executed during the quarter. But the progress we've made across a variety of initiatives in the sales and marketing area yielded results in Q3, and I'm optimistic about the continued impact those changes will have going forward. They include things like areas of focus on certain segments by geography, clarifying roles and responsibilities within the sales and marketing organization, up leveling sales skills, standardizing processes for moving deals through the deal stages as we take those through to win and execution, a focus on our partner program, our channel partner program, improving that along with the way we generate interest in the company's products from a marketing perspective and process that through into the sales organization for execution.
Colin Rusch, Analyst, Oppenheimer: Appreciate it guys. Thanks so much.
Abby, Conference Operator: And your next question comes from the line of Bill Peterson with JPMorgan. Your line is open.
Bill Peterson, Analyst, JPMorgan: Hi, good afternoon. Thanks for taking my questions. I wanted to come back to your comments that you're not expecting any material changes, I guess, with the incoming administration. I think it's pretty well known that there's expectations around tariffs and potentially 30 D tax credits going away. But maybe, I guess, on the tariff side and your cost structure, trying to get I know you're working with partners in Asia.
If there were to be a tariff implemented, how should we think about the impacts to your, I guess, margin expectations? Would you reflect any capacity back to North America? How should we think of does this give you caution on how to think about the margin expansion in the next term beyond?
Rick Wilmer, Chief Executive Officer, ChargePoint: It's speculative exactly what's going to happen based on what we know so far, Bill. But we don't manufacture in China for one thing. We also have manufacturing operations up and running in the United States and we've had those for a long time. So if it became cost effective to shift more production to the U. S, that's clearly an option that we have available to us right now today if we need to do that.
Bill Peterson, Analyst, JPMorgan: Okay. Thanks for that. You commented earlier that Europe has been challenged. We saw a lot of negative year on year growth trends for many of the countries. France is pulling back in subsidies.
I guess I'm trying to get a sense of how you feel about the strategic rationale with Europe at this stage. Would you consider divestment to shore up the balance sheet as your program unfolds? Or I guess maybe start asking another way, how synergistic are the businesses at this stage?
Rick Wilmer, Chief Executive Officer, ChargePoint: We're committed to Europe and more Maine committed to Europe. Despite the short term uneasiness there, I think the long term prospects look strong. Furthermore, we've got multinational customers that by being present both in Europe and North America, give us a competitive advantage to serve them across both continents. And those are some very important customers to us. So we will continue to focus on Europe.
The other thing I'll tell you is that the focus on sales and marketing that we executed in Q3 was very North America centric and we're now going to turn a lot of that focus to Europe and have no reason to expect similar improvements like those we saw in North America.
Bill Peterson, Analyst, JPMorgan: That's helpful comments. Thank you.
Abby, Conference Operator: And your next question comes from the line of Mark Delaney with Goldman Sachs. Your line is open.
Mark Delaney, Analyst, Goldman Sachs: Good afternoon. Thank you very much for taking the questions. Rick and Massey, you both alluded to your view that the business has troughed and you see some signs to be optimistic heading forward. In light of everything you're seeing in the broader markets, you spoke a bit on Europe, we've already spoken a bit on public policy. Maybe you can just double click a little bit more on what gives you that confidence around the business momentum heading into this coming fiscal year?
Rick Wilmer, Chief Executive Officer, ChargePoint: Yes. I think the other thing that gives us confidence is the continued diversity of EV selection that rolls into the market from the auto OEMs. I think that we are firmly convinced and probably biased that EVs are far superior to internal combustion engine cars as a product in general. And knowing that we now have a broader selection of vehicles coming both in terms of price point, size, shape, form, class, I think that's going to continue to drive EV adoption. So I'm very optimistic that a broader selection of cars is going to help move things forward.
Mansi Kaithani, Chief Financial Officer, ChargePoint: And specifically, Mark, in terms of where we see revenue growth coming from, there are a number of green shoots. One is closing deals that have already been pushed out from this year. In many cases, we're getting indications of potential expansions as well. On the fleet side, there are large deals that we've already won specifically in the e bus space that are expected to ship next year. On the commercial side, there are government and navy related wins that we've already booked that are expected to ship next year as well as auto dealership deals we've won.
Residential has been a strong sector for us as well and we have forecast of growth in volumes from our channel partners. And then of course, there is a continued increase in subscription revenue. So all of this will contribute to a growth in revenue for us specifically next year.
Mark Delaney, Analyst, Goldman Sachs: That's helpful. And my follow-up question, I think more for you, Mansi. You spoke about some additional cost reductions you expect to flow through this coming quarter. Can you be a bit more specific around what to expect around OpEx or OpEx savings and how sustainable that lower run rate may be in the coming year? And I guess, just to conceptualize what that might mean, to the extent there is downside to the business from the top line perspective, and I understand that's not your expectation.
But if there were because of macroeconomic or policy changes, do you think ChargePoint could take more cost out? Or would that be hard to do given how much you've already done on that front? Thank you.
Mansi Kaithani, Chief Financial Officer, ChargePoint: Yes. So overall on the OpEx side, as I mentioned in my prepared remarks, we took out $38,000,000 of an annualized OpEx on an on GAAP basis is towards September restructuring. So we saw that averages to about $9 ish million a quarter and we saw 2 thirds of that impact coming through in Q3 and in Q4 we'll see the Q4 impact. So we're not expecting anything additional in addition to the restructuring that we did in September for the Q4 operating expenses run rate. This run rate will continue through next year.
Obviously, there would be some investments that we will make in certain areas of the business where we see it prudent to do so and where we get direct revenue benefits. But other than that, I think this is a pretty good run rate going into next year. And then to the second part of your question in terms of overall, there is we are always looking at OpEx to see and to find efficiencies. There are so many areas like P and E, that our facilities spend, that are software spend, external consulting services, etcetera, that we can and will continuously look at to see where we can get more synergies from.
Mark Delaney, Analyst, Goldman Sachs: Thank you.
Abby, Conference Operator: And your next question comes from the line of Steven Fox with Fox Advisors. Your line is open.
Steven Fox, Analyst, Fox Advisors: Hi, good afternoon. First question, just to round out the question on the backdrop. Is it safe to say you're also not seeing any buyer hesitancy related to the new politics from any network customers or anything like that? Can you just give us a sense if there's been a reaction there? And then I had a follow-up.
Rick Wilmer, Chief Executive Officer, ChargePoint: Yes. Hi, Steve. Thanks for the question. No, we've seen literally zero change in terms of buying behavior from our customer base.
Steven Fox, Analyst, Fox Advisors: Okay, fair enough. And then if we could do just maybe a little bit deeper dive on the gross margins, looking at it software versus hardware. Are we thinking that the improvement for at least a couple more quarters is just more of a mix of software? Or do we start to see the hardware margins start to improve based on everything that you talked about so far? Thanks.
Mansi Kaithani, Chief Financial Officer, ChargePoint: Yes. So hardware margins have improved as well. As you saw in this quarter, hardware margins were lower than last quarter. It was mostly due to some incremental freight charges for some raw materials that were moved from our U. S.-based CMs to Asia, more and more like a one time impact.
So hardware margins should continue to go up steadily. Hardware margins also kind of are influenced by final mix of product. So depending on where the mix lands, that will cause some fluctuations. But overall, like I said before, the more meaningful improvements in hardware margin will come around middle of next year when we actually start seeing benefit of our Asia manufacturing.
Nandan Amladi, Vice President of Finance and Investor Relations, ChargePoint: Great. That's helpful. Thank you.
Abby, Conference Operator: And your next question comes from the line of Joseph Osha with Guggenheim Partners. Your line is open.
Joseph Osha, Analyst, Guggenheim Partners: Hi there. Thanks for taking my question. Yamansi, you talked about continuing to free up working capital as you sell down inventory. I'm just wondering, is there any kind of obsolescence or price risk that you face is that as you as the time line to bring that inventory expands? And then I have one other question.
Mansi Kaithani, Chief Financial Officer, ChargePoint: So, Joseph, just to clarify, you're saying is there any obsolescence risk in that inventory?
Joseph Osha, Analyst, Guggenheim Partners: Yes, sorry, that's a much more eloquent way of putting it. Thank you.
Mansi Kaithani, Chief Financial Officer, ChargePoint: So, no, I mean most pretty much all the product that we have on our inventory right now is product that we're actively selling. We did, as you can remember, take some write offs earlier, maybe 3, 4 quarters ago on the old generation products. So now all of our inventory is of goods that we're currently selling and we expect to sell those through over a period of time. There is always some write off each quarter. We have variances in terms of maybe changes in standard costs or maybe some really old E and O stuff, which is small.
It's kind of normal course of business that we will continue to do every quarter.
Joseph Osha, Analyst, Guggenheim Partners: Okay. Thank you. And then my other question is just looking at the cash OpEx burn, obviously, you all had a lot of luck bringing that down and continue to work on it. Can we you pretty much have that where you wanted at this point, the idea being that future improvement comes from top line growth? Can we think about it that way?
Mansi Kaithani, Chief Financial Officer, ChargePoint: Yes. So on cash, we were really pleased with our cash usage for this quarter. As we mentioned, we brought it down $24,000,000 which is significantly lower than the $66,000,000 in Q1 $50,000,000 in Q2. The main reason was well, there were two reasons. One is we brought OpEx down, so that directly impacts our cash usage.
And the second one was inventory. This quarter we actually managed to bring inventory down. Last couple of quarters we've been building inventory balance and so we've been investing and using up our cash to bring that inventory on board. This quarter we saw reversal of that trend and we actually freed up cash and reduced our cash burn because of that. And that's what we've been saying.
We should see that accelerate through next year as we bring down inventory in an even more meaningful way. Generally speaking, because of the business that we're in, we're capital light, we don't have any CapEx or very, very little CapEx. Our cash burn should mirror our EBITDA loss pretty closely. And that's basically my goal. That's what we want to get to.
We did that this quarter. Actually this quarter our cash burn was even slightly lower than our EBITDA loss. We'll continue to see that trajectory going forward. And as we get closer to EBITDA breakeven, we should get to cash flow breakeven. We could get to cash flow breakeven a little bit earlier if we see more release of working capital because of reduced inventory.
Joseph Osha, Analyst, Guggenheim Partners: Sure. Thanks. Maybe I didn't state the question quite correctly. The cash OpEx, can we think about that as basically being flat, the non GAAP OpEx going forward?
Mansi Kaithani, Chief Financial Officer, ChargePoint: Okay. I'm sorry. Yes. So Q4 will see the full benefits of the September restructuring. So it should be better than Q3.
And then after that, we think it's more or less in a good place. We're not guiding as of now to next year's OpEx, but for Q4, you should see an improvement versus Q3.
Joseph Osha, Analyst, Guggenheim Partners: Okay. Thank you very much.
Abby, Conference Operator: And your next question comes from the line of Chris Dendranos with RBC Capital Markets. Your line is open.
Nandan Amladi, Vice President of Finance and Investor Relations, ChargePoint0: Yes. Thank you. I just wanted to follow-up on the longer term outlook for '26 and the positive EBITDA comment. Can you just maybe, I guess, walk us through some of the levers that you all have to achieve that? Is that really just a function of revenue growth?
Or are there additional levers that you all have to, I guess, manage on your side outside of the kind of macro demand environment? Thanks.
Mansi Kaithani, Chief Financial Officer, ChargePoint: Yes. Thanks, Chris. So as you saw this year, we've made significant progress towards our getting to adjusted EBITDA positive by managing our cost structure. So that helps on the OpEx side pretty significantly. The two levers that will get us there are revenue growth and gross margin improvement, right.
So revenue growth, as I laid out, there are a number of green shoots that we're seeing that gives us confidence in that in revenue growing next year. And then on the gross margin side, as we start seeing benefits of Asia manufacturing next year, we should see that trending up as well. So we'll see a combination of all of those three factors getting us there.
Nandan Amladi, Vice President of Finance and Investor Relations, ChargePoint0: Got it. That was it for me. Thank you.
Abby, Conference Operator: And your next question comes from the line of Chris Pierce with Needham. Your line is open.
: Hey, good afternoon. Rick, I just want to make sure I followed something you said. Year 2, which is next year, you're going to have generation software and next generation hardware. Does the next generation software work on hardware in the field? And then I just want to understand the timing of the inventory drawdown and the introduction of next generation hardware better?
Rick Wilmer, Chief Executive Officer, ChargePoint: So let me take the first part of that, Chris. So all of our software is absolutely backward compatible with all of our prior products and will obviously support all the new products that we'll be introducing. Furthermore, we have talked many times about the fact that our software platform is open. So we manage a lot of third party hardware with our software that's not even ours. So we're fully compatible across the board with prior generation, next generation and third party hardware.
And what was the second part again, Chris?
: I'm just curious about the timing. You talked about next generation hardware coming next year, but you've got this inventory build right now that you're looking to draw down. I just it seems like they're both kind of landing at the same time, if I have that right or I just want to understand the timing of the draw down versus building inventory next generation hardware?
Rick Wilmer, Chief Executive Officer, ChargePoint: Yes. So we are very diligent about aligning supply with demand. And we're confident that as we introduce new products, the products, if they do replace a prior product and are not something new, that will manage that transition effectively to avoid any significant obsolescence of an older product. And we've looked at that very carefully and are confident that we're in fine shape in that regard.
: Okay, perfect. And then can you just touch on the essential cloud plan that you released that you talked about at the end of October? This does this sort of put you on the path to being an owner operator or quasi owner operator since you're taking revenue from the drivers now and this allows customers to have a lower monthly cost burden? I just want to understand the path that you're on or if this is just more of a special project for multifamily dwelling type buyers.
Rick Wilmer, Chief Executive Officer, ChargePoint: No, good question and thanks for asking that question. It definitely does not put us into the position of being an energy seller. That is not our business. That would put us in competition with our customers and we have no plans to do anything like that. So this is really an easy to buy or an easy to consume way to take care of your licensing requirements to ChargePoint.
So rather than every year get a renewal notice for your software or your enhanced warranty services. We just deduct that from your driver revenue until the amount you owe us for those services are paid and then you could cover the rest. So you forego the hassle of getting renewal notices as a customer and having to get a quote from us and pay the invoice. It just happens automatically. It also improves our internal efficiency because we don't have to do all that renewal work on an annual or however long the term of the license is.
: Okay, perfect. Thank you.
Abby, Conference Operator: And your next question comes from the line of Gabe Daoud with TD Cowen. Your line is open.
Nandan Amladi, Vice President of Finance and Investor Relations, ChargePoint1: Hey, afternoon, everyone. Thanks for taking my questions. Rick, I was curious if you could maybe give us a bit more color on this software you deployed for GM, a new use case with a major fast charging network in the U. S. Just curious if you could maybe talk a little bit about that and if you outlined or identified additional use cases for this new software, I guess?
Rick Wilmer, Chief Executive Officer, ChargePoint: Yes, we won't go into too many details about that. It was a significant project and it also applies to things we can do with other auto OEMs.
Nandan Amladi, Vice President of Finance and Investor Relations, ChargePoint1: Okay. Okay, fair enough. Thanks for that. And then just as a follow-up, Mansi, you mentioned gross margin next year will ultimately also depend on mix. So I was curious if you can maybe level set a bit and give us an update or maybe rank within the portfolio like level 2 is CP6000 now the more margin rich product versus CT 4 ks or CPF 50, the new one like more margin rich?
And similarly on the DC side, which Express offering would be the most margin rich at this point?
Mansi Kaithani, Chief Financial Officer, ChargePoint: Yes. So we're selling both CT 4 ks, which is our legacy AC product as well as the CP 6 ks, which is a more premium product and both are margin rich. All of our AC portfolios is margin rich. And on the DC side, with the Asia manufacturing coming on board that will help the DC margins more significantly.
Nandan Amladi, Vice President of Finance and Investor Relations, ChargePoint1: Okay. Okay. Thanks, Marci. Thanks, Rick.
: Thank you.
Abby, Conference Operator: And your next question comes from the line of Patrick Ouellet with Stifel. Your line is open.
Nandan Amladi, Vice President of Finance and Investor Relations, ChargePoint2: Hey, it's Pat O'Lett on for Steven Jagara. Thanks for taking the questions. You'd been optimistic about some green shoot potentials next year and seeing customers significantly expand their deployment plans. I'm curious if expectations have shifted one way or another? And then any comments you could provide specifically on the fleet side?
Rick Wilmer, Chief Executive Officer, ChargePoint: Yes, Sid, I think in general across all segments, especially in North America, we're seeing demand that is pleasing to us. And again, with the improvements we've made in terms of sales and marketing execution, we're executing on that demand better. So it seems to be pretty evenly spread across all segments, at least in North America, again, with a bit slower market growth in Europe at the moment. And in fleet, in particular, I think we've got some exciting opportunities there, and those tend to come in large deal chunks. And we've got some pretty exciting things there that we're working on that I'm looking forward to next year.
Colin Rusch, Analyst, Oppenheimer: All right. Thanks for that.
Nandan Amladi, Vice President of Finance and Investor Relations, ChargePoint2: And then looking into next year with the Asia Manufacturing coupled with potential increasing higher margin subscription revenue, could you talk about any associated ramp in margin, understanding you still have to get through the inventory on hand, but just looking for insight on how margin progresses throughout the year? And then any thoughts on a more competitive market for product sales impacting margin?
Mansi Kaithani, Chief Financial Officer, ChargePoint: Yes. So I'll take the first part regarding margin expansion next year. Yes, you're correct. We do expect margin to expand next year. We'll start seeing it happen around middle of next year.
And you are also correct, both hardware and subscription margins should expand, hardware because of the Asia manufacturing coming on board and then subscription margins expanding because we will continue to see a larger size of subscription revenue in overall revenue as well as more efficiencies and economies of scale. What was the second part, sorry, of your question?
Nandan Amladi, Vice President of Finance and Investor Relations, ChargePoint2: Thanks for that. Just like any thoughts on a more competitive market for product sales impacting margin?
Rick Wilmer, Chief Executive Officer, ChargePoint: Yes. The competitive landscape, it moves around, but in terms of the overall strength of the competition, it doesn't seem to change on an overall basis in an appreciable way. The one thing we have noticed is that all the investments we've made in our support organization, the example of our AI picture to resolution feature that we rolled out last quarter, those are starting to make a real differentiating factor for us. We're winning deals on our ability to support our customers and make sure their networks stay up and stay reliable.
Nandan Amladi, Vice President of Finance and Investor Relations, ChargePoint2: All right. Thanks a bunch.
Abby, Conference Operator: And your next question comes from the line of Craig Irwin with ROTH Capital Partners (WA:CPAP). Your line is open.
Steven Fox, Analyst, Fox Advisors: Good evening and thanks for taking my question. I wanted to ask for a little bit more color around the sort of base assumptions in your forecast for growth and the return to positive EBITDA or I should say the achievement of positive EBITDA because it will be a very important milestone. Can you maybe give us color on the relative contribution you expect from new products in verticals that you don't already serve versus new products in that are updates as you've referred to them multiple times on the call versus organic growth and a positive trajectory for products that you already have established channels and relationships and customers for?
Rick Wilmer, Chief Executive Officer, ChargePoint: Good question, Craig. Nice to hear from you. I think next year, the new products that serve new use cases and categories will not contribute much. Those are really going to be developed and launched as we move through the year and start to show significant financial benefit in the following year. So the majority of the revenue in the upcoming fiscal year, our fiscal 'twenty six, which starts on February 1, will come from our existing portfolio.
Steven Fox, Analyst, Fox Advisors: Excellent. Thank you for that. And then just as a follow-up question, we're hearing a lot of interest about sort of an accelerated changeover to the NATs on the part of many sort of third party network operators. Can you maybe comment a little bit about the availability of the necessary hardware to make that change, whether or not that's something that you could earn incremental service dollars on as these networks are looking to pursue growth with the Tesla (NASDAQ:TSLA) fleet versus the non Tesla fleet, which has been a big boon for many of them over the last few years?
Rick Wilmer, Chief Executive Officer, ChargePoint: Yes, another good question. Thanks, Craig. We're in good shape there. We've got our Omniport solution that we've publicly announced. It's going to begin shipping here very soon.
And our parking lot is full of them and they are used frequently and it's a really elegant solution that basically makes the connector on your car irrelevant. You can come charge at a ChargePoint station no matter what you have as long as you've got the Omniport solution installed. And we do expect customers to spend money upgrading to that solution as we move through into next year.
Steven Fox, Analyst, Fox Advisors: Excellent. Well, congratulations on the progress bringing down cost. I'll
Colin Rusch, Analyst, Oppenheimer: hop back in the queue.
Mansi Kaithani, Chief Financial Officer, ChargePoint: Thank you.
Abby, Conference Operator: And ladies and gentlemen, that concludes our question and answer session and today's conference call. We thank you for your participation and you may now disconnect.
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