The following discussion and analysis provides information which
ChargePoint'smanagement believes is relevant to an assessment and understanding of ChargePoint'sconsolidated results of operations and financial condition. This section of this Form 10-K discusses fiscal year 2022 and 2021 items and year-to-year comparisons between fiscal year 2022 and 2021. Discussions of fiscal year 2020 items 40
and year-over-year comparisons between fiscal year 2021 and fiscal year 2020 are not included in this Form 10-K, and can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Company's Form S-1 Registration Statement filed on
October 14, 2021. The discussion should be read together with the consolidated financial statements and related notes that are included elsewhere in this Annual Report on Form 10-K. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. ChargePoint'sactual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Risk Factors" included under Part I, Item 1 A. Overview ChargePointdesigns, develops and markets networked EV charging system infrastructure ("Networked Charging Systems") and cloud-based services which enable consumers the ability to locate, reserve, authenticate and transact EV charging sessions ("Cloud" or "Cloud Services"). As part of ChargePoint'sNetworked Charging Systems, subscriptions and other offerings, it provides an open platform that integrates with system hardware from ChargePointand other manufacturers, connecting systems over an intelligent network that provides real-time information about charging sessions and full control, support and management of the Networked Charging Systems. This network provides multiple web-based portals for charging system owners, fleet managers, drivers and utilities. ChargePointgenerates revenue primarily through the sale of Networked Charging Systems, a Cloud Services subscription and an extended parts and labor warranty subscription ("Assure"), each of which is typically paid for upfront. Assure also includes proactive monitoring, fast response times, expert advice and robust reporting. The ChargePointas a Service ("CPaaS") program combines the customer's use of ChargePoint'sowned and operated systems with Cloud Services, Assure and other benefits available to subscribers into one subscription. ChargePointtargets three key customer markets: commercial, fleet and residential. Commercial customers have parking places largely within their workplaces and includes retail, hospitality and parking lot operators. Fleet includes municipal buses, delivery and work vehicles, port/airport/warehouse and other industrial applications, ride-sharing services, and, is expected to eventually include, autonomous transportation. Residential includes single family homes and multifamily residences. Since ChargePoint'sinception in 2007, it has been engaged in developing and marketing its Networked Charging Systems, subscriptions and other offerings, raising capital and recruiting personnel. ChargePointhas incurred net operating losses and negative cash flows from operations in every year since its inception. As of January 31, 2022and 2021, ChargePointhad an accumulated deficit of $811.7 millionand $679.4 million, respectively. ChargePointhas funded its operations primarily from sales of its solutions, with proceeds from the issuance of redeemable convertible preferred stock and Common Stock and borrowings under prior loan facilities.
Closing of the merger
February 26, 2021(the "Closing Date"), Switchback Energy Acquisition Corporation("Switchback"), consummated the previously announced transactions pursuant to which Lightning Merger Sub Inc., a wholly owned subsidiary of Switchback incorporated in the State of Delaware("Merger Sub"), merged with ChargePoint, Inc., a Delawarecorporation ("Legacy ChargePoint"); Legacy ChargePointsurvived as a wholly-owned subsidiary of Switchback (the "Merger" and, collectively with the other transactions described in the Merger Agreement, dated as of September 23, 2020, by and among Switchback, Merger Sub and Legacy ChargePoint, the "Merger Agreement", and such transactions the "Reverse Recapitalization"). On the Closing Date, and in connection with the closing of the Merger (the "Closing"), Switchback changed its name to ChargePoint Holdings, Inc.("ChargePoint"). Pursuant to the terms of the Merger Agreement, each stockholder of Legacy ChargePointreceived 0.9966 shares of ChargePoint'scommon stock, par value $0.0001per share (the "Common Stock") and the contingent right to receive as additional merger consideration certain Earnout Shares (as defined below), for each share of Legacy ChargePoint common stock, par value $0.0001per share, owned by such Legacy ChargePoint stockholder that was outstanding immediately prior to the Closing (other than any shares of Legacy ChargePoint restricted stock). In addition, certain investors purchased an aggregate of 22,500,000 shares of Common Stock (such investors, the " PIPE Investors") concurrently with the Closing for an aggregate purchase price of $225.0 million. Additionally, at the Closing, after giving effect to the forfeiture contemplated by the Founders Stock Letter (as defined below), each outstanding share of ChargePoint'sClass B common stock, par value $0.0001per share ("Founder Shares"), was converted into a share of Common Stock on a one-for-one basis and the Founder Shares ceased to exist. Also at the Closing, NGP Switchback, LLC(the "Sponsor") exercised its right to convert a portion of the working capital loans made by the Sponsor to Switchback into an additional 1,000,000 Private Placement Warrants at a price of $1.50per warrant in satisfaction of $1.5 millionprincipal amount of such loans. During the time period between the Closing and the five-year anniversary of the Closing Date, eligible former equityholders were eligible to receive up to 27,000,000 additional shares of ChargePoint'sCommon Stock (the "Earnout Shares") in the aggregate in three equal tranches if the volume-weighted average closing sale price of the Common Stock is greater than or equal to $15.00, $20.00and $30.00for any 10 trading days within any 20 consecutive trading day period ("Earnout Triggering Events"). As discussed below, all three Earnout Triggering Events occurred during the fiscal year ended January 31, 2022. 41
In addition, pursuant to the terms of the Merger Agreement, at the effective time of the Merger (the "Effective Time"), (1) warrants to purchase shares of capital stock of Legacy ChargePoint were converted into warrants to purchase an aggregate of 38,761,031 shares of Common Stock and the contingent right to receive certain Earnout Shares, (2) options to purchase shares of common stock of Legacy ChargePoint were converted into options to purchase an aggregate of 30,135,695 shares of Common Stock and, with respect to vested options, the contingent right to receive certain Earnout Shares and (3) unvested restricted shares of common stock of Legacy ChargePoint that were outstanding pursuant to the "early exercise" of Legacy ChargePoint options were converted into an aggregate of 345,689 restricted shares of
ChargePoint(the "Restricted Shares").
During the time period between the Closing and the five-year anniversary of the Closing Date, eligible former equity holders could receive up to 27,000,000 additional shares of Earnout Shares if the Earnout Triggering Events were met. On
March 19, 2021, a total of approximately 18,000,000 shares of Common Stock were released to eligible former equity holders of Legacy ChargePoint pursuant to the Earnout Shares provisions of the Merger Agreement, as the first two Earnout Triggering Events had been met by virtue of the volume-weighted average closing sale price of Common Stock having been greater than or equal to $15.00and $20.00for ten (10) trading days out of twenty (20) consecutive trading days following the closing of the Merger. The holders of Legacy ChargePoint common stock (other than restricted stock), warrants and vested options as of the closing of the Merger received their pro rata portion of the Earnout Shares. On July 1, 2021, a total of approximately 9,000,000 shares of Common Stock were released to eligible former equity holders of Legacy ChargePoint pursuant to the Earnout Shares provision of the Merger Agreement, as the third Earnout Triggering Event was met by virtue of the volume-weighted average closing sale price of Common Stock having been greater than or equal to $30.00for ten (10) trading days out of twenty (20) consecutive trading days following the closing of the Merger. Acquisitions On August 11, 2021, ChargePointacquired all of the outstanding shares of ViriCiti B.V.("ViriCiti") for $79.4 millionin cash, subject to adjustments, as well as up to $7.7 millionof additional earnout consideration contingent on meeting certain revenue targets through January 31, 2023("ViriCiti Earnout"). ViriCiti is a Netherlands-based provider of electrification solutions for eBus and commercial fleets with offices in the Netherlandsand the United States. The acquisition is expected to enhance ChargePoint'sfleet solutions portfolio of hardware, software and services by integrating information sources to optimize electric fleet operations. On October 6, 2021, ChargePointacquired all of the outstanding shares of has•to•be gmbh ("has•to•be" or "HTB") for $235.0 million, consisting of $132.9 millionpaid in cash and $102.1 millionin the form of 5,695,176 of Common Stock, of which 885,592 shares, valued at $15.9 million, are subject to escrow to secure potential future indemnification claims. Has•to•be is an Austria-based e-mobility provider with a European charging software platform. The acquisition is intended to expand ChargePoint'smarket share in Europe.
Main factors affecting operating results
Growth in adoption of electric vehicles
ChargePoint'srevenue growth is directly tied to the number of passenger and commercial EVs sold, which it believes drives the demand for charging infrastructure. The market for EVs is still rapidly evolving and although demand for EVs has grown in recent years, there is no guarantee of such future demand. Factors impacting the adoption of EVs include but are not limited to: perceptions about EV features, quality, safety, performance and cost; perceptions about the limited range over which EVs may be driven on a single battery charge; volatility in the cost of oil and gasoline; availability of services for EVs; consumers' perception about the convenience and cost of charging EVs; and increases in fuel efficiency. In addition, macroeconomic factors, including governmental mandates and incentives, could impact demand for EVs, particularly since they can be more expensive than traditional gasoline-powered vehicles and the automotive industry globally has been experiencing a recent decline in sales. Further, geopolitical factors, such as the invasion of the Ukraineby Russiamay negatively impact the global automotive supply chain and reduce the manufacturing of automobiles, including EVs. If the market for EVs does not develop as expected or if there is any slow-down or delay in overall EV adoption or manufacturing rates, ChargePoint'sfinancial condition and results of operations would be negatively impacted and such impact may be material. Competition ChargePointis currently a market leader in North Americain the commercial Level 2 Alternating Current ("AC") charging. ChargePointalso offers AC chargers for use at home or multifamily settings and for fleet applications, and high-power Level 3 Direct Current ("DC") chargers for fast urban charging, corridor or long-trip charging and fleet applications. ChargePointintends to expand its market share over time in its product categories, leveraging the network effect of its products and Cloud Services software. Existing competitors may expand their product offerings and sales strategies, and new competitors may enter the market. If ChargePoint'smarket share decreases due to increased competition, its financial condition and results of operations in the future may be negatively impacted. 42
ChargePoint'ssuccess could be negatively impacted if consumers and business choose other types of alternative fuel vehicles or high fuel-economy gasoline powered vehicles.
ChargePointoperates in North Americaand selected countries in Europe. Europeis expected to be a significant contributor to ChargePoint'srevenue in future years. ChargePointis using a portion of the proceeds from the Merger to increase its sales and marketing activities in Europe. ChargePointis also positioned to grow its European business through existing partnerships with car leasing companies and its recently closed acquisition of ViriCiti and has•to•be. In Europe, ChargePointprimarily competes with other providers of EV charging station networks. Many of these competitors have limited funding, which could cause poor customer experiences and have a negative impact on overall EV adoption in Europe. ChargePoint'sgrowth in Europerequires differentiating itself as compared to these existing competitors. If ChargePointis unable to continue penetrating the market in Europe, its financial condition and results of operations would be negatively impacted.
ChargePoint'sfuture growth is highly dependent upon fleet applications. Because fleet operators often make large purchases of EVs, volatility may be more pronounced and any significant decline from these customers may have an adverse impact on ChargePoint'spotential for future growth and such impact may be material.
Impact of new product launches and investments in growth
ChargePointintroduces new products, such as the release of its Level 3 DC fast charger in fiscal year 2020, its gross margins may be initially negatively impacted by launch costs and lower volumes until it achieves targeted cost reductions. Cost reductions may not occur on the timeline ChargePointexpects due to unanticipated supply chain difficulties. For example, ongoing supply chain challenges and heightened logistic costs related to disruptions caused by COVID-19 and component shortages decreased gross margins in the fiscal year ended January 31, 2022, and ChargePointexpects gross margins will continue to be adversely affected by increased material costs and freight and logistic expenses in fiscal year ending January 31, 2023. In addition, ChargePointmay accelerate its expenditures where it sees growth opportunities, which may impact gross margin until upfront costs and inefficiencies are absorbed and normalized operations are achieved. ChargePoint'sfocus on optimizing for customer acquisition and prioritizing an assurance of supply of its products as part of its "land-and-expand" model generally results in gross margin pressure, and ChargePoint'sstrategy is to grow such customer relationships over time and develop customers whobecome a source of ongoing subscription revenue. ChargePointalso continuously evaluates and may adjust its expenditures based on its launch plans for new products, as well as other factors including the pace and prioritization of current projects under development and the addition of new projects. As ChargePointattains higher revenue, it expects operating expenses as a percentage of total revenue to decrease as it scales and focuses on increasing operational efficiency and process automation.
Mandates, Incentives and Government Programs
U.S.federal government, certain foreign governments and some state and local governments provide incentives to end users and purchasers of EVs and EV infrastructure in the form of rebates, tax credits and other financial incentives. These governmental rebates, tax credits and other financial incentives significantly lower the effective price of EVs and EV infrastructure to customers. For example, the infrastructure Investment and Jobs Act signed into law on November 15, 2021would provide additional funding for EVs and EV charging infrastructure through the creation of new programs and grants and the expansion of existing programs, including $7.5 billionfor EV charging along highway corridors. However, such incentives take time to be disbursed and to affect actual expenditure decisions. These incentives may also expire on specified dates, end when the allocated funding is no longer available, or be reduced or terminated as a matter of regulatory or legislative policy. For example, the credits under Section 30C of the Internal Revenue Code of 1986, as amended (the "Code") which benefit investments in EV infrastructure expired on December 31, 2021, and there can be no assurance that the credits under Section 30C of the Code will be extended in the future. Any reduction in rebates, tax credits or other financial incentives could reduce the demand for EVs and for charging infrastructure, including infrastructure ChargePointoffers. ChargePointalso derives other revenue from fees received for regulatory credits earned for participating in low carbon fuel programs in approved U.S.states. ChargePointclaims these regulatory credits only if they are not claimed by purchasers of its EV charging stations; only a small percentage of its customers currently elect to claim such credits. If a material percentage of its customers were to claim these regulatory credits, ChargePoint'srevenue from this source could decline significantly, which could have an adverse effect on its revenue and overall gross margin. Prior to fiscal year 2021, ChargePointderived a slight majority of its other revenue from these regulatory credits. However, revenue from this source as a percentage of total revenue has declined recently and may continue to decline over time. Further, the availability of such credits depends on continued governmental support for these programs. If these programs are modified, reduced or eliminated, ChargePoint'sability to generate this revenue in the future would be adversely impacted. 43
Supply chain disruptions and COVID-19
March 2020, the World Health Organizationcharacterized COVID-19 as a pandemic. The impact of COVID-19, including changes in consumer and business behavior, pandemic fears and market downturns, and restrictions on business and individual activities, has created significant volatility in the global economy and led to reduced economic activity. The spread of COVID-19 has disrupted ChargePoint'ssupply chain and heightened its freight and logistic costs, and has similarly disrupted manufacturing, delivery and overall supply chain of vehicle manufacturers and suppliers, which has led to fluctuations in EV sales in markets around the world. These ongoing supply chain challenges and heightened logistic costs decreased gross margins in the fiscal year ended January 31, 2022, and ChargePointexpects that gross margins will continue to be adversely affected by increased material costs and freight and logistic expenses in fiscal year ending January 31, 2023. As a result of the COVID-19 pandemic, ChargePointinitially modified its business practices (including reducing employee travel, recommending that all non-essential personnel work from home and canceling or reducing physical participation in sales activities, meetings, events and conferences), implemented additional safety protocols for essential workers, and implemented temporary cost cutting measures in order to reduce its operating costs. ChargePointhas commenced a "return-to-office" plan, which includes shifting to a hybrid model where employees have flexibility to work from home, ChargePointhas not yet set a return-to-office-date in light of the dynamic nature of the COVID-19 pandemic.The COVID-19 pandemic has resulted in government authorities implementing numerous measures to try to contain the COVID-19 virus, such as travel bans and restrictions, quarantines, stay-at-home or shelter-in-place orders and business shutdowns. While these measures may be relaxed or revised in some areas, there is no guarantee these measures will not be reinstated or resumed due to additional variants of COVID-19 or the inability or ineffectiveness of public health measures to limit the further spread of COVID-19. ChargePointmay take further actions as may be required by government authorities or that it determines are in the best interests of its employees, customers, suppliers, vendors and business partners as the result of the COVID-19 pandemic. The ultimate full societal and economic impact of the COVID-19 pandemic remains unknown and its duration and extent depend on current and future developments that cannot be accurately predicted. It has already had an adverse effect on the global economy, which have and likely will vary over time and across the geographies in which ChargePointoperates. For example, variations in work-from-home policies can cause fluctuations in ChargePoint'srevenues, and ChargePointbelieves that since people are not yet fully back to offices it has not yet seen the full return of commercial customer demand for its products. The conditions caused by the COVID-19 pandemic, such as more permanent work-from-home policies, are likely to continue affecting the rate of global infrastructure spending, and thus to continue to adversely impact ChargePoint'scommercial business and its overall gross margin as ChargePoint'scommercial business contributes higher margins than its residential and fleet businesses. Further, the COVID-19 pandemic could continue to heighten supply chain pricing and logistics expenses and further adversely impact ChargePoint'sgross margins, adversely affect demand for ChargePoint'splatforms, lengthen its product development and sales cycles, reduce the value, renewal rate or duration of subscriptions, negatively impact collections of accounts receivable, reduce expected spending from new customers, cause some of its paying customers to go out of business and limit the ability of its direct sales force to travel to customers and potential customers, all of which could adversely affect ChargePoint'sbusiness, results of operations and financial condition.
Operating results and its components
Network charging systems
Networked Charging Systems revenue includes the deliveries of EV charging system infrastructure, which include a range of Level 2 AC products for use in residential, commercial and fleet applications, and Level 3 DC, or fast-charge products for use in commercial and fleet applications. A significant portion of
ChargePoint'sNetworked Charging Systems revenue is presently derived from the sale of Level 2 AC products. ChargePointgenerally recognizes revenue from sales of Networked Charging Systems upon shipment to the customer, at which point ChargePoint'sperformance obligation is satisfied.
Subscriptions revenue consists of services related to Cloud, as well as extended maintenance service plans under Assure. Subscriptions revenue also consists of CPaaS revenue which combines the customer's use of
ChargePoint'sowned and operated systems with Cloud and Assure programs into a single subscription. CPaaS subscriptions are considered for accounting purposes to contain a lease for the customer's use of ChargePoint'sowned and operated systems unless the location allows the customer to receive incremental economic benefit from regulatory credits earned on that EV charging system. Lessor revenue relates to operating leases and historically has not been material. Subscriptions revenue is generally recognized over time on a straight-line basis as ChargePointhas an ongoing obligation to deliver such services to the customer. 44
Other revenue consists of fees received for transferring regulatory credits earned for participating in low carbon fuel programs in approved states, charging related fees received from drivers using charging sites owned and operated by
ChargePoint, net transaction fees earned for processing payments collected on driver charging sessions at charging sites owned by its customers, and other professional services. Revenue from regulatory credits is recognized when the regulatory credits are transferred. Revenue from fees for owned and operated sites is recognized over time on a straight-line basis over the performance period of the service contract as ChargePointhas an ongoing obligation to deliver such services. Revenue from driver charging sessions and charging transaction fees is recognized when the charging session or transaction is completed. Revenue from professional services is recognized as the services are rendered. ChargePointexpects revenue to grow in both Networked Charging Systems and subscriptions due to increased demand in EVs and the related charging infrastructure market. For the Year Ended January 31, Change 2022 2021 2020 2022 vs 2021 2021 vs 2020 Change Change Change Change (dollar amounts in thousands, except percentages) ($) (%) ($) (%) Networked Charging Systems $ 173,850 $ 91,893 $ 101,012 $ 81,95789.2 % $ (9,119)(9.0) % Percentage of total revenue 72.1 % 62.7 % 69.9 % Networked Charging Systems revenue increased for fiscal year ended January 31, 2022compared to fiscal year 2021 primarily due to a continued increase in demand from customers resulting in higher volumes of systems delivered across ChargePoint'smajor product families. For the Year Ended January 31, Change 2022 2021 2020 2022 vs 2021 2021 vs 2020 Change Change Change Change (dollar amounts in thousands, except percentages) ($) (%) ($) (%) Subscriptions $ 53,512 $ 40,563 $ 28,930 $ 12,94931.9 % $ 11,63340.2 % Percentage of total revenue 22.2 % 27.7 % 20.0 % Subscriptions revenue increased for the fiscal year ended January 31, 2022compared to fiscal year 2021. The increase was primarily due to the growth in the number of Networked Charging Systems connected to ChargePoint'snetwork, and contributions from newly acquired companies in Europe. For the Year Ended January 31, Change 2022 2021 2020 2022 vs 2021 2021 vs 2020 Change Change Change Change (dollar amounts in thousands, except percentages) ($) (%) ($) (%) Other revenue $ 13,644 $ 14,034 $ 14,573 $ (390)(2.8) % $ (539)(3.7) % Percentage of total revenue 5.7 % 9.6 % 10.1 % Other revenue decreased for the fiscal year ended January 31, 2022compared to fiscal year 2021 primarily due to newly acquired companies in Europe, partially offset by a continued decrease in regulatory credits transferred.
Network charging systems
ChargePointuses contract manufacturers to manufacture the substantial majority of its Networked Charging Systems. ChargePoint'sin-house manufacturing is typically limited to initial development units and to early customer samples. ChargePoint'scost of revenue for the sale of Networked Charging Systems includes the contract manufacturer costs of finished goods and shipping and handling. For ChargePoint'slimited in-house production, cost of revenue for the sale of Networked Charging Systems also includes parts, labor, manufacturing costs, and allocated facilities and information technology expenses. Cost of revenue for the sale of Networked Charging Systems also consists of salaries and related personnel expenses, including stock-based compensation, warranty provisions, depreciation of manufacturing related equipment and facilities, amortization of capitalized internal-use software, and allocated facilities and information technology expenses. As revenue is recognized, ChargePoint accounts for estimated warranty cost as a charge to cost of revenue. The estimated warranty cost is based on historical and predicted product failure rates and repair expenses. 45
Cost of Subscriptions revenue includes salaries and related personnel expenses, including stock-based compensation and third-party support costs to manage the systems and helpdesk services for drivers and site hosts, network and wireless connectivity costs for subscription services, field costs for Assure, depreciation of owned and operated systems used in CPaaS arrangements, amortization of capitalized internal-use software development costs, allocated facilities and information technology expenses.
Cost of other revenue includes depreciation and other costs for
ChargePoint'sowned and operated charging sites, charging related processing charges, salaries and related personnel expenses, including stock-based compensation, as well as costs of professional services. For the Year Ended January 31, Change 2022 2021 2020 2022 vs 2021 2021 vs 2020 Change Change Change Change (dollar amounts in thousands, except percentages) ($) (%) ($) (%) Cost of Networked Charging Systems revenue $ 147,313 $ 87,083 $ 105,940 $ 60,23069.2 % $ (18,857)(17.8) % Percentage of total revenue 61.1 % 59.4 % 73.3 %
Network charging system cost revenue increased in the year ended
For the Year Ended January 31, Change 2022 2021 2020 2022 vs 2021 2021 vs 2020 Change Change Change Change (dollar amounts in thousands, except percentages) ($) (%) ($) (%) Cost of Subscriptions revenue
$ 31,190 $ 20,385 $ 16,244 $ 10,80553.0 % $ 4,14125.5 % Percentage of total revenue 12.9 % 13.9 % 11.2 % Cost of subscriptions revenue increased during fiscal year ended January 31, 2022compared to the same period in 2021 primarily due to an increase of customer support personnel cost resulting from headcount increases, including stock-based compensation. For the Year Ended January 31, Change 2022 2021 2020 2022 vs 2021 2021 vs 2020 (dollar amounts in thousands, except Change Change Change Change percentages) ($) (%) ($) (%) Cost of Other Revenue $ 8,970 $ 6,073 $ 4,289 $ 2,89747.7 % $ 1,78441.6 % Percentage of total revenue 3.7 % 4.1 % 3.0 %
The cost of other products increased for the year ended
compared to the same period in 2021. The increase is mainly related to higher processing fees related to billing and amortization of owned and operated charging sites.
Gross Profit and Gross Margin Gross profit is revenue less cost of revenue and gross margin is gross profit as a percentage of revenue.
ChargePointoffers a range of Networked Charging Systems products which vary widely in selling price and associated gross margin, as for example ChargePoint'scommercial business contributes higher margins than its residential and fleet businesses. Accordingly, ChargePoint'sgross profit and gross margin have varied and are expected to continue to vary from period to period due to revenue levels; geographic, vertical and product mix; new product introductions, and its efforts to optimize its operations and supply chain. In the long term, improvements in ChargePoint'sgross profit and gross margin will depend on its ability to continue to optimize its operations and supply chain as it increases its revenue. However, at least in the short term, as ChargePointcontinues to optimize for customer acquisition and prioritize assurance of supply of its products as part of the "land-and-expand" model, launches new Networked Charging Systems products, grows its presence in Europewhere it has not yet achieved economies of scale, and expands its solutions for its fleet customers, it expects gross margin to experience pressure and variability from period to period. In addition, ChargePointexpects 46
gross margins will continue to be impacted by increased material, freight and logistics costs due to continued global supply chain disruptions and related measures.
For the Year Ended January 31, Change 2022 2021 2020 2022 vs 2021 2021 vs 2020 Change Change Change Change (dollar amounts in thousands, except percentages) ($) (%) ($) (%) Gross Profit
$ 53,533 $ 32,949 $ 18,042 $ 20,58462.5 % $ 14,90782.6 % Gross Margin 22.2 % 22.5 % 12.5 % Gross profit increased for the fiscal year ended January 31, 2022compared to the same period in 2021 primarily due to an increase in Networked Charging Systems sales that resulted from an increase in the number of Networked Charging Systems delivered. Gross margin slightly decreased for the fiscal year ended January 31, 2022compared to the same period in 2021 as margins on Networked Charging Systems sales from improved manufacturing efficiencies were offset by lower subscription revenue margins primarily due to an increase in stock-based compensation expense.
Research and development costs
Research and development expenses consist primarily of salaries and related personnel expenses, including stock-based compensation, for personnel related to the development of improvements and expanded features for
ChargePoint'sservices, as well as quality assurance, testing, product management, amortization of capitalized internal-use software, and allocated facilities and information technology expenses. Research and development costs are expensed as incurred. ChargePointexpects its research and development expenses to increase on an absolute basis for the foreseeable future as ChargePointcontinues to invest in research and development activities to achieve its technology and product roadmap. For the Year Ended January 31, Change 2022 2021 2020 2022 vs 2021 2021 vs 2020 Change Change Change Change (dollar amounts in thousands, except percentages) ($) (%) ($) (%) Research and Development Expenses $ 145,043 $ 75,017 $ 69,464 $ 70,02693.3 % $ 5,5538.0 % Percentage of total revenue 60.2 % 51.2 %
Research and development expenses increased during the fiscal year ended
January 31, 2022compared to the same period in 2021 and was primarily attributable to a $23.7 millionincrease in stock-based compensation expense from restricted stock unit ("RSU") grants, a $22.7 millionincrease in salary and bonus expenses due to headcount growth, a $11.8 millionincrease in engineering materials and services costs, a $3.3 millionincrease in consulting services, as well as a $4.1 millionincrease in allocated costs.
Sales and marketing expenses
Sales and marketing expenses consist primarily of salaries and related personnel expenses, including stock-based compensation, sales commissions, professional services fees, travel, marketing and promotional expenses amortization of capitalized internal-use software and allocated facilities and information technology expenses.
ChargePointexpects its sales and marketing expenses to increase on an absolute basis for the foreseeable future while it continues to add sales and marketing personnel, expand its sales channels and expand in Europe. For the Year Ended January 31, Change 2022 2021 2020 2022 vs 2021 2021 vs 2020 Change Change Change Change (dollar amounts in thousands, except percentages) ($) (%) ($) (%) Sales and marketing expenses $ 92,550 $ 53,002 $ 56,997 $ 39,54874.6 % $ (3,995)(7.0) % Percentage of total revenue 38.4 % 36.2 %
Sales and marketing expenses increased during the fiscal year ended
January 31, 2022compared to the same period in 2021 primarily attributable to a $18.1 millionincrease in salary, bonus and commissions due to headcount growth, a $7.7 millionincrease in stock-based compensation expense resulting mainly from RSU grants, a $3.2 millionincrease in amortization expense mainly due to 47
acquisition of intangible assets related to customer relations resulting from business combinations,
General and administrative expenses
General and administrative expenses consist primarily of salaries and related personnel expenses, including stock-based compensation, related to finance, legal and human resource functions, contractor and professional services fees, audit and compliance expenses, insurance costs, bad debt expenses, amortization of capitalized internal-use software and general corporate expenses, including allocated facilities and information technology expenses.
ChargePointexpects its general and administrative expenses to increase in absolute dollars as it continues to grow its business and to operate as a public company, including expenses necessary to comply with the rules and regulations applicable to companies listed on a national securities exchange and related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, as well as higher expenses for director and officer insurance, investor relations and legal, accounting and other professional services. For the Year Ended January 31, Change 2022 2021 2020 2022 vs 2021 2021 vs 2020 Change Change Change Change (dollar amounts in thousands, except percentages) ($) (%) ($) (%) General and administrative expenses $ 81,380 $ 25,922 $ 23,945 $ 55,458213.9 % $ 1,9778.3 % Percentage of total revenue 33.8 % 17.7 % 16.6 % General and administrative expenses increased during the fiscal year ended January 31, 2022compared to the same period in 2021 primarily attributable to a $27.4 millionincrease in stock-based compensation expense resulting from RSU grants and stock option grants, a $7.6 millionincrease in salary expense due to headcount growth, a $11.1 millionincrease in professional services fees related to acquisitions and expenses associated with an underwritten secondary offering of shares held by certain selling stockholders in July 2021, a $2.1 millionincrease in ViriCiti Earnout liability and a $9.0 millionincrease in consulting expenses. Interest Income
Interest income consists primarily of interest earned on
For the Year Ended January 31, Change 2022 2021 2020 2022 vs 2021 2021 vs 2020 Change Change Change Change (dollar amounts in thousands, except percentages) ($) (%) ($) (%) Interest income
$ 98 $ 315 $ 3,245 $ (217)(68.9) % $ (2,930)(90.3) % Percentage of total revenue - % 0.2 %
Interest income decreased during the year ended
Interest expense primarily includes interest on
For the Year Ended January 31, Change 2022 2021 2020 2022 vs 2021 2021 vs 2020 Change Change Change Change (dollar amounts in thousands, except percentages) ($) (%) ($) (%) Interest expense
$ (1,502) $ (3,253) $ (3,544) $ 1,751(53.8) % $ 291(8.2) % Percentage of total revenue (0.6) % (2.2) % (2.5) % Interest expense decreased during the fiscal year ended January 31, 2022compared to the same period in 2021 primarily due to repayment of ChargePoint's2018 term loan facility (the "2018 Loan") in March 2021. As of January 31, 2022, ChargePointhad no outstanding loans. 48
Change in fair value of liability related to redeemable convertible preferred share purchase warrants
Redeemable convertible preferred stock warrant liability is subject to remeasurement to fair value at each balance sheet date. Changes in fair value of redeemable convertible preferred stock warrant liability are recognized in the consolidated statements of operations.
ChargePointadjusts the liability for changes in fair value until the earlier of the exercise or expiration of the warrants and conversion of redeemable convertible preferred stock into Common Stock. Year Ended January 31, Year-over-Year Change 2022 2021 2020 2022 to 2021 2021 to 2020 (dollar amounts in thousands, except Change Change Change Change percentages) ($) (%) ($) (%) Changes in fair value of redeemable convertible preferred stock warrant liability $ 9,237 $ (73,125) $ (875) $ 82,362(112.6) % $ (72,250)8257.1 % Percentage of total revenue 3.8 % (49.9) % (0.6) % The change in fair value of redeemable convertible preferred stock warrant liability during fiscal year ended January 31, 2022compared to the same period in 2021 was primarily due to changes in the fair value of Legacy ChargePoint's redeemable convertible preferred stock through the date of the Merger. As of January 31, 2022, ChargePointhad no outstanding redeemable convertible preferred stock warrant liabilities.
Change in fair value of contingent liabilities related to price supplements
Contingent earnout liability was accounted for as a liability as of the date of the Merger and remeasured to fair value until the Earnout Triggering Events were met for the first two tranches in
March 2021and the corresponding Earnout Shares were issued. In March 2021, the remaining earnout liability for the third tranche converted to be accounted for as equity. The Earnout Triggering Event was met for the third and final tranche in June 2021, and in July 2021, the remaining Earnout Shares were issued. Year Ended January 31, Year-over-Year Change 2022 2021 2020 2022 to 2021 2021 to 2020 Change Change Change Change (dollar amounts in thousands, except percentages) ($) (%) ($)
(%) Changes in fair value of earnout liability
$ 84,420$ - $ - $ 84,420100.0 % $ - - % Percentage of total revenue 35.0 % - % - % ChargePointrecognized an increase in fair value of contingent earnout liability of $84.4 millionfor the fiscal year ended January 31, 2022due to the decrease in the fair value of ChargePoint'sCommon Stock after consummation of the Merger.
Transaction costs expensed
Transaction costs consist of legal, accounting, banking fees and other costs that were directly related to the consummation of the Merger. Transaction costs related to the issuance of shares were recognized in stockholders' equity (deficit) while costs associated with the warrant liabilities and non-capitalized amounts were expensed in the consolidated statements of operations upon the completion of the Merger on
February 26, 2021. Year Ended January 31, Year-over-Year Change 2022 2021 2020 2022 to 2021 2021 to 2020 Change Change Change Change (dollar amounts in thousands, except percentages) ($) (%) ($) (%) Transaction costs expensed $ (7,031)$ - $ - $ (7,031)100.0 % $ - - % Percentage of total revenue (2.9) % - % - %
During the year ended
Other income (expenses), net
Other income (expenses), net, consists mainly of gains and losses on foreign currency transactions.
Table of Contents Year Ended January 31, Year-over-Year Change 2022 2021 2020 2022 to 2021 2021 to 2020 Change Change Change Change (dollar amounts in thousands, except percentages) ($) (%) ($) (%) Other income (expense), net
$ (2,775) $ 229 $ (565) $ (3,004)(1311.8) % $ 794(140.5) % Percentage of total revenue (1.2) % 0.2 %
Other income (expenses), net from
Provision for income taxes
ChargePoint'sprovision for income taxes consists of federal, state and foreign income taxes based on enacted federal, state and foreign tax rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in deferred tax assets and liabilities and changes in tax law. Due to the level of historical losses, ChargePointmaintains a valuation allowance against U.S.federal and state deferred tax assets as it has concluded it is more likely than not that these deferred tax assets will not be realized. Year Ended January 31, Year-over-Year Change 2022 2021 2020 2022 to 2021 2021 to 2020 Change Change Change Change (dollar amounts in thousands, except percentages) ($) (%) ($) (%) Provision (benefit) for income taxes $ (2,930) $ 198 $ 224 $ (3,128)(1579.8) % $ (26)(11.6) % Percentage of loss before provision (benefit) for income taxes 2.2 % (0.1) %
The benefit for income taxes increased during the fiscal year ended
January 31, 2022as compared to the same period in 2021 due to valuation allowance release and losses from the acquisitions in the current year.
Cash and capital resources
Sources of liquidity
ChargePointhas incurred net losses and negative cash flows from operations since its inception, which it anticipates will continue for the foreseeable future. To date, ChargePointhas funded its business and the acquisitions of ViriCiti and HTB primarily with proceeds from the issuance of redeemable convertible preferred stock, proceeds from the Merger, proceeds from warrant and option exercises for cash and from customer payments. As of January 31, 2022and 2021, ChargePointhad cash, cash equivalents and restricted cash of $315.6 millionand $145.9 million, respectively. ChargePointbelieves that its cash on hand and cash generated from sales to customers will satisfy its working capital and capital requirements for at least the next twelve months. From inception to January 31, 2022, ChargePointhas raised aggregate net cash proceeds of $615.7 millionfrom the sale of shares of redeemable convertible preferred stock and $479.2 millionfrom the Merger and the concurrent purchase by certain investors of shares of Common Stock pursuant to separate subscription agreements (the "PIPE financing"). During the fiscal year ended January 31, 2022, ChargePointreceived $118.9 millionin proceeds from warrant exercises. In March 2021, ChargePointrepaid the entire 2018 Loan balance of $35.0 millionplus accrued interest and prepayment fees of $1.2 million. As of January 31, 2022, ChargePointhad no outstanding loans.
Long-term liquidity requirements
ChargePointcan generate sufficient revenue to cover its cost of sales, operating expenses, working capital and capital expenditures, it expects to primarily fund cash needs through a combination of equity and debt financing. If ChargePointraises funds by issuing equity securities or debt securities convertible into equity securities, dilution to stockholders may result. Any equity securities issued may also provide for rights, preferences or privileges senior to those of holders of Common Stock. If ChargePointraises funds by issuing debt securities, these debt securities would have rights, preferences and privileges senior to those of holders of Common Stockholders. The terms of debt securities or borrowings could impose significant restrictions on ChargePoint'soperations. The capital markets have in the past, and may in the future, experience periods of higher volatility that could impact the availability and cost of equity and debt financing.
rate, the timing and the amount of cash received from customers, the expansion of sales and marketing activities, the timing and extent of spending to support development efforts, expenses associated with its international expansion, the introduction of network enhancements and the continuing market adoption of its network. In the future,
ChargePointmay enter into arrangements to acquire or invest in complementary businesses, products and technologies. ChargePointmay be required to seek additional equity or debt financing. If ChargePointrequires additional financing, it may not be able to raise such financing on acceptable terms or at all. If ChargePointis unable to raise additional capital or generate cash flows necessary to expand its operations and invest in continued innovation, it may not be able to compete successfully, which would harm its business, results of operations and financial condition. If adequate funds are not available, ChargePointmay need to reconsider its expansion plans or limit its research and development activities, which could have a material adverse impact on its business prospects and results of operations.
For closed fiscal years
The following table sets forth a summary of
ChargePoint'scash flows for the periods indicated: Year Ended January 31, 2022 2021 2020 (in thousands) Net cash (used in) provided by: Operating activities $ (157,178) $ (91,846) $ (87,936)Investing activities (221,740) 35,530 (61,899) Financing activities 549,687 128,913 17,158
Effects of exchange rates on cash, cash equivalents and restricted cash
(1,025) 141 132 Net increase (decrease) in cash, cash equivalents and restricted cash
During the year ended
January 31, 2022, net cash used in operating activities was $157.2 million, consisting primarily of a net loss of $132.2 millionand non-cash charges of $42.0 million, partially offset by a change in operating assets and liabilities of $17.1 million. The non-cash charges consisted primarily of a $84.4 millionchange in the fair value of contingent earnout liability and a $57.1 millionchange in the fair value of warrant liabilities, offset by a $67.3 millionstock-based compensation expense, a $16.5 milliondepreciation and amortization, and $7.0 milliontransaction costs related to the consummation of the Merger. The change in operating assets and liabilities was mainly driven by increases in deferred revenue of $55.3 million, accrued and other liabilities of $21.6 millionand accounts payable of $7.9 million, partially offset by an increase in accounts receivable of $38.4 millionand prepaid expenses and other assets of $23.9 millionand a decrease in operating lease liabilities of $3.5 million. During the year ended January 31, 2021, net cash used in operating activities was $91.8 million, consisting primarily of a net loss of $197.0 million, partially offset by a decrease in net operating assets of $10.2 millionand non-cash charges of $95.0 million. The decrease in net operating assets was due to a $17.2 millionincrease in deferred revenue, a $11.6 millionincrease in accrued and other liabilities and a $3.3 milliondecrease in accounts receivable, net due to increased collections, largely offset by a $8.9 millionincrease in prepaid expenses and other assets, a $9.6 millionincrease in inventory, a $2.8 milliondecrease in operating lease liabilities and a $0.5 milliondecrease in accounts payable. The non-cash charges primarily consisted of a $73.1 millionchange in the fair value of redeemable convertible preferred stock warrant liability, $10.1 millionof depreciation and amortization expense, $4.9 millionof stock-based compensation expense and $3.8 millionof non-cash operating lease cost.
Net cash provided by (used in) investing activities
During the year ended
January 31, 2022, net cash used in investing activities was $221.7 millionconsisting of cash paid for acquisitions, net of cash acquired, of $205.3 millionand purchases of property and equipment of $16.4 million.
During the year ended
Net cash provided by financing activities
During the year ended
January 31, 2022, net cash provided by financing activities was $549.7 million, consisting of net proceeds from the Merger and PIPE financing of $511.6 million, proceeds from the exercise of warrants of $118.9 millionand proceeds from exercises of vested and unvested stock options of $4.9 millionand change in driver funds and amounts due to customers of $3.7 million, partially offset by repayment of borrowings of $36.1 million, payment of transaction costs related to the Merger of $32.5 millionand payment of tax withholding obligations on settlement of earnout shares of $20.9 million. During the year ended January 31, 2021, net cash provided by financing activities was $128.9 million, consisting of net proceeds from the issuance of Legacy ChargePoint redeemable convertible preferred stock of $95.5 million, proceeds from the issuance of Legacy ChargePoint common stock warrants of $31.5 millionand proceeds from exercises of vested and unvested stock options of $5.9 million, partially offset by $4.0 millionof payment of deferred transaction costs.
Contractual obligations and commitments
Operating lease obligations
ChargePointenters into purchase commitments that include purchase orders and agreements in the normal course of business with contract manufacturers, parts manufacturers, vendors for research and development services and outsourced services.
Purchase commitments at
Significant Accounting Policies and Estimates
Management's discussion and analysis of
ChargePoint'sfinancial condition and results of operations is based on its consolidated financial statements, which have been prepared in accordance with U.S.GAAP. The preparation of these consolidated financial statements requires ChargePointto make estimates and assumptions for the reported amounts of assets, liabilities, revenue, expenses and related disclosures. ChargePoint'sestimates are based on its historical experience and on various other factors that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material. While ChargePoint'ssignificant accounting policies are described in more detail in Note 2 to its consolidated financial statements included elsewhere in this Annual Report, it believes the following accounting policies and estimates to be most critical to the preparation of its consolidated financial statements.
ChargePointrecognizes revenue using the five-step model in determining revenue recognition: (a) identification of the contract, or contracts, with a customer; (b) identification of the performance obligations in the contract; (c) determination of the transaction price; (d) allocation of the transaction price to the performance obligations in the contract; and (e) recognition of revenue when, or as, it satisfies a performance obligation. ChargePointenters into contracts with customers that regularly include promises to transfer multiple products and services, such as charging systems, software subscriptions, extended maintenance, and professional services. For arrangements with multiple products and services, ChargePointevaluates whether the individual products and services qualify as distinct performance obligations. In ChargePoint'sassessment of whether products and services are a distinct performance obligation, it determines whether the customer can benefit from the product or service on its own or with other readily available resources and whether the service is separately identifiable from other products or services in the contract. This evaluation requires ChargePointto assess the nature of each of its Networked Charging Systems, subscriptions and other offerings and how they are provided in the context of the contract, including whether they are significantly integrated which may require judgment based on the facts and circumstances of the contract. 52
The transaction price for each contract is determined based on the amount
ChargePointexpects to be entitled to receive in exchange for transferring the promised products or services to the customer. Collectability of revenue is reasonably assured based on historical evidence of collectability of fees ChargePointcharges its customers. The transaction price in the contract is allocated to each distinct performance obligation in an amount that represents the relative amount of consideration expected to be received in exchange for satisfying each performance obligation. Revenue is recognized when performance obligations are satisfied. Revenue is recorded based on the transaction price excluding amounts collected on behalf of third parties such as sales taxes, which are collected on behalf of and remitted to governmental authorities, or driver fees,which are collected on behalf of customers whooffer public charging for a fee. When agreements involve multiple distinct performance obligations, ChargePoint accounts for individual performance obligations separately if they are distinct. ChargePointapplies significant judgment in identifying and accounting for each performance obligation, as a result of evaluating terms and conditions in contracts. The transaction price is allocated to the separate performance obligations on a relative standalone selling price ("SSP") basis. ChargePointdetermines SSP based on observable standalone selling price when it is available, as well as other factors, including the price charged to its customers, its discounting practices and its overall pricing objectives, while maximizing observable inputs. In situations where pricing is highly variable, or a product is never sold on a stand-alone basis, ChargePointestimates the SSP using the residual approach.
Areas of judgment and estimates
Determining whether the Networked Charging Systems, Cloud, Assure and professional services are considered distinct performance obligations that should be accounted for separately or as a single performance obligation requires significant judgment. In reaching its conclusion,
ChargePointassesses the nature of each individual service offering and how the services are provided in the context of the contract, including whether the services are significantly integrated, which may require judgment based on the facts and circumstances of the contract. Determining the relative SSP for contracts that contain multiple performance obligations requires significant judgment. ChargePointdetermines SSP using observable pricing when available, which takes into consideration market conditions and customer specific factors while maximizing observable inputs. When observable pricing is not available, ChargePointfirst allocates to the performance obligations with established SSPs and then applies the residual approach to allocate the remaining transaction price.
Inventory is stated at the lower of cost or net realizable value. Cost is computed using standard cost, which approximates actual cost, on a first-in, first-out basis. Inventory levels are analyzed periodically and written down to their net realizable value if they have become obsolete, have a cost basis in excess of expected net realizable value or are in excess of expected demand.
ChargePointanalyzes current and future product demand relative to the remaining product life to identify potential excess inventories. These forecasts of future demand are based upon historical trends and adjusted for overall market conditions. Inventory write-downs are measured as the difference between the cost of the inventory and its net realizable value, and charged to inventory reserves, which is a component of cost of revenue. At the point of the loss recognition, a new, lower cost basis for those inventories is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.
Business combinations are accounted for under the acquisition method. Assets acquired and liabilities assumed as part of a business acquisition are generally recorded at their estimated fair value at the date of acquisition. The excess of purchase price over the amount allocated to the assets acquired and liabilities assumed, if any, is recorded as goodwill. In determining the fair value of assets acquired, including intangible assets, and liabilities assumed,
ChargePointutilizes a variety of methods. Each asset acquired and liability assumed is measured at fair value from the perspective of a market participant. The method used to estimate the fair values of intangible assets incorporates significant estimates and assumptions regarding the estimates a market participant would make in order to evaluate an asset, including a market participant's use of the asset, future cash inflows and outflows, probabilities of success, asset lives and the appropriate discount rates. This judgment and determination affects the amount of consideration paid that is allocated to assets acquired and liabilities assumed in the business purchase transaction.The Company engages third-party appraisal firms to assist in determining fair value of assets acquired and liabilities assumed when appropriate. During the remeasurement period, which extends no later than one year from the acquisition date, ChargePointmay record certain adjustments to the carrying value of the assets acquired and liabilities assumed with a corresponding offset to goodwill. Stock-based Compensation
In determining the grant date fair value of options using the Black-Scholes option pricing model, management must make certain assumptions and judgments. These estimates are subject to inherent uncertainties and, had different assumptions been used, the stock-based compensation expense could have been materially different from the amounts recognized. Stock-based compensation is valued at
the grant date, based on the fair value of the award and is recognized as an expense, net of estimated forfeitures, on a straight-line basis over the requisite service period.
ChargePointestimates the forfeiture rate based on the historical experience at the date of grant and revises it, if necessary, in subsequent periods if actual forfeitures differ from those estimates. For performance-based stock options issued, the value of the award is measured at the grant date as the fair value of the award and is expensed over the requisite service period, using the accelerated attribution method, once the performance condition becomes probable of being achieved. These inputs are subjective and generally required significant analysis and judgment to develop. The determination of the grant date fair value of stock option awards issued is affected by a number of variables, including the fair value of ChargePoint'sunderlying Common Stock, expected Common Stock price volatility over the term of the option award, the expected term of the award, risk-free interest rates, and the expected dividend yield of ChargePoint Common Stock. •Fair value of the underlying common stock: For the fiscal year ended January 31, 2021and 2020, the absence of a public market for Legacy ChargePoint's common stock required its board of directors to estimate the fair value of its common stock for purposes of granting options and for determining stock-based compensation expense by considering several objective and subjective factors, including contemporaneous third-party valuations, actual and forecasted operating and financial results, market conditions and performance of comparable publicly traded companies, developments and milestones in Legacy ChargePoint, the rights and preferences of common and redeemable convertible preferred stock, and transactions involving the Legacy ChargePoint's stock. The fair value of the Legacy ChargePoint's common stock was determined in accordance with applicable elements of the American Institute of Certified Public Accountantsguide, Valuation of Privately Held Company Equity Securities Issued as Compensation. •Expected volatility (Stock Options): As Legacy ChargePoint was not publicly traded, the expected volatility for Legacy ChargePoint's stock options were determined by using an average of historical volatilities of selected industry peers deemed to be comparable to the Legacy ChargePoint's business corresponding to the expected term of the awards. The Company did not grant any options during the year ended January 31, 2022. •Expected volatility (Employee Stock Purchase Plan): The expected volatility for employee stock purchase plan was determined by using a blended volatility approach of peer volatility and implied volatility. Peer volatility was calculated as the average of historical volatilities of selected industry peers deemed to be comparable to ChargePoint'sbusiness corresponding to the expected term of the awards.
• Risk-free interest rate: the risk-free interest rate is based on
•Expected dividend yield: The expected dividend rate is zero as
ChargePointcurrently has no history or expectation of declaring dividends on its Common Stock. •Expected term: The expected term represented the period these stock awards were expected to remain outstanding and is based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules, and expectations of future employee behavior.
Valuation of common shares
The fair value of Legacy ChargePoint common stock has always been determined by the Board of Directors with the assistance of management.
In the absence of a public trading market for Legacy ChargePoint Common Stock, on each grant date, Legacy ChargePoint developed an estimate of the fair value of Legacy ChargePoint common stock based on the information known on the date of grant, upon a review of any recent events and their potential impact on the estimated fair value per share of ChargePoint Common Stock, and in part on input from contemporaneous third- party valuations.
ChargePoint'svaluations of Legacy ChargePoint Common Stock was determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. The assumptions used to determine the estimated fair value of Legacy ChargePoint Common Stock are based on numerous objective and subjective factors, combined with management's judgment, including:
• contemporaneous third-party valuations of its ordinary shares;
•external market conditions affecting the EV industry and trends within the industry;
•the rights, preferences and privileges of Legacy ChargePoint redeemable convertible preferred stock over those of Legacy ChargePoint common stock;
• the prices at which it sold Legacy ChargePoint convertible redeemable preferred stock and Legacy ChargePoint common stock;
•the prices paid in secondary transactions involving its capital stock and the facts and circumstances of each transaction to determine the extent to which they represented a fair value exchange, such as transaction volume, timing, whether the transactions occurred among willing and unrelated parties, and whether the transactions involved investors with access to its financial information;
•its financial condition and results of operations, including its levels of available capital resources;
•the progress of its research and development efforts and its stage of development and its commercial strategy;
•the likelihood of a liquidity event, such as an initial public offering or sale of Legacy ChargePoint, taking into account prevailing market conditions;
•the history and nature of its activities, industry trends and the competitive environment;
•the lack of marketability of Legacy ChargePoint common stock;
•equity market conditions affecting comparable public companies; and
In determining the fair value of Legacy ChargePoint Common Stock, Legacy
ChargePointestablished the enterprise value of its business using the market approach and the income approach. Legacy ChargePointalso estimated the enterprise value by reference to the closest round of equity financing preceding the date of the valuation if such financing took place around the valuation date. Under the income approach, forecasted cash flows are discounted to the present value at a risk-adjusted discount rate. The valuation analyses determine discrete free cash flows over multiple years based on forecasted financial information provided by its management and a terminal value for the residual period beyond the discrete forecast, which are discounted at its estimated weighted-average cost of capital to estimate its enterprise value. Under the market approach, a group of guideline publicly-traded companies with similar financial and operating characteristics to Legacy ChargePoint were selected, and valuation multiples based on the guideline public companies' financial information and market data were calculated. Based on the observed valuation multiples, an appropriate multiple was selected to apply to Legacy ChargePoint's historical and forecasted revenue results. In allocating the equity value of Legacy ChargePoint's business among the various classes of equity securities prior to July 2020, it used the option pricing model ("OPM") method, which models each class of equity securities as a call option with a unique claim on its assets. The OPM treats Legacy ChargePoint Common Stock and redeemable convertible preferred stock as call options on an equity value with exercise prices based on the liquidation preference of its redeemable convertible preferred stock. The common stock is modeled as a call option with a claim on the equity value at an exercise price equal to the remaining value immediately after its redeemable convertible preferred stock is liquidated. The exclusive reliance on the OPM until July 2020was appropriate when the range of possible future outcomes was difficult to predict and resulted in a highly speculative forecast. Since July 2020, Legacy ChargePoint used a hybrid method utilizing a combination of the OPM and the probability weighted expected return method ("PWERM"). The PWERM is a scenario-based methodology that estimates the fair value of common stock based upon an analysis of future values for Legacy ChargePoint, assuming various outcomes. The common stock value is based on the probability-weighted present value of expected future investment returns considering each of the possible outcomes available as well as the rights of each class of shares. The future value of the common stock under each outcome is discounted back to the valuation date at an appropriate risk-adjusted discount rate and probability weighted to arrive at an indication of value for the common stock. Legacy ChargePointconsidered three different scenarios: (a) a transaction with a SPAC, (b) remaining a private company and (c) an acquisition by another company. Under the hybrid method, Legacy ChargePoint used the OPM, the if-converted method, and the liquidation method to allocate the equity value of its business among the various classes of stock. The if-converted method presumes that all shares of Legacy ChargePoint redeemable convertible preferred stock convert into Legacy ChargePoint Common Stock based upon their conversion terms and differences in the rights and preferences of the share of Legacy ChargePoint redeemable convertible preferred stock are ignored. The liquidation method presumes payment of proceeds in accordance with the liquidation terms of each class of stock. After the allocation to the various classes of equity securities, a discount for lack of marketability ("DLOM") was applied to arrive at a fair value of common stock. A DLOM was meant to account for the lack of marketability of a stock that was not publicly traded. In making the final determination of common stock value, consideration was also given to recent sales of common stock. Application of these approaches and methodologies involves the use of estimates, judgments and assumptions that are highly complex and subjective, such as those regarding Legacy ChargePoint's expected future revenue, expenses and future cash flows, discount rates, market multiples, the selection of comparable public companies and the probability of and timing associated with possible future events. Changes in any or all of these estimates and assumptions or the relationships between those assumptions impacted Legacy ChargePoint's valuations as of each valuation date and may have had a material impact on the valuation of Legacy ChargePoint Common Stock. 55
ChargePointutilizes the asset and liability method in accounting for income taxes. Deferred tax assets and liabilities reflect the estimated future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax expense or benefit is the result of changes in the deferred tax asset and liability. Valuation allowances are established when necessary to reduce deferred tax assets where it is more likely than not that the deferred tax assets will not be realized. ChargePointmakes estimates, assumptions and judgments to determine its provision for its income taxes, deferred tax assets and liabilities, and any valuation allowance recorded against deferred tax assets. ChargePointassesses the likelihood that its deferred tax assets will be recovered from future taxable income, and to the extent it believes that recovery is not likely, it establishes a valuation allowance. ChargePointrecognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. Interest and penalties related to unrecognized tax benefits which, have not been material, are recognized within provision for income taxes.
Recent accounting pronouncements
See Note 2, Summary of Significant Accounting Policies, to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for more information on recently issued accounting pronouncements.
Accounting Election for Emerging Growth Companies
Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can choose not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging growth companies, and any such election to not take advantage of the extended transition period is irrevocable. Prior to
January 31, 2022, ChargePointwas an "emerging growth company" as defined in Section 2(A) of the Securities Act of 1933, as amended, and elected to take advantage of the benefits of this extended transition period for new or revised financial accounting standards. ChargePointhad taken advantage of the benefits of the extended transition period, although it may have decided to early adopt such new or revised standards to the extent permitted by such standards. In addition, ChargePointrelied on other exemptions and reduced reporting requirements provided by the JOBS Act. This may make it difficult or impossible to compare ChargePointfinancial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions because of the potential differences in accounting standards used.
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