EVGO - NASDAQ

Thank you for standing by, and welcome to the EVgo First Quarter 2024 Earnings Conference Call. [Operator Instructions] I'd now turn the call over to Heather Davis, Vice President of Investor Relations. You may begin.

Good morning, and welcome to EVgo's first quarter 2024 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 first 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 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. 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.

Good morning, everyone, and thank you for joining us today. Before I begin the call, I'd like to take a moment to congratulate and thank Olga. In addition to our first quarter financial results, today, we also announce that Olga will be departing the company at the end of the month to pursue a different opportunity with a private company. Olga has been a trusted and valued partner to me since I joined EVgo and has been critical in driving the success of the company since she joined EVgo as a private company 6 years ago. On behalf of the entire EVgo family, we wish her well in her future endeavors. Many of you know Stephanie Lee, our EVP of Accounting and Finance, who will serve as Interim CFO from the time of Olga's departure until a permanent successor is on board. We are well underway with the search process and look forward to updating you when we have news to share. I will now turn to our results for the quarter. EVgo posted yet another excellent quarter, more than doubling revenue and nearly tripling throughput year-on-year. Non-Tesla electric vehicle sales grew 29% year-over-year, demonstrating continued demand for EVs. With the level of utilization we continue to see in our network, we not only have a clear path to EBITDA breakeven in 2025, but with the operating leverage in the business, we expect we could have annual adjusted EBITDA of $200 million in 3 to 5 years' time, representing a very compelling investment. I'm excited to share our results from Q1 with you today as well as talk about our key priorities over the next year or so. Let me also take a moment to address the change in our competitive landscape. Tesla's decision to halt further growth of charging stations was designed to allow them to focus on their automotive business, and particularly more affordable vehicles, and this will be a positive for EV adoption. We know from experience both here in the U.S. as well as in other countries that affordability is a key driver of mass adoption. Companies like EVgo are now adding public charging stations at a pace that didn't exist when Tesla began their Supercharger business. In fact, I expect [ Capital ] will be more interested in participating in this space in this new competitive context, allowing companies like EVgo to plug the gap left behind and accelerate their charging station growth. We added over 900 stores last year, most of which were state-of-the-art, ultra-fast 350-kilowatt stations, faster than Tesla's 250-kilowatt Supercharger network. We're excited to be able to add NACS connectors to our chargers later this year and welcome more tested drivers to our network as well as help site hosts that have been far along in the process of adding new DC fast charging stations and, of course, offer employment to as many talented employees as we can. As we've discussed in our last 2 calls, we see very strong unit economics in our business and expect to see that continue for the foreseeable future as EV demand exceeds supply of charging stations. Now, turning back to our earnings this past quarter. We had a great first quarter in 2024 with throughput near tripling year-over-year. And while revenues grew just over two-fold, revenues from the [ owned ] and operated charging network grew faster. We grew our operational stores by 38% and are on track to add 800 to 900 new owned and operated stores this year. Customer accounts continue to grow faster than VIO growth in the first quarter. And we were just under $1 million at the end of the quarter. We continue to see clear evidence of operating leverage that we've talked about in detail in our last 2 calls with both expanding adjusted gross margins, especially in our owned and [ operated ] business and in adjusted G&A translating into strong bottom line improvement year-over-year. EVgo's model is unique in that we own and operate DC fast charging stations where customers are going about their lives. Our growing network of over 1,000 locations is within a 10-mile drive for over 145 million Americans. And we have a network plan and strategic site hosts that allow EVgo to continue our rapid expansion, serving more EV drivers. Demand for EVs, especially amongst non-tested brands remained strong this quarter, with new BEV sales up almost 30% year-over-year. This past quarter we saw especially strong sales growth from Ford, Rivian, Hyundai and Kia. More affordable EV models are coming, supporting the growth of DC fast charging as these models tend to attract a higher share of customers without access to home charging. It's also worth remembering that the number of BEVs sold this quarter is roughly equal to what was sold in all of 2020. Although non-Tesla vehicles account for the vast majority of our network throughput today, we expect to start adding NACS connectors to our chargers later this year. And given our locations tend to be closer to where EV drivers live and go about their daily lives and our network is increasingly ultra-fast 350-kilowatt chargers versus Tesla's 250-kilowatt superchargers. And we offer convenient customer features like Autocharge+. We look forward to welcoming more Tesla vehicles onto our network. As we discussed in our financial webinar a few weeks ago, because of our proprietary network planning resulting in carefully selected site locations and conservative underwriting process, we have very compelling unit economics. We reached a level of scale in kilowatt hours per store that enabled us to generate positive annual cash flows on a per store basis by the end of last year. And in Q4 2023, the top 15% of our stores were generating over $30,000 per store on an annual basis. As a reminder, throughput is the product of charge rate and utilization multiplied by 24 hours. Charge rate is a speed with which EVs take energy into the car and utilization is the percentage of time an individual store has been utilized. Over the past 2 years, we have seen very strong increases in both utilization and charge rate, resulting in near quadrupling in daily throughput per store. In 3 to 5 years' time, we expect to have around 7,000 stores. And at that point, we would expect cash flow per store across the whole network to be around $37,500 per store annually, driven mostly by increased charge rates and a conservative utilization assumption and the level of throughput per store already achieved by the leading edge of our network today. This level of annual cash flow provides a very strong return with considering we're expecting around $96,000 net CapEx per store for 2024 vintage stores. And that's before any CapEx reductions we would expect to see over time, some of which I will talk about later on this call. As we've described in our prior 2 calls, EVgo has significant operating leverage, where around 40% of our cost of sales and charging network gross margin is fixed per store. And around 70% of adjusted G&A is fixed. Across our existing site host partners, we've identified approximately 10,000 stores that currently pencil to our double-digit return expectations. But we've assumed here that we will continue store growth at the 800 to 900 new stores per year that we're currently growing at. We're making good progress in securing financing that allows us to grow at least at that rate, which I'll cover later. Taking the estimates from the prior slide and assuming 7,000 stores, our owned and operated network would generate significant contribution dollars that fall straight to the bottom line once fixed G&A costs have been covered. And taking those same estimates, we expect that roughly $70 million of fixed costs to be covered by full year 2025. And therefore, the scale of 7,000 stores in 3 to 5 years' time, the company will be generating around $200 million in adjusted EBITDA annually with very significant continued growth beyond that. Of course, this is prior to the contribution of any eXtend or Ancillary and Tech-Enabled services. Not only does our business benefit from such strong operating leverage, but we also benefit from a significant tailwind in the form of rising charge rates. As we have said before, the charge rate on our network is a function of the speed that batteries can be charged and the average power rating of EVgo chargers on our network. Both are rising. Vehicles sold today have significantly higher charge rates than the average charge rates of all BEVs on the roads, which will include many older vehicles with lower charge rates. In fact, over 80% of all BEVs sold today have charge rates over 50 kilowatt and over 50% are over 90 kilowatts. We conservatively assume battery electric vehicles are sold using the 2023 sales mix with no improvements to either vehicle mix or battery technology and that represents roughly 70% of the assumed increase in charge rate from 43 to 80 kilowatts across our network in 3 to 5 years' time. EVgo continues to add mostly 350-kilowatt chargers to our network. And today, nearly 40% of our network is 350 kilowatts versus 22% a year ago. Therefore, the average mix of our charger network also increases over time and contributes the other 30% of the assumed growth in network charge rate. The combination of the 2 means charge rates are expected to improve significantly benefiting the company. High charge rates means the same kilowatt hours can be dispensed over much less time, meaning, we realized the same return with lower utilization. Our charge rates drive 3 sources of upside that we are not assuming. First, higher charge rates could drive up EV adoption because customers favor faster charging times. Higher EV adoption drives up utilization. Second, higher charge rates could actually drive up the share of DC fast charging, because customers are able to charge their cars for the same number of miles much faster, leading customers to become more confident in on-the-go public charging and less concerned with charging at home. Therefore, higher charge rates could lead to higher utilization and thus even higher returns per store. If we have the same utilization in 3 to 5 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 $75,000 annually. And third, higher charge rates translate into much improved CapEx efficiency because it allows a smaller number of chargers for the same kilowatt hours dispensed. Again, we have not assumed any of these upsides or any improvements in battery technology nor improvements to the mix of new vehicle sales in our expected economics in 3 to 5 years' time. Let's now turn to our 4 key priorities over the next year or so. First, and as you've heard a lot on prior earnings calls, we remain focused on improving the customer experience. Second, an area we will discuss further in future calls are the steps we are taking to improve efficiency in the business above and beyond the operating leverage we've talked about on the past 2 calls. Third, another area we will discuss more in future calls are the initiatives we are now putting in place to ensure we are attracting and retaining a greater number of higher-value customers on our network. And finally, we will provide a little more detail on progress on securing financing to get to free cash flow breakeven. On customer experience, we know that there are 4 things that customers value the most: First, having lots of stores at a site so they never have to wait for charge; second, having high power chargers available so they can fuel up quickly; third, having a reliable solution that works right on the first try; and fourth, a hassle-free payment process where customers just plug the connector in and the payment is processed automatically. Over the past quarter, we made progress on each of these key metrics. We continue to deploy mostly 6 stores per site. And so the percentage of sites with 6 stores or more continues to rise. And we're aiming for around 20% by the end of this year. We're mostly also only deploying 350 kilowatt chargers now. And so the percentage of stores with 350-kilowatt chargers have nearly doubled year-over-year and we expect that to be close to 50% by the end of this year. One & Done also continues to rise. And we expect another step-up in performance in Q4 when we release a key software update. And finally, the percentage of sessions initiated with Autocharge+ has also increased significantly. And now that more than 50 models are part of this program, we expect to see continued growth in this metric during 2024. We believe the benefit of these improvements will ultimately result in customers gaining further confidence in public charging, driving up utilization and throughput on our network. As EVgo continues to scale rapidly, we have begun to turn our attention to identifying and delivering efficiencies, not just in operating costs, but also in the capital costs of the chargers. In November last year, we began prefabrication of stations, which is expected to result in an average of 15% of the construction cost of a station at eligible sites and also to reduce station installation time lines by as much as 50%. We expect over 1/3 of stores operationalized in 2025 to benefit from this approach and we continue to grow this over time. Our core owned and operated business has very compelling unit economics and enormous growth potential. In January of this year, we streamlined and refocused certain teams to support near-term growth efforts in this core area. This strategy is already beginning to show in our financial results. In addition, over the course of this year, we've been implementing multiple upgrades to our ChargePoint management system, including releases that allow for predictive maintenance and automated diagnostics capabilities that will directly lead to fewer truck rolls, fewer customer calls and faster customer issue resolution. Call center costs are a sizable portion of our sustaining G&A and are expected to decline this year as we complete the offshoring of around 90% of our core volume, which is anticipated in Q3 this year. The combination of all these efforts is expected to lower our sustaining G&A per store run rate by around 15% by the end of this year. On the CapEx side, in addition to the prefab aluminum skids for station construction we began last year, we're implementing a series of incremental improvements, including a transition from copper to aluminum conductors, multi-sourcing switchgear and various other EPC improvements that collectively aim to deliver around a 10% reduction in operationalized charger cost per store for 2025 vintage stores. We're also engaged in exploring a joint development of the next-generation charging architecture with an industry-leading partner that aims to lower CapEx per store by as much as 30% and a step change in customer experience due to a customer-focused design and improved firmware, with first deployments expected in the second half of 2026. This level of improvement in CapEx per store could improve our IRRs by at least 7 percentage points. EVgo has had success in growing our recurring customer base through B2B relationships like our OEM charging credit programs as well as our rideshare programs. And together with our subscription plans, these programs account for over half of our throughput today. In other words, over half of our throughput comes from higher usage, relatively predictable customer segments that represent stickier kilowatt hours. We reached almost 1 million customer accounts at the end of the quarter, a significant milestone of EVgo, underscoring the quality of the EVgo network. We believe our scale and position among customers is a competitive advantage that allows us to target and attract more higher-value retail customers as well as increase the value of existing customer relationships. To that end, we hired a new EVP of Growth, Scott Levitan, earlier this year, who brings a wealth of experience and track record in exactly these activities from companies like Google, Mercari and Philips Electronics. We started executing segment-specific marketing campaigns using low-cost methods to identify, attract and retain customers who are most likely to be attracted by our convenient charging network close to where they live, work and go about their lives. We've also begun piloting new automated demand-based dynamic pricing that is now live across the portion of the network with a phased expansion planned during the course of this year. And in Q2 this year, these efforts will be significantly enhanced when we expect to go live with a modernized customer data platform. All of these efforts are expected to not just ensure we continue to grow our customer base at a faster pace than VIO growth, but also increase the throughput and average unit margins per customer. Our remaining key priority in the near term is to secure additional funding that allows us to reach a level of scale where we are self-financing, but also accelerates the rate of new stores operationalized per year from the 800 to 900 we are expecting to add this year. We plan to build with a track record already established with successful grand collections in prior years, a successful partnership with GM and the follow-on offering we completed in May last year. We continue to have substantial additional capacity under the ATM program we launched in November 2022. And we believe we're also making progress in pursuing non-dilutive financing options. As we've discussed, we expect around 40% of 2024 vintage CapEx to be offset from grants, OEM payments and incentives, including executing on our first 30C transaction over the next few months. That provides us with sufficient capital to continue our CapEx plans well into 2025. We continue to be pleased with the dialogue we're engaged in with the DOE loan program office for a loan under the Title-17 Clean Energy Financing Program. We believe we have a high-quality loan application that addresses the need for more public charging infrastructure built out at scale across the U.S. While we have not disclosed the quantum of loan we are seeking, I can advise that if we are successful, we believe it will be sufficient to not only expedite our journey to self-financing, but also meaningfully accelerate the annual rate of store growth. Given the unit economics we've disclosed, we are now also concurrently engaged in multiple potential options for further commercial non-dilutive financing that could be contemplated alongside the DOE loan. Indeed, spurring commercial bank financing for new asset classes is an intended goal of the DOE loan program office. I'll now hand over the call to Olga, who will run through our strong financial performance for the first quarter of this year.

Thank you, Badar. Before I dive into EVgo's first quarter 2024 financial results, I wanted to express gratitude for having had an opportunity to serve as EVgo's Chief Financial Officer. Being part of the team, focused on growing EVgo over the past 6 years and working closely with our investors and analysts has been a pleasure and a remarkable journey. I am proud of all we have accomplished and excited about the path forward. We have a well-planned transition in place, as Badar mentioned, and the deep [ bunch ] of talent in the finance organization that will ensure a smooth handoff. With that said, I will now discuss our first quarter results. EVgo started 2024 delivering another strong quarter of growth and execution. Revenue in the first quarter was $55.2 million, which represents 118% year-over-year increase. This growth was primarily driven by increased charging revenues. Retail charging revenues of $18.3 million grew from $6.6 million in the first quarter of 2023, exhibiting a 177% year-over-year increase. Commercial charging revenues, which primarily includes revenue from our rideshare partnerships of $5.8 million increased from $1.7 million in the first quarter of 2023, exhibiting a 240% year-over-year increase. And eXtend revenue of $19.2 million grew from $10.3 million in the first quarter of 2023, increasing 86% year-over-year. We added 250 new operational stores in Q1, including eXtend. Total stores in operation were approximately 3,240 at the end of March 2024, including 130 EVgo eXtend stores, increasing 38% from the end of March 2023. During the first quarter of 2024, EVgo added 109,000 new customer accounts, which shows 63% increase versus 67,000 customer accounts added in Q1 2023. EVgo ended the quarter with more than 981,000 customer accounts, a 60% increase over the end of Q1 2023. EVgo's network throughput continues to grow, reaching over 53 gigawatt hours and nearly tripled year-over-year and again, grew over 4 times faster than the growth in VIO. I would like to reiterate what drives this growth. First and foremost, EV adoption continues. And as Badar has just mentioned, non-Tesla EV sales, which is the market EVgo primarily addresses today, increased 29% year-over-year in the first quarter. Second, EV buyers are shifting from early to mass adopters with a higher portion of multiunit dwellers. Third, EV vehicle miles travel is increasing nearing parity with internal combustion engine vehicles. Fourth, rapid growth in rideshare, and finally, heavier, less efficient EV models. As a result, utilization averaged approximately 19% across the network in the first quarter of 2024. 53% of our stalls had utilization greater than 15%. Over 40% of our stalls had utilization greater than 20% and over 20% of our stalls had utilization greater than 30%. As I touched on earlier, revenue grew 118% in the first quarter of 2024 to $55.2 million. Adjusted gross profit was $17.3 million in the first quarter of 2024, up from $6.4 million in the first quarter of 2023. Adjusted gross margin was 31.3% in the first quarter of 2024. Q1 revenue usually includes breakage related to our Nissan contract. In Q1 2024, breakage revenue was roughly $2.5 million. When removing it, adjusted gross margin was 28% in Q1, which is more in line with our expectations of mid to high 20s for the rest of 2024. When you compare this adjusted number to a similar adjusted number from Q1 2023, we still see an increase of 11 percentage points from 16.8% in the first quarter of 2023, demonstrating the leverage effect of throughput and corresponding revenue growth on the stall dependent components of cost of sales. Adjusted G&A as a percentage of revenue improved significantly from 104.6% in the first quarter of 2023 to 44.4% in Q1 of this year, demonstrating the leverage effect from our G&A. Adjusted G&A went from $26.5 million in Q1 2023 to $24.5 million in Q1 2024, clearly illustrating our focus on lean operations and path to profitability. Adjusted EBITDA was negative $7.2 million in the first quarter of 2024, a $12.9 million improvement versus negative $20.1 million in the first quarter of 2023. Cash, cash equivalents and restricted cash was $175.5 million as of March 31, 2024. Cash used in operations was $14.1 million in the first quarter, narrowing from the first quarter of 2023. Capital expenditures were $21.1 million in the first quarter. Capital expenditures net of capital offset was $13.6 million in Q1 of 2024. Now, turning to reconfirming our 2024 guidance. EVgo continues to 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. We continue to expect capital expenditures net of capital offsets to be in the $95 million to $110 million range with the main use of CapEx to add 800 to 900 new EVgo owned stores this year. We're as confident as ever that EVgo is on a clear path to an important inflection point in 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 electric vehicles and operations will continue to grow and that EVgo will continue to expand its network and realize operational efficiencies. We look forward to share in our progress in 2024 with you throughout the year. Operator, we can turn the call over to questions.

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

Congrats on the new opportunity. But I was hoping we could just maybe get some general thoughts on the piece of news that hit recently around Tesla and playing off the Supercharger team and that may be impacting the pace at which they grow the Supercharger network? Can you maybe just give a little bit of context or thoughts around how this could impact EVgo in both maybe the near and long-term from a market share perspective?

Yes. Thanks, Gab. Look, this is a fairly significant change in the competitive dynamic in the charging space. And I think it's positive for the sector and for EVgo. It's positive in my mind because it allows Tesla to focus on cars, and more affordable cars, as they've been talking about recently with the Model [ 2 ]. I think that's great for EV adoption. I think we all see that affordability is a key driver of shifting from early adopters to mass adoption. We see that from almost all the other OEMs on their earnings calls in terms of building out more affordable vehicles. So I think that's a positive. I think it's very positive for EVgo. I think that we have talked about very strong economics here on this call and I expect to see that to continue for, frankly, or improve in the foreseeable future. I expect to see that demand exceeds supply of charging stations for some time. Companies like EVgo just really didn't exist 12 years ago when Tesla began its Supercharger business, but they exist today. We added over 900 stores, as we said last year, which are state-of-the-art ultra-fast 350-kilowatt chargers. I expect that Capital will be more interested in participating in this space, in this new competitive dynamics, allowing companies like ourselves and others to pick up some of the slack in terms of charging station growth that Tesla may be leaving behind.

That's helpful. That's great color. And then I guess just as a follow-up, maybe switching gears to financing. You noted in your prepared remarks 30C maybe start to kick off over the next couple of months. Is there any additional color you can provide on just expectations and maybe remind us of the 800 to 900 new stalls this year fully qualified for that 30% reimbursement? And then the second part of that question is just the DOE loan process, if you can maybe just dial in a bit more detail on that? And maybe specifically just timing around when you think we can get an answer?

Sure. So maybe I'll ask Olga just to comment on the 30C transaction over the course of this year. But if I start with the DOE loan, look, we think we have a very high-quality application in front of the DOE loan program office, which -- and we've been under -- in dialogue with them for quite some time at this point. We're pleased with our progress. We know it's a very important part of President Biden's agenda. And given, again, I think the unit economics that we've shared with you on this call and previous calls, I think would suggest that -- I think anyone would look at this and think this is a pretty good investment. In terms of timing, this is not a 2025 thing. We are expecting us to be -- if we're successful, to be over the course of this year. We have not shared a quantum, but what I can share with you is that we'd expect the quantum here to accelerate our rate of growth from the 800 to 900 stores that we're doing this year, the 900 plus that we did last year and at the same time, accelerate our journey to free cash flow breakeven at a higher rate of store growth. That's what we're looking at for the DOE loan. Of course, it's not our only source of non-dilutive financing. Again, as I said before, I think that the economics here are very attractive and will attract capital to this business, and I think that will increase with the [ speed ] landscape that we've just talked about last week. And we are engaged in conversations with counterparties around similar sorts of financing, nonrecourse project financing. And so those are things that can be done in combination with the DOE loan program office. And then, Olga, do you want to just provide a little insight on the 30C?

Yes, and maybe like a little add-on about the DOE loans we're applying and the Title 17, that LPO program, and gave you free to -- just do research and see what kind of other companies did that and what quantum they obtained. I think it will give you a good feel for what we're looking for as well. And on 30C, roughly 35% to 40% of our portfolio last year and this year qualifies. We're working on effectuating the first transaction and sell our 2023 portfolio. It will be the first -- one of the first transactions done of this nature in the industry and certainly will be the first one for EVgo. So it takes a little bit of time to put the transaction documents in place. But we see a very strong interest for these types of portfolios. And it is clear to us that the very robust market is emerging to be able to trade this credit in the future on a regular basis.

Your next question comes from the line of Chris Dendrinos from RBC Capital Markets.

I guess I wanted to kind of dial in a little bit into the operations side of things and maybe to start here. On the throughput, it looks like maybe December I want to say it was around [ 201 ]. And so the implied on the quarter was a bit lower on the kilowatt hours per day. Can you just kind of talk about the dynamics there? Is there any sort of seasonality going on? Or how should we kind of think about, I guess, throughput growth going forward?

Yes, Chris, that's exactly it. It's seasonality where we've been growing so fast over the last couple of years. We haven't even seen it in our numbers, but we're finally seeing it. That's really it. April's throughput per -- store per day is well over 210 kilowatt hours per store per day. So that's in line with what we were expecting.

And then I guess, I think you mentioned some software updates that might have been going out later this year. Can you kind of just update us on sort of what's going on there and the expectations for that?

Yes. Look, we, as a company, Chris, we have been so focused on building a growth engine that can add very carefully selected stores that generate -- that we expect to generate very strong returns. That's the proprietary network plan and site selection process. We've really refined that to a point where it's -- I think it's just humming super nicely. We shared, I think, on the Q4 call that we're actually exceeding our throughput expectations versus the modeling that we've done. So we think that we're -- it's a great process, but it's also one that's conservative. But really, we're really shifting our focus from not just building the growth engine, but to making it more efficient. That is something that we can do today as a result of the scale of the business. And we see that showing up in multiple areas, one of which is the inefficiencies in the operating cost of the business. There are multiple software and process improvements, none of which are frankly -- they are not things that are -- things that haven't been seen elsewhere in much -- every other industry in the world. We're just deploying the technology today. And those are things that allow us to have a better sense of sort of predictive maintenance, diagnostics around our equipment where they're not performing as we'd expect. It will be software in terms of handling customer calls in a way that allows us to expedite resolution faster. Again, these are not game-changing technology improvements. We're just bringing what exists in other sectors to our own sector. And in terms of expectations, we shared with you our sustaining G&A cost per store in our -- on the webinar. And in fact, I showed that in one of the slides here, a fairly significant reduction over the next 3 to 5 years. We're expecting the software updates just for this year to lower sustaining G&A by around 20% run rate, so Q4 versus Q4 last year.

Your next question comes from the line of Stephen Gengaro from Stifel.

I think two for me. The first, you had a good first quarter and you kind of reaffirmed your guidance for the year. When we think about your 2025, you talked about EBITDA breakeven. And it feels almost a little conservative versus kind of where -- the path you're on right now. So I was just kind of curious if you could comment on those expectations and what drives you there?

So we're very pleased with that quarter this year. We have 3 more quarters to go. And so we just came out with our guidance for this year and also for EBITDA breakeven just sort of 7 or 8 weeks ago. So we thought it was too early to make any changes to that. I can tell you that with the change of the competitive dynamic that we've just been talking about. We're in a -- as a -- for instance, we're in a conversation with many site hosts across the United States that were well along the path towards putting in DC fast charging stations in their locations for the first time, that are stuck. And we're, of course, happy to be able to pick up potentially some of those locations if they meet our return expectations. That would allow us to accelerate our store growth potentially faster and cheaper. As I've talked about before, we've got a significant set of tailwinds in terms of charge rates. Charge rates improving allows customers to be more confident in on-the-go DC fast charging. Charge rates actually improved EV adoption. We hire all the OEMs talking about more affordable vehicles later this year and into next year. So there's a set of factors here that actually would suggest we could be doing a lot better. It's too early for us to talk about 2025 on this call, but perhaps we'll talk about 2025 on Q2 and Q3 calls.

And the other question I had, and you sort of just answered it. But when you were talking about the different financing options and you mentioned the ability to potentially accelerate growth beyond the 800 to 900 stores per year, that suggests to me that if you could do that, there is plenty of room for -- and sites that you've identified, that would be profitable and meet your IRR hurdles even if you grew the store count at a much -- at a higher rate. Is that fair?

That's exactly right, Stephen. We find that there's about -- well, first of all, we've got about 50 -- over 50 strategic relationships with site hosts across the country. And there are -- well, there's over 100,000 sites actually we've identified that we could potentially get after. But in that, it's a subset of over 10,000 that actually meet our return expectations. And again, I think with the competitive dynamic shift from last week, those are likely to be very attractive locations for us to get after. And so yes, we -- I think when it comes to capital allocation, we will -- once we cover our costs and -- which we will do next year and we're generating EBITDA or positive EBITDA, the question for us is, do we return capital to shareholders or do we keep deploying capital to build out locations. The unit economics would clearly suggest it's in everyone's interest to -- for the company to grow our store base faster than the 800 to 900 just given the returns that we're expecting. And so that's what we'll be looking to do.

Your next question comes from the line of Chris Pierce from Needham.

Can you just talk about what you're seeing broadly over the past year or so? Are there -- I know you guys identified type -- and you want to drop your Level 3 equipment in that site. But are you seeing an industry shift at all where people that had maybe considered Level 2 sites or Level 2 charging equipment are now moving towards Level 3 because of customers demanding higher speeds? I'm just trying to get a sense of if you look at how people have thought about this industry is growing through 2030, Level 2 were sort of dominating the conversation. But it seems like over the past year or so, Level 3 is started to dominate the conversation. So I just wanted to kind of get your thoughts around that?

Yes, it's a good question, Chris. I think that -- look, I think the sort of landscape is kind of waking up to the potential for Level 3 in a way that maybe didn't exist a few years ago. And again, I talked about charge rates in my script that kind of went on a little longer, maybe. But I did that because there's a tremendous tailwind here that benefits DC to public DC fast charging. If charge rates improve and you can charge your vehicle at significantly faster time, maybe half the time, I think you're going to be more comfortable with public charging, less reliant on charging at home and for site hosts to be able to have and offer that feature for their customers, which we know is something that customers' value. I think it's only one direction of travel. And the question is how much share does DC fast charging takes of overall charging over the course of the next several years. We believe it's going to continue to grow, not just because of charge rates but also because as these vehicles become more affordable, customers without access to private driveways are more likely to be buying more affordable vehicles and therefore, more reliant on charging and likely will be -- will prefer faster charging.

Okay. And you talked about demand base pricing is something you guys might experiment with down the road.

Yes.

Can you talk about pricing in general? Is that something where -- is there really no price pressure that you're seeing now given the rate of growth of EVs and the lower rate of growth and charging [ equipment ] out there? Or is there other certain times of the day where there is pricing pressure on your network? Or is this not something that you're seeing right now?

No. This -- we have very different customer segments that are charging on our network. We have rideshare, segments of high-frequency, high-usage customers. And that's -- and when you put them -- put all the sort of higher usage customers together, it's over half of our kilowatt hours, which I consider to be quite sticky and more predictable and reliable and love to have more and we're expecting to target and have more. But as we think about pricing, there's different times of the day and/or pricing will appeal to different customers. So we are shifting some of our higher usage customers to times of the day where it's -- where there's less utilization in our network. Earlier times, we call them early bird or off-peak rates, they tend to be lower rates. That frees up the locations for customers that are less frequent users and potentially less sensitive towards price. So that's the kind of work we're doing. It's time-based pricing, location-based pricing. Dynamic pricing, it's not a dynamic -- demand-based pricing. It's not a new concept. And it's not something that we're considering. We are now deploying it. So less -- around 5% of our network today has dynamic demand-based pricing and we expect to roll that out over the course of this year. And I expect that will deliver some fairly solid improvements to actually our margins, which have already improved over the course of the last year, as you see in our results. Margins from our charging business have gone -- have doubled over the course of the last year. And that's partly or significantly driven through the leverage that exists in our cost of sales.

Okay. And if I could just ask one last question for Olga. On ancillary revenue, we've seen that grow pretty dramatically. I know we're talking about smaller numbers. But what is the margin profile of this business? And is that -- since the 10-K talks about again software digital revenues, are we talking 75%, 80% gross margin for that type of business? And that is providing a gross margin uplift as well? Or am I not thinking about that the right way?

Olga, do you want to take that question?

Yes. Sorry, I muted myself. So yes, most of that revenue is coming from PlugShare. It's the [indiscernible] charging company which we bought roughly 3 years ago. But it also has our behind defense fleet contracts, which is a couple of them, which we talked about on prior earnings calls. So the margin profile is a mix of the 2. And of course, any software-driven revenue, including PlugShare will be very high margin. So you look at any SaaS type of a company and you'll get an idea what kind of gross margins we're talking about. The other business which gets mixed in here, which is behind the fence, has a more eXtend-like margin profile, which will be on a low double-digit territory. So there is a bit of a game of a revenue mix happening here. But considering that it's a very small -- it's still a relatively small revenue contribution. Most margin trends have been played by interplay of eXtend in the core charging business rather than ancillary.

Your next question comes from the line of Andres Sheppard from Cantor Fitzgerald.

Congratulations on the quarter. I just wanted to maybe come back to the utilization rate. That seems to be growing, again, at a very rapid pace, which is great. I'm just wondering -- I realized you don't guide this. But just maybe some direction here would be helpful. How should we think about that network throughput throughout the year? I know you touched on seasonality a little bit. But at this rate, should we be thinking of that gigawatt hour to be north of 200 or 215 for the year? In other words, how should we think about the network throughput throughout the rest of this year?

Yes. I mean, look, let me just -- I'll ask Olga just to give you some thoughts about 2024 specifically. But as you can see in the compelling unit economics slide and we talked about in our webinar a few weeks ago, the utilization of the top 15% of our network is already at 41%. Now we're not expecting 41% utilization across our entire network. In fact, we have said that we expect to see utilization in 3 to 5 years in the low 20s. We don't expect anything more than that to get to double-digit returns. And so that's -- maybe that's a way of thinking about utilization in the medium term. It's obviously a combination of utilization and charge rate that delivers throughput per store, which is the [indiscernible] [ Q ] revenue formula. But maybe, Olga, you want to just provide some thoughts from 2024, specifically?

Yes. So as you correctly mentioned, we do not guide to gigawatt hours, but maybe I can give you a little bit of a path to get to there yourself. So we gave color during our last call that we expect eXtend revenue to be roughly 35% of our revenue this year at the midpoint of the range and the range is to $220 million to $270 million. So if you subtract that, right, then the rest of the variability comes from still a prevailing uncertainty of EV sales this year. So as always, it comes from uncertainty on the final number or the throughput number. So if you take our average pricing, which you can derive from our financial statement, you can very easily get a range of gigawatt hours, which we are thinking about for this year.

Okay. I guess that's helpful. So it's then safe to assume maybe a higher -- some more seasonality in Q4 since that's usually the strongest EV quarter? I'm just trying to figure out like, should it be a smooth, gradual number quarter-over-quarter? Or should we account for some seasonality throughout the year?

Yes. So we do expect smooth. However, again, EV sales is something we don't have control on and have -- do not kind of understand exactly how it will play out for the rest of the year. We have an expectation that it will be smooth. But if you think about specific seasonality and driven patterns, then, Bureau of Transportation statistics actually publishes that publicly available data. And you could see how the driving patterns play out between the quarters by using that information. I think it will be actually quite helpful.

We'll take a look at that.

Andres, just as a reminder, EV sales, obviously, is a driver of revenue. But our throughput grew 4 times faster than the growth of EV VIO quarter-over-quarter, which we've talked about for a couple of several quarters at this point. So it's new sales, but it's also share of DC fast charging. It's rideshare growth. It's more affordable vehicles, leading to customers who don't have private driveways charging on public infrastructure. So it's -- our revenue is a function of all of these things combined and we expect to see it grow sequentially over the year.

Yes. And I think it's also a result of the utilization rates of -- the average utilization rates per charger, which is continuing to increase, right, which you mentioned earlier.

Yes.

Okay. Maybe just one last question. And by the way, Olga, sorry, I wish you all the best in your future.

Thank you.

We'll certainly miss you. Maybe one last question for you, I guess, is just on the liquidity. Can you just remind us with the, let's call it, $176 million in liquidity as of Q1, excluding any maybe funding or any external funding, what is the expected run rate with that liquidity on hand? Is that still into -- well into 2025? Or what was the message there?

Correct. We're confirming that still a message. However, I'm not excluding any grants which we will be collecting. It's not necessarily anyways a big driver, but as we discussed at lengths at the previous call, we are -- have applied and have been awarded a variety of different grants across the country from a variety of different programs that are awarded to us. And the collection is just a question of execution and time. And so that is baked into all of our central planning and budgets and whatnot. So when we talk about cash, that is certainly included because that is part of the business model.

Our next question comes from the line of Bill Peterson from JPMorgan.

I wanted to ask about reliability and uptime. How are the trends, I guess, proceeding on your network? And are you a way to quantify the operational benefits from the renewed program that you've been -- started employing last year, but can you quantify what you've seen thus far?

Yes. We see great improvement. And again, Bill, it's -- as we think about the customer experience, uptime is a component of the experience and having led many asset-based businesses in my career. Uptime is a component of the customer experience, which continues to improve. But so does ensuring that the payment process is as fast and quick as possible, making sure that there's a charger available when a customer goes to a site, which is why we're targeting more chargers per site as well as lots -- enormous amount of feedback of customers, [ they ] were faster sites. So we're prioritizing a 350-kilowatt charter. But uptime is certainly improving. Some of the software updates that I talked about earlier in terms of predictive maintenance and sort of diagnostic support are all designed towards improving uptime even more over the course of this year, which leads to a reduction in truck rolls, customer calls and cost in the business. So we feel pretty good about it.

Okay. And then I want to try to talk about gross margin trajectory. I guess taking into account your expectations around utilization, network throughput, how should we think about the gross margin sector based off of what you talked about earlier, time of day, charging price increases? But I guess also potential, I guess, energy rate either increases or at least time-of-day charges? And then to remind us, is there any seasonality for that in terms of how that would flow through on the gross margin line?

Yes. So gross margin we reported over 30% for the Q1. However, in my prepared remarks, I mentioned that we had a $2.5 million of Nissan [ rate ], with recognition, which is typical for Q1, that inflates the margin. So like adjusted gross margin is in the high 20s. And the expectation for the rest of the year is mid to high 20s. So there is a seasonality to that number because we are seeing a [ customer ] of various utilities. And utilities tend to have summer and winter tariffs. And summer is defined in a variety of different ways across different utilities. But it tends to be around the real summer versus around the real winter. And summer tariffs are a little higher than winter. In some cases actually they're quite a bit higher than winter. So you should expect to see a little lower margin over the summer period, picking back up by Q4 to the winter time.

And maybe, Bill, if I could just make sure that we -- when we talk about gross margin, we are talking -- we're always talking about the entire business, both our charging business as well as our -- the non-charging revenue. We have provided disclosure for you to see for yourself margins in our charging business specifically, and they were 15% -- roughly 15% last year. And it's -- sorry, in 2022, up to about 28% in 2023. And this first quarter of 2024, they were in the mid to high 30s, the charging business itself.

Yes. And so let me maybe clarify my answer as well. Business when I quoted the absolute numbers, when I talked about the dynamics, it's related to charging business. When we talk about the dynamics in eXtend business, just to add to what Badar said that you probably see a stable gross margin profile throughout the year versus Q1 and Q4.

And this concludes our question-and-answer session. I will now turn the call back over to CEO, Badar Khan, for some final closing remarks.

Great. Well, look, thank you, everyone, for the call. We had a great -- another great and record quarter. As you heard, we have very compelling unit economics and operating leverage that drives very strong EBITDA in the near term and a growth engine that is generating strong returns for our investors. The change in the competitive landscape that we've talked about, presents even greater opportunities for EVgo to accelerate growth and deliver even stronger returns, taking advantage of the multiple sources of competitive advantage that we now have. And I look forward to providing updates on these competitive advantages in our priorities and progress on subsequent calls. Thanks very much, everyone.