Note:

I have covered ChargePoint Holdings, Inc. or “ChargePoint” (NYSE:CHPT), previously, so investors should view this as an update to my earlier article on the company.

After the close of Wednesday’s session, electric vehicle (“EV”) charging solutions provider ChargePoint Holdings reported less-than-stellar Q2/FY2025 results, with both revenues and profitability missing consensus expectations.

While EV charging system sales were down both sequentially and particularly year-over-year, higher-margin subscription revenues grew nicely:

Operating expenses remained stable on a quarter-over-quarter basis but are expected to come down further as a result of another significant workforce reduction, which will be discussed in more detail below.

Gross margins and Adjusted EBITDA were up slightly on a sequential basis, but ChargePoint continues to burn material amounts of cash.

In Q2, free cash flow was negative $55.0 million. The company finished the quarter with $243.3 million in unrestricted cash and $300 million in convertible debt.

Even worse, management guided Q3/FY2025 substantially below expectations and no longer expects to achieve positive Adjusted EBITDA in the current fiscal year:

For the third fiscal quarter ending October 31, 2024, ChargePoint expects revenue of $85 million to $95 million.

The Company is concentrating on returning to growth and streamlining operations to continue on its path to positive non-GAAP Adjusted EBITDA, which is now targeted during fiscal year 2026.

As a result of the weak sales performance, the company’s inventory balance is expected to remain elevated for the remainder of the year.

In light of adverse market conditions, ChargePoint will reduce its global workforce by approximately 15% which is expected to result in non-GAAP annual operating expense savings of $38 million.

In conjunction with the workforce reduction, the company expects to incur approximately $10 million in cash expenses in the second half of the current fiscal year.

With no near-term working capital benefits from inventory reductions, I would expect ChargePoint to burn another $100 million until the end of FY2025, thus leaving the company with below $150 million in cash to achieve profitability and particularly positive free cash flow.

While the company retains access to its up to $150 million revolving credit facility, harsh liquidity covenants effectively prevent ChargePoint from drawing under the facility, as outlined in the company’s regulatory filings:

In addition, the Credit Agreement requires the Borrower to comply with a minimum total liquidity covenant to be not less than 150% of the aggregate amount of the lender’s commitment under the Credit Agreement (“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.

On the conference call, management was optimistic about the company’s margin trajectory going into 2026 due to an anticipated significant uplift from the recent switch to Asian manufacturing and next-generation product introductions.

However, management admitted to a return of revenue growth as a prerequisite for achieving Adjusted EBITDA profitability in FY2026, but at the same time declined to state the concrete revenue level required to achieve its targets.

Asked about the reasons behind their optimism, management pointed to a number of “green shoots”:

1. Commercial customers expanding deployment plans
2. Anticipated growth in the fleet customer segment
3. Competitors not living up to expectations, thus resulting in lost customers returning to ChargePoint

Quite frankly, with EV adoption nowhere near previous expectations, I am having a hard time to envision any major positive changes in the marketplace in the short- to medium term.

As a result, I would expect sales to remain well below the level required for the company to achieve its stated profitability targets anytime soon.

At the current level of cash usage, ChargePoint would be required to raise additional capital in the second half of calendar year 2025.

Given this issue, I wouldn’t be surprised to see the company resuming sales of newly issued shares into the open market sooner rather than later.

Bottom Line

Adverse market conditions continue to impact ChargePoint’s core charging system sales, thus resulting in the requirement for additional workforce reductions.

Moreover, with Q3/FY2025 revenue projections being a far cry from consensus expectations, management has delayed previously stated profitability targets.

While the company expects to return to revenue growth in FY2026, the slow pace of EV adoption might very well result in another year of disappointment.

At the current pace of cash usage, ChargePoint has less than five quarters to right the ship.

Given the company’s weak near-term prospects, investors should consider moving to the sidelines.

For my part, I wouldn’t be surprised to see shares marking new all-time lows below $1.20 following another round of analyst estimate cuts and price target reductions over the company weeks.