EVgo, Inc. (NASDAQ:EVGO) Q4 2023 Earnings Call Transcript

EVgo, Inc. (NASDAQ:EVGO) Q4 2023 Earnings Call Transcript March 6, 2024

EVgo, Inc. beats earnings expectations. Reported EPS is $-0.12, expectations were $-0.22. EVgo, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the EVgo's Fourth Quarter and Full-Year 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Heather Davis, Vice President of Investor Relations at EVgo, you may begin your conference.

Heather Davis: Good morning, and welcome to EVgo's fourth quarter and full-year 2023 earnings call. My name is Heather Davis, and I'm the Vice President of Investor Relations at EVgo. Joining me on today's call are Badar Khan, EVgo's Chief Executive Officer and Olga Shevorenkova, EVgo's Chief Financial Officer. Today, we will be discussing EVgo's fourth quarter 2023 financial results and outlook for 2024, followed by a Q&A session. Today's call is being webcast and can be accessed on the Investors section of our website at investors.evgo.com. The call will be archived and available there along with the company's earnings release and investor presentation after the conclusion of this call. During the call, management will be making forward-looking statements that are subject to risks and uncertainties, including expectations about future performance.

Factors that could cause actual results to differ materially from our expectations are detailed in our SEC filings, including in the Risk Factors section of our most recent annual report on Form 10-K and quarterly report on Form 10-Q. The company's SEC filings are available on the Investors section of our website. These forward-looking statements apply as of today, and we undertake no obligation to update these statements after the call. Also, please note that we will be referring to certain non-GAAP financial measures on this call. Information about these non-GAAP measures, including a reconciliation to the corresponding GAAP measures, can be found in the earnings materials available on the Investors section of our website. With that, I'll turn the call over to Badar Khan, EVgo's CEO.

Badar Khan : Good morning, everyone, and thank you for joining us today. EVgo posted yet another great quarter and set of results in the full year. But before we dive into those details, since this is my first call as EVgo's CEO, I thought it worth taking a moment to remind everyone of the incredible and important journey we are on. Emissions from transportation represent the largest source of emissions in the United States, and that is why the work we do is so important. At EVgo, our mission is to accelerate the mass adoption of electric vehicles by creating a convenient, reliable and affordable EV charging network that delivers fast charging for everyone. I believe EVgo represents a compelling value proposition for investors, not just because of where the company is currently trading.

An investment in EVgo is clearly an investment in sustainability, but it is also an investment in a market that has a multi decade growth trajectory without the need to pick one EV manufacturer over another. Our business model is also focused on the highest growth segment of the charging market, DC fast charging, a fact seen from the data today. We like our core business of owning and operating the charging network. We generate revenue every time a customer charges on our network, unlike a one-time equipment sale. And as we continue to see, our revenue is growing faster than the growth of EVs. From customer capture, through design development and construction, to products and services that build customer loyalty, we have a growth engine that leverages key partner and OEM relationships across this entire cycle and is hard to replicate.

Financial discipline is key throughout our business from the proprietary network-planning model to determine where to locate our charging stations to the disciplined investment decision-making processes designed to ensure we generate double-digit returns and minimize reliance on shareholder capital. For over a decade, EVgo has built a growth engine that is benefiting from this megatrend towards electric vehicles and has delivered a near trebling of throughput and revenue for each of the past two years and is adding NPV at scale annually. And as you'll hear today, has a clear path to adjusted EBITDA breakeven in 2025. And we passed an important inflection point in 2023 as a result of utilization and throughput levels we're now seeing across our network.

The installed base is now profitable on a standalone basis. It's truly an exciting time at EVgo to be leading the company in the next phase of profitable growth. We had a great fourth quarter in 2023 and for the full year, we delivered record levels of throughput and revenue, near trebling year-over-year. On our Q3 call, we raised revenue guidance, and I'm very pleased to say we came in above the top end of that raised guidance at $161 million in revenue. Operationally, we had another strong year of customer account growth and growth in our network in both stalls and throughput. EVgo's path to profitability comes from strong top-line revenue growth, but also from operating leverage driving gross margin expansion. On our Q3 call, we also provided improved adjusted EBITDA guidance for the full year.

And so I'm also very pleased to say that we came in above the top end of that raised guidance at negative $58.8 million. As a reminder, EVgo currently has three main sources of revenue. Revenues associated with owning and operating our growing network of DC fast chargers, revenues from our capital-light eXtend business that complements our core business, but with chargers owned by site hosts customers, and ancillary and tech-enabled services like our PlugShare business and fleet focused business models. As we said in our preliminary results in mid January, we plan to focus our growth efforts in the near-term on our core owned and operated business given that this business is most leveraged to EV adoption, is experiencing strong revenue and throughput growth and is expected to generate the highest returns.

As a result, we're targeting this to become the majority of our business. As you know, EVgo's almost 3,000 operational stalls span most of the country with stalls in over 35 states across over 50 national and regional strategic site hosts, and today, over 145 million Americans live within 10 miles of an EVgo charger. Across our site host partners, we've identified over 100,000 potential stalls for EVgo to build, which shows how far we can go, but also that we have plenty of opportunity to select some of the best sites. Two years ago, around one-third of our network throughput was outside California, whereas by the end of 2023, that's grown to around half. In fact, Texas and Florida are two of our fastest growing states in terms of throughput, proving that the growth of electric vehicles is occurring in both red states and blue.

In 2021, consumers had approximately 31 EV models to choose from. Today, there are now more than 70 models with many more on the way from the OEMs. These models are not only becoming more affordable, but they are increasingly addressing all vehicle segments and their technology is improving. From EVgo's inception, we've made it a priority to serve all EVs, enabled by our innovation lab in LA, where we work collaboratively with OEMs to ensure interoperability between all EV models and our chargers. EVgo's commitment to serve all EVs includes adding NACS connectors to our network. For over a decade, the EVgo team has built and refined the growth engine that is now humming. From a proprietary process of determining whether and where to build, to construction to grant capture to customer acquisition to ongoing maintenance, we are adding net present value every year.

Foundational to this growth engine are the many years' experience we have in securing our supply chain, marquee site host relationships, excellent relationships and advocacy efforts with governments and utilities, an innovative tech platform and our sizable OEM partnerships. When put together, this is difficult to replicate at this scale and with the customer experience we now offer and reinforces our competitive advantage. There are several drivers underpinning the growth of transport electrification, although I recognize there may be speed bumps along the way. Despite some OEMs pulling back from their extraordinary ambitions over the past couple of years, commitments from OEMs towards investing in electric vehicles still represents over $400 billion.

14 states, representing over a third of the U.S. population have adopted Advanced Clean Cars II, the regulation from the California Air Resources Board that phases out the sale of new ICE vehicles in favor of a 100% zero emission future for new zero emission vehicle sales. Rideshare companies have committed to an all-electric future with Uber setting the goal of having 100% of their rides in EVs in the U.S. by 2030. This is parallel to efforts of cities such as New York City, where Mayor Eric Adams signed the green rides rule where all rideshare vehicles that operate in the city must be electric by 2030. And across the U.S., we see strong consumer preferences for EVs today, which we expect to gain momentum as the average price of battery electric vehicles becomes closer and eventually becomes cheaper than ICE vehicles with more new models being brought out every few months.

Two years ago, the average BEV was around a third more expensive than the average ICE vehicle. And today, it is almost at parity without incentives according to Cox Automotive. Battery electric vehicle sales continue to grow year-over-year and sales of non-Tesla vehicles, which are the majority of vehicles charging on EVgo's network, grew by 66% year-over-year and now represent approximately half of all 2023 battery electric vehicle sales, up from about a third in 2022. While there may be some uncertainty over the growth of EVs in the near term, estimates for 2030 remain very significant, implying CAGRs of 37% to 42% through 2030. There are few industries in the world with this kind of growth rate underpinning the investment case. EVgo focuses on DC fast charging versus L2 charging.

With DC fast charging depending on the vehicle, it's possible to charge 100 miles in less than 10 minutes. These stalls are in premium convenient locations where people are going about their lives. Our core business generates revenue from the sale of electricity through these well-located stalls. In other words, we would continue to generate revenue even if there were no more new EV stalls. Because of decreasing vehicle efficiency due to larger EVs, we expect to see a higher growth rate of electricity consumption to power those vehicles. Therefore, we estimate the total addressable market or TAM is growing at a CAGR of up to 46% to 2030. And finally, DC fast charging share of the electricity consumption is expected to grow considerably over the next several years with an even higher CAGR up to 60%, resulting in a $12 billion to $15 billion annual serviceable addressable market or SAM by 2030.

That assumes a penetration of only up to 15%, implying decades of further growth. The growth of DC fast charging is not some hypothesis for a future yet to emerge. We believe that early adopters of EVs had access to at home charging. As the market moves towards mass adoption, more easy buyers live in multifamily housing. And we know from a study from UCLA that multifamily residents are more likely to rely on public fast charging for their needs. In just two years, the percentage of multifamily dwellers buying EVs has risen to 31%, up 10 points. The percentage of DC fast charging is growing as this transition unfolds. In California, over the last 2.5 years, we estimate that fast charging already accounts for over a quarter of all charging needs for EV drivers, up from an estimated 5% to 10% in 2021 and expect this growth will continue over time.

The second driver for the growth of DC fast charging is the growing number of rideshare drivers that drive EVs. The average rideshare drives 3x to 4x more than the average commuter, who is more likely to live in multifamily housing, and is more likely to not want to use valuable time during the day to charge their vehicle and is therefore very reliant on DC fast charging. This segment of drivers is growing very fast. Evaluating our usage on the EVgo network, rideshare drivers on average charge 5x more than our average retail customer. As more rideshare drivers make the shift to electric, the amount of electricity dispensed to this group of customers has increased to 25% in the fourth quarter of this year, up from 11% in Q1 ‘21. One of EVgo's sources of competitive advantage, honed from over a decade of doing this is a proprietary, sophisticated network planning process that informs where we locate our chargers.

We ingest an enormous amount of data from EV adoption rates, forecast sales, to density of multifamily housing, to rideshare volumes, electricity costs, demand charges and availability of grants, all at a census block level, which then tells us where to place chargers, how many and at what pace within specific geographic bubbles that are projected to generate double-digit returns. We then turn to our extensive site partners to determine which of our partners' sites are best placed to build a site. And the model is iterated continuously, comparing actuals with forecasts to improve the network planning process. The chart on Slide 17 shows our actual forecasted throughput versus what we had originally forecasted for all owned sites. Actual shows not only how accurate our network-planning model is, but also the level of robustness of our underwriting process.

You can see this financial discipline in the way we deploy capital, where we seek to minimize the amount of capital we deploy with offsets coming from a range of sources, including OEM payments and grants and incentives. And as we discussed before, we receive approximately $33,000 per stall built under our partnership with GM, which is typically received within a couple of months of stalls going operational. We have over a decade of experience in successfully identifying, applying for and securing grants at the federal, state and local levels. The federal government has two primary programs to incentivize charging infrastructure: the expansion and extension of 30C, the alternative refueling property tax credit from the Inflation Reduction Act and the NEVI program, up to $7.5 billion of formula funding from the bipartisan infrastructure law.

In January this year, the IRS clarified rules about 30C eligibility, essentially resulting in more sites being eligible for funding than we had previously expected. As a result, we now expect around 50% of our network plan to be eligible to receive 30C funding. Finally, EVgo and our partners through our eXtend business continue to win NEVI funding for highway sites. However, given our strategy is focused on higher density, urban locations, our network plan is not dependent on NEVI funding as these sites are immaterial to our plan over the next couple of years. As a reminder, these diverse sources of funding can typically be stacked. And in some cases, the funding stack may cover the vast majority of CapEx at a particular site. For sites that are expected to go operational in 2024, these offsets are expected to represent around 40% of the capital required for our owned and operated sites.

EVgo's digital first approach offers customers and partners alike a variety of offerings driving value. We've worked tirelessly to improve the customer experience, and a lot of that is driven through software. For example, Autocharge Plus, a seamless plug and charge experience gets rave reviews from EV drivers as do reservations. EVgo offers flexible pricing models with location based, time of use, subscription, rideshare and pay as you go models available for drivers to choose what serves their needs best while optimizing profitability for EVgo. And our partners value a digital first approach from eXtend and rideshare partners to OEMs to site hosts. Each of our partners have benefited from technology offerings that improve our relationship with them.

One of EVgo's core priorities is to offer a best-in-class customer experience. We know that there are four things that customers value the most. First, having lots of stalls at a site so they never have to wait for a charge; second, having high powered chargers available so they can fuel up quickly; third, having reliable solution that works right on the first try; and fourth, a hassle-free payment process. On each of these dimensions, EVgo has made great progress over the course of 2023. Across our over 950 locations, we nearly doubled the number of sites that have at least six stalls and we're now targeting a minimum station size of six stalls per site and aim for 8 to 10 if the site host has space. Across our nearly 3,000 stall network, we have more than doubled the number of stalls served by a 350 kilowatt charger.

Rather than an asset based reliability measure, we track what we call one and done, an internal but more customer oriented metric that measures the percentage of time a customer has a successful charging experience within a reasonable time window on their first try. During 2023, our one and done rate increased over 600 basis points to 91%. Finally, we know that a key frustration for customers during the charging process is payment. As a result, we developed our Autocharge Plus feature, which allows drivers to just plug in and charge automatically without having to perform any additional steps. It makes charging easier and faster. During 2023, we nearly doubled the percentage of sessions using Autocharge Plus, which now has over 50 vehicle models eligible for it.

This customer centric model combined with our disciplined investment in building a world-class fast charging network is why I am so excited about our electric future. I'll now turn the call over to Olga, who will go through our financial performance for the fourth quarter and full-year 2023 as well as our initial outlook on 2024.

Olga Shevorenkova: Thank you, Badar. EVgo ended 2023 with yet another strong quarter, mostly driven by the continued growth of our owned and operated charging network. Revenue in the fourth quarter was $50 million, which represents an 83% year-over-year increase. This growth was primarily driven by increased charging revenues. Retail charging revenue grew from $5.8 million in the fourth quarter of 2022 to $16.7 million in the fourth quarter of 2023, exhibiting a 186% year-over-year increase. Commercial charging revenue grew from $1.3 million in the fourth quarter of 2022 to $6.3 million in the fourth quarter of 2023, exhibiting a 378% year-over-year increase. And eXtend revenue grew from $16.7 million in the fourth quarter of 2022 to $18.3 million in the fourth quarter of 2023, exhibiting a 10% year-over-year increase.

We added over 930 new operational stalls to our own and operated network during 2023, accelerating off the 670 new stalls we added in 2022. Sold and operational under construction inclusive of $196 sold was 3,550 as of December 31, 2023. During 2023, EVgo added over 866,000 new customer accounts, which represents the majority of all non-Tesa EV sales in 2023. EVgo ended 2023 with more than 884,000 customer accounts, a 60% increase over year-end 2022. EVgo's network throughput continues to accelerate in the fourth quarter, growing faster than EV VIO growth over the same time period. As Badar discussed earlier, EVgo is focused on the fastest growing segment of the charging market, DCFC, and it can clearly be seen in our numbers. This accelerated growth is driven by a number of factors.

EV buyers moving from early to mass adopters with a higher portion of multi union dwellers and the rapid growth in rideshare, as well as EV vehicle miles traveled finally catching up to those of ICE, increasing EV charge rates or how much electricity is delivered over the time period to a vehicle, and heavy less efficient EV models. Utilization was over 19% across the network in the month of December. Over 55% of our stalls had utilizations greater than 15% in December 2023 and over 40% of our stalls had utilizations greater than 20% in December 2023. Another way to look at stall level performance is to look at daily throughput per stall. There are two factors that drive this metric, time-based utilization and charge rate. As a reminder, charge rate depends on the car's battery, but can be limited by some legacy fast charges whose max capacity is lower than a specific car's charge rate.

We expect average charge rates on our network to increase over time, driven by newer cars with bigger batteries and a higher mix of ultrafast DCFC chargers on our network. Average daily throughput per stall was 200 kilowatt hour in December 2023, up from 51 kilowatt hour in December 2021, representing a 4x increase. Utilization grew around 3x over the same time period, demonstrating the impact of increasing charge rates on throughput per stall. Looking back two years ago, only 2% of our stalls were delivering 200 kilowatt hours or more per day. As of Q4 2023, that number has increased to 42%. And on the lower end, three years ago, 60% of stalls were delivering less than 50 kilowatt hour a day. Today, that number has shrunk to 16%. EVgo continues to realize operating leverage on its path to profitability.

In the fourth quarter of 2023, we doubled our revenue while tripling our adjusted gross profit versus the fourth quarter of 2022. Adjusted G&A as percent of revenue decreased from 92% to 54% over the same time period. These improvements are driven by first, leverage within cost of goods sold and second, leverage within SG&A. Let us unpack both. For every stall we deploy, there is an amount of fixed or stall dependent costs associated with it, including property taxes, rent, base maintenance and demand charges. For every additional kilowatt-hour of throughput, these costs remains fixed per stall. Therefore, lowering stall dependent costs as a percentage of revenue driving adjusted gross margin up. To help you model operating leverage in our core business, we have broken our adjusted cost of sales into two categories: charging network cost of sales and other cost of sales.

Charging network cost of sales include all costs associated with running our core owned and operated charging network, whereas other cost of sales include cost of goods sold associated with our eXtend and ancillary business lines. Within charging network cost of sales, approximately 40% of costs are stall dependent. In other words, fixed per stall. The other 60% of charging network cost of sales is throughput dependent and includes volumetric energy costs and credit card processing fees. The increase in daily throughput per stall you saw on the prior slide was primarily behind the adjusted gross margin expansion from 18.3% in the fourth quarter last year to 26.5% in the fourth quarter of this year. We also have operating leverage in G&A. Adjusted general administrative expenses at EVgo can be broken down into two categories.

First, the cost to sustain the existing charging network and other existing businesses such as call center, third-party IT, account management, marketing, sustain and software and hardware expenses. These costs represent roughly 30% of total adjusted G&A. Second, the cost to support growth of the charging network and other business lines, our so-called growth engine what I have spoken at length about. These costs represent another roughly 30% of adjusted G&A. And finally, corporate overhead costs that represent roughly 40% of total adjusted G&A. Gross costs are tied to the size of the growth engine and corporate costs are fairly fixed at this point. And as a result, adjusted G&A has increased only 9% year-over-year, while as mentioned earlier, revenue tripled, fully demonstrating the operating leverage within G&A.

Both of those effects coupled with increased scale of the charging network and other business lines have put us on a clear path to reach adjusted EBITDA breakeven. Importantly, we have passed an important inflection point in 2023 in that as a result of the utilization and throughput levels, we're now seeing across our network, the installed base is now profitable on a standalone basis. Adjusted gross profit was $13.3 million in the fourth quarter of 2023, up from $5 million in the fourth quarter of 2022. Adjusted EBITDA was negative $14 million in the fourth quarter of 2023, an improvement versus negative $20.1 million in the fourth quarter of 2022. Cash used in operations was $7.3 million in the fourth quarter. We added over 200 new stalls to our owned and operated network during the fourth quarter.

Capital expenditures were $34.8 million in the fourth quarter. This includes expansion CapEx, renew CapEx, as well as capitalized engineering and construction and tech development costs. We are now reporting capital expenditures net of capital offsets, where capital offsets represent cash collected from various funding sources in a particular period. Specifically, in the fourth quarter of 2023, we collected $5.7 million in OEM infrastructure payments, all payments under the GM contract and $7.4 million as proceeds from capital build fundings. All cash collected as part of various grants and incentive programs secured over the prior periods. Thus, bringing capital expenditure net of capital offsets to $21.8 million for the quarter. For the full year 2023, total revenue was $161 million, nearly tripling compared to 2022.

Revenue growth was primarily driven by charging revenue and EVgo eXtend. Retail charging revenue was $45.7 million, an increase of 142% compared to 2022. Commercial charging revenue was $14.5 million, an increase of 331% compared to 2022. And eXtend revenue was $72.4 million, an increase of 292% compared to 2022. Adjusted gross profit was $41.8 million in 2023, up from $13.3 million in 2022. Adjusted gross margin was 26% for the full-year 2023, up from 24.3% in 2022. This increase was driven by the operating leverage as discussed earlier. Greater leverage effects are observable when comparing adjusted gross margin in the fourth quarter of ‘23 to the fourth quarter of ‘22 versus comparing full year results. This is driven by accelerated LCFS revenue recognition in the first half of 2022, which drove margins higher in that time period.

Adjusted G&A as a percentage of revenue improved significantly from 171.2% in 2022 to 62.5% in 2023, demonstrating the same leverage effect when looking at fourth quarter to fourth quarter numbers. Adjusted EBITDA loss improved by $21 million in 2023 to a loss of $58.8 million versus a loss of $80.2 million in 2022. Cash, cash equivalents and restricted cash was $209 million as of December 31, 2023. Cash used in operations was $37.1 million for the year compared to $58.8 million in 2022, clearly demonstrating our focus on reducing the operational cash burn and setting EVgo on a clear path to profitability. In 2023, total CapEx was $158.9 million and capital expenditures net of capital offsets were $122.8 million. The vast majority of the $159 million in CapEx was spent to grow our owned and operated network.

Now turning to 2024 guidance. EVgo currently expect full-year 2024 revenue to be in the range of $220 million to $270 million and adjusted EBITDA to be in the range of negative $48 million to negative $30 million. Our guidance is informed by several scenarios, which account for a range of EV sales in 2024, utilization trends and the pace of execution under our contract with the pilot company. We expect PFJ revenue to be roughly 35% of total revenue in 2024 when looking at the midpoint guidance range. We also expect PFJ revenue to be more or less equally distributed through the four quarters with Q4 being slightly heavier than others. Charging network revenue is expected to grow sequentially throughout the year, driven by increasing VIO consistent with prior years.

We also would like to add some color on our capital expenditures. Our current deployment plan is for 800 to 900 new EVgo owned stalls, expected to be put in operation in 2024 with an average CapEx per stall of $160,000 before offsets. We expect capital expenditures net of capital offsets to be in the $95 million to $110 million range. As we have discussed at length, EVgo is on a clear path to an important inflection point of our business, hitting adjusted EBITDA breakeven. EVgo expects to be adjusted EBITDA breakeven for the full-year of 2025. This is based on the expectation that EV VIO will continue to grow and that EVgo will continue to expand its network and realize operational efficiencies. EVgo into ‘23 was $209 million in cash, cash equivalents and restricted cash.

Our current operational and network expansion plans give us runway through a good portion of 2025. EVgo is actively evaluating a number of non-dilutive sources of financing to fund the business beyond that point, both from private and public sources, including the DOE Loan Programs Office. On the latter, EVgo has put together a high quality DOE loan application that addresses the need for more public charging infrastructure to be judiciously built out at scale across the U.S. EVgo is a credible and sophisticated operator with over a decade plus track record focused on reliability and customer experience. And so far, we are rapidly moving through the process. We look forward to sharing our progress in 2024 with you throughout the year. Operator, we can turn the call over to questions.

Operator: [Operator Instructions] Your first question today comes from the line of Gabe Daoud from TD Cowen.

Gabe Daoud: Maybe wanted to start with Olga, what you wrapped up with the 2024 capital offsets. So I'm just looking at rough math, 900 stalls at $160,000 per stall, call it, over $140 million of capital. So I guess the offset would be what around $30 million to $50 million or so. Could you maybe give a bit more detail on where all of that is coming from?

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