CHPT - ChargePoint Holdings: Disastrous Q3 Performance Puts Viability At Risk - Sell

2023-11-16 20:52:00 ET

Summary

• Electric vehicle charging solutions provider ChargePoint Holdings, Inc. warned investors of much weaker-than-expected Q3/FY2024 results with revenues projected to miss consensus expectations by approximatly 30%.
• The company blamed the underperformance on challenging macroeconomic conditions and vehicle delivery delays impacting anticipated deployments with customers.
• The Board of Directors decided to appoint new leadership, with COO Rick Wilmer taking over from long-standing CEO Pasquale Romano.
• With elevated cash burn likely to persist for the time being, the company's upcoming annual report on form 10-K is likely to contain a going concern warning.
• Given the magnitude of the miss and the company's mounting challenges, I would advise investors to consider selling existing positions and moving on.

After the close of Thursday's session, electric vehicle ("EV") charging solutions provider ChargePoint Holdings, Inc. ( CHPT ) or "ChargePoint" warned investors of much weaker-than-expected Q3/FY2024 results with revenues now projected to miss consensus expectations by approximately 30%.

Our core markets of North America and Europe both came under pressure late in the third quarter, with revenue falling far short of expectations. Overall macroeconomic conditions, along with fleet and commercial vehicle delivery delays impacted anticipated deployments with government, auto dealership and workplace customers.

In addition, the company expects to take a $42 million non-cash impairment charge " related to product transitions and to better align inventory with current demand ". Please note that the company already recorded a $28 million inventory impairment charge in the previous quarter .

Moreover, even when adjusted for the impairment charge, non-GAAP gross margin is now expected to fall short of already muted expectations.

However, non-GAAP operating expenses are going to come in slightly lower than forecasted.

Considering the magnitude of the shortfall, I wasn't exactly surprised by the Board of Directors' decision to appoint new leadership:

On November 16, 2023, ChargePoint issued a press release announcing the appointment of Mr. Rick Wilmer to the position of President and Chief Executive Officer and Ms. Mansi Khetani to the position of interim Chief Financial Officer, effective immediately. The Company’s former President and Chief Executive Officer, Pasquale Romano, resigned from the Company and as a member of the Board of Directors of the Company (the “Board”) at the request of the Board and the Company’s former Chief Financial Officer, Rex S. Jackson, separated from the Company, respectively, effective November 16, 2023.

ChargePoint finished the quarter with approximately $397 million in cash, cash equivalents and restricted cash which includes $232 million in gross proceeds from share sales pursuant to the company's $300 million at-the-market share offering ("the ATM-Offering") during the quarter.

The majority of the new capital ($175 million) was provided by Antara Capital, a hedge fund focused on " event-driven opportunities across the capital structure " in exchange for doubling the coupon and halving the conversion price of the company's 2027 $300 million convertible notes .

In addition, the company continues to have access to its currently undrawn $150 million senior secured revolving credit facility .

However, with a minimum liquidity covenant effectively requiring the company to back up the entirely facility in cash, access could become restricted over time.

In addition, the Credit Agreement requires the Borrower to comply with a minimum total liquidity covenant (“Total Liquidity”) which requires the Borrower to maintain, at all times, Total Liquidity equal to the sum of cash and cash equivalents held by the Borrower and the other loan parties at controlled accounts with the initial lenders under the Credit Agreement plus the aggregate unused amount of the commitments then available to be drawn under the 2027 Revolving Credit Facility.

While ChargePoint's quarter-end cash position represents a $133 million sequential increase, the company apparently burned close to $100 million again in Q3:

Given the large drop in revenues which is unlikely to be reversed in the near term and associated margin pressure, I would expect cash burn to remain elevated for the time being.

To be perfectly honest, I have no idea how new management will achieve the company's stated goal of generating positive Adjusted EBITDA in the fourth quarter of calendar year 2024.

As a reminder: ChargePoint's Q2/FY2024 Adjusted EBITDA was negative $53.2 million even after backing out the above-discussed $28.0 million impairment charge.

Considering the challenging macroeconomic environment in combination with the slower-than-anticipated adoption of EVs, it's difficult to envision a near-term turnaround for the ailing company.

Consequently, I do not anticipate ChargePoint's remaining liquidity being sufficient to avoid going concern language in the company's next annual report on form 10-K.

Lastly, I would expect new management reducing full-year FY2024 expectations quite meaningfully and provide a cautious early outlook on FY2025 on the company's upcoming Q3 conference call in early December.

Bottom Line

Challenging macroeconomic conditions in combination with fleet and commercial vehicle delivery delays resulted in ChargePoint Holdings, Inc.'s Q3/FY2024 results falling well short of expectations.

In fact, the company's underperformance was so bad that the Board of Directors decided to establish new leadership.

However, there's unlikely to be an easy cure for the company's issues. As a result, I would expect cash usage to remain elevated over the next few quarters thus likely resulting in a going concern warning in the company's upcoming annual report on form 10-K.

In addition, I wouldn't be surprised to see a large number of analysts throwing in the towel on the stock over the next couple of sessions.

Given the magnitude of the miss and the company's mounting challenges, I would advise investors to consider selling existing positions and moving on.

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