This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk07: Thank you for standing by and welcome to the EVGO second quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. Thank you. I'd now like to turn the call over to Heather Davis, Vice President of Investor Relations. You may begin.
spk02: Good morning, and welcome to EVgo's second quarter 2024 earnings call. My name is Heather Davis, and I am the Vice President of Investor Relations at EVgo. Joining me on today's call are Badar Khan, EVgo's Chief Executive Officer, and Stephanie Lee, EVgo's Interim Chief Financial Officer. Today, we will be discussing EVgo's second quarter financial results and our outlook for 2024, followed by a Q&A session. Today's call is being webcast and can be accessed on the investor 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 investor 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 investor section of our website. With that, I'll turn the call over to Badar Khan, EVGO's CEO.
spk05: Good morning, everyone, and thank you for joining us today. EVGO delivered yet another excellent quarter. We achieved record revenues, over $66 million, and charging network revenues grew 2.4 times compared to last year, becoming the seventh sequential quarter of double-digit growth in charging revenues. and the sixth consecutive quarter of triple-digit year-over-year growth in network throughput. With the level of utilization and throughput we have in the network today, the annualized per-store unit economics have improved over 300% in just a short six months. Providing yet more confidence, we will complete our path to profitability and deliver adjusted EBITDA breakeven in 2025. With the operating leverage we have in the business, Once fixed costs are covered in 2025, all per store cash flows fall straight to the bottom line, conservatively resulting in over $200 million in adjusted EBITDA in three to five years' time if we're only growing at the rate we are this year. A higher rate of store growth would result in even stronger EBITDA. Let's look at some key highlights from this past quarter. Our second quarter was yet another great quarter. charging network revenue more than doubled, driving an increase in total revenues. We grew our operational stalls by 37% compared to last year, and are on track to add 800 to 900 new owned and operated stalls this year. Customer accounts continued to grow faster than VIO growth in the second quarter, and Ethigo recently surpassed 1 million customer accounts, an exciting milestone. We continue to see clear evidence of the operating leverage that we've talked about on our last few calls, with both expanding adjusted gross margins, especially in our owned and operated business, and adjusted G&A improvement translating into strong bottom line improvement year over year. Given our strong results and the consistent operational improvements in the business year to date, we have raised the midpoint of revenue and narrowed our adjusted EBITDA guidance for the full year, which Stephanie will provide more color on later. In Q2, EV sales in the U.S. reached over 300,000, including a record quarter for non-Tesla EV sales in the U.S. Non-Tesla sales in the second quarter grew 35% compared to last year and accounted for more than 50% of EV sales for the first time. Non-Tesla EVs make up the majority of throughput on the EVO network today. We expect this trend to continue, which supports the future growth opportunity at EVO. EV market in the United States is at a tipping point, moving from early adopters of EVs to mass adoption. Today, 8% of new vehicles sold are electric, up from just 2% a few years ago. A key driver of mass adoption is more affordable vehicles. There are over 70 EV models available in the US today, and many more coming. J.D. Power's future vehicle calendar counts 38 New affordable models for those with an expected MSRP of $35,000 or less coming to market in the next 18 months. That's incredible. EV buyers will have more choice, including exciting models such as the Chevy Equinox, next generation Chevy Bolt, Hyundai Ioniq 3, and Kia EV3, just to name a few. And this is expected to accelerate adoption. Looking at the total market, Bloomberg New Energy Finance forecasts that EVs are expected to sell at a lower price point than ICE vehicles in 2026. Significantly, it's important to note that BNF estimates that the total cost of ownership for EVs is already lower than ICE vehicles today. On top of VIO growth, EVgo benefits from multiple additional short and long-term tailwinds. that are drivers of why throughput and charging revenue are growing and are expected to continue to grow faster than VIO growth. Ride share is increasingly electrifying, and they will tend to charge at DCFC, not L2 locations. Faster charge rates also not only lead to higher overall EV adoption, but being able to charge faster will decrease customers' reliance on home charging, thus increasing the share of public charging. More affordable vehicles are not only key to overall EV adoption, but will tend to attract more customers without access to home charging who will be reliant on public charging. Autonomous vehicles are a major long-term driver, as these cars will be electric and will charge at either public or dedicated DCFC locations. Finally, as the MAX cable is introduced, we expect EVgo to benefit more than other DCFC owner-operators because we expect to be able to attract more Tesla drivers who represent roughly 60% of current VIO as our stations are located closer to where drivers live and work versus highway-focused charging companies. DCFC hardware companies and those that operate but do not own DCFC networks and instead sell equipment to site hosts and other customers will benefit to a lesser extent from many of these drivers. because they generate one-time equipment sales versus recurring charging revenue that owner operators receive. Only some of these drivers benefit L2 companies. And again, those benefits are limited to one-time equipment sales versus recurring charging revenue. And it's consistent with expectations of public DCFC gaining share of total energy delivered over time due to all the drivers listed here. In the U.S., There is only one company that is exclusively focused on the owned and operated DCFC space that public equity investors can invest in, and that is EVO. As we've discussed in our prior call this year, we have very compelling unit economics. This is due to our proprietary network planning resulting in carefully selected site locations and conservative underwriting, and they have grown considerably in the last six months. We reached a level of scale in kilowatt hours per store that enabled us to generate positive annual cash flow on a per store basis by the end of last year. And at that time, the top 15% of our stores were generating over $30,000 per store on an annual basis. In Q2 this year, our entire network is now generating over $7,000 annualized per store, and the top 15% is now over $40,000. This is driven by relatively minor increases in utilization and charge rate. As a reminder, daily throughput per stall is the product of charge rate and utilization multiplied by 24 hours. If we continue to see the absolute increase in annual cash flow per stall over the next three six-month periods, and we continue to grow stall count at the rate we are this year, then the simple math results in total network cash flow exceeding fixed costs. and thus adjusted EBITDA break even in 2025. In three to five years time, we expect to have around 7,000 stalls. If we're only adding stalls at the rate we are today, at that point, we would expect cashflow per stall across the whole network to be just under $40,000 per stall annually, given mostly by increased charge rates, and it's one of the many tailwinds due to the increasing mix of higher charge rate vehicles, and a very conservative utilization assumption far lower than the top 15% of our stores today, resulting in a level of throughput also lower than the top 15% of our stores today. If we had the same utilization in three to five years time as the top 15% of our stores today with 80 kilowatt charge rates, we would double the cash flow per store to over $85,000 annually. These unit economics not only provide very compelling adjusted EBITDA growth, but they also deliver very compelling project ROI. With the decline in gross capex per store we are targeting from our next generation chargers, and even with much lower capital offset than we are seeing today, we would expect to see net capex per store in the $80,000 range. In other words, a one-time investment of $80,000 conservatively returning almost 40,000 annually. That is an excellent return on investment. Once fixed costs are covered next year, given the very strong operating leverage, All store-based cash flows fall straight to the bottom line, resulting in very strong EBITDA growth potential. As I've said, we're assuming here that we continue store growth at only 800 to 900 new stores per year, which is our current growth rate. Of course, if we are successful in securing new financing, we would expect to materially increase that rate of growth. Therefore, our annual adjusted EBITDA in three to five years is simply 7,000 stalls times cash flow per stall in the prior slide minus fixed costs with very significant continued growth beyond that. In fact, every 1,000 new stalls adds almost $40 million in adjusted EBITDA annually because we've already covered fixed costs based on our expected unit economics in three to five years' time. That is very compelling adjusted EBITDA growth potential. I sometimes get asked whether all the best sites have been developed. And the answer is most definitely not. First, we have over 10,000 stalls that currently pencil and meet our return expectations. And as EV adoption grows, more sites pencil. And secondly, our site selection algorithms and quality of stalls are just getting better and better. This chart shows daily throughput per stall for stalls in our network in Q2, depending on when they went online. With 2023 stalls, some of which would have been just over three months old, faring better than all prior years. Let's now turn to progress on our four key priorities that I described in our last call, improving the customer experience, operating in CapEx efficiencies, capturing and retaining high-value customers, and securing financing to get to free cash flow break-even. Improving the customer experience remains our first priority, and we continue to make progress on all the key metrics we have discussed on prior calls. Increasing the number of sites per sole so customers don't have to wait for a charge, installing higher power chargers so they can fuel up quickly, having a reliable solution that works right on the first try, and growing the number of sessions that have a hassle-free payment process where customers just plug the connector in and the payment is processed automatically. This last feature gets particularly rave reviews. And in Q2, we release an auto-enrollment capability for some EV models and expect to expand that to many more EV models in the second half of the year, driving up the penetration of Auto Charge Plus. We believe we were able to execute these improvements because of the scale advantage we have over the 40 much smaller DCSD operators in the US and will ultimately result in customers gaining further confidence in public charging driving up utilization and throughput on our network. We've made excellent progress this quarter on driving efficiencies across both OpEx and CapEx. We completed offshoring of most of our call volumes, which, as I said on our prior call, are a sizable portion of our sustaining G&A costs. You may have noticed from the unit economics slide earlier, we have already made substantial progress on lowering sustaining G&A costs per store and continue to expect a reduction of around 15% on those costs in Q4 this year versus last year, which is well on the way to the 40% or so reduction we're targeting in three to five years' time. On the CAPEX side, we have already delivered a 5% improvement in gross CAPEX per store for FY24 vintage CAPEX than we previously guided for this year as a result of the work on the prefab skids, various incremental improvements to component sourcing, and EPC improvements. Given the strategic imperative of this effort, I'm excited to tell you we hired a new EVP of engineering, Martin Sukup, over the past 14 years held leadership roles in the development of multiple generations of Tesla superchargers. In fact, over a third of our new hires in the second quarter came from Tesla. We've also passed key internal milestones on the joint development of next generation architecture, with an industry-leading partner that aims to lower gross capex per store by 30% and would represent a step change in customer experience due to a customer-focused design with improved firmware. We do expect to incur additional costs in the second half of this year to drive this strategically important effort, but we are not adjusting the midpoint of our adjusted EBITDA guidance due to expected improvements elsewhere. This level of reduction in capex per store is what drives the even stronger returns I showed on the unit economic slide and will be a key source of competitive advantage over the dozens of other smaller fast charging operators in the United States. We also continue to make great progress on our growth priority. The share of what I consider base load demand on our network continues to be strong, with 56% of throughput in the quarter coming from higher usage, relatively predictable customer segments that represent stickier kilowatt hours. And we've added to that demand with the extension of a charging credit program with Subaru. We also continue to attract new customers at higher rates than the growth in VIO, up almost 60% year over year. Our goal is to attract customers across all hours with potential utilization, as well as ensure we are attracting the right customers at the right times to maximize margin capture. We went live with the new customer data and engagement platform that allows us to do just that, and are deploying segment-specific and low-cost campaigns to identify, attract, and retain customers to get the usage profile we are targeting. We also expect to continue rolling out dynamic, demand-based pricing across more of our network that I mentioned on the prior call. Unlike most of the more than 40 charging operators in the US today, E2Go has reached a level of scale that allows us to even contemplate these kinds of objectives and deliver on them, resulting in a key source of competitive advantage over most of the rest of the industry. On financing, we've also made solid progress this quarter. Capital offsets for our 2024 vintage stalls are now expected to be around 50% this year versus the 40% we previously indicated. This is driven by a higher share of GM and grant-funded sites than we originally planned, and our continued focus on maximizing the amount of grant funding from all available funding sources. We continue to await finalized 30C guidance from Treasury and expect to execute our first 30C transaction in the second half of this year for the 2023 vintage stalls. Our application to the DOE Loan Program Office for a loan under the Title 17 Clean energy financing program is continuing. We made significant progress this quarter, increasing our confidence of the conditional payment in 2024. We believe we have a high quality loan application that addresses the need for charging infrastructure to be built out at scale across the US and supports a core part of President Biden's agenda in terms of vehicle electrification. One of the many strengths and differentiating factors with our LPO application is that we do not expect to need to issue new equity to reach financial close. This benefits both our shareholders and expedites our ability to reach financial close. As I've said before, if we're successful, we believe it'll be sufficient to not only expedite our journey to self-financing, but also increase the annual rate of store growth by up to double or more. On top of our DOE loan application, EVGO is experiencing continued interest from the commercial bank market in relation to non-diluted financing structures for owner-operated DCFC charging stalls. EVGO is a proven developer and operator of DCFC, and DCFC as an asset class is showing strong correlation between revenue generation and VIO growth, as demonstrated by growth in EVGO's throughput. The positive outlook for long-term VIO growth creates the kind of cash flow certainty required to support debt financing. We also expect to incur additional costs in the second half of this year to prepare our financial systems to accommodate project financing. But again, we are not changing the midpoint of our adjusted EBITDA guidance because of upsides we are expecting elsewhere. We continue to have sufficient capital to continue our CAPEX plans well into 2025 without the benefit of any of these project financing efforts. I'll now hand over the call to Stephanie, who will run through our strong financial performance for the second quarter of this year.
spk01: Thank you, Badr. EDGO delivered another strong quarter of performance in Q2, exhibiting the seventh sequential quarter of double-digit charging revenue growth and the sixth consecutive quarter of triple-digit year-over-year throughput growth. Revenue in the second quarter was $66.6 million, which represents a 32% year-over-year increase. This growth was primarily driven by increased charging network revenues. Retail charging revenues of $22.3 million grew from $9.1 million in the second quarter of 2023 exhibiting a 146% year-over-year increase. Commercial charging revenues which primarily includes revenue from our ride share partnership of $7.1 million, increased from $2.4 million in the second quarter of 2023, exhibiting a 193% year-over-year increase. Extend revenue of $27.7 million declined as expected compared to the second quarter of 2023, as we had significantly higher one-time equipment sales to the pilot company last year. We added over 220 new operational stalls in Q2, including Xtend. Total stalls in operation were approximately 3,440 at the end of June 2024, including 190 EVgo Xtend stalls, increasing 37% from the end of June 2023. During the second quarter of 2024, EVgo added over 131,000 new customer accounts, a 60% increase versus Q2 of 2023. EVgo ended the quarter with more than 1 million customer accounts, an exciting milestone on our growth trajectory. During the second quarter of 2024, network throughput increased 2.6 times from last year to 66 gigawatt hours. We continue to benefit from many factors that are driving this accelerated growth, such as EV buyers moving from early adopters to mass adopters, with a higher portion of multi-unit dwellers who may not have access to home charging, the rapid growth in rideshare, increased EV vehicle miles traveled, increasing EV charge rates, and heavier, less efficient EV models. One of the metrics driving our network throughput growth is utilization. EVgo's network throughput continues to grow nearly four times faster than the growth in VIO. Our utilization averaged over 20% across the network in the second quarter of 2024, nearly doubling from a year ago. Over 58% of our stalls had utilization greater than 15%. Over 44% of our stalls had utilization greater than 20%. And over 23% of our stalls had utilization greater than 30%. We therefore believe that we are on a strong trajectory to hit the utilization level of 23% needed to achieve the unit economics that are previously discussed. Our increased network throughput growth is driven by our increasing network size through stall deployment and how much energy each stall is dispensing on a daily basis. Average daily throughput per stall more than doubled versus last year, reaching 227 kilowatt hours, with average daily throughput per stall for the month of June 2024 averaging 242 kilowatt hours. Utilization on the network also nearly doubled year over year, with utilization in the month of June 2024 averaging 21%. Charge rates, which measure the amount of electricity delivered over the same period of time, increased 12% from prior year to 47 kilowatt hours. We expect charge rates to continue to grow over time as EVDIO mix shifts towards EV models with faster batteries, and our network mix becomes increasingly faster as we add primarily 350 kilowatt chargers. The profitability that our core owned and operated network delivers is improving, which is demonstrated through the growth in our charging network margin. In Q2, our charging network margin was 34.2%, improving from 19.1% in Q2 2023. As average daily throughput per stall increases, we expect to see continued improvements in our operating leverage, which is a significant driver for achieving adjusted EBITDA breakeven in 2025. Our charging network revenues already cover our stall-dependent cost of sales, which include fixed costs, such as site rent, property tax, and some maintenance, and variable costs, such as energy costs. As a reminder, there is seasonality in our charging network margins, as summer electricity tariffs are higher than winter tariffs. As I mentioned earlier, revenue grew 32% in the second quarter of 2024 to $66.6 million. Adjusted gross profit was $17.7 million in the second quarter of 2024, up from $12.9 million in the second quarter of 2023. Adjusted gross margin was 26.5% in the second quarter of 2024. an increase of 110 basis points compared to the second quarter last year. Adjusted GNA as a percentage of revenue also improved from 46.3% in the second quarter of 2023 to 38.5% in Q2 of this year, demonstrating the operating leverage effect. Adjusted EBITDA was negative $8 million in the second quarter of 2024, a $2.6 million improvement versus negative $10.6 million in the second quarter of 2023. Cash, cash equivalents and restricted cash was $162.7 million as of June 30, 2024. We generated cash from operations of $7.6 million in the second quarter of 2024 due primarily to timing of working capital changes. Capital expenditures were $24.2 million in the second quarter of 2024. Capital expenditures net of capital offsets was $13.8 million in Q2 of 2024. Our capital expenditures net of capital offsets for the first half of 2024 reflects lower 2024 vintage CapEx for the operational stalls, which benefited from a combination of cost reductions mixed shifts to stalls that were relatively cheaper and faster to build, as well as mixed shifts to stalls that qualify for GM funding and higher amounts of grant funding. Now, turning to our 2024 guidance. EVGO is increasing the midpoint of our 2024 revenue guidance by $10 million, and we expect full-year 2024 revenue to be in the range of $240 million to $270 million. We expect to see quarterly sequential growth in charging network revenue. Extend revenue will remain relatively consistent in the second half of 2024, and will be primarily comprised of construction revenue, which has lower margins than equipment sales. We are retaining the midpoint of our 2024 adjusted EBITDA guidance, but are narrowing the range to negative $44 million to $34 million. We expect to make increased investments in the joint development of our next generation architecture, as well as our financial system to support project financing in the second half of 2024, which we expect will be sufficiently covered by the revenue upside. We expect capital expenditures, net of capital offsets, to be in the 90 to $105 million range, with the main use of CapEx to add 800 to 900 new EVgo own stalls this year. As a reminder, we incur CapEx in advance of the vintage or operational year. As a result of our efforts over the past few years to build our growth engine, we have successfully decreased lead times between mobilization and construction completion to enable us to incur less CapEx in advance of the vintage year than we have historically done to maintain the same rate of stall growth. We remain fiscally prudent and only build stalls that meet our return hurdle. As part of our Renew program, We also expect to remove or replace 150 to 200 EVGO own stalls in 2024 to improve reliability of our chargers and our customer experience. We are as confident as ever that EVGO is on a clear path to an important inflection point in our business, namely hitting adjusted EBITDA breakeven for the full year of 2025. This is based on the expectation that EVVIO will continue to grow and that EVGO will continue to expand its network and realize operational efficiencies. We look forward to continuing to share our progress in 2024 with you throughout the rest of the year. Operator, we can turn the call over to questions.
spk07: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. Your first question comes from the line of Chris D'Angelo from RBC Capital Markets.
spk00: Your line is open.
spk05: Hi, Chris.
spk00: Yeah, good morning, and congratulations on the good quarter. Thank you. I guess maybe to start things off, you mentioned the NAX cables that are coming in and the opportunity to service more Tesla vehicles as a result. Can you maybe share where – I guess maybe what portion of the revenue today is a result of charging Tesla vehicles and then how you all are kind of internally thinking about what the uptake might be from the access to being able to charge more Tesla vehicles with that cable. Thanks.
spk05: Yeah, thanks, Chris. We're very excited about the NAX cable for the reason you just cited. We expect to be able to start deploying NAX cables towards the end of this year. And we'll start to roll them out across the rest of our network over time. We're excited about them because, as I said before in prior calls, our locations are urban, suburban locations. They tend to be closer to where people live and work. For instance, we have 1.6 times the amenities within walking distance of our locations versus the average Tesla site. And so we're expecting to be able to, through our more sophisticated marketing and growth programs, be able to target those customers that live closer to our locations and therefore get a growing portion of Tesla drivers. Today, Tesla drivers represent a very small, minimal share on our network. And so this represents a fairly significant upside for the company if we're able to attract
spk00: roughly the 60 percent of vio that are tested vehicles today got it okay and then and then i guess as a follow-up here um you know you mentioned that next gen charging of the structure that y'all are working on and some of the incremental investment going into that later this year um i guess can you provide maybe a preview a little bit of of what is What changes there? Is that more just operational changes around the charging stall, or is there structural changes to what it looks like? And then I think you also mentioned that that hopefully improves some of the customer experience. So maybe just a bit more details on what this is going to look like.
spk05: Yeah, great question. I mean, just to begin with, We've reached a level of scale in the company where we can actually become a strong partner to our suppliers because of the enormous number of customer interactions that we bring to the table. A lot of these suppliers don't actually interface with customers directly. Of course, we've got a million customers, and so we have a very good sense of customers' frustrations and pain points. We bring that to the design process, and I think that's an advantage that we have over the very large number of smaller operators in the United States for DCFC today. And with that experience, we expect to be able to deliver a different site configuration, a distributed bus architecture, a different design for the equipment, for the dispenser. So it's focused primarily on the equipment as opposed to the construction. But of course, the site configuration should result in some improvements in the construction costs and timelines as well. And that's really what we are working on. We've been working on it for a good part of a year. I think the addition of the additional talent that we've just had over the past quarter, particularly some very strong leadership from folks who've been very closely involved with the leadership of Tesla superchargers, I think adds to all of that experience. And we expect to be able to have something in the market by the second half of 2026 with prototypes much earlier than that. And we're targeting, as I said on the call, a 30% improvement in the gross capex per store.
spk00: Got it. Thank you.
spk05: Thanks, Chris.
spk07: Your next question comes from a line of Bill Peterson from JP Morgan. Your line is open.
spk03: Hi, Bill. Yeah, hi. Hi, good morning. Thanks for taking the questions. Nice job on the quarterly execution. On the three to five year model you presented and updated here in this quarterly presentation, You illustrate nearly 50% in adjusted profit margin, gross profit margin, which is up from, I believe it was around 40% at the midpoint in your presentation from the first quarter. So I'd like to revisit this in light of what appears to be, you know, increasing power prices broadly, competition from other networks, which from what I can tell, generally charge at a lower price point, maybe lower gas prices going forward, which obviously impacts TCO. So I guess what I'm getting at is, can you unpack your expectations around pricing, price increases, power prices, inflation, other factors that are driving to this adjusted gross margin target? And more importantly, or equally importantly, what's changed in your view to raise this gross margin target by 10 percentage points at the midpoint?
spk05: So I don't think the gross margin target has changed, actually, Bill, for the three to five year outlook. We are assuming that prices, unit prices and unit costs that we're seeing today are intact in three to five years time. uh and the reason we believe that is because there's tremendous demand for charging infrastructure that exceeds supply and with tesla's slowdown or withdrawal or whatever it is i think just further reinforces demand exceeding supply uh for charging infrastructure uh in the long term we i think as i said before we are really in our in the early stages around the level of sophistication of pricing i've talked a little bit about pricing in the in prior calls in terms of time of use pricing, clearly obviously location-based pricing, But we are introducing and we have begun introducing automated dynamic demand-based pricing, relatively small portion of the network, and I expect that to continue. And so for all those reasons, we felt that there's really only upside actually in the margins as I look forward over time. The real drivers here, of course, is the tremendous tailwind of charge rates. Charge rates are rising because vehicle mix, batteries in the vehicles that Americans are buying are getting faster and we're deploying faster chargers on the road in our fleet, together with a relatively modest utilization assumption, generates some very compelling cash flows per store.
spk03: Just to be clear, in the first quarter, you had a range of adjusted gross profit of $220 million to $300 million and a revenue of $600 million to $700 million. That midpoint is 40%. In this presentation, you have 314 adjusted gross profit at a revenue of 640. So that's closer to 50%. We can take that offline, but it is a difference. My next question is in the, just around election risk. So, you know, you talked about the duty loans program, but you're engaged in the process, but how much time and risk should we think about this in advance of the election? Do you have a sense of urgency to get this funding done before the election? I guess more broadly, what is your current thinking on policy support or any potential changes that we could see in a changing government?
spk05: Yeah, I think a couple of things here. I mean, I think as we said in prior calls, people are buying electric vehicles across the United States. Some of the states that we're seeing the strongest demand for charging are actually states like Texas and Florida, a handful of other red or purple states. So know we're seeing what we're seeing on the ground are people buying electric vehicles across the united states and our charging uh demand is occurring across the united states red states and blue states uh so i think that's that i think that just speaks very well to the underlying demand we think our business uh is successful and thrives under any administration I think the IRA particularly is delivering hundreds of billions of dollars of investment in a number of key states across the United States. So I think that's a very solid ground. The states that have gone after the NEVI program, although it's not a core part of our business today, as I said before, tend to be Republican states. And that's what we've seen over the course of the last year and a half. We feel, you know, actually in very good ground regardless of what happens in the election. In terms of the DOE LPO, you will have seen the DOE LPO team are working very hard to get more applications through their pipeline. And together with the work that we've had over the course of this last quarter, we feel pretty confident in being able to get conditional commitment this year.
spk07: Your next question comes from the line of Craig Irwin from Roth Capital Partners. Your line is open.
spk09: Hi, Rob. Good morning, and thank you. Good morning. Thanks for taking my questions. Yeah. I definitely appreciate the update on the financing. In your prepared remarks, you talked about the eligibility of certain 2023 stalls, 2023 vintage stalls. In the presentation, you said, 24 vintage is now supposed to have 50% capital offsets. It was 160 million spent or just under on CapEx in 23. Can you maybe help us sort of frame out what this incremental funding would be proportionate to the CapEx that was spent last year?
spk05: Sure. Stephanie, do you want to take that first?
spk01: yeah thanks for the question craig i think it's a little bit um interesting because when we talk about fiscal capex versus vintage capex it gets a little bit interesting because from a fiscal capex perspective right we spend in advance of of the year of the vintage so as i mentioned in our prepared remarks we um in terms of the amount that we have to spend now incrementally in advance um Because we have shorter lead times between mobilization and construction start, fiscal capex gets a little bit interesting. So I'd rather speak to more of the vintage kind of concept. And so from a vintage perspective, when we look at the 2024 vintage, what's driving the higher percentage of capital offsets is really the mix. One being that it's a higher mix of the GM stalls that we've got. So we've got higher reimbursement from the GM side of the partnership, as well as we've just been much more successful. We've been very, very focused in the past year with trying to maximize grant funding in our site selection. So what you're seeing in the vintage side is really the results of a lot of the work, the hard work that's gone on with really focusing on maximizing the grant funding, as well as the 30C coming into play as well. And so that's really what's driving the 50%. And so the 2023 vintage stalls didn't have some of those elements in there or the extent that we have now. And so the mix was also very different in the 2023 vintage. So it's a little bit more challenging sort of to compare some of that. but hopefully that provides color with the success that we're seeing with the 2024 vintage. We don't expect that same level of 50% to continue. And as Badr mentioned, when he spoke to the unit economics, when we're talking about the sort of 80% CapEx expectation in the three to five years, even if we had a lower percentage of capital offsets, with the architecture that we're targeting that's really where we're going to see a lot more of the improvements in our cost structure.
spk05: And Gregory, can I just add, I think the team has done a fantastic job of building stalls this year that have higher offsets, choosing stalls that are cheaper sites, building cheaper on the sites that we were expecting to build. And I think all of that actually shows the flexibility that we have in our development pipeline. where we can in fact move to sites that have these higher and more attractive cash flow profiles as we've done this past quarter.
spk09: Understood, understood. So my next question, I guess it's something Bill was touching on, but I'll ask it a different way, right? If you look at the big picture, right, electricity rates are up about 30% in the last year, year and a bit here in North America. Your charging gross margins have gone from 19% to 34%. So the utilization and efficiencies that you just mentioned are clearly going to benefit you now and going forward. But can you maybe unpack for us what you're doing that's allowing you to pass through this price increases? What sort of protection do you have or what sort of competitive dynamic is there that's allowing you to pass through efficiently these higher electricity costs? given that it's having a material impact in other areas of the economy?
spk05: Yeah, it's a good question, Craig. And just to be as a reminder, we have not increased prices. We are seeing expanding charging margin because of the operating leverage that sits within cost of sales. At the end of last year, roughly 40% of our cost of sales was fixed. And so as utilization expands, as we're getting more usage on a per stall basis, which is exactly what we've been seeing for the better part of a year and a half now, and we will expect to continue to see, we will see expanding charging margin without any impact on prices. And I think that's the beauty of the economic model that we have here. Tremendous operating leverage in both cost of sales and tremendous operating leverage in G&A, where roughly 70% of our G&A is fixed. So once the stall-based cash flow, the cash flow from stalls, from stall-based times the number of stalls, exceeds the fixed costs, all of those cash flows fall straight to the bottom line. With respect to margins and prices beyond the operating leverage, that expansion that we have driven, expansion that we've been seeing, As I said before, there is very strong underlying demand for fast charging infrastructure. Four reasons I laid out, both underlying growth in battery electric vehicles, but also the several tailwinds that are shifting and growing the share of public charging. And I'm not even covering the charging that we may expect to get from Tesla VIO that's not currently showing up on our network. I think all of those reasons are support margin, unit margins, prices minus costs on a per cent per kilowatt hour basis remaining robust for the foreseeable future.
spk09: Thank you. So my next question, I should probably start with, you know, we all appreciate the significant improvement in disclosures over the last couple quarters. The charging network gross margin is one of the items that all of us looking closely are kind of backfilling in our models as we get the incremental quarters as you print them. So you mentioned the seasonality, right? We did have, you know, a dip of, you know, 550 basis points sequentially in these charging network gross margins, which was more than the year ago quarter. Can you maybe talk us through how things played out last year? Did we trough in the second or third quarter? And I guess the math says we obviously troughed, you know, probably in the third quarter. But how do we expect things to play this year as far as charging network gross margins, given the network charges and the other items that impact, you know, short term margins here? And then are there any of the items that, you know, there's an apparent acceleration of stall build-outs maybe at the company. Are any of those expenses going to be there in the charging network gross margins as you disclose them at this point?
spk05: Quite a few things in there, Craig, but let me also ask Stephanie to step in. We did have some one-offs in Q1, which we talked about on the last call that pushed charging margin up about five percentage points. In terms of going forward, Q3 is typically the low point. It's where we have the highest tariffs for electricity that we buy. But Stephanie, do you want to expand on either of those two points?
spk01: Sure, yeah, that's exactly it. So Q1, as a reminder, we did have some breakage revenue, the one-time breakage revenue that impacted and drove favorability, because that was all 100% charging margin there. So that amount was roughly $2.5 million that we saw as that one-time sort of adjustment. And then in Q2, you do start seeing some of the summer tariffs hit, especially in the month of June is when you start seeing the cost rise. So Q2 actually does already, you start to see the seasonal shift in the charging network margin. And then where you see it full bore clearly is in Q3. And so even last year, I think there were, you know, every period sort of has some one-time adjustments. And we did also have some one-time adjustments in the Q2 2024 charging network margins as well. And so sometimes it does create, you know, some unexpected variances that you would see. But going forward, really what we need to sort of focus in on is what the expected margin is with the seasonality. And so even as you're looking out to your forecasting for Q3 and Q4, again, you would expect to see that margin hit in Q3 and then bump back up and improve in Q4.
spk09: And you mentioned the two and a half in the first quarter. Was the Delta in the second quarter either positive or negative? And can you possibly share that number with us?
spk01: So normally with some of our partnership contracts, we have breakage that happens. Our largest contract that had breakage in there was our Nissan contract in Q1. And so that is not recurring. There's also in Q2, we didn't have any sort of material, large one-time adjustments. They were a series of smaller ones. So there wasn't anything of that magnitude kind of all in there. So nothing to call out from that perspective, Craig, that we would adjust of a similar magnitude, just a series of smaller one-time adjustments in various areas.
spk05: I think, Craig, if you take out the breakage that Stephanie talked about in Q1, it gets you to about the same, more or less the same charging margin this quarter. We've clearly seen a slight improvement in utilization. And you can see from the economic slide, any improvements in utilization and charge rate improves charging margin. But we also have lower LCFS price this quarter than we had in the first quarter. So that's impacted the charging margin a little bit.
spk01: Yes. And LCFS, you know, as a percentage of total revenue is shrinking. So it's less than 5%. But LCFS is also 100% margin. So that, to Badr's point, it will drive also volatility in your charging network margin. So, you know, as we, in terms of LCFS pricing right now, we're consistent with the rest of the market. I think we're expecting that it will hold to the current levels through the rest of this year. But, you know, that clearly also will have a, you know, can have an impact on the charging network margin.
spk09: Great. Thanks for the detail and congrats on the strong progress.
spk05: Thank you.
spk07: Your next question comes from a line of William Griffin from UBS. Your line is open.
spk04: Hi. Hey, Bedar. Hey, everybody. Good to speak with you all. My first question here was just going back to the charging margin again here. Do you see implementation of dynamic pricing as potentially helping to drive more stable charging margin going forward around the volatility or variability you see in wholesale rates? Or do you see this more as just increasing your ability to capture a higher margin during times of higher customer demand?
spk05: Really what we're doing is, and I spoke about this on the call just now in the main part of the call, I think we have reached a level of scale and sophistication where we are able to not just build chargers and hope people show up at whatever time of the day they want, but actually build chargers and increasingly impact when customers are charging. So charging throughout the day where we've got utilization across all 24 hours without, and so therefore growing utilization without having challenges with queuing. And secondly, shifting demand where we're trying to get the right customers, if you will, charging at the right times of the day where we're maximizing margin capture. That's what we're doing, and that requires us to have sophisticated pricing, not just time of use and location-based pricing, but demand-based pricing. It also requires different subscription programs, and it also requires sophisticated outreach to customers. Going live with a new customer database, a customer data and engagement platform, as we did in the second quarter, allows us to achieve all of that.
spk04: Got it. And just on the OEM partnerships, to the extent you can speak to it, would be curious to hear sort of how conversations with GM have been going as you continue to partner with them. And then to the extent you've had them, conversations with other OEMs about potentially establishing similar partnerships here in the future.
spk05: GM partnership is great. We have a very strong and very longstanding relationship with them. As Stephanie and I both said over the call, one of the reasons we have done a nice job on cash this quarter is that we've had more stalls that are GM funded go operational than maybe we expect the beginning of the year. And that's a result of a strong partnership with them. So that's going very well. In terms of other OEM discussions, we did announce a very, very small kind of pilot infrastructure deal with Toyota earlier this year, where they funded the construction of a couple of locations for us. And so we're engaged in dialogue with about almost a dozen OEMs, ranging from either infrastructure dialogue to charging credits to data integration to help their drivers locate the charging stations that we have. So we're pleased with the dialogue, and we intend to continue with it.
spk04: Very good. That's all for me. Thanks. Thank you.
spk07: Our next question comes from the line of Chris Pierce from Needham & Company. Your line is open.
spk08: Hi, Chris. Hey, good morning, everyone. I'm looking at slide 19, and if you think about charge rate as the tip of the spear, what can you control here? What's the governor? Should we see step function improvement in charge rate based on new cars that are being released and the new styles that you're putting out there? Because That drives throughput per stall. That drives utilization. That sort of seems to be the tip of the spear. I just kind of want to think about the right way to think about charge grade over the next couple of years.
spk05: Yeah, well, I mean, if you go back to our unit economics slide, Chris, we are expecting charge rates to get up to about 80 in three to five years. And that is simply a function of assuming that Americans are buying electric vehicles with the same mix they were last year. So the same mix of higher charge versus lower charge rate vehicles. and EVGO continues to install mostly 350 kilowatt chargers. So the mix of 350 kilowatt chargers across our network expands. It's gone from 20% in the beginning of 2023 to just over 40% today, hopefully get up to about 50% by the end of this year. That'll continue as it's mostly what we're deploying. Those two factors, just by themselves will result in charge rates getting up to that 80 level in three to five years that assumes no improvement in technology that assumes uh oems don't bring out faster charge rate cars which of course they are in other words it assumes the vehicles that were on the market last year so yeah i would expect to see charge rates continue over the next several years. And as you have pointed out, charge rates and utilization are the two inputs into daily throughput per store, which is all about the operating leverage that's growing charging margin quite nicely for us.
spk08: I will say that charge rates... There is conservatism.
spk05: I would say that charge rates, there is some seasonality in charge rates. So charge rates tend to be lower in the winter months Uh, and higher in the summer months.
spk08: Uh, okay. And then with the 10,000 salt that the pencil according to your, your prepared remarks, how are you, I'm assuming competition for these stalls has lessened, or I guess I don't really know if Tesla was using the same algorithm to find the same salt, et cetera, but like, have you thought about trying to increase the pace of. small growth or I'm just kind of curious what the competition is like for these sites versus industry changes in the past six months.
spk05: Yeah. So look, we, um, we've got excellent relationships across the board. We were talking about the relationships with OEMs just a minute ago, but we've got fantastic relationships with site hosts as well as other partners in the ecosystem. I think that's what differentiates EVGO from the dozens of smaller operators in the US. I think what also differentiates the company is our very sophisticated site selection and proprietary algorithms that go into where we locate our stalls I put up a chart on the prepared remarks of the sites are just getting better. The stuff that were the charging stations that we installed in 2023 are better than everything we installed every year prior. And so we feel very good that there is a great set of sites that are out there for us. In terms of competition, I think it's still relatively early days in terms of Tesla's slowdown or withdrawal or whatever it is, but we expect to be able to continue the journey that we're at. In terms of accelerating our growth of stalls, I mean, the financing that I've been talking about for the last couple of quarters, the goal is to be able to accelerate the pace of stalls. And so I've talked about potentially accelerating that by up to two times or more. And that depends upon the quantum of the financing that we're able to to achieve. Clearly, you know, if we installed no more stalls next year and reaching EBITDA breakeven, we would actually be cash flow positive at that point or cash flow breakeven. But with the economics and the returns that I think these stalls present, I think shareholders would expect us to continue to deploy at faster rates as long as we're generating these returns.
spk08: Thanks for the detail.
spk05: Yep.
spk07: Your next question comes from the line of Andrew Shepard from Cantor Fitzgerald. Your line is open.
spk06: Hi. Hi. Good morning, everyone. Thanks for taking our questions, and congratulations on the quarter. Yeah. You know, a lot of our questions have been asked by now, but maybe to take a step back, I'm wondering if you could elaborate on the 20% average utilization rate that you've experienced. You know, in your view, How does this compare with the industry average? And what do you attribute to this 20% average usage? Thank you.
spk05: Well, we know we've seen tremendously strong underlying demand. That is both in terms of a growth in the sales of battery electric vehicles. And again, to point out the majority of our network today are non-Tesla vehicles, which we've seen new sales of non-Tesla vehicles grow 35% year over year, Q2 versus Q2 last year. We're also seeing multiple tailwinds that we expect to continue to see for the foreseeable future. That's growing the share of public charging. So that's electrifying, you know, ride share that's electrifying, affordable vehicles, attracting people without charging at home. Over time, autonomous vehicles, faster charge rates, the earlier question, actually encourages people to charge on public locations because they're able to charge much faster. So all those things are driving underlying demand. It's why throughput on our network has grown four times faster than the growth. The growth in throughput has grown four times faster than the growth in VIO. That's what's driving utilization from 11% to 20%. And I think as Stephanie said, that's 21% for the month of June. And so we're very pleased with that. In addition, as I said on the call, we are now deploying reasonably sophisticated campaigns to encourage customers to charge at all hours of the day where we don't experience queuing issues that maybe less sophisticated charge point operators are experiencing today.
spk06: Got it. That's helpful. But I guess, you know, specifically to EVgo, you know, How does that 20% average utilization rate for DC fast charging in public locations compare to maybe the industry average in your view? Thank you.
spk05: Well, I don't know if anybody has the data to be able to answer that question definitively. My expectation is that we have better, stronger utilization rates for a number of reasons. a uh we're deploying these sophisticated programs to be able to get customers to charge throughout the day uh through subscription programs marketing efforts the pricing programs and b our locations tend to be in urban suburban locations versus highway locations and we've been deploying some very sophisticated algorithms to choose sites that have the best performance which keeps getting better over time through per the chart i showed in terms of new vintage dolls having higher throughput, daily throughput than prior years. So I think for all those reasons, I expect that we're performing better than the market average.
spk07: And that concludes our question and answer session. I will now turn the call back over to CEO Bidar Khan for some closing remarks.
spk05: Great. Thank you. Well, look, thank you, everyone. We've had, I think, yet another great and record quarter that continues to be strong underlying demand and multiple tailwinds that public fast charging operators continue to benefit for years to come. EVgo has reached a level of scale where we now have multiple sources of competitive advantage over the dozens of smaller operators in the States. And the trajectory of our unit economics, I think you can clearly see that we are on a path to EBITDA breakeven in 2025. And more importantly, with the operating leverage that we have in the business, there's very strong EBITDA growth and returns potential. And I look forward to providing more updates to you on future calls. Thanks very much, everyone.
spk07: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Disclaimer