EVgo Inc (EVGO) 2022 Q2 法說會逐字稿

Greetings, and welcome to EVgo's Second Quarter 2022 Earnings Call. At this time, paste. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press *0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ted Brooks, Investor Relations for EVgo. Thank you. You may begin.

Welcome to EVgo's Second Quarter 2022 Earnings Call. My name is Ted Brooks, and I head Investor Relations at the company. Today's call is being webcast and can be accessed from the Investors section of our website at investors.evgo.com. The call will be archived and available there and the company's results, investor presentation and a transcript of today's proceedings will be available at the Events and Presentations section of the Investors page after the conclusion of today's call. Joining me on today's call are Cathy Zoi, EVgo's CEO; and Olga Shevorenkova, the company's Chief Financial Officer. Today, we will be discussing EVgo's latest financial results for the second quarter of 2022, followed by a Q&A session. During the call, management will be making forward-looking statements regarding the 2022 fiscal year and our outlook for expected growth and investment initiatives. These forward-looking statements involve risks and uncertainties, many of which are beyond our control and could cause actual results to differ materially from our expectations, including, among other risks and uncertainties, the severity and duration of the effects of the COVID-19 pandemic. These forward-looking statements apply as of today, and we undertake no obligation to update these statements after the call. For a more detailed description of factors that could cause actual results to differ, please refer to our form 10-Q filed soon with the SEC and posted to the Investors section of our website. Also, please note that certain financial measures we use on this call are on a non-GAAP basis. For historical periods, we provide reconciliations of these non-GAAP measures to GAAP financial measures. The investor presentation can be found on the Investors section of our website. With that, I'll turn the call over to Cathy Zoi, EVgo's CEO. Kathy?

We're excited to be with you following another quarter of progress for EVgo. Our results for the second quarter, together with the milestone partnership we recently announced with Pilot and General Motors reinforced our leadership position in ultrafast EV charging. I want to touch on a few important things this morning. One, EVgo's continued operational success; two, our commercial progress, having signed a number of important partnerships; three, the work EVgo has been doing on the regulatory front to prepare for the massive investment the US is making under the Infrastructure Investments and Jobs Act and soon to become Inflation Reduction Act; fourth, and finally, the importance of technology-enabled innovation and why it's critical to all the work EVgo does, including maintaining industry-leading reliability and uptime standards. Let's start on the operational side. EVgo placed 170 stalls into operation across 17 states during Q2, bringing our total stalls in operation or under construction to 2,397. Through the first 6 months of this year, we have already eclipsed the number of stalls we placed into operation in all of 2021. The same is true for mobilized stalls, which for the first half of the year are already 15% above where they were for the entirety of 2021. At the same time, we continue to increase our active engineering and construction development pipeline, which is now over 3,600. Notably, these numbers do not reflect the additional sales for the Pilot-GM partnership announced a few weeks ago. Throughput was 10.1 gigawatt hours, an increase of 66% over the second quarter of 2021. Retail volumes were also encouraging, and the revival of volumes among Uber and Lyft drivers where combined throughput was up 123% versus the second quarter of 2021, point to the ongoing normalization of the post coded period and the continued EV adoption trends everywhere. Olga will share more about some of this in our financial results later. In June, we activated Plug and Charge for all GM EVs on the EVgo network. Plug and Charge, which we at EVgo called Autocharge Plus, enabled EVgo customers to start a fast charging session in seconds, by simply plugging the car in. No need to swipe a credit card or even open a mobile app. EVgo's Autocharge Plus is another example of homegrown innovation, enhancing the driver experience through our collaboration with a variety of automakers. The Autocharge Plus rollout also shows how EVgo can apply our technology in a number of different ways to meet the diverse needs of our customers and partners. We can incorporate Autocharge Plus into proprietary offerings like GM's Altium Charge 360 EV ecosystem in fleet offerings in conjunction with our Optima software product and more broadly to our retail drivers across EVgo's vast charging network. On fleet offering, EVgo is now part of a managed charging pilot program with a major midwestern investor-owned utility as they work over time to electrify their fleet of vehicles. As part of this, EVgo will assist with installation and data reporting services, which will be powered by the EVgo Optima fleet charging optimization software and the EVGold charging service and maintenance program. We also recently announced a charging partnership with the City of Philadelphia, in which the city will use EVgo's public charging network as they electrify their fleet of over 6,000 municipal vehicles. Both are very exciting and emblematic of the fleet electrification that is taking hold across the US. On the partnership side, in May, we announced a commercial agreement with Cadillac to offer drivers of the new 2023 Lyriq, the option of 2 years of unlimited public fast charging on the EVgo network. Cadillac selected EVgo to develop this special charging offer to make purchasing the new Lyriq EV even more enticing. Last month, in collaboration with GM and Pilot Company, we announced an EVgo extended offering to deploy up to 2,000 charging stores at up to 500 Pilot and Flying J locations across the United States. With 78% of the entire Continental US interstate system within 10 miles of a Pilot Flying J locations, this collaboration represents a giant expansion of EVgo's reach and is poised to greatly enhance the experience of driving an EV on America's interstate and highway corridors. This GM-Pilot partnership represents the first major announcement of the EVgo extended offering we highlighted earlier this year. As we have discussed, the growth in demand for EVs and the passage of the Infrastructure Investment And Jobs Act in 2021 have increased interest in charging infrastructure and communities far and wide. Our history and track record in operating complex public fast charging networks with higher reliability positions EVgo as the ideal partner. As part of the GM-Pilot agreement, EVgo will procure, construct, operate and maintain these charging stalls, providing us with both an increase in near-term revenue and longer-term contracted revenue. In addition to the procurement relationships associated with this contract, recall that EVgo will also be servicing these assets after installation, providing operational and maintenance support, technology assistance on the hardware and software side and running the charging network. Since we've been a public company, we've always discussed with investors our laser-focused on profitability in the business and making investments only where they clear our internal rate of return or margin hurdle, and this agreement exceeds those hurdles. In July, we also entered into a charger supply agreement with Delta Electronics. Under the terms of this agreement, EVgo will purchase more than 1,000 chargers, which equates to 2,000 EV charging stalls. This collaboration with a major international partner with strength in power electronics helps position EVgo to maintain a supply of chargers at a critical time in our company and our countries ramping demand for charging infrastructure. Overall, EVgo extended partnerships provide for increased growth opportunities for EVgo while minimizing our exposure to near-term utilization risk in very nascent markets. And importantly, we are able to significantly extend EVgo's reach on a capital-light business. On the regulatory development front, we announced in late May that EVgo and OSC~WEBco, a leading global provider of comprehensive fully integrated solutions to the US federal government, have been awarded participation in a new 5-year Blanket Purchase Agreement with the US General Services Administration, commonly referred to as the GSA, to furnish EV supply equipment and ancillary services to federal government agencies. This Blanket Purchase Agreement, or BPA, awarded in just 16 contracting team allows EVgo to offer a variety of fast charging and level 2 charging solutions to federal fleet vehicles across agencies, the US military and more. With this BPA in place, federal agencies and approved government buyers can work with EVgo to plan, build and install charging solutions and stations for their fleet without entering into a lengthy procurement process. The Biden-Harris administration is working to transition its entire federal fleet to 0 emission vehicles. And its FY '93 proposed budget includes $300 million for the GSA and $457 million for other agencies to help facilitate this goal. Supporting an entire electric federal fleet to require more than 100,000 new charging stations according to the government accountability option. EVgo enthusiastically welcomed the US government leadership in electrification and look forward to helping agencies across the federal government meet their EV charging goals. Specific business projects will be announced by individual agencies as they formulate their own fleet electrification plan. These efforts also complement the $7.5 billion investment from the bipartisan infrastructure law, which will help to build a national network of convenient, reliable and affordable EV chargers. The National Electric Vehicle Infrastructure, or NEVI program, will provide $5 billion of formula funding to states to build out core of the charging. Each state had to submit a plan for using their NEVI funds by August 1st. Once approved, states will be eligible to begin spending their allocated NEVI funds. The EVgo team has met with 36 departments of transportation and provided formal comments to 18 states in furtherance of the development of these NEVI plans. And we are expecting to see first solicitations from the state as early as the fourth quarter of 2022 or the first quarter of 2023. The early plans and drafts from states include a strong preference for competitive solicitations for grant recipients over first come, first served approaches. EVgo has strongly encouraged this approach as competitive solicitations tend to explicitly recognize the importance of established track record in delivering charging services. And hence, we'll be more effective in putting taxpayer dollars to good use in maximizing driver utility. EVgo has been busy preparing for this increased commercial activity and believe we are well positioned, thanks in part to the work we've been doing as part of our Connect the Watts initiative. We started Connect the Watts to bring together all the spokes in the electrification flywheel, including utilities and public funding agencies, to share best practice and help accelerate the deployment of EV chargers. Through this effort, EVgo has developed strong relationships at both the local and state level, and in many cases, has become a trusted resource for officials looking to implement EV charging solutions. As a reminder, earlier this year, EVgo published best practices for state DOTs for administering the NEVI program. We have a history of working collaboratively to create mutually beneficial public-private partnerships and believe our expertise has been helpful to state and preparing for NEVI. Turning to utility level rate changes that will impact EVs. New programs have been approved by regulators in California, including SMUD in Sacramento and the SDGE in San Diego, as well as pending EV rate changes in Colorado, where our recommended decision by the regulator would be positive for EV drivers and public service company of Colorado territory. In all, EVgo is participating in rate proceedings in 18 different utility service territories in 12 states, and we'll be reporting back on the outcome of those cases over time. And lastly, on the regulatory front, we announced in late June that EVgo has been selected by the California Energy Commission to receive a $3.6 million grant to build fast charging infrastructure for multifamily housing residents. With more than 6 million residents of California living in apartment building, accessible fast charging may be key to facilitating adoption for these consumers. We're thrilled to work with California on this innovative program to keep making it easier for more drivers to go electric. Altogether, EVgo has applied for public funding in more than 30 different grant programs year-to-date, and we expect to be very busy in the second half of the year. I'd like to close by talking about our commitment to technology-enabled innovation, which we believe is one of EVgo's biggest competitive advantages. EVgo's technology offerings frequently come up in discussions with potential commercial partners who appreciate EVgo's track record and capability across the hardware and software landscape and our commitment to making the EV charging landscape seamless for drivers of all types. Technology is part of EVgo's DNA and value proposition. In the prior quarter, we shared how we leveraged drones to speed up the site selection and development process. Autocharge Plus, which I referenced earlier, is a great example of our push to add functionality to simplify and enhance the charging process and experience. At PlugShare, which has now been part of the EVgo family for a year, we exceeded 2.5 million registered subscribers as the platform continues to grow. In addition, we launched PlugShare premium during the second quarter, which for a small monthly fee enhances drivers and allows them to opt to an ad-free experience. The EVgo Innovation Lab continues to provide value across the EV sector and to augment our operations in El Segundo, now operates 3 remote locations at OEM development and testing facilities. Since the lab was opened, we've tested passenger EVs from 13 different OEMs and 3 DVs from 12 different OEMs. We test vehicles against the full complement of chargers deployed publicly and privately as well as with new chargers undergoing EVgo's rigorous certification process. I'd also like to share more about how EVgo maintains industry-leading reliability and uptime standards on our network. This involves testing, preventative and corrective maintenance, a 24/7 365 call center and consumer research. Emblematic of our enduring commitment, EVgo conducted a study in February and March this year to assess the operation of over 250 chargers in Northern California. This is one of the highest usage regions on our network. We reviewed charger logs and investigated payment processing system, charger initiation functionality and overall vehicular interactions across 7 different vehicle types. We also conducted a follow-up health check on these same chargers in May. What we have found is that 95% plus of the charges were functioning as expected. Similar review processes and health care are occurring across the country with upgrades of replacement of all equipment planned for 75 stalls in the third quarter alone. This work is something EVgo budgets for and expect to do in order to maintain industry-leading performance, which we recognize is critical in maintaining driver confidence. And as EVgo derive our revenues from operating charges, we remain fully aligned with our customers and shareholders in maximizing uptime. In closing, we believe that not only is EVgo entering the rollout of the federal government's NEVI program with strong momentum and substantial progress. This weekend's Senate passage of the Inflation Reduction Act provides the EV sector with even stronger tailwinds. This went in for a vote this Friday in the house, the new bill includes provisions that extend and advance Section 30C and 30D tax credits for EV charging infrastructure and EV purchases, respectively. While we are still working our way through the particulars of the bill, it is clear these developments represent enhanced financial support for the industry and EVgo expect accelerated growth to arise from both greater EV sales and expanded funding for charging infrastructure. We are looking forward to providing more on this as program details are finalized in the coming days and weeks. As one of the longest-running largest and most reliable public fast charging operators in the US, we cannot be more excited about the possibility of accelerating our growth, expanding our partnership and helping to encourage the wider, faster adoption of EVs across America. And with that, I turn it over to Olga.

Thanks, Kathy. I will start with a review of the key operational highlights. Before turning to our financial results, followed by some additional details on the financial impact of the Pilot Flying J and GM partnership we have recently announced. During the second quarter, we placed 107 stalls into operation in 17 different states. The number of stalls in operation or under construction was 2,397 at the end of the second quarter with a total of 1,937 stalls being in operation and 460 under construction. Our active engineering and construction development pipeline remains strong and increased from 3,344 stalls at the end of the first quarter to 3,669 at the end of the second. Operational stall growth has picked up pace year-to-date. Though some challenges remain on the utility side, while we're still experiencing energization delays. We do affirm our total stalls in operation or under construction guidance of 3,000 to 3,300 with the end of 2022. In July, we entered into a long-term supply agreement with Delta Electronics for the procurement of 350 kilowatt charges. This agreement will provide charger supplies to 2026 and covers a substantial portion of our obligations under the new extend deal with Pilot and GM. Network throughput was 10.1 gigawatt hours for the second quarter of 2022, an increase of 66% over the second quarter of 2021. We benefited from seasonality as more consumers took to the road during the spring and summer period, continued growth in EV sales and rebound in rideshare. We expect the positive impact of seasonality to continue through the summer. Our customer count increased by 18% versus the first quarter of this year and is now 444,000. Turning to financial results. We reported $9.1 million of revenue in the second quarter of 2022, which is an increase of 90% over the second quarter of 2021. Charging revenue was $5.3 million, up 66% over the second quarter of last year. Change in retail charging, which was up 76% year-over-year, helped drive over half of the increase in overall revenue. Regulatory credit sales were $2.1 million. As a reminder, we expect regulatory credit sales growth to modulate in the third quarter as we sold off our existing bank of credit and will revert to business as usual. Adjusted gross margin was 37.2% for the second quarter, reflecting the increased benefits of amortizing our fixed cost base over larger network support and acceleration of LCFS revenue recognition. Overall, year-over-year adjusted gross margin increase was approximately 15 percentage points with roughly 9 percentage points of those added by LCFS acceleration. We expect that to normalize and modulate starting in the third quarter. CapEx increased substantially to $44 million this quarter as we continue to accelerate the charger deployment. General and administrative expense was consistent with ramping up personnel as needed to accommodate the growth. We reported adjusted EBITDA of negative $19.8 million versus negative $11 million in Q2 2021, which was also consistent with the ramp on personnel growth and expenses associated with being a public company. We ended the quarter with $372 million in cash and short-term investments and remain well capitalized at this time. Turning to our new EVgo eXtend partnership with Pilot company and General Motors. The agreement calls for the construction of approximately 2,005 charging stalls, primarily over the next few years at up to 500 Pilots Flying J locations across the United States. We have not disclosed the terms of this deal, but I would like to draw your attention to the cash flow profile of our Core Build-Own-Operate model versus the new eXtend model. In the annual cash flow examples you see here, and this is for 2020 vintage projects in both cases. The year's zero cash flows are negative in the core develop and operate model, as you would expect, due to the incurrence of capital expenditures and then turn positive in year 1 as the project goes operational. Those cash flows are recurring in nature and grow over the life of the project as more EVs are on the road, throughput increases and operating leverage is being realized. To the eXtend models, EVgo sees positive cash flow immediately. This is because our customer incurs the upfront capital expenditures, while EVgo generates margin as the developer and builder of the product, as well as going forward, as we earn ongoing revenues from providing operations, maintenance and networking and software integration services under the contract. Introduction of eXtend helps optimize near-term utilization risk in corridor site. We expect this site will ramp in terms of utilization more slowly than our traditional urban site. But at the same time, those are important locations to build EVgo's presence as we improve national coverage. We believe that these eXtend partnerships create long-term value for EVgo as they provide opportunity for long-term service cash flows, site expansion and refurbishments and customer acquisition and retention. Lastly, I would note that we are affirming our 2022 operational and financial guidance and look forward to sharing more updates as the year progresses. As a final note, EVgo is now Form S3 eligible. In accordance with customary market practice and with EVgo's obligations under our Registration Rights Agreement, Subscription Agreements and Warrant Agreements, we intend to file an S3 Shelf Registration Statement following the filing of our second quarter 10-Q. The Form 3 will register the shares only by a controlling shareholder, other shares entitled to registration rights and provide greater flexibility for potential primary issuances over time. With this, I will conclude and turn the call over to the operator for questions. Thank you.

Ladies and gentlemen, at this time, we'll be conducting a question-and-answer session. If you'd like to ask a question, you may press *1 on your telephone keypad, and a confirmation tone will indicate you're in question queue. You may press *2, if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the * key. Our first question-- as a reminder, if you could please ask one question and one follow-up so that we may get to everyone's questions in queue. Our first question comes from the line of Gabe Daoud with Cowen.

Thanks. Morning, everybody. Thanks for all the prepared remarks. Kathy, and Olga, I guess, maybe just starting with revenue for this year. I know it's really inconsequential just given how early days we are here. But can you give us a little color or confidence in the ability to deliver on the steep ramp that's implied for the rest of this year?

Yes, sure. I mean, Dave, I would just sort of say we're tracking to our forecast. So what we have taken account of is obviously the growth in EVs over time, the number of EVs that are coming to market, the seasonality factors. And again, we did bake in a little bit of the PFJ deal because we had been negotiating that late last year. So we knew that, that was going to be part of the scheme. Olga, anything you want to add to that?

No, I would concur that some of the PFJ revenues and some of the fleet contractual revenues are scheduled to kick in closer to Q4 second half of the year. And that explains heavier load on second half of the year versus what you see in the first year. But as we said, we're affirming our forecast, our guidance at this time, and we are tracking towards it.

Okay. Great. That's helpful. And maybe as a follow-up, thinking about all those moving pieces on the policy front and extend, obviously, the Pilot deal a pretty nice way to extend the network. But just curious, I guess, how big of a contributor do you think eXtend becomes particularly as NEVI and some state specific, I think as you mentioned before, might not make the most sense to own and operate. So just trying to get a sense of how big eXtent can really be over the next, call it, 2 to 3 years?

Yes. Well, Gabe, I think you've identified the key thing. I mean the policy objective of NEVI, first and foremost, is to get national coverage with a focus on quarters of rural areas. And again, I think your forecast as well as our the expectation is that, that's going to be kind of probably a slow burn for a while. So having seen this coming, we developed EVgo eXtend and negotiate with the Pilot Flying J deal, which is substantial. And it's just -- it's a great addition to our overall product mix, revenue mix, earnings, all of that. So that's great. More probably is to come because Pilot Flying is not the only entity that has quarters and rural presence, with many of those rural gas station operators, those folks remain interested in participating in electrification revolution. And given EVgo's track record over 10 years of operating and network really, really well. We're very well placed to have that be a part of our business going forward. So as soon as we can tell you about specifics, we will. We look forward to talking about these good business development, things when they get in.

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

Thanks for taking my question. Maybe to follow up a little bit from the first question. So in order to meet the guidance, the revenue guidance for later this year, can you talk about do you anticipate some seasonality in Q3 and Q4? Or quarter should that be kind of heavier concentrated? Any insight there would be helpful.

Sure. So just to reiterate, we -- our business, core business, so our retail revenues from the drivers who drive around the EVs, it depends on seasonality, but it also depends on EVs getting sold. So we do expect some of the seasonality actually in the winter to the detriment, but fall is neutral. So the summer is now in the plane, but mostly, we expect to continue to ramp up to have more customers in our network. As you have seen, we just signed up roughly 6,000 to 7,000 of new customers this quarter. Our network, we start that to continue to ramp up and then driving more revenue through the end of the year. But most importantly, why our forecast is more heavily loaded towards the second half of the year is the kick in of certain contractual revenues by the end of Q3, beginning of Q4, namely from the new PFJ contract and some of the fleet contractual deal. So there are 2 things happening at the same time.

Got it. That's very helpful. And maybe one last follow-up. So in regards to the NEVI program, I know this was just touched on, but -- so just to get it right, so you've -- you've already conducted sessions looks like here with 36 states, submitted 4 more common in 18 states. The plans are expected to be confirmed later in September as I'm just wondering, is there any -- can you give us any sense of what we can expect from your contract with the states? I know you're not guiding any numbers, but maybe a little bit of color. I know you've said Q4 '22 or Q1 '23, I'm just trying to see if you can maybe quantify that a little bit?

Yes. Andre, I'd like to provide quantities as well. It's actually -- we can't do it. What we know is it's a big giant amount of money that is absolutely going to start to flow at the earliest Q4 this year, but probably well and truly get moving Q1 2023. The conversations, what we're really excited about is that our experience and our best practices documents and our conversations, we become kind of a thought leader for state DOTs that are designing their program. And that -- we're seeing as not experience but willing to collaborate and cooperate, the fact that many of these programs are saying, we're going to do competitive solicitations based on track record is really, really -- that puts EVgo in a kind of a pole position to get our share of that business where we want to go. So it's $5 billion over the next few years, it's -- they're going to be looking for companies that can actually deliver on what they say they're going to do, that is very much EVgo. We will be very, very active in bidding for that business. I mean you do have to go ahead and bid for it because these are competitive solicitations, but we are really well placed. And if you look at our history of being able to access funds from, say, Volkswagen's appendix D settlement, again, that should give you some confidence that that's going to give us more forward momentum going into the implementation of the NEVI program.

Got it. Fair enough. And congrats again on the quarter. I'll pass it on.

Our next question comes from the line of James West with Evercore.

Hey good morning, Kathy, Olga. So Kathy, I have a big picture question for me. So we've seen -- we've seen the move in interest rates and equity prices. And clearly, there's been a change in cost of capital for the industry. You have a good number of competitors, and I'm using air quotes there, but a good number of competitors that are not well capitalized, and you guys are. And so as you talk to customers tentative customers today and you think about -- and they think about how they want to build out or work with or partner with charging providers. Has that economic reality started to set in yet? Are they understanding that there's going to be a shakeout here and there's winners and losers, the well-capitalized guys are clearly the winners at this point given the change in overall capital markets and cost of capital.

Yes, it's a great question, James. I think it's probably there in the background as part of our sort of all of our B2B business development conversations. I mean the most important thing that we're finding is that we've got a track record of delivery, right? So we've got blue chip partnerships that keep coming back for more. I mean our partnership with GM just keeps going from strength to the strength of the strength and Toyota coming across. I mean, all of the those and those were sort of well in hand, and we were delivering chargers that we needed to deliver and delivering customer benefits and everything else well before, all of this is sort of the capital markets has completely been fluid. But I would say probably, I mean, if you're going to be doing business, the electrification of transportation is there's lots of near-term work, but it's a medium-term game. So if you're going to be -- you're going to want to partner with somebody that the chargers are going to be in the ground for 10 years or so, you're going to want to be partnering with somebody that's going to be able to manage those assets really, really well, whether we own them or whether you -- whether the counterparty owns them. And so I think, again, that's why Pilot got excited about partnering with us because of that track record. And the access to capital markets as the markets continue to grow, the well-capitalized companies will have compared to others. Sure, that's probably part of it. But that's probably more your world than our operational world, frankly. It's just -- it's part of the whole scheme that you want to be doing business with other blue chip providers and clearly EVgo is doing just that.

Right. Okay. Okay. That makes sense. And then maybe one for Olga. Always, you were talking through the utilization sort of cash flow examples. I'm just curious, and I think you're now fairly cash flow positive at certain locations or certain areas in California, maybe Brooklyn. But what do you need -- what is the utilization number? Or how should we think about the amount of EVs or however you think about it, then we need to be cash flow positive on a kind of a per location standpoint so that we can -- we understand kind of how to model out each location when we go cash flow positive and, in our minds, a sign of obviously a value to those stall.

Yes. That's a good question. And the answer will be, it depends because the positivity of the cash flow in each location or in each geography, it depends on multiple factors. One is how many EVs they are, right? How many EVs are using EVgo as its network? What is the MUD density? So how many people are using public charger versus charging at home? What do we have electrification there on location? Califronia versus non-California, what is the energy cost environment? And energy costs, they range from as low as $0.07 in Seattle to $0.40, $0.50 on the east coast of the country. So you have a variety of different factors. So it is very difficult to pinpoint a specific EV concentration number. But I'd say when -- you're probably looking at utilizations as low at single digits where you could start seeing cash flow positivity in some of the better markets was LCFS presence and with lower energy costs. And then you probably need low double digits for kind of medium market and then it goes up from there if you're really in the markets with high energy costs and no other incentives. So again, very hard to pin point to some average just because of the diverse nature of those other factors. But you're absolutely right, some of the locations in California, such as San Francisco, Los Angeles, Santa Barbara, some of the locations in high EV adoption areas such as Arizona, Phoenix is one of our high utilized markets are now. We also see some of the East Coast locations really kicking in Connecticut has been quite an interesting market has been really growing quite a bit in the last 6 months. So we see pockets of it, but -- and we will update the market with how that progresses. But again, hard to pin point the specific number within the country.

Okay. Okay. Fair enough.

Our next question comes from the line of Ryan Greenwald with Bank of America.

It's Alex Rabelo for Ryan. Unfortunately, he's tied up on something else. Just 2 quick ones that I wanted to ask on eXtend specifically. I mean how would you think -- I mean, I know you gave us some guidance sort of on the cash flow profile. How would you characterize the margin profile though, sort of bifurcating between the initial site development, installation and then sort of the recurring fee element if you can opine on that?

Sure. So what we just first comment on our core business model, so we underwrite to a minimum of a double-digit unlevered pretax IRR over the life of the asset because we put CapEx in and then we get investment back. So IRR is a concept we use to underwrite those. On eXtend, so on a specific PFJ deal, which we announced recently, we're not disclosing the terms of that deal. But conceptually, when we assess, eXtend deals as deals we are working on for EVgo, we're looking at a minimum of a double-digit cash flow margin. So the over time of the contract, we are targeting to get a minimum of that. So that's a bit of a different concept because you don't have a -- you don't underwrite the CapEx, you don't underwrite the investment. You underwrite the overall cash flow generation to the company. So we have a bit of a different concept in here, but we keep the same quantum of what cash flow margin would like to get back.

Got it. Very helpful. And then just one more on the policy sort of landscape, if you will. I mean how do you think the practicality of the, I guess, sort of revitalized Section 33 tax credits, given location provisions, no direct pay. I mean, how do you guys see your capacity to sort of extract the value from that going forward? Sounded positive, but just curious if you can sort of parse that a little more for us.

Yes. Look, I actually think it is positive. So while there's no direct pay, it's also transferable, right? So the transferability of the tax credit is actually -- if you look at other sectors, it's like it's not a real heavy lift. So I think that, that is real value for us. The locations are -- there are places where we really definitely want to take advantage of that value because those are places that we're not for the tax credit, we might not be terribly interested in building. So I think that the provisions -- the 30C provisions that are part of the Inflation Reduction Act are likely to be material for us, they really need to go to extend our footprint and our reach over the next few years.

Our next question comes from the line of David Kelley with Jefferies.

Maybe a question on the step-up in CapEx, just given your growth target. Should we assume the $44 million is the new baseline for future expansion? Or were there any kind of onetime impacts in the quarter?

So there are no onetime input on the quarter. It's a continuation of our efforts to build our network. We've guided the market to 3,000 to 3,300 stalls under construction or operational by the year-end. And when we come out with the guidance for 2023, we will give the guidance again, I think. So I think that was what mostly drives the capEx expansion and how many stalls we're about to build? What happened this quarter is probably emblematic of kind of this year ramp-up. Going forward, we will update the market with more precise sale guidance and that will help you understand how to model that CapEx. But I wouldn't necessarily assume that $44 million every quarter for next 5 years is the right assumption, just because it will be driven by our decision on the pace at which we will expand the network.

Okay. Great. Thank you. And then maybe a question on PlugShare premium and recognizing it's still very early days, but can you talk about the reception to the subscription and maybe how you're thinking about potential longer-term penetration within that growing 2.5 million registered subscriber base?

Yes. I'll start with the macro. We're really excited about the PlugShare platform. And as you kind of noted, all of the eyeballs that are on that. We spent a fair amount of time over the last 12 months, investing in the build-out of the platform and its capability to increase advertising reach, right? So we've now got the -- we've actually increased and again, you need software infrastructure to be able to do that. And our investment in that software capability has increased the ability to add impression by 6x, which is really great. At the same time, it's a customer curated community, and we are mindful of that some of the people, some of the 2.5 million eyeballs may not want advertising. And so that's what the invention of culture of premium is all about. So provision of the ad-free environment for PlugShare users. Again, you're right, it's very, very early days. That was sort of at the behest of the, "Look, we love culture, but we actually don't want to see ads, and we'll pay for that." So we will report back on the growth of that. But again, the early reception from that subset of the 2.5 million eyeballs that are using PlugShare has been very positive.

Yes. And I would add that we definitely saw an immediate ramp-up measures in hundreds of people who had interest in trying that out. What we also actually -- philosophically, what we would like to do with flagship premiums to add different features and maybe increase the price of that our subscription is over time, but we will update the market when and how that will happen. It's the first step into the right direction here, and we already see positive response, meaning that people would like to use premium products and pay for it. How the premium product is going to be evolving over time. We will continue to provide updates and we are personally quite excited about that.

Okay. Great. Thanks, Kathy, and Olga...

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

Understanding maybe the CapEx absolute CapEx trends are not fixed. But how are you thinking about CapEx per stall trends? I know you've been experienced in a place or environment, I think it's up quite a bit thus far this year. But as you look out and you had the eXtend program and all the things you do for GM, are you seeing any light at the end of the tunnel that some of these costs or cost per site should start coming down?

So we definitely see the first times of improvements. So we are now looking at roughly $145,000 per stall, in the second half of the year and mostly the increases assisted with the inflation on the labor part, but we have started a wide range of different initiatives to abate that and find savings elsewhere, obviously, on the labor component, it's difficult labors not getting any cheaper. But we can be smarter than that. And some of the things we're doing, we're getting better practice and equipment. We can save as much, and we spoke about the new contract with Delta in our earnings script, so that is quite positive, and we continue to see positive effect with the rising competition and just the rising volume in the industry. So we are beneficiaries of equipment prices being under pressure here. But we are also how we organize and how we're thinking about what sites to build with prioritizing sites which start the utility runs, and we're working on a couple of other efficiency innovations. So for some of the CapEx, we are looking at closer to midyear next year. We already see quite a bit of improvement in CapEx. But we will update the market once we're closer to that. So definitely see some first signs of improvements here. But yet, what I would like to highlight that if high inflation environment continues to persist, as everybody knows, then we will work hard to get savings in a couple of places I mentioned, but at the same time, we are under pressure for those pieces, which are -- such as labor, for example, and some other equipment other than actual charger, where we continue to experience pressure from rising pricing environment.

kay. Embedded in your full year guidance, I'm curious where are you expecting LCFS credit to trend, I guess, in the second half of the year? What is the, I guess, expectation?

Yes. We expect them staying flat at what we traded the last time we traded at roughly $95 per credit, and so we expect that to stay flat through year-end. Well, that to be seen if that works out, we are -- we are exposed to volatility on LCFS.

Our next question comes from the line of Noel Parks with Tuohy.

Kind of couple of things I wanted to ask about. You were talking earlier about sort of your extensive testing program. I think you mentioned 250 chargers that you had tested. And I was just wondering for the expanding set of equipment vendors out there. I'm just wondering from your perspective, are product capabilities aligning pretty well with, I guess, both sort of what's most important to you guys on the demand side and also as far as pricing? Or just interested in how you see kind of the current and coming crops of devices out there?

Yes, I love this question. So one of the reasons we -- EVgo's innovation lab is just so important to success. And we make that available not only to all the OEMs, the car companies, but also to all the charging companies. So it ends up being in the central repository where we test all the chargers that are coming to the market. And we test them with all the cars that are either on the market or coming to the market. And it's a big giant like ecosystem party to make sure that it's all going well. I will tell you that every single brand new car that comes to market, like the automotive engineers are so excited about it, and they look really cool. But I would think our CTO, if you ask them on this call, but what percentage of cases does the car work with all the chargers right when it drives us to the lab, the very first time? And that's danger, 0. So that lab table is really, really important to getting the ecosystem working. And the main thing that is this ecosystem, that the car companies get it and the charging companies get it. We have -- when we selected a new supplier for our charging equipment, it goes through a rigorous process. First of all, they have to meet our specifications that we put out there in writing. And then they say, hey, yes, we meet this. And it's obviously economics that as well. Once they pass those hurdles, then we begin the testing procedures at our lab, which are the hardware, the firmware or the software and then testing it with lots of different vehicles that are available. So that's all to say we're very excited about the industry's capability to meet our exacting standards to be able to create great driver experiences, but that's a lot of hard work. It's our work, it's work that we're involved in, and we're partnering with both the vendors and the OEMs on and it's going to stand us all in good stead for the electrification of transportation in America so that we can create happy drivers.

Right. Right. Yes, so important for sort of adoption and acceptance going forward. I do just want to turn for a moment to the multifamily market. You mentioned the California award. And it does seem like one of the sleeping giants out there as far as the ultimate potential that everyone has a garage. And I'm just curious on -- is there any special characteristics to the contracts for that market you're devising? Or is it pretty similar to any commercial setting?

Yes. No, this is -- what's unusual about this is that -- look, 30% of Americans don't have access to home charge because they don't have a garage, they don't have a carport or something like that. So if you want the entire country to go electric as we do expect to happen over the next 10, 15, 20 years, then you're going to have to be able to have to provide access to the charger. The apartment dwellers, again, the rebuttable presumption has been that you've got to put L2 into these apartment buildings, right? Because people are going to be there all night. But what's innovative about this approach in California is like, actually, what if there were convenient fast charging and that people could just come and do 15 to 30 minutes at a shot, maybe that's even more convenient and more cost-effective than going in and trying to wire parking garages in apartment building. And so that's what's very, very exciting about this. So we are hopeful that we're going to be able to enable a new capacity for the apartment dwellers to conveniently charge near their homes quickly and we think that will work. So that's what that $3.6 million California grant is about. And I'm sure the rest of the country is going to be watching for the results of that as they think, too, about how are we going to make it easy for apartment dwellers to charge close to home. And we don't necessarily want to go into the basements or garages where -- or some of them don't even have garages, right? Which is another possibility, right? So we're excited about this. Good use of urban footprints to have fast charging rather than tying up full parking lot for overnight charging.

Our next question comes from the line of Oliver Hong with Tudor Pickering Holt.

Just a quick follow-up to the CapEx question from earlier. Beside to the ramp-up being a primary driver. Are there any details with respect to how much of the increase is due to increasing of charter output capacity size materially? Or any decreases to capital cost incentives or offsets and kind of compared to recent quarters?

So let me just clarify. There are no capital offset on that $44 million number. It's a pure CapEx. So it's the gross CapEx, all the capital offset stated in a different partner on the cash flow statement. So every time you'll see us reporting CapEx, that will be actual CapEx we put into the ground, so the amount of equipment and labor and whatnot. And so most of that ramp-up is just acceleration of speed at which we're constructing. And of course, we see a bit of an increase in the first stall CapEx, and it drives that a little bit. But if you really kind of dissect them between the price and quantity, you see quantities is an overwhelming factor, we are constructing at a much, much higher pace than we used to.

Okay. That's helpful. And for my second question, just with respect to OEM network revenue. I understand that this should really start to kick up in the back half of the year and into next year from your earlier comments. But anything incremental to provide there to help us better understand the trajectory of that specific line item on a go-forward basis? Just kind of give them the imminent timing of various EV models coming to market that you all have agreements with. And would this inflow be something that we should expect to be fairly lumpy?

So let me clarify some of the earlier comments. They were related to PFJ contract, which will be more [?] revenue or eXtend revenue reported separately and some of the fleet contracts, which will sit in the fleet revenue. We do not expect much of a ramp-up on OEM non-charging revenue that's amortization of Nissan and GM contract prepayments, and they happen in complicated accounting those, but those amortizations are tied to how many cars of those particular OEM's have on the road. And over time, they will ramp up, but we don't see much of a lumpiness this year. So for near term, you could just assume kind of a continuation of the trend you see now.

Our next question comes from the line of Maheep Mandloi with Credit Suisse.

Maybe quickly just on the charging volumes and throughput to see ramp embedded in Q3, Q4 here. Could you talk about that? Like what's driving that visibility? We saw 30% jump in Q2, sequentially, is that something we should expect for Q3, Q4 as well? And does it include any of the PFJ, kick of watt as well?

Could you just clarify which line item you are referring about? Sorry I misheard.

he throughput, the 50 to 60 gigawatt hours for the full year, kind of implies almost 19 gigawatt hours run rate in Q3 and Q4?

Yes. So the PFJ kilowatt hours won't be included in that. We expect some ramp up on both retail and fleet size that will drive the increase.

Got you. And then just the revenue here, like the somewhat flattish showing here quarter-over-quarter. Anything specific on that end? Like do we see a similar mix shift in the second half? Or what drove that flattish charging revenues?

Well, the charges revenues went 20% sequentially quarter-over-quarter, I wouldn't necessarily define it as flattish. Or maybe I did misunderstand your question because we definitely saw quite a bit of growth in our charging revenue in Q2 versus Q1?

No problem. I think I was probably looking at the round of $5 million just for the charging a... That's helpful that...

Yes, roughly $5.2 million in Q2 versus $4.3, $4.4 million in Q1. So we just see it close to 20% of the ramp-up.

Got you. And just last one for me on the regulatory credits. On the timing of the inventory sale I saw in Q2. Any reasons behind it? And do you have any more left in inventory now?

Yes. So we don't have any more left. So the reason wasn't we spoke about it a couple of times, but it's a complicated matter, very gladly will to raise that. So we switched in the beginning of this year, we switched to a third-party handling our LCFS trading and that allowed us to recognize the revenue from LCFS as it occurs versus 6 months left. So what we did previously, we would incur our kilowatt hours, get those sales credit and trade them 6 months after the event of generating those kilowatt hours as it occurs. So we switched to immediate generation. So for the first 6 months of this year, we recognize the revenue as it occurs. So there will be kilowatt hour generated on California network, translated into how many credits and we recognize revenue according to that. Plus we had 6 months' worth of credit of LCFS credits left from the old recognition method, and we just sold them in Q1 and Q2. And so that's a one-off event. Going forward, you will only see LCFS recognition, which is associated with kilowatt hour throughput in California, that particular quarter.

Got you. And just one last one from me. Just on the bit long-term supply arrangement. Could you just provide some more details around it? Or just help us understand what does it entail? Fixed pricing, duration or any color would be appreciated.

Sure. It mostly covers our PFJ deal for the first phase of this relationship and the deal does assume a fixed price and covers up to 1,000 chargers, Aka, 2,000 stalls, because the power share configurations. And the deal is set up until 2026. We will be working on other supply agreements, and we will update the market once that's possible, but that's the first in a row.

Our next question comes from the line of Craig Irwin with Roth Capital Partners.

So Kathy, I wanted to ask specifically about your mix of 50-kilowatt units on the network. So it's around 2/3 of the 2,400 units that you have out there. Is there any commitment to installing 50-kilowatt units going forward? And can you maybe talk about the budget to retrofit these to higher capacity units? What sort of plans do you have? What's the capability of retrofitting these units at the existing sites that you have out there? And is there anything else we should consider when we look at these lower power units?

Yes. Thanks, Craig. Look, the -- as I think I mentioned in our last call, our standard configuration now is 350, right? Because the market is moving is moving towards 350s, and we're staying ahead of the puck there. So we are putting in 350 everywhere. We have -- because we've been around for a dozen years. And again, when I got in the EVgo nearly 5 years ago, 50 kilowatts was considered fast charging. It is still fast compared to obviously a Level 2 and a lot of people use it. But we are moving ahead, we will only be putting in much higher power ultrafast chargers. With respect to the replacement, it's interesting in those old things when you would put in 150-kilowatt charger or 250 kilowatt chargers, you could do it without any sort of utility upgrade, any transformer upgrade. You often wore on the host meter because, again, there was excess capacity at that site level. So that made those projects in some ways easier to do without getting the utilities involved in a major way. What we are doing now is we're looking across our entire network at in the cases where we have 50, is it possible to upgrade them and upgrade them efficiently? Or is it actually more effective and more efficient to simply go and build more capacity in those areas. And that's something that our COO, Dennis is taking a good look at. We've got our program, which is the replacement program for old chargers where it's possible to do it. But if the replacement is going to involve lots and lots of utility upscaling and digging and everything else, and it maybe it just makes more sense to build more in a location with proximity. Because there are a number of people are still using the 50-kilowatt chargers with great delight and getting what they need. So look, we don't have a blanket sort of, we have guiding principles which are we're only installing higher power. We're upgrading, we're building really quickly. But we don't have a plan to retire those 50s because they're still providing great utility to a lot of these EV drivers across the country.

Okay. I mean just for the record, you have 125 out of your fleet of just around 2,400. 125 of those 350 kilowatt units. That compares to Electrify America just under 750. How long has this been a priority for you? Is this a priority that was established in the last year? Or is this something that is a building piece of momentum as far as the installs?

I'm not sure what are you asking specifically about what's been a priority?

Yes. So you have a much smaller proportion of your fleet in 350s, right, than your primary competitor out there. Your primary competitor has just under 750, 350-kilowatt fast chargers out there, you have 125. I'm just wondering sort of when the priority moved for EVgo to being committed to 350 kilowatt units, right? It's a very small piece of your fleet. And what portion of the pipeline or the capital budget out there is committed to 350? Is it everything? Is it 20%...

The pipeline going forward is 350. The pipeline going forward is 350, we have had -- since we've been in existence longer, we do have a number of -- we have 50, 150 that are on -- that are in our network. And we're building very quickly. So we are -- over time, we will have an increasing proportion in just doing the math of 350 is relative to the 50. So we are skating to where the puck is going to be, and we're completely committed to it.

There are no further questions in the queue. I'd like to hand the call back to management for closing remarks.

Thank you all and everyone for joining us today. Thanks for joining us, guys, and we're looking forward to keeping in touch. And if we don't speak before the next quarter, lots of progress ahead. Thank you...

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.