EVgo, Inc. (EVGO) Earnings Call Transcript & Summary

Some of the questions were duplicative. So I've grouped those together. But our goal is to address every topic that this community has raised. With that, Badar, do you have a couple of opening remarks you'd like to make before we dive into questions?

Well, thank you, Heather, and thank you to all of you for tuning in to our first ever virtual town hall. I took over as CEO in November last year. And since then, I spent time talking to stakeholders all over the U.S. and actually over the globe, whether that's drivers, customers, partners, potential partners, [ couple ] folks in government as well as, of course, investors. On Investor Relations, we've really stepped up the way that we've communicated to investors through our investor materials, increased the transparency. When I talk to investors, I spent all the time talking to institutional investors or sell-side analysts. Today, we're looking to broaden that conversation with a dialogue with individual investors. So what are the questions that you have. What's on your mind. And what kind -- why do we have the confidence that we have in our business. You submitted a lot of questions, Heather has them. So why don't we get started?

Badar, the first question is on EVgo's competitive advantage. The shareholder asked, "What primarily differentiates EVgos from its competitors? And what is the advantage that EVgo offers?"

Well, look, first, let's talk about how we're different. We have had outstanding performance. If you go back 3 years to the midpoint of our revenue guidance this year, we will have grown 12-fold, Heather, that's -- and we raised the midpoint of our guidance on our last earnings call. We've had 6 consecutive quarters of triple-digit year-over-year growth in throughput, which is the amount of energy that flows through our network. Our throughput has grown 4x faster than the growth in VIO. So I would say our performance is very strong, and I'm not sure that could be said about everybody in the EV charging space. So the question is why are we performing so strong relative to everybody else? I would say there are 3 things. First is our business model. We focus on DC fast charging versus L2 or home charging. There's a number of reasons for that. We see that the share of DC fast charging growing over time and continuing to grow. That's because of rideshare that's electrifying. That's because the more affordable electric vehicle models being brought onto the market, and more affordable models tend to attract less affluent people who are more reliant on public charging. It's because of charge rates are getting faster. That's the speed with which it takes to get energy into the vehicle. As they get faster, customers are more open to charging and public versus just relying at home. And of course, autonomous vehicles. As AVs show up, they're going to be electric, and they're going to be charging at DC fast locations, not slow locations. The second aspect of our business model is that we own and operate the equipment. So we're generating revenue every time someone charges. We sell kilowatt hours to our network versus many of our competitors who are selling equipment. So their revenue model is primarily a onetime-equipment sale. That's hugely different between the 2 companies. We've got a fantastic team here at EVgo. A great team of people who are committed to our mission and committed to growing the business, and we've added to it with some outstanding leadership hires. A new CFO, a new Chief People Officer, an EVP of Growth, EVP of Engineering and SBU product. And so those folks are really, really elevating our goals and our performance. Lastly, I would say that we have reached a level of scale where we are building some real competitive advantage versus the dozens of other operators. There's around 40 operators of DC fast charging in the United States, and we're the third largest. That scale that we have, we're now translating to separating ourselves in terms of the customer experience, in terms of building a next generation of charge so we have the scale to be able to partner with a global power electronics company to design a new charging experience. Scale in terms of efficiencies that we can drive in terms of both OpEx and CapEx. So just a set of advantages that I think allow us to build a real competitive moat against many of our competitors.

Keeping on the topic of competition, can you elaborate on how EVgo and Tesla work together? And then also how EVgo and Tesla differentiate from each other?

Well, we're both, I think, as companies committed to the same mission, which is to eliminate emissions from transportation. It's the largest source of emissions in the United States of 40% and both through what we're doing, we're really focused on encouraging EV adoption. We work together in ways -- many different ways. We have a lab here that we are at today, where we test the interoperability of all battery electric vehicles, including Teslas, and that's an important way that we're working together. In terms of how we're different, we have 2 completely different networks. Our network tends to be focused on urban, suburban locations and close to retail amenities, close to multifamily housing, people who don't have charging at home. Close to where people live, work and go about their earns. Tesla's network has historically been focused on highways. The issue around trying to address range anxiety from over a decade ago is where they really focused. They do have large mega sites. But to give you an example, 75% of our stalls don't even have a Tesla location in the same ZIP code. We have 1.6x the amenities close to -- within walking distance of our locations than Tesla locations. So we're really very, very different networks.

Badar, you've been CEO just about a year now. What has surprised you the most since coming to EVgo?

I have been CEO since November, it's been almost a year, and it's been great. Performance has been outstanding, as we've just said. What surprised me the most actually is that our unit economics are more compelling and stronger than I really realized before taking on this role. It's why we've been so focused on transparently articulating and communicating our unit economics in our investor materials. So that's been the thing that's probably been the most surprising and the most, I think, exciting actually as well. I'm also very grateful about the fact that we've had so many folks who've chosen to come on board. I think they're -- joined the team because of the mission that we have, which I think is very compelling and the growth trajectory that we have.

For those that haven't tuned into our prior earnings calls recently, can you drill down a little bit more on the unit economics and what makes them so compelling?

Sure. So when we talk about unit economics, what we're talking about is cash flow per stall. And if you put that into context, cash flow per stall multiplied by the number of stalls, minus fixed overhead equals EBITDA. So that's how cash flow per stall fits. And there are 2 things to understand in cash flow per stall. . The first is that cash flow per stall grows with utilization. So the more the stall gets utilized, the more revenue we're generating. Our utilization a couple of years ago was 5% or 6%. In June of this year, it was 21%. Second thing is that a sizable portion of our costs are fixed. And so we have what we call operating leverage. So as revenue per stall grows because utilization is growing, costs within gross margin aren't growing as much because 40% of them are fixed. And so as a result, with rising utilization, charging margin has been going up. It's gone up from 15%, 2 years ago to 35% in our most recent quarter. That's a tremendous increase just because their stalls are being utilized, that translates directly to higher cash flow per stall. What's really interesting is that we provide a view of cash flow per stall 3 to 5 years out, a very -- we consider a conservative view. That's got utilization of 23 -- we can assume 23% versus the 21% that we're at in June and 5% or 6% a couple of years ago, so I think quite conservative. At that level of utilization, our cash flow per stall rises to $40,000 of cash per stall per year. When I consider that, it costs us a net $80,000, less than $80,000 in net CapEx per stall, 1 time, and I'm getting -- generating cash of $40,000 per stall every year. I think that's a pretty compelling investment. And we've been very transparent around these unit economics. It's been in our earnings materials since our unit economics webinar in April and every quarter since. What you can -- we provide -- so we provided multiple points in time. And what you can see if you extrapolate the growth in cash flow per stall that we've seen through the next year, and assume we're still building 800 to 900 stall or only building 800 to 900 stalls a year, which is what we've been getting to the market. We cover our fixed costs. And that's how we get to EBITDA breakeven. So it's a very clear, simple, I think, transparent journey to EBITDA breakeven next year. What's more, I think, even more interesting for me is that once we've covered fixed costs, the second element of operating leverage comes in, which is that all cash flow per stall flows straight to the bottom line. So in 3 to 5 years, if we're adding 1,000 stalls and generating $40,000 per stall per year, that's $40 million of EBITDA per year from adding 1,000 stalls. And so we say in 3 to 5 years, if we're only growing at 800 to 900 stalls a year, we'll have around 7,000 stalls at $40,000 a stall, minus about $70 million of fixed cost and we've got $200 million of EBITDA, which I think is incredibly compelling returns and very strong EBITDA generation. Now if we're growing faster than 800 to 900 stalls, which is very much our objective, we generate even higher EBITDA.

Those are certainly compelling returns for the owner-operator model in DC fast charging. The next shareholder question we have is what are the emerging technologies in EV charging that you're most excited about? And how do you incorporate those into your long-term road map?

Yes, I think there are 3 that I'm really quite excited about in the sector. One is the development of the NACS cable. The NACS cable is a standardized cable that goes a long way towards eliminating confusion or anxiety for drivers. I'm also quite excited about the NACS cable because 60% of battery electric vehicles in the United States are Teslas. . And with the NACS cable, I hope to be able to attract Tesla drivers onto our network: a, because we have a faster network, where -- we're building 350-kilowatt charges versus Tesla Supercharger network is 250 kilowatt; and b, because as I said before, our network tends to be closer to where people live, work and go about their earns versus a highway-focused network. So that's number one. Number two, we are very focused on next-generation chargers. I talked about that in terms of we have the scale to be able to attract a large power electronics company that works with us on co-designing a new charging experience for customers. That's site configuration. It's the design of the dispenser. We bring over 1 million customer relationships to the equation to a power electronics companies who tend not to actually have experience with customers because they're B2B. Fundamentally, a business selling to other businesses. So we bring that experience. We understand what customers' pain points and frustrations are and we're targeting not just a 30% reduction in the cost of the charger, but also a significant improvement in the customer experience. So I'm super excited about that. And thirdly, charge rates. Charge rates in electric vehicles are getting faster. That's a great thing for adoption. The shorter amount of time it takes to charge your electric vehicle, the more likely you will be to buy one. So I think that's great for adoption. It's great for our business because the faster the charge rates, the more likely you are to be open to charging and public even if you have a private driveway at home. So 3 technology developments that I'm super excited about.

All right. Excellent. Thank you. When it comes to expanding into new markets, how does EVgo think about that, especially in markets where EV adoption may be low but investment in that infrastructure is needed to encourage EV adoption? It's a classic chicken or egg example.

Well, we have a very sophisticated network plan and site selection process. That's also underpinned with some very strong financial discipline. So we will not build a new station unless we can very clearly see that we're getting to the kind of compelling returns that we talked about earlier. So that means we're looking at over multiple years across a lot of different potential locations, working with the 50-plus strategic and regional site host partners. So these are large grocery chains, retail chains and what have you. We ingest a huge amount of data, a huge amount at a census track level that's smaller than ZIP code where we're looking at historic EV sales, forecast EV sales, electricity rates, the cost of building, the availability of grants. All of the factors that you would consider might be involved in developing a return expectation. We ingest that and that's what helps us determine whether to move forward with building a site. And so where we're often building sites where demand is beginning to grow and is expected to really grow. So that's how we think about it.

All right. Following up on new market expansion, can you touch on if EVgo is looking at geographies outside the United States today, such as South America, Canada?

There's about 45,000, give or take, a DC fast chargers in the United States today. Most analysts expect that to be in the $250,000 to $350,000 range by 2030, forget about 2040 and 2050. That is an enormous growth in just the United States. Huge white space for us to be able to grow. And so I'm not saying that we're ruling out international expansion, but it's just not the near-term priority because there's just enormous opportunity for growth here in the United States.

So in addition to geographic expansion, there also are other opportunities to look at such as L2 charging at home. Would EVgo be interested in doing home charging in addition to DC fast?

We're really focused on DC fast charging. It makes so much sense for us. It's a big differentiator between ourselves. And I think many of our public and private company peers, DC fast charging share of kilowatt hours across all charges is growing and it's going to continue growing for all the reasons that I said earlier. Rideshare, more affordable vehicles, growing faster charge rates and autonomous vehicles. So it's a -- it's -- there's really no reason for us to focus on anything other than that.

Turning gears slightly. This particular investor wanted to know how our relationship with GM is going and how it's evolved over the past couple of years?

We have a great relationship with GM. It's one of our longest relationships. It's one of our best relationships. We also -- we have about a dozen relationships with OEMs spanning data integration, charging credits and infrastructure support. With GM, they pay us funding for every stall that we deploy that's co-branded GM and provides differentiated access and benefits for General Motors drivers. So it's a great relationship. A few weeks ago, we expanded that relationship with an announcement that we are really taking our partnership to the next level with flagship locations. So these are, as the name suggests, flagship sites, bigger sites. So more stalls per site with canopies, with pull-through driving, with amenities, with security cameras and lighting. So it's just a great and elevated customer experience. I think it's a great endorsement of our relationship with each other, and the fact that we're both committed to taking the customer experience to the next level.

We did receive several questions regarding maintenance and uptime of the EVgo network. Can you share with us what EVgo does to maintain and improve our station performance?

Sure. So I think it's important to put the customer experience into like a holistic perspective. Again, we serve over 1 million customers. And so when we think about it, there -- we think that's really 4 things that matter to customers. One is when you go to a site that you're not waiting, and so that tells us to build more stalls per site, which we've been doing, and we've been very transparent around this in our investor communications. We report on this every quarter. Secondly, we want to make sure that customers want faster charging. And that's why over 40% of our stalls today are over 350-kilowatt stalls. Again, that's faster than Tesla Supercharger network. And to put it into perspective with the right vehicle, you get 100 miles in less than 10 minutes on a 350-kilowatt charger. Again, if you have the right speed battery. That's up from low 20% of our network was 350 kilowatts at the beginning of 2023. So it's come a heck of a long way. Thirdly, when you talk about asset uptime, we actually think about it from a customer's perspective, which -- and we have a measure that we call one and done. So that's the percentage of time it takes for customers to charge their vehicle once, first time and within a short period of time, a reasonable period of time. And again, we've been transparent about all of these metrics we put on our website. It incorporates asset uptime, but it's a more holistic measure. It recognizes that charging stations aren't just a physical connection like a gas station, but their software in the car that needs to communicate with software in the charger and potentially software in the app through the cloud. So it's a hardware and software issue. And fourthly, we call it Autocharge+, which essentially plug and charge. So plugging in your connector where the connector automatically detects the car, it understands who you are and automatically collects the payment without you having to fuss with payment. Customers rave about that. We love it. And we're growing the percentage of sessions that customers are using to charge their vehicles with Autocharge+. And again, we've been transparent around that. On the asset piece. Again, within that one-and-done measure, we're doing a ton of things. We have a program that we call ReNew, where we are removing or upgrading some of the older sites. We've been doing this for over a decade. And so some of our sites are just a little older, older equipment. We've got about 500 of these since the beginning of this year from -- up to the beginning of this year, and we're doing about 150 this year. We have a new canary model, which is automated diagnostics and nearly predictive monitoring. We have a 24/7 cable monitoring and detection of faults that we know within seconds, we're reducing repair time. So just a ton of really good things that we're doing in the asset maintenance space, which is within that one-and-done measure.

The next question we have is really on the growth of the network. So EVgo is expecting to grow 800 to 900 stalls this year. Are we experiencing any utility or permitting delays that could delay the growth of that network?

No. Not at all. I would say 2 or 3 years ago and certainly during the pandemic, we would have more supply chain issues. There were issues around permitting or utility connections, but those days are well past us. I would hesitate to guess that's probably not the case for many of our competitors and many others in the charging space. But we've reached the level of scale, and we've built this engine where we've got fantastic relationships with utilities, with local authorities, with our supply chain, where we're just really good at it. We -- our network plan goes out multiple years as I said before. And so we say to a particularly the utility territory, "We're thinking of putting in a charging station here 2 or 3 years out." And they'll say, "Well, actually, we have a transformer delay or we've got some great congestion." And so we'll say, "Well, how about here on your grid or somewhere else on your grid or other utilities grid?" And so that's how we build optionality in our network plan and through these great relationships, we just don't experience those issues at all. And I used to run a utility before coming over to EVgo. I ran the largest transmission and distribution utilities in the United States. So I have a sense for how utilities are dealing with these things.

Our next question is a little bit more technical in nature, but they wanted to know what are the cooling needs for the cables, inverters for DC fast charging equipment that we have here in the lab or out in the field?

Yes. Well, really for the cables because we have -- our newer equipment has 350-kilowatt speed, we need liquid cooled cables. And that's a key factor in how we're thinking about the operability and the testing and the requirements that we have for the NACS cables, right? So that's important. For the rest of the equipment, it's really [ ergo ].

This investor wants to know how many canopies do we have in our owned and operated network today? And then do we have the right to install them anywhere in the network?

Yes, we have a very small number of canopies today. That's why I'm super excited about our partnership and the announcement that we have with GM for these flagship locations. Really, that flagship location design was all about taking the customer experience to the next level. And so canopies are a big part of that. And we work very closely with our site host partners, and we will be working very close with our site host partners to ensure that we can get canopies as many locations as possible as through the GM flagship program.

In our meetings with investors, we get a lot of questions on capital and where EVgo is going to source capital from. Can you elaborate, would we look at issuing equity? Would we potentially borrow against our current assets? And would EVgo consider mergers or acquisitions in the future?