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 2024, 2023, and 2022, relate to the fiscal years ended January 31, 2024, January 31, 2023, and January 31, 2022, respectively. This section of this Form 10-K discusses fiscal year 2024 and 2023 items and year-to-year comparisons between fiscal year 2024 and 2023. Discussions of fiscal year 2022 items and year-over-year comparisons between fiscal year 2023 and fiscal year 2022 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 3, 2023. 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 electric vehicle (“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 Networked Charging 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, 2024 and 2023, ChargePoint had an accumulated deficit
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of $1,614.4 million and $1,156.8 million, respectively. ChargePoint has funded its operations primarily from customer payments, the issuance of common stock, redeemable convertible preferred stock and convertible notes, exercise proceeds from options and warrants, borrowings under loan facilities and proceeds from the Reverse Recapitalization.
Recent Developments
September 2023 Reorganization
In September 2023, the Company implemented a reorganization plan to reduce its operating expenses and increase efficiencies (the “September 2023 Reorganization”). The Reorganization entailed a reduction in force of approximately 10% of the Company’s global workforce at the time, and other actions to reduce expenses. During the twelve months ended January 31, 2024, the Company incurred $15.6 million of employee severance, termination and employment-related exit cost, as well as accelerated depreciation of right-of-use assets and other facilities and contract termination charges. As of January 31, 2024, restructuring-related liabilities were $0.5 million. The majority of the remaining restructuring-related liabilities, which includes employee severance and benefits and facilities-related exit costs, will be disbursed in the first quarter of fiscal 2025.
January 2024 Reorganization
In January 2024, the Company implemented an additional reorganization plan to reduce its operating expenses and further increase efficiencies (the “January 2024 Reorganization”). The January 2024 Reorganization entailed a reduction in force of approximately 12% of the Company’s global workforce and other actions to reduce expense. The Company incurred $9.9 million of employee severance, termination and employment-related exit costs and $2.7 million of facility exit costs, including impairment charges and accelerated depreciation of right-of-use assets. As of January 31, 2024, restructuring-related liabilities were $10.6 million. These remaining restructuring-related liabilities, which primarily includes employee severance and benefits, will be disbursed in the first quarter of fiscal 2025.
Refer to Note 14, Restructuring , in the notes to the consolidated financial statements included in this Annual Report.
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 believes its revenue growth is tied to the number of passenger and commercial EVs sold, which it believes drives the demand for EV charging infrastructure. The market for EVs is still rapidly evolving and although demand for EVs has grown in recent years, the rate of EV sales is highly volatile and there is no guarantee of future demand for EV sales. 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, reliability and cost of charging EVs; and increases in fuel efficiency of internal combustion engine vehicles. Further, numerous EV auto manufacturers have recently announced delays in their previously announced plans to migrate their manufacturing production to be solely or primarily EVs. 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 ongoing conflict between Russia and Ukraine, conflicts in the Middle East, 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, if there is any slow-down or delay in overall EV adoption, or if auto manufacturers delay their EV manufacturing rates or eliminate their plans to transition to predominately EV manufacturing, the rate of EV adoption may be adversely affected and the market for EV charging may not develop and as a result, 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. Historically, ChargePoint has sold its Networked Charging Systems and Cloud Services as an integrated “full-stack” offering, providing its customers with a sole-source solution for their EV charging needs, especially in the United States. Recently, ChargePoint has seen an increase in the frequency of customers seeking to disaggregate their networked charging solutions and to implement independent hardware and charging management software solutions, particularly for national or global commercial retailers and large fleet operators. While
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ChargePoint enables charge station operators to choose ChargePoint’s Cloud Services and select their choice of third-party hardware and enables e-mobility services providers to build and integrate their solutions with ChargePoint’s Cloud Services, there is no guarantee that this distributed sales model will be successful. If ChargePoint’s market share decreases due to increased competition, or if ChargePoint is unable to compete with a disaggregate EV charging solutions sales model, its financial condition and results of operations may be materially and adversely 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”). In Europe, ChargePoint primarily competes with other providers of EV charging station networks. 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 its success in EV 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. As noted above, the customer trend to make independent EV charging hardware and charging management software procurement selections is more prevalent in the fleet market. Any significant decline in purchases from these customers or increased competition for these customers may have an adverse impact on ChargePoint’s potential for future growth. If ChargePoint 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. In addition, ChargePoint may accelerate its expenditures where it sees growth opportunities, which may negatively impact gross margin until upfront costs and inefficiencies are absorbed and normalized operations are achieved. Further, ChargePoint has historically invested in prioritizing an assurance of supply of its products and new customer acquisition as part of its “land and expand” model, which 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.
ChargePoint intends to use third-party contract manufacturers and design partners for targeted new research and development initiatives with the goals of controlling development costs and decreasing operating expenses. ChargePoint believes such partnerships will allow it to better manage research and development expenses, improve the speed and quality of new product development and increase its efficiencies by leveraging the design talent and supply chains of these partners. Implementing third-party design partners for new research and development initiatives will require sophisticated oversight, quality programs and cost-control initiatives. If ChargePoint is not successful in its use of third-party contract manufacturers and design partners for new product development its financial conditions, gross margins and results of operations could be materially and adversely affected.
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
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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.
Macroeconomic Trends
ChargePoint has an international presence and as a result is subject to risks and uncertainties caused by significant events with macroeconomic impacts, including, but not limited to geopolitical events, including the ongoing Russia-Ukraine conflict, conflicts in the Middle East, rising inflation and interest rates, monetary policy changes, financial services sector instability, recessions, global pandemics and foreign currency fluctuations. Additionally, these macroeconomic impacts have generally disrupted the operations of its customers and prospective customers. In addition, shifts in ChargePoint’s product mix to DC chargers from AC chargers may negatively affect ChargePoint’s gross profits and gross margins since ChargePoint generally realizes higher gross margins from sales of its AC chargers. Further, disruption to ChargePoint’s supply chains and heightened component and shipping pricing and logistics expenses, which ChargePoint experienced in 2021 and 2022, 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.
Global economic uncertainty due to other macroeconomic conditions, including inflation, interest rate pressures, disruptions and credit constraints in the financial services industry, labor market disruptions, and related 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.
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, as well as fees received for transferring regulatory incentives earned for participating in low carbon fuel programs. ChargePoint generally recognizes revenue from sales of Networked Charging Systems upon shipment to the customer, at which point ChargePoint’s performance obligation is satisfied. Revenue from regulatory incentives is recognized when the regulatory incentives are transferred.
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, 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 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 has seen its revenue fluctuate based on market demand and other factors, and expects this variability of growth in Networked Charging Systems revenue to continue in the near term. In the long term it expects revenue to grow in both Networked Charging Systems and subscriptions due to increased demand in EVs and the related charging infrastructure market.
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For the Year Ended January 31, Change
2024 2023 2022 2024 vs 2023
2023 vs 2022
(dollar amounts in thousands, except percentages) Change
($) Change
(%) Change
($) Change
(%)
Networked Charging Systems $ 360,822 $ 363,622 $ 173,850 $ (2,800) (0.8) % $ 189,772 109.2 %
Percentage of total revenue 71.2 % 77.7 % 72.1 %
Networked Charging Systems revenue marginally decreased for fiscal year ended January 31, 2024 compared to fiscal year ended January 31, 2023.
For the Year Ended January 31, Change
2024 2023 2022 2024 vs 2023
2023 vs 2022
(dollar amounts in thousands, except percentages) Change
($) Change
(%) Change
($) Change
(%)
Subscriptions $ 120,445 $ 85,296 $ 53,512 $ 35,149 41.2 % $ 31,784 59.4 %
Percentage of total revenue 23.8 % 18.2 % 22.2 %
Subscriptions revenue increased for the fiscal year ended January 31, 2024 compared to fiscal year ended January 31, 2023 primarily due to the growth in the number of Cloud subscriptions and Assure subscriptions for Networked Charging Systems connected to ChargePoint’s network.
For the Year Ended January 31, Change
2024 2023 2022 2024 vs 2023
2023 vs 2022
(dollar amounts in thousands, except percentages) Change
($) Change
(%) Change
($) Change
(%)
Other revenue $ 25,372 $ 19,176 $ 13,644 $ 6,196 32.3 % $ 5,532 40.5 %
Percentage of total revenue 5.0 % 4.1 % 5.7 %
Other revenue increased for the fiscal year ended January 31, 2024 compared to fiscal year ended January 31, 2023 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 its Networked Charging Systems. 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, inventory obsolescence and write-downs, depreciation of manufacturing related equipment, 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.
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For the Year Ended January 31, Change
2024 2023 2022 2024 vs 2023
2023 vs 2022
(dollar amounts in thousands, except percentages) Change
($) Change
(%) Change
($) Change
(%)
Cost of Networked Charging Systems revenue $ 386,149 $ 318,628 $ 147,313 $ 67,521 21.2 % $ 171,315 116.3 %
Percentage of total revenue 76.2 % 68.1 % 61.1 %
Cost of Networked Charging Systems revenue increased during the fiscal year ended January 31, 2024 compared to fiscal year ended January 31, 2023 primarily due to a year-over-year increase in the number of Networked Charging Systems delivered and inventory impairment charges totaling $70.0 million, related to product transitions and aligning inventory with customer demand.
For the Year Ended January 31, Change
2024 2023 2022 2024 vs 2023
2023 vs 2022
(dollar amounts in thousands, except percentages) Change
($) Change
(%) Change
($) Change
(%)
Cost of Subscriptions revenue $ 73,595 $ 51,416 $ 31,190 $ 22,179 43.1 % $ 20,226 64.8 %
Percentage of total revenue 14.5 % 11.0 % 12.9 %
Cost of subscriptions revenue increased during fiscal year ended January 31, 2024 compared to fiscal year ended January 31, 2023 primarily due to increases in Assure maintenance costs, customer support personnel expenses which were driven by ChargePoint expanding its Networked Charging Systems, network wireless connectivity costs, and other operating costs.
For the Year Ended January 31, Change
2024 2023 2022 2024 vs 2023
2023 vs 2022
(dollar amounts in thousands, except percentages) Change
($) Change
(%) Change
($) Change
(%)
Cost of Other Revenue $ 16,777 $ 12,117 $ 8,970 $ 4,660 38.5 % $ 3,147 35.1 %
Percentage of total revenue 3.3 % 2.6 % 3.7 %
Cost of other revenue increased for the fiscal year ended January 31, 2024 compared to fiscal year ended January 31, 2023 primarily related to increased driver-generated cost.
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 AC charger based commercial business contributes higher margins than its residential and DC charger based 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.
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 align inventory supply with demand and optimize for customer acquisition 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.
For the Year Ended January 31, Change
2024 2023 2022 2024 vs 2023
2023 vs 2022
(dollar amounts in thousands, except percentages) Change
($) Change
(%) Change
($) Change
(%)
Gross Profit $ 30,118 $ 85,933 $ 53,533 $ (55,815) (65.0) % $ 32,400 60.5 %
Gross Margin 5.9 % 18.4 % 22.2 %
Gross profit decreased for the fiscal year ended January 31, 2024 compared to fiscal year ended January 31, 2023 primarily due to an increase in cost of revenue resulting from inventory impairment charges totaling $70.0 million, related to product transitions and aligning inventory with customer demand, partially offset by growing gross profits from subscriptions driven by ChargePoint expanding its networked Charging Systems.
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Gross margin decreased for the fiscal year ended January 31, 2024 compared to fiscal year ended January 31, 2023 primarily
due to an increase of cost of revenue resulting from the increase of inventory impairment charges, as described above, and customer support personnel expenses, as well as other operating expenses.
Research and Development Expenses
Research and development expenses consist primarily of salaries and related personnel expenses, including stock-based compensation, for personnel related to the development of improvements and expanded features for ChargePoint’s products and services, including in quality assurance, testing, product management, and allocated facilities and information technology expenses. Research and development costs also include prototype and testing cost, professional services and consulting, and are expensed as incurred.
For the fiscal year ending January 31, 2025, ChargePoint expects its research and development expenses to decrease as a percentage of revenue as it continues to optimize its research and development activities for its technology and product roadmap.
For the Year Ended January 31, Change
2024 2023 2022 2024 vs 2023
2023 vs 2022
(dollar amounts in thousands, except percentages) Change
($) Change
(%) Change
($) Change
(%)
Research and Development Expenses $ 220,781 $ 194,957 $ 145,043 $ 25,824 13.2 % $ 49,914 34.4 %
Percentage of total revenue 43.6 % 41.6 % 60.2 %
Research and development expenses increased during the fiscal year ended January 31, 2024 compared to fiscal year ended January 31, 2023 and was primarily attributable to a $17.3 million increase in compensation related expenses due to headcount growth and employee-related exit costs related to the reorganizations implemented by the Company (see Note 14, Restructuring , in the notes to the consolidated financial statements included in this Annual Report for more details), a $14.4 million increase in stock-based compensation expense due to the impact of grants to new hires and to promote long-term retention of employees, and an increase of $2.4 million in depreciation and other operating expense. This is offset by a $6.9 million decrease in engineering materials and services costs and a decrease of $1.3 million in consulting fees.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of salaries and related personnel expenses, including stock-based compensation, sales commissions, professional services fees, travel, marketing and promotional expenses, bad debt expenses, and allocated facilities and information technology expenses.
For the fiscal year ending January 31, 2025, ChargePoint expects its sales and marketing expenses to decrease as a percentage of revenue as it continues to optimize its sales and marketing activities while expanding sales.
For the Year Ended January 31, Change
2024 2023 2022 2024 vs 2023
2023 vs 2022
(dollar amounts in thousands, except percentages) Change
($) Change
(%) Change
($) Change
(%)
Sales and marketing expenses $ 150,186 $ 142,392 $ 92,550 $ 7,794 5.5 % $ 49,842 53.9 %
Percentage of total revenue 29.6 % 30.4 % 38.4 %
Sales and marketing expenses increased during the fiscal year ended January 31, 2024 compared to fiscal year ended January 31, 2023 primarily attributable to a $2.4 million increase in compensation related expenses due to headcount growth and employee-related exit costs related to the reorganizations implemented by the Company (see Note 14, Restructuring , in the notes to the consolidated financial statements included in this Annual Report for more details), and a $5.5 million increase in stock-based compensation expense due to the impact of grants to new hires and to promote long-term retention of employees.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related personnel expenses, including stock-based compensation, related to finance, legal and human resource functions, contractor and professional services fees, audit and compliance expenses, insurance costs, and general corporate expenses, including allocated facilities and information technology expenses.
For the fiscal year ending January 31, 2025, ChargePoint expects its general and administrative expenses to decrease as a percentage of revenue as it continues to optimize its operations.
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For the Year Ended January 31, Change
2024 2023 2022 2024 vs 2023
2023 vs 2022
(dollar amounts in thousands, except percentages) Change
($) Change
(%) Change
($) Change
(%)
General and administrative expenses $ 109,102 $ 90,366 $ 81,380 $ 18,736 20.7 % $ 8,986 11.0 %
Percentage of total revenue 21.5 % 19.3 % 33.8 %
General and administrative expenses increased during the fiscal year ended January 31, 2024 compared to fiscal year ended January 31, 2023 primarily due to an increase of $10.9 million in restructuring expense for facility and other contract terminations related to the reorganizations implemented by the Company (see Note 14, Restructuring , in the notes to the consolidated financial statements included in this Annual Report for more details), a $2.9 million increase in compensation related expenses due to headcount growth and employee-related exit costs related to the aforementioned reorganization, a $3.7 million increase in stock-based compensation expense due to new hires and to promote long-term retention of employees, and a $1.2 million increase in other operating expenses.
Interest Income
Interest income consists primarily of interest earned on ChargePoint’s cash, cash equivalents and short-term investments.
For the Year Ended January 31, Change
2024 2023 2022 2024 vs 2023
2023 vs 2022
(dollar amounts in thousands, except percentages) Change
($) Change
(%) Change
($) Change
(%)
Interest income $ 9,603 $ 5,534 $ 98 $ 4,069 73.5 % $ 5,436 n.m.
Percentage of total revenue 1.9 % 1.2 % — %
Interest income increased during fiscal year ended January 31, 2024 compared to fiscal year ended January 31, 2023 due to higher interest rates and higher balances of interest-earning investments.
Interest Expense
Interest expense consists primarily of the interest on ChargePoint’s 2028 Convertible Notes that were issued in April 2022, and amended in October 2023, which are described more completely below in Liquidity and Capital Resources .
For the Year Ended January 31, Change
2024 2023 2022 2024 vs 2023
2023 vs 2022
(dollar amounts in thousands, except percentages) Change
($) Change
(%) Change
($) Change
(%)
Interest expense $ (16,273) $ (9,434) $ (1,502) $ (6,839) 72.5 % $ (7,932) 528.1 %
Percentage of total revenue (3.2) % (2.0) % (0.6) %
Interest expense increased during the fiscal year ended January 31, 2024 compared to fiscal year ended January 31, 2023 primarily due to interest expense on the 2028 Convertible Notes that were originally issued in April 2022, and amended in October 2023. For more information, see Note 6, Debt , in the notes to consolidated financial statements included in this Annual Report.
Other Income (Expense), Net
Other income (expense), net consists primarily of foreign currency transaction gains and losses.
For the Year Ended January 31,
Change
2024 2023 2022 2024 to 2023
2023 to 2022
(dollar amounts in thousands, except percentages) Change
($) Change
(%) Change
($) Change
(%)
Other income (expense), net $ (1,009) $ (1,569) $ (2,775) $ 560 (35.7) % $ 1,206 (43.5) %
Percentage of total revenue (0.2) % (0.3) % (1.2) %
Other income (expense), net changed from $(1.6) million during the fiscal year ended January 31, 2023 to $(1.0) million during the fiscal year ended January 31, 2024 due to favorable changes in foreign exchange rates.
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Provision for Income Taxes
ChargePoint’s provision for income taxes consists of federal, state and foreign income taxes based on enacted federal, state and foreign tax rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in deferred tax assets and liabilities and changes in tax law. Due to the level of historical losses, ChargePoint maintains a valuation allowance against U.S. federal and state deferred tax assets as it has concluded it is more likely than not that these deferred tax assets will not be realized.
For the Year Ended January 31,
Change
2024 2023 2022 2024 to 2023
2023 to 2022
(dollar amounts in thousands, except percentages) Change
($) Change
(%) Change
($) Change
(%)
Provision (benefit) for income taxes $ (21) $ (2,167) $ (2,930) $ 2,146 (99.0) % $ 763 (26.0) %
Percentage of loss before provision (benefit) for income taxes — % 0.6 % 2.2 %
The benefit for income taxes decreased during the fiscal year ended January 31, 2024 as compared to fiscal year ended January 31, 2023 primarily due to changes to deferred tax liability following a tax rate reduction in certain foreign jurisdictions recorded in the prior year.
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 past acquisitions primarily with proceeds from the issuance of common stock, 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, 2024 and 2023, ChargePoint had cash and cash equivalents and restricted cash and short-term investments of $357.8 million and $399.5 million, respectively. ChargePoint believes 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.
2028 Convertible Notes
In April 2022, ChargePoint completed a private placement of $300.0 million aggregate principal amount of convertible notes, with an original maturity date of April 1, 2027 (the “Original Convertible Notes”). In October 2023, ChargePoint completed an amendment to the indenture for the Original Convertible Notes (the “2027 Notes Amendment”) pursuant to which the Cash Interest and PIK Interest (as described below) were increased and the maturity date for the Original Convertible Note was extended to April 1, 2028 (the “2028 Convertible Notes”). The net proceeds from the original sale of the 2028 Convertible Notes were approximately $294.0 million after deducting initial purchaser discounts and commissions and the Company’s offering expenses.
Prior to the 2027 Notes Amendment, the Original Convertible Notes bore interest at 3.50% per annum, to the extent paid in cash (“Cash Interest”), which was payable semi-annually in arrears on April 1st and October 1st of each year or 5.00% per annum through the issuance of additional Original Convertible Notes. The 2028 Convertible Notes bear Cash Interest at 7.00% per annum or 8.50% per annum through the issuance of additional 2028 Convertible Notes (“PIK Interest”). The 2028 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 83.3333 shares per $1,000 principal amount of the 2028 Convertible Notes, subject to customary anti-dilution adjustment in certain circumstances, which represents an initial conversion price of approximately $12.00 per share.
For additional details on the 2027 Notes Amendment and the 2028 Convertible Notes refer to Note 6, Debt, to ChargePoint’s notes to the consolidated financial statements in this Annual Report.
2027 Revolving Credit Facility
On July 27, 2023, the Company entered into a revolving credit agreement by and among the Company as the parent guarantor, ChargePoint, Inc. (the “Borrower”), certain subsidiaries of the Borrower as guarantors, JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders party thereto (the “Credit Agreement”). The Credit Agreement provides for senior secured revolving credit facility in an initial aggregate principal amount of up to $150.0 million, with a maturity date of January 1, 2027 (the “2027 Revolving Credit Facility”). Pursuant to the Credit Agreement, the Borrower may from time to time arrange for one or more increases in the commitments under the 2027 Revolving Credit Facility in an aggregate principal amount not to exceed $150.0 million, subject to obtaining the consent of the lenders participating in any such increase. In October 2023, the Company entered into an amendment to the Credit Agreement to, among other things, permit the Company to complete the 2027 Notes Amendment.
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As of January 31, 2024, the Borrower had no borrowings outstanding or letters of credit under the 2027 Revolving Credit Facility and, as a result, had a borrowing capacity of up to $150.0 million.
For additional details on the 2027 Revolving Credit Facility refer to Note 6, Debt , in 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, 2024, the Company sold a total of 59,299,481 shares of its Common Stock pursuant to the ATM Facility for total proceeds of $287.2 million, net of $1.2 million of issuance costs, which includes 41,371,158 shares sold to an institutional investor. As of January 31, 2024, $161.6 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, such as the restrictive covenants included in the 2027 Revolving Credit Facility, 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 may continue 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 and drawing down amounts under the 2027 Revolving Credit 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 years 2023 and 2024. 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, past acquisitions, 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 and the 2027 Revolving Credit 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.
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Cash Flows
For the Fiscal Years Ended January 31, 2024, 2023 and 2022
The following table sets forth a summary of ChargePoint’s cash flows for the periods indicated:
Year Ended January 31,
2024 2023 2022
(in thousands)
Net cash (used in) provided by:
Operating activities $ (328,941) $ (267,049) $ (157,178)
Investing activities 85,576 (126,154) (221,740)
Financing activities 306,524 372,859 549,687
Effects of exchange rates on cash, cash equivalents, and restricted cash 89 (729) (1,025)
Net increase (decrease) in cash, cash equivalents and restricted cash $ 63,248 $ (21,073) $ 169,744
Net Cash Used in Operating Activities
During the year ended January 31, 2024, net cash used in operating activities was $328.9 million, consisting primarily of a net loss of $457.6 million, partially offset by a decrease in net operating assets of $102.8 million and non-cash charges of $231.5 million. The non-cash charges consisted primarily of $117.3 million of stock-based compensation expense, $70.0 million of inventory impairment and non-cash charges, $31.3 million of depreciation, and amortization expense and amortization of deferred contract acquisition costs, $8.4 million of reserves and other costs, and $4.3 million of non-cash operating lease costs. The change in operating assets and liabilities was mainly driven by an increase in inventory of $173.7 million and decrease in accounts payable, operating lease liabilities and accrued and other liabilities of $5.5 million, partially offset by a decrease in accounts receivable, net, of $36.5 million, an increase in deferred revenue of $32.8 million and a decrease in prepaid expenses and other assets of $7.0 million.
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,$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, and prepaid expenses and other assets of $38.0 million, offset by increases in deferred revenue of $51.8 million, accounts payable, operating lease liability, and accrued and other liabilities of $55.8 million.
Net Cash Provided By (Used In) Investing Activities
During the year ended January 31, 2024, net cash provided by investing activities was $85.6 million consisting of cash received from maturities of short-term investments of $105.0 million, offset by purchases of property and equipment of $19.4 million.
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.
Net Cash Provided by Financing Activities
During the year ended January 31, 2024, net cash provided by financing activities was $306.5 million, consisting of proceeds from the sale of common stock under the ATM Facility, net of commission and fees, of $287.2 million, change in driver funds and amounts due to customers of $13.7 million, proceeds from the issuance of common stock under employee equity plans, net of tax withholdings, of $12.1 million, partially offset by $2.9 million in issuance costs related to the 2027 Revolving Credit Facility and $3.5 million of the total $7.1 million contingent earnout consideration payments related to the acquisition of ViriCiti, of which the remaining $3.6 million is classified as cash outflow under operating 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.
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Contractual Obligations and Commitments
ChargePoint’s material cash requirements include the following contractual obligations and commitments as of January 31, 2024. For more information regarding ChargePoint’s other contractual obligations, refer to Note 7, 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, 2024, ChargePoint had lease payment obligations of $26.7 million, with $6.5 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.
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,
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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.
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
ChargePoint recognizes compensation costs for all stock-based awards, including stock options, restricted stock units (“RSUs”), performance restricted stock units (“PRSUs”) and stock purchased under the Company’s 2021 Employee Share Purchase Plan (“ESPP”), based on grant date fair value of the award. 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. 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. For RSUs, 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. For PRSUs with a market condition, the Company uses a Monte Carlo simulation pricing model to incorporate the market condition effects at the grant date to measure the fair value of the award and is expensed over the service period. The Monte Carlo pricing model requires inputs which are subjective and generally requires judgment. For ESPP, stock-based compensation on the grant date is estimated using the Black-Scholes option-pricing model, which requires the use of certain subjective assumptions, 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.
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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 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.