Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis provides information which ChargePoint’s management believes is relevant to an assessment and understanding of ChargePoint’s consolidated results of operations and financial condition. ChargePoint’s fiscal year ends on January 31. References to fiscal years 2023, 2022, and 2021, relate to the fiscal years ended January 31, 2023, January 31, 2022, and January 31, 2021, respectively. This section of this Form 10-K discusses fiscal year 2023 and 2022 items and year-to-year comparisons between fiscal year 2023 and 2022. Discussions of fiscal year 2021 items and year-over-year comparisons between fiscal year 2022 and fiscal year 2021 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 Annual Report on Form 10-K filed on April 4, 2022. 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’s actual 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
ChargePoint designs, develops and markets networked EV charging system infrastructure (“Networked Charging Systems”) connected through cloud-based services (“Cloud” or “Cloud Services”) which (i) enable charging systems owners, or hosts, to manage their Networked Charging Systems, and (ii) enable drivers to locate, reserve and authenticate Networked Charging Systems and to transact EV charging sessions on those systems. ChargePoint’s Networked Charging Systems, subscriptions and other offerings provide an open platform that integrates with system hardware from ChargePoint and 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.
ChargePoint generates revenue primarily through the sale of Networked Charging Systems, Cloud Services and extended parts and labor warranties (“Assure”). The Company also generates revenue, in some instances, by providing customers use of ChargePoint’s owned and operated systems, Cloud Services and Assure into a single multi-year or annual subscription (“ChargePoint as a Service” or “CPaaS”). Each of Cloud Services, Assure and CPaaS is typically paid for upfront and revenue is recognized ratably over the term of the subscription period.
ChargePoint targets three key verticals: commercial, fleet and residential. Commercial customers have parking places largely within their workplaces and include retail, hospitality, healthcare, fueling and convenience and parking lot operators. Fleet includes municipal buses, delivery and work vehicles, port/airport/warehouse and other industrial applications, ridesharing services, and is expected to eventually include autonomous transportation. Residential includes single family homes and multifamily residences.
On February 26, 2021 (“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 (“Lightning Merger Sub”), merged with ChargePoint, Inc. (“Legacy ChargePoint”) pursuant to a Merger Agreement and Plan of Merger dated as of September 23, 2020, by and among the Company, Lightning Merger Sub, and Switchback (“Merger Agreement”). Legacy ChargePoint survived as a wholly-owned subsidiary of Switchback (“Merger” and, collectively with the other transactions described in the Merger Agreement, the “Reverse Recapitalization”). Further, as a result of the Merger, Switchback was renamed “ChargePoint Holdings, Inc.”
Since its inception in 2007, ChargePoint has been engaged in developing and marketing its Networked Charging Systems, subscriptions and other offerings, raising capital and recruiting personnel. ChargePoint has incurred net operating losses and negative cash flows from operations in every year since its inception. As of January 31, 2023 and 2022, ChargePoint had an accumulated deficit of $1,156.8 million and $811.7 million, respectively. ChargePoint has funded its operations primarily from customer payments, the issuance of redeemable convertible preferred stock and convertible notes, exercise proceeds from options and warrants, borrowings under loan facilities and proceeds from the Reverse Recapitalization.
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Key Factors Affecting Operating Results
ChargePoint believes its performance and future success depend on several factors that present significant opportunities for it but also pose risks and challenges, including those discussed below:
Growth in EV Adoption
ChargePoint’s revenue 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 of internal combustion engine vehicles. In addition, macroeconomic factors, including governmental mandates and incentives and the impact of rising interest rates, inflation and a potential economic recession, could impact demand for EVs, particularly since they can be more expensive to purchase than traditional gasoline-powered vehicles. Further, geopolitical factors, such as the invasion of Ukraine by Russia, conflicts between the United States and China or between China and Taiwan may 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’s financial condition and results of operations could be materially and adversely impacted.
Competition
ChargePoint is currently a market leader in North America in commercial Level 2 Alternating Current (“AC”) charging. ChargePoint also 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. ChargePoint intends 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’s market share decreases due to increased competition, its financial condition and results of operations may be negatively impacted. Furthermore, ChargePoint’s success could be negatively impacted if consumers and businesses choose other types of alternative fuel vehicles or high fuel-economy gasoline powered vehicles.
Europe Expansion
ChargePoint operates in North America and several countries in Europe. Europe is expected to be a significant contributor to ChargePoint’s revenue in future years. ChargePoint has been and is investing heavily to succeed in Europe. ChargePoint is also working to grow its European business through partnerships with channel partners and car leasing companies and through its acquisitions of ViriCiti B.V. (“ViriCiti”) and has•to•be gmbh (“HTB”) (each as described in Note 5, Reverse Capitalization and Business Combinations , to ChargePoint’s notes to the consolidated financial statements). In Europe, ChargePoint primarily 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’s growth in Europe requires differentiating itself as compared to these existing competitors. If ChargePoint is unable to continue penetrating the market in Europe, its financial condition and results of operations could be materially and adversely impacted.
Fleet Expansion
ChargePoint’s future growth is also highly dependent upon success in fleet applications, where there is increasing competition, a high customer dependency on the expected increase in the arrival rate of new vehicles, and likely high concentrations and volatility of purchasing as fleet operators ultimately choose their key providers and make large purchases of EVs. Any significant decline from these customers may have an adverse impact on ChargePoint’s potential for future growth. If the Company is not successful in the fleet vertical, its financial condition and results of operations could be materially and adversely affected.
Impact of New Product Releases and Investments in Growth
As ChargePoint introduces new products, such as the release of its Express Plus DC fast charger in fiscal year 2022 and CP6000 Level 2 AC charger in fiscal year 2023, 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 ChargePoint expects due to a number of factors, including but not limited to failure to meet its own estimates, unanticipated supply chain difficulties, government mandates or certification requirements. For example, ongoing supply chain challenges, heightened logistic costs, component shortages and product transition charges decreased ChargePoint’s gross margins in the fiscal year ended January 31, 2023, and ChargePoint expects gross margins will continue to be adversely affected by increased material costs and freight and logistic expenses in the fiscal year ending January 31, 2024. In addition, ChargePoint may accelerate its expenditures where it sees growth opportunities, which may further impact
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gross margin until upfront costs and inefficiencies are absorbed and normalized operations are achieved. Further, ChargePoint continues to invest in prioritizing an assurance of supply of its products and new customer acquisition as part of its “land and expand” model, which in the current environment, puts pressure on gross margins and increases operating expenses. ChargePoint also continuously evaluates and may adjust its expenditures, such as new product introduction costs, 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 ChargePoint attains 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.
Government Mandates, Incentives and Programs
The 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, 2021 (the “Jobs Act”) provided 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 billion for EV charging along highway corridors and communities. In addition, the Inflation Reduction Act of 2022 (the “IRA”) signed into law on August 16, 2022 includes incentives and tax credits aimed at reducing the effects of climate change, such as the extension of electric vehicle charging infrastructure tax credits under Section 30C and tax credits for electric vehicles under Section 30D of the Internal Revenue Code of 1986, as amended (the “Code”) through 2032. There are numerous restrictions and requirements associated with qualifying for the electric vehicle tax credits available under the IRA and ChargePoint is still assessing how the IRA may impact its business and EV sales generally. Further, incentives such as the Jobs Act and the IRA 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. Any reduction in rebates, tax credits or other financial incentives could reduce the demand for EVs and for charging infrastructure, including infrastructure ChargePoint offers.
ChargePoint also derives other revenue from fees received for regulatory incentives earned for participating in low carbon fuel programs in some U.S. states. ChargePoint claims these incentives only if they are not claimed by purchasers of its EV charging stations. If a material percentage of its customers were to claim these incentives, ChargePoint’s revenue from this source could decline significantly, which could have an adverse effect on its revenue and overall gross margin. Prior to fiscal year 2021, ChargePoint derived a slight majority of its other revenue from these incentives. However, revenue from this source as a percentage of total revenue has declined since fiscal 2021 and may continue to decline as a percentage of total revenue going forward. Further, the availability of such incentives depends on continued governmental support for these programs. If these programs are modified, reduced or eliminated, ChargePoint’s ability to generate this revenue in the future would be adversely impacted.
Supply Chain Disruptions and Other Factors
Global supply chain disruptions, initially caused by the COVID-19 pandemic, continue to affect ChargePoint’s business. The disruption to ChargePoint’s supply chain has heightened its material, freight and logistic costs, and has similarly disrupted manufacturing, delivery and overall supply chain of vehicle manufacturers and suppliers, which has contributed 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, 2023, and ChargePoint expects that gross margins will continue to be adversely affected by increased material costs and freight and logistic expenses in the fiscal year ending January 31, 2024.
Also, more permanent work-from-home policies, initially caused by the COVID-19 pandemic, are likely to continue affecting the rate of global infrastructure spending, and thus to continue to adversely impact ChargePoint’s commercial business and its overall gross margin as ChargePoint’s commercial business contributes higher margins than its residential and fleet businesses. Further, the continued disruption to ChargePoint’s supply chains and heightened component and shipping pricing and logistics expenses may further adversely impact ChargePoint’s gross margins, adversely affect demand for ChargePoint’s products, lengthen its product development and sales cycles, and reduce expected spending from new customers, all of which could adversely affect ChargePoint’s business, results of operations and financial condition.
Additionally, global economic uncertainty due to other macroeconomic conditions, including inflation, interest rate pressures, negative events in the financial services industry, and labor market disruptions, and related growing concerns of a potential recession, have impacted customer behavior related to discretionary spending and sentiment and could continue to impact such behaviors in the future. Any resulting decline in the ability or willingness of customers, fleet owners and operators to purchase ChargePoint’s products or subscription services could have an adverse impact on ChargePoint’s results of operations and financial condition.
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Results of Operations & its Components
Revenue
Networked Charging Systems
Networked Charging Systems revenue includes the deliveries of EV charging system infrastructure, which include a range of AC products for use in residential, commercial and fleet applications, and DC, or fast-charge products for use in commercial and fleet applications. A significant portion of ChargePoint’s Networked Charging Systems revenue is presently derived from the sale of AC products. ChargePoint generally recognizes revenue from sales of Networked Charging Systems upon shipment to the customer, at which point ChargePoint’s performance obligation is satisfied.
Subscriptions
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’s owned and operated systems with Cloud and Assure programs into a single, typically multi-year subscription.
In some instances, CPaaS subscriptions are considered for accounting purposes to contain a lease for the customer’s use of ChargePoint’s owned 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 ChargePoint has an ongoing obligation to deliver such services to the customer.
Other
Other revenue consists of 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, fees received for transferring regulatory incentives earned for participating in low carbon fuel programs in some states, and other professional services. Revenue from driver charging sessions and charging transaction fees is recognized when the charging session or transaction is completed. Revenue from regulatory incentives is recognized when the regulatory incentives 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 ChargePoint has an ongoing obligation to deliver such services. Revenue from professional services is recognized as the services are rendered.
ChargePoint expects 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
2023 2022 2021 2023 vs 2022 2022 vs 2021
(dollar amounts in thousands, except percentages) Change
($) Change
(%) Change
($) Change
(%)
Networked Charging Systems $ 363,622 $ 173,850 $ 91,893 $ 189,772 109.2 % $ 81,957 89.2 %
Percentage of total revenue 77.7 % 72.1 % 62.7 %
Networked Charging Systems revenue increased for fiscal year ended January 31, 2023 compared to fiscal year ended January 31, 2022 primarily due to a continued increase in demand from customers in ChargePoint’s three verticals, resulting in higher volume of Networked Charging Systems delivered across ChargePoint’s major product families.
For the Year Ended January 31, Change
2023 2022 2021 2023 vs 2022 2022 vs 2021
(dollar amounts in thousands, except percentages) Change
($) Change
(%) Change
($) Change
(%)
Subscriptions $ 85,296 $ 53,512 $ 40,563 $ 31,784 59.4 % $ 12,949 31.9 %
Percentage of total revenue 18.2 % 22.2 % 27.7 %
Subscriptions revenue increased for the fiscal year ended January 31, 2023 compared to fiscal year ended January 31, 2022 primarily due to the growth in the number of Cloud subscriptions and Assure subscriptions for Networked Charging Systems connected to ChargePoint’s network.
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For the Year Ended January 31, Change
2023 2022 2021 2023 vs 2022 2022 vs 2021
(dollar amounts in thousands, except percentages) Change
($) Change
(%) Change
($) Change
(%)
Other revenue $ 19,176 $ 13,644 $ 14,034 $ 5,532 40.5 % $ (390) (2.8) %
Percentage of total revenue 4.1 % 5.7 % 9.6 %
Other revenue increased for the fiscal year ended January 31, 2023 compared to fiscal year ended January 31, 2022 primarily due to net transaction fees earned for processing payments collected on driver charging sessions at charging sites owned by ChargePoint’s customers.
Cost of Revenue
Networked Charging Systems
ChargePoint uses contract manufacturers to manufacture the substantial majority of its Networked Charging Systems. ChargePoint’s in-house manufacturing is typically limited to initial development units and to early customer samples. ChargePoint’s cost of revenue for the sale of Networked Charging Systems includes the contract manufacturer costs of finished goods and shipping and handling. 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, 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.
Subscriptions
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, allocated facilities and information technology expenses.
Other
Cost of other revenue includes depreciation and other costs for ChargePoint’s owned 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
2023 2022 2021 2023 vs 2022 2022 vs 2021
(dollar amounts in thousands, except percentages) Change
($) Change
(%) Change
($) Change
(%)
Cost of Networked Charging Systems revenue $ 318,628 $ 147,313 $ 87,083 $ 171,315 116.3 % $ 60,230 69.2 %
Percentage of total revenue 68.1 % 61.1 % 59.4 %
Cost of Networked Charging Systems revenue increased during the fiscal year ended January 31, 2023 compared to fiscal year ended January 31, 2022 primarily due to an increase in the number of Networked Charging Systems delivered.
For the Year Ended January 31, Change
2023 2022 2021 2023 vs 2022 2022 vs 2021
(dollar amounts in thousands, except percentages) Change
($) Change
(%) Change
($) Change
(%)
Cost of Subscriptions revenue $ 51,416 $ 31,190 $ 20,385 $ 20,226 64.8 % $ 10,805 53.0 %
Percentage of total revenue 11.0 % 12.9 % 13.9 %
Cost of subscriptions revenue increased during fiscal year ended January 31, 2023 compared to fiscal year ended January 31, 2022 primarily due to increases in customer support headcount driven by ChargePoint expanding its Networked Charging Systems and resulting in an increase in salaries and personnel expenses, including stock-based compensation, as well as Assure maintenance costs.
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For the Year Ended January 31, Change
2023 2022 2021 2023 vs 2022 2022 vs 2021
(dollar amounts in thousands, except percentages) Change
($) Change
(%) Change
($) Change
(%)
Cost of Other Revenue $ 12,117 $ 8,970 $ 6,073 $ 3,147 35.1 % $ 2,897 47.7 %
Percentage of total revenue 2.6 % 3.7 % 4.1 %
Cost of other revenue increased for the fiscal year ended January 31, 2023 compared to fiscal year ended January 31, 2022 primarily related to increased other operating costs.
Gross Profit and Gross Margin
Gross profit is revenue less cost of revenue and gross margin is gross profit as a percentage of revenue. ChargePoint offers a range of Networked Charging Systems products which vary widely in selling price and associated gross margin, as, for example, ChargePoint’s commercial business contributes higher margins than its residential and fleet businesses. Accordingly, ChargePoint’s gross 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 transition costs; and its efforts to optimize its operations and supply chain and purchase price variances it may need to pay due to component shortages or supply chain disruptions.
In the long term, improvements in ChargePoint’s gross 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 the product mix continues to vary and as ChargePoint continues to optimize for customer acquisition and prioritize assurance of supply of its products as part of its “land and expand” model, launches new Networked Charging Systems products, grows its presence in Europe where it has not yet achieved economies of scale, and expands its solutions for its fleet customers, gross margin will vary from period to period. In addition, ChargePoint expects gross margins will continue to be adversely affected by increased material costs, particularly due to the shortage of certain semiconductors, as a result of the ongoing worldwide supply chain disruptions.
For the Year Ended January 31, Change
2023 2022 2021 2023 vs 2022 2022 vs 2021
(dollar amounts in thousands, except percentages) Change
($) Change
(%) Change
($) Change
(%)
Gross Profit $ 85,933 $ 53,533 $ 32,949 $ 32,400 60.5 % $ 20,584 62.5 %
Gross Margin 18.4 % 22.2 % 22.5 %
Gross profit increased for the fiscal year ended January 31, 2023 compared to fiscal year ended January 31, 2022 primarily due to an increase in Networked Charging Systems sales that resulted from an increase in the number of Networked Charging Systems delivered and an increase in subscriptions revenue.
Gross margin decreased for the fiscal year ended January 31, 2023 compared to fiscal year ended January 31, 2022 primarily
due (i) to product mix changes towards lower gross margin products, (ii) higher purchase price costs and increased logistic costs incurred as the result of component shortages and supply chain challenges, (iii) new product transition costs, and (iv) increases in customer support headcount and resulting personnel compensation.
Research and Development Expenses
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’s services, as well as quality assurance, testing, product management, and allocated facilities and information technology expenses. Research and development costs are expensed as incurred.
ChargePoint expects its research and development expenses to increase on an absolute basis for the foreseeable future as ChargePoint continues to invest in research and development activities to achieve its technology and product roadmap.
For the Year Ended January 31, Change
2023 2022 2021 2023 vs 2022 2022 vs 2021
(dollar amounts in thousands, except percentages) Change
($) Change
(%) Change
($) Change
(%)
Research and Development Expenses $ 194,957 $ 145,043 $ 75,017 $ 49,914 34.4 % $ 70,026 93.3 %
Percentage of total revenue 41.6 % 60.2 % 51.2 %
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Research and development expenses increased during the fiscal year ended January 31, 2023 compared to fiscal year ended January 31, 2022 and was primarily attributable to a $24.9 million increase in compensation related expenses due to headcount growth, a $12.5 million increase in stock-based compensation expense from restricted stock unit (“RSU”) grants, a $4.0 million increase in engineering materials and services costs, as well as a $5.5 million increase in depreciation and other expenses.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of salaries and related personnel expenses, including stock-based compensation, sales commissions, professional services fees, travel, marketing and promotional expenses, bad debt expenses, and allocated facilities and information technology expenses.
ChargePoint expects its sales and marketing expenses to increase on an absolute basis for the foreseeable future while it continues to add sales and marketing personnel, expand its sales channels and expand in Europe.
For the Year Ended January 31, Change
2023 2022 2021 2023 vs 2022 2022 vs 2021
(dollar amounts in thousands, except percentages) Change
($) Change
(%) Change
($) Change
(%)
Sales and marketing expenses $ 142,392 $ 92,550 $ 53,002 $ 49,842 53.9 % $ 39,548 74.6 %
Percentage of total revenue 30.4 % 38.4 % 36.2 %
Sales and marketing expenses increased during the fiscal year ended January 31, 2023 compared to fiscal year ended January 31, 2022 primarily attributable to a $20.4 million increase in compensation related expenses due to headcount growth, a $8.2 million increase in stock-based compensation expense resulting mainly from RSU grants, a $5.5 million increase in amortization expense mainly due to acquired customer relationship intangible assets from business combinations, a $3.5 million increase in travel expenses, and a $3.5 million increase in consulting and marketing expense.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related personnel expenses, including stock-based compensation, related to finance, legal and human resource functions, contractor and professional services fees, audit and compliance expenses, insurance costs, and general corporate expenses, including allocated facilities and information technology expenses.
ChargePoint expects its general and administrative expenses to increase in absolute dollars as it continues to grow its business and to operate as a public company, including expenses related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, as well as higher expenses for investor relations and legal, accounting and other professional services.
For the Year Ended January 31, Change
2023 2022 2021 2023 vs 2022 2022 vs 2021
(dollar amounts in thousands, except percentages) Change
($) Change
(%) Change
($) Change
(%)
General and administrative expenses $ 90,366 $ 81,380 $ 25,922 $ 8,986 11.0 % $ 55,458 213.9 %
Percentage of total revenue 19.3 % 33.8 % 17.7 %
General and administrative expenses increased during the fiscal year ended January 31, 2023 compared to fiscal year ended January 31, 2022 primarily attributable to a $9.9 million increase in salary and benefit expenses due to headcount growth, a $4.7 million increase in stock-based compensation expense resulting mainly from RSU grants, a $3.2 million increase in consulting expenses, partially offset by a $6.8 million decrease in professional services fees related to acquisitions and expenses associated with an underwritten secondary offering of shares held by certain selling stockholders and other expense decreases.
Interest Income
Interest income consists primarily of interest earned on ChargePoint’s cash, cash equivalents and short-term investments.
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For the Year Ended January 31, Change
2023 2022 2021 2023 vs 2022 2022 vs 2021
(dollar amounts in thousands, except percentages) Change
($) Change
(%) Change
($) Change
(%)
Interest income $ 5,534 $ 98 $ 315 $ 5,436 5546.9 % $ (217) (68.9) %
Percentage of total revenue 1.2 % — % 0.2 %
Interest income increased during fiscal year ended January 31, 2023 compared to fiscal year ended January 31, 2022 due to interest income from short-term investments purchased in fiscal year 2023.
Interest Expense
Interest expense consists primarily of the interest on ChargePoint’s 2027 Convertible Notes that were issued in April 2022 which are described more completely below in Liquidity and Capital Resources .
For the Year Ended January 31, Change
2023 2022 2021 2023 vs 2022 2022 vs 2021
(dollar amounts in thousands, except percentages) Change
($) Change
(%) Change
($) Change
(%)
Interest expense $ (9,434) $ (1,502) $ (3,253) $ (7,932) 528.1 % $ 1,751 (53.8) %
Percentage of total revenue (2.0) % (0.6) % (2.2) %
Interest expense increased during the fiscal year ended January 31, 2023 compared to fiscal year ended January 31, 2022 primarily due to interest expense on the 2027 Convertible Notes.
Changes in Fair Value of Warrant Liabilities, Earnout Liabilities and Transaction Costs Expensed
The redeemable convertible preferred stock warrant liability was 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. ChargePoint adjusts 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. Common stock warrant liabilities consisted of Public Warrants and private placement warrants issued to NGP Switchback, LLC (“Private Placement Warrants”) which ChargePoint assumed in connection with the Merger and which were subject to remeasurement to fair value at each balance sheet date. As of April 30, 2022, all Public Warrants and Private Placement Warrants had been exercised or redeemed. The Company recorded a $9.2 million change in fair value of redeemable convertible preferred stock warrant liability and $47.8 million change in fair value in assumed common stock warrant liabilities during the fiscal year ended January 31, 2022. As of January 31, 2023, ChargePoint had no outstanding warrant liabilities.
Contingent earnout liability was accounted for as a liability as of the date of the Merger (as described in Note 12, Stock Warrants and Earnout, to ChargePoint’s notes to the consolidated financial statements) and remeasured to fair value until the Earnout Triggering Events (as described in Note 12, Stock Warrants and Earnout, to ChargePoint’s notes to the consolidated financial statements) were met for the first two tranches in March 2021 and the corresponding Earnout Shares (as described in Note 12, Stock Warrants and Earnout, to ChargePoint’s notes to the consolidated financial statements) were issued. In March 2021, the remaining earnout liability for the third tranche converted to be accounted for as equity. The Company recorded a $84.4 million change in fair value of contingent earnout liability during the fiscal year ended January 31, 2022 due to the decrease in the fair value of ChargePoint’s Common Stock after consummation of the Merger. 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. The final Earnout Shares were issued in July 2021, and as such, there was no remaining contingent earnout liability during the fiscal year ended January 31, 2023.
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 of $7.0 million associated with the warrant liabilities and non-capitalized amounts were expensed during the fiscal year ended January 31, 2022 upon the completion of the Merger on February 26, 2021.
Other Income (Expense), Net
Other income (expense), net consists primarily of foreign currency transaction gains and losses.
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Year Ended January 31, Year-over-Year Change
2023 2022 2021 2023 to 2022 2022 to 2021
(dollar amounts in thousands, except percentages) Change
($) Change
(%) Change
($) Change
(%)
Other income (expense), net $ (1,569) $ (2,775) $ 229 $ 1,206 (43.5) % $ (3,004) (1311.8) %
Percentage of total revenue (0.3) % (1.2) % 0.2 %
Other income (expense), net changed from $(2.8) million during the fiscal year ended January 31, 2022 to $(1.6) million during the fiscal year ended January 31, 2023 due to favorable changes in foreign exchange rates.
Provision for Income Taxes
ChargePoint’s provision for income taxes consists of federal, state and foreign income taxes based on enacted federal, state and foreign tax rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in deferred tax assets and liabilities and changes in tax law. Due to the level of historical losses, ChargePoint maintains a valuation allowance against U.S. federal and state deferred tax assets as it has concluded it is more likely than not that these deferred tax assets will not be realized.
Year Ended January 31, Year-over-Year Change
2023 2022 2021 2023 to 2022 2022 to 2021
(dollar amounts in thousands, except percentages) Change
($) Change
(%) Change
($) Change
(%)
Provision (benefit) for income taxes $ (2,167) $ (2,930) $ 198 $ 763 (26.0) % $ (3,128) (1579.8) %
Percentage of loss before provision (benefit) for income taxes 0.6 % 2.2 % (0.1) %
The benefit for income taxes decreased during the fiscal year ended January 31, 2023 as compared to fiscal year ended January 31, 2022 primarily due to changes to deferred tax liability.
Liquidity and Capital Resources
Sources of Liquidity
Historical Sources of Liquidity
ChargePoint has incurred net losses and negative cash flows from operations since its inception, which it anticipates will continue for the foreseeable future. To date, ChargePoint has 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, convertible debt and from customer payments. As of January 31, 2023 and 2022, ChargePoint had cash, cash equivalents and restricted cash and short-term investments of $399.5 million and $315.6 million, respectively. ChargePoint believes that its cash and short-term investments, 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, 2023, ChargePoint has raised aggregate net cash proceeds of $615.7 million from the sale of shares of redeemable convertible preferred stock and $479.2 million from the Merger and the concurrent purchase by certain investors of shares of Common Stock pursuant to separate subscription agreements (the “PIPE financing”).
2027 Convertible Notes
In April 2022, ChargePoint completed a private placement of $300.0 million aggregate principal amount of 2027 Convertible Notes, which will mature on April 1, 2027 (the “2027 Convertible Notes”). The net proceeds from the sale of the 2027 Convertible Notes were approximately $294.0 million after deducting initial purchaser discounts and commissions and the Company’s offering expenses. ChargePoint expects to use the net proceeds for general corporate purposes.
The 2027 Convertible Notes bear interest at 3.50% per annum, to the extent paid in cash (“Cash Interest”), which is payable semi-annually in arrears on April 1st and October 1st of each year or 5.00% per annum through the issuance of additional 2027 Convertible Notes (“PIK Interest”). The 2027 Convertible Notes are convertible, based on the applicable conversion rate, into cash, shares of ChargePoint Common Stock or a combination thereof, at ChargePoint’s election. The initial conversion rate was 41.6119 shares per $1,000 principal amount of the 2027 Convertible Notes, subject to customary anti-dilution adjustment in certain circumstances, which represented an initial conversion price of approximately $24.03 per share.
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For additional details refer to Note 9, Debt, to ChargePoint’s notes to the consolidated financial statements in this Annual Report.
Shelf Registration and ATM Facility
On July 1, 2022, ChargePoint filed a registration statement on Form S-3 (File No. 333-265986) with the SEC (that was declared effective by the SEC on July 12, 2022), which permits ChargePoint to offer up to $1.0 billion of shares of Common Stock, preferred stock, debt securities, warrants and rights in one or more offerings and in any combination, including in units from time to time (the “Shelf Registration Statement”). As part of the Shelf Registration Statement, ChargePoint filed a prospectus supplement registering for sale from time to time up to $500.0 million shares of Common Stock pursuant to a sales agreement (the “ATM Facility”). During the fiscal year ended January 31, 2023, ChargePoint had generated proceeds of $49.5 million, net of $0.5 million of issuance costs in connection with the sale of common stock under the ATM Facility. As of January 31, 2023, $450.0 million of shares of Common Stock remained available for sale pursuant to the ATM Facility.
Long-Term Liquidity Requirements
ChargePoint has incurred net losses and negative cash flows from operations since inception. Until ChargePoint can 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. ChargePoint may borrow funds on terms that may include restrictive covenants, including covenants that restrict the operation of its business, liens on assets, high effective interest rates and repayment provisions that reduce cash resources and limit future access to capital markets. ChargePoint expects to opportunistically seek access to additional funds through public or private equity offerings or debt financings, including through potential sales of Common Stock under its ATM Facility. If ChargePoint raises 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 ChargePoint raises funds by issuing debt securities, these debt securities would have rights, preferences and privileges senior to those of holders of Common Stock. The terms of debt securities or borrowings could impose significant restrictions on ChargePoint’s operations and expose ChargePoint to enhanced risks associated with rising interest rates and elevated inflation experienced globally during fiscal year 2023. 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.
ChargePoint’s principal use of cash in recent periods has been funding its operations, the acquisitions of ViriCiti and HTB, and investing in capital expenditures. ChargePoint’s future capital requirements will depend on many factors, including its revenue growth 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 Networked Charging Systems. In the future, ChargePoint may enter into arrangements to acquire or invest in complementary businesses, products and technologies. ChargePoint may be required to seek additional equity or debt financing beyond the amounts available to it pursuant to the ATM Facility.
If ChargePoint requires additional financing, it may not be able to raise such financing on acceptable terms or at all, particularly if certain unfavorable economic and market conditions persist or worsen and intensify risks of a potential recession or other economic downturn. If ChargePoint is 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, ChargePoint may 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.
Cash Flows
For the Fiscal Years Ended January 31, 2023, 2022 and 2021
The following table sets forth a summary of ChargePoint’s cash flows for the periods indicated:
Year Ended January 31,
2023 2022 2021
(in thousands)
Net cash (used in) provided by:
Operating activities $ (267,049) $ (157,178) $ (91,846)
Investing activities (126,154) (221,740) 35,530
Financing activities 372,859 549,687 128,913
Effects of exchange rates on cash, cash equivalents, and restricted cash (729) (1,025) 141
Net increase (decrease) in cash, cash equivalents and restricted cash $ (21,073) $ 169,744 $ 72,738
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Net Cash Used in Operating Activities
During the year ended January 31, 2023, net cash used in operating activities was $267.0 million, consisting primarily of a net loss of $345.1 million and change in operating assets and liabilities of $64.3 million, offset by an add back of non-cash charges of $142.4 million. The non-cash charges consisted primarily of $93.4 million of stock-based compensation expense, $25.1 million of depreciation, and amortization expense and amortization of deferred contract acquisition costs, $4.7 million of non-cash operating lease costs and $16.8 million of other costs. The change in operating assets and liabilities was mainly driven by increases in accounts receivable of $94.6 million, inventory of $39.4 million, prepaid expenses and other assets of $38.0 million and operating lease liabilities of $5.0 million, offset by increases in deferred revenue of $51.8 million, accounts payable of $31.5 million and accrued and other liabilities of $29.4 million.
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 million, partially offset by a decrease in net operating assets of $17.1 million and non-cash charges of $42.0 million. The non-cash charges consisted primarily of a $84.4 million change in the fair value of contingent earnout liability and a $57.1 million change in the fair value of warrant liabilities, offset by a $67.3 million stock-based compensation expense, a $16.5 million depreciation and amortization, and $7.0 million transaction 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 million and accounts payable of $7.9 million, partially offset by an increase in accounts receivable of $38.4 million and prepaid expenses and other assets of $23.9 million and a decrease in operating lease liabilities of $3.5 million.
Net Cash Provided By (Used In) Investing Activities
During the year ended January 31, 2023, net cash used in investing activities was $126.2 million consisting of cash paid for purchases of short-term investments of $284.8 million, purchases of property and equipment of $18.6 million, and additional cash paid for acquisitions (net of cash acquired) related to the acquisition of HTB in the prior year of $2.8 million, partially offset by cash received from maturities of short-term investments of $180.0 million.
During the year ended January 31, 2022, net cash provided by investing activities was $221.7 million, consisting of cash paid for acquisitions, net of cash acquired, of $205.3 million, partially offset by purchases of property and equipment of $16.4 million.
Net Cash Provided by Financing Activities
During the year ended January 31, 2023, net cash provided by financing activities was $372.9 million, consisting of net proceeds from the issuance of convertible debt of $294.0 million, proceeds from the sale of common stock under the ATM Facility, net of commissions and fees, of $49.5 million, proceeds from the issuance of common stock under employee equity plans, net of tax withholdings, of $11.4 million, proceeds from the exercise of stock options and warrants of $6.9 million, and change in driver funds and amounts due to customers of $11.1 million.
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 million and proceeds from exercises of vested and unvested stock options of $4.9 million and 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 million and payment of tax withholding obligations on settlement of Earnout Shares of $20.9 million.
Contractual Obligations and Commitments
ChargePoint’s material cash requirements include the following contractual obligations and commitments as of January 31, 2023. For more information regarding ChargePoint’s other contractual obligations, refer to Note 10, Commitments and Contingencies , to its notes to the consolidated financial statements included elsewhere in this Annual Report.
Operating Lease Obligations
ChargePoint has operating lease obligations for office spaces and data centers. As of January 31, 2023, ChargePoint had lease payment obligations of $32.8 million, with $6.7 million payable within twelve months.
Purchase Commitments
From time to time in the ordinary course of business, ChargePoint enters into agreements with vendors for the purchase of components and raw materials. However, due to contractual terms and variability in production levels, and opportunities to renegotiate pricing, ChargePoint generally does not have long-term binding and enforceable purchase orders under such contracts, and the timing and magnitude of purchase orders beyond such period is difficult to accurately project.
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Critical Accounting Policies and Estimates
Management’s discussion and analysis of ChargePoint’s financial 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 ChargePoint to make estimates and assumptions for the reported amounts of assets, liabilities, revenue, expenses and related disclosures. ChargePoint’s estimates 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’s significant accounting policies are described in more detail in Note 2, Summary of Significant Accounting Policies , 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.
Revenue Recognition
ChargePoint recognizes 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.
ChargePoint enters into contracts with customers that regularly include promises to transfer multiple products and services, such as Networked Charging Systems, software subscriptions, extended maintenance, and professional services. For arrangements with multiple products and services, ChargePoint evaluates whether the individual products and services qualify as distinct performance obligations. In ChargePoint’s assessment 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 ChargePoint to 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.
The transaction price for each contract is determined based on the amount ChargePoint expects 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 ChargePoint charges 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 who offer public charging for a fee.
When agreements involve multiple distinct performance obligations, ChargePoint accounts for individual performance obligations separately. ChargePoint applies 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. ChargePoint determines 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, ChargePoint estimates 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, ChargePoint assesses 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. ChargePoint determines 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, ChargePoint applies the residual approach to estimate the SSP. After establishing the SSP, ChargePoint then allocates the transaction price using the relative selling price method.
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Inventory
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. ChargePoint analyzes 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 Combination
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, ChargePoint utilizes 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, ChargePoint may record certain adjustments to the carrying value of the assets acquired and liabilities assumed with a corresponding offset to goodwill.
Stock-based Compensation
Determining the grant date fair value of employee stock purchase plan (“ESPP”) rights using the Black-Scholes option-pricing model requires management to make certain assumptions and judgments. These estimates involve inherent uncertainties, and, if different assumptions had been used, stock-based compensation expense could have been materially different from the amounts recorded. Stock-based compensation is measured 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. ChargePoint estimates 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 ESPP rights issued is affected by a number of variables, including the expected Common Stock price volatility over the term of the award, the expected term of the award, risk-free interest rates, and the expected dividend yield of ChargePoint Common Stock.
• Expected volatility: The expected volatility for the ESPP rights 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’s business corresponding to the expected term of the awards.
• Risk-free interest rate: The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for zero-coupon U.S. Treasury notes with maturities corresponding to the expected term of the awards.
• Expected dividend yield: The expected dividend rate is zero as ChargePoint currently has no history or expectation of declaring dividends on its Common Stock.
• Expected term: The expected term represented the period the ESPP rights 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.
Income Taxes
ChargePoint utilizes 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
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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. ChargePoint makes 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. ChargePoint assesses 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.
ChargePoint recognizes 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 , of the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information regarding recently issued accounting pronouncements.