EVgo Inc. Q3 FY2021 Earnings Call

Greetings and welcome to the EVgo Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Just as a reminder, we have allotted one hour for this call. As a reminder, this conference is being recorded. I would now like to turn the call over to Ted Brooks, Vice President of Investor Relations. Thank you. You may begin.

Hi, everyone. Welcome to EVgo's Third Quarter earnings call. My name is Ted Brooks and I head up Investor Relations of the Company. Today's call is being webcast and the call and supporting materials 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 presentation 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 2021, followed by a Q&A session. During the call management will be making forward-looking statements regarding the 2021 fiscal year and our outlook for expected growth in 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; 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-K 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 financial measures to GAAP financial measures, and the investor presentation can be found on the investors section of our website. With that, I will turn the call over to Cathy Zoi, EVgo's CEO. Cathy.

Thanks Ted, and good morning everyone. EVgo continued to make great progress during the third quarter, which marked our first full quarter operating as a public company. With 130,000 EV sales in Q3, and now over 1.3 million EVs on U.S. roads, EVgo's operations in the third quarter demonstrated further progress towards an electrified transportation future. We celebrated the continuing growth of our customer base, with customer accounts ending the quarter at over 310,000, an 11% increase from just the last quarter. We generated our highest network throughput ever at 8 gigawatt hours, a 31% increase in network throughput, quarter-over-quarter, with retail and fleet both showing significant upticks. This, in turn, resulted in a 29% quarter-over-quarter revenue increase. EVgo's network performed well, delivering hundreds of thousands of charging sessions across 35 states and 68 metropolitan areas, with plenty of capacity on our current network footprint to accommodate expected traffic from 2022 EV sales. Set another way, EVgo's existing charger base can handle the throughput arising from expected near-term growth in EV sales, and we're expecting charging revenue to increase accordingly. Given that we're in the business of skating to where the pack is going to be, we're continuing to build charging stations in advance of the dozens of EV models hitting the market in 2023, '24 and beyond. During the third quarter, we ensured that every part of EVgo's station development pipeline expanded, agreements with new national and regional site hosts eager to participate in transportation electrification, dozens of local government authorities reviewing applications for fast-charging stations within their localities, working with major utilities and utility commissions toward new EV-friendly electricity tariffs, and engaging with government agencies launching new programs to provide financial support for charging infrastructure. Taken together, EVgo's engineering and construction pipeline grew to nearly 2,500 DCFC charging stalls, 400 more than when we last spoke with you just three months ago. In particular, the market appetite for hosting fast chargers is accelerating at an increasing clip. EVgo now has multiyear programs underway with national retailers like Target, Kroger, Whole Foods, Albertsons, and retail real estate leaders like Regency Centers, Kimco, and Brixmor. These are complemented by a plethora of site host agreements with regional and local retail brands, all of whom have joined and accelerated the transition to electrification. EVgo maintains our commitment to build stations in locations convenient to drivers in their everyday lives. Based on the increased appetite for EVgo charging stations across the board, and General Motors' sustained commitment to electrification, I am pleased to report that EVgo and GM have expanded our partnership. Together, we will be building an additional 500 high-powered fast charging stalls by 2025, taking the total in this program to 3,250. Geographically, this work with GM and others means that we expect EVgo's public charging network to span over 75 metro markets in at least 40 states by 2025. During the third quarter, we also focused on deepening our relationships with EV drivers themselves, launching new customer loyalty and pricing programs, as well as per transaction billing. Coupled with EVgo's existing reservations, coupon, and seamless parking garage access, these efforts aim to increase flexibility, incentivize charging at different times during the day, and enhance a world-class customer experience. Also during this quarter, EVgo's reach into the growing electrified fleet segment extended, tailoring our offerings to the particular needs of businesses that own and operate fleets. We introduced the EVgo Optima software products suite. The Optimus fleet management platform delivers highly efficient charging performance, co-optimizing costs, energy demand, and grid conditions in a manner that integrates fully with the charging needs of our fleet customers. To that end, EVgo's fleet business is growing with new agreements announced with General Motors, Merchants Fleet, and Electric Last-Mile Solutions. EVgo also signed a new agreement with Uber to extend and expand our relationship in helping drivers on the Uber platform go electric, building on our pilot work with Penske on the DCFC side. EVgo and Penske have a new order for high-powered level 2 chargers at Penske locations that is starting this quarter. EVgo has achieved these milestones despite some headwinds that continue to affect not just our nascent industry, but the whole global economy as workers everywhere face continued COVID restrictions and the uncertainties that come with it. So far in 2021, EVgo has seen that while the time it takes us to construct a station is 4 to 8 weeks, the average timetable for getting high-powered charging stations from concept to utility energization in dense retail parking lots can be 18 months or more. During Q3, we worked with our partners, including GM, to adjust charger build programs accordingly, including updating partnership agreements where that was required to reflect current market reality. We, of course, continue to engage with other members of the charging ecosystem; utilities, local permitting authorities, state funding agencies, and site hosts themselves through our 'Connect the Watts' program to create a more streamlined process for bringing chargers to life. You've heard me call it a flywheel, and we see evidence that it's starting to spin. EVgo witnessed a 50% increase in the number of permits granted in Q3 versus Q2. We logged a third consecutive quarter of exceeding quarterly targets for executed sites, recording in Q3 of beating our targets by 37%, and we met our full-year target one quarter early. We more than doubled the number of executed utility easements in Q3 versus the prior quarter. There is, of course, much more to be done as local permitting and utility easements remain bottlenecks in the fast charger build process. Overall momentum for electric vehicles and the decarbonization of transportation is undeniable though. Whether it is new EV purchases referenced above, the greater than 50% increase in 2027 EV penetration forecast made by leading market analysts in the last year, or OEM commitments ranging from Ford's plans to invest $11 billion in new EV and battery manufacturing facilities in the U.S. to Toyota's announcement to have a full battery electric vehicle on the market by next spring. GM's October Analyst Day focused on the centrality of the EV universe for its plans, with the continued support at a policy level that is playing out in the U.S. and elsewhere. On that last point, a quick update regarding the scale for the programs included in the infrastructure and Reconciliation Bill in Congress. The infrastructure bill passed late last week includes provisions allowing for up to $7.5 billion of new funding for electric vehicle charging infrastructure and additional potential opportunities on top of that. This new support represents a considerable increase in the financial commitment on the part of policymakers for the EV and EV charging industry, and the funds will likely flow through the States starting in late 2022 and on into 2023. Additionally, as significant as the infrastructure bill is, there is likely more to come. The Build Back Better Act reconciliation legislation includes an extension and expansion of the Section 30C Tax Credits supporting the build-out of EV infrastructure, as well as consumer tax credits for EV purchases, both new and used, delivering benefits to more U.S. drivers. EVgo strongly supports complementing infrastructure funding with consumer-side incentives for purchasing EVs, and we'll be monitoring closely in the coming weeks as the final terms of Build Back Better are hopefully agreed upon, and this passage of additional EV incentives reaches President Biden's desk. One final note on these pieces of legislation though, while we are enthusiastic about the additional tailwinds Build Back Better could provide to transportation electrification, EVgo's build program is and has been grounded in investing in charging assets that will deliver returns to our shareholders based on the market setting in place at the time we decide to make an investment in that charging station. Our multiyear forecast and plans were developed without reliance on pending or potential legislation. With the infrastructure bill now a reality, we will be working with policymakers on how the funding will be distributed over the coming months, and we'll update EVgo's business plans accordingly. We expect that this funding will facilitate more rapid expansion and increased upside for EVgo's growth, and I look forward to discussing this with you on future calls. With that, I'll turn the call over to Olga to provide our financial and operational updates, as well as our updated 2021 guidance.

Thank you, Cathy. I would like to start with a review of our acceleration in financial results for the quarter. Network throughput in the third quarter was 8.0 gigawatt hours, an increase of 31% from 6.1 gigawatt hours in the second quarter. This sequential increase in throughput was driven by new retail customers added to the EVgo network, as well as the ramp-up of activity on autonomous vehicle sites. I would like to add that EVgo's network throughput outpaced the growth in electric vehicles in the surrounding period by about 20 percentage points. More than 36,000 new customer accounts were added during the quarter, bringing total accounts to over 310,000 as a growing base of drivers continues to choose EVgo as a key EV charging provider. Tesla drivers represented roughly 16% of all new EVgo customers in the third quarter. Today, we estimate Tesla drivers account for approximately 5% of total EVgo retail throughput. We observed a 29% quarter-over-quarter revenue increase in the third quarter, reflecting ongoing EV adoption trends and continued improvement in economic activity. Retail charging revenue increased 28% in the quarter, while fleet charging revenue increased 26%, due to a ramp-up in activity on our dedicated autonomous vehicle fleet sites, as well as the growth of public fleet traffic from the continued recovery after many COVID-19 disruptions. The tailwind fleet revenues were up $101 and 64% year-over-year, respectively. Ancillary revenues increased 73% versus the prior quarter, predominantly driven by the inclusion of Recargo revenues following the close of our acquisition on July 9th. This quarter, we have changed the presentation of certain costs by reclassifying some of the items in cost of goods sold accounts to general administrative expenses. This reclassification is being done to more accurately reflect the cost of goods sold associated with providing charging and other services to our customers, thus offering investors a clearer view of profitability. Costs previously included in the cost of goods sold but now classified as general administrative expenses include network platform service fees, certain storage and freight costs, pre-operational costs and license fees, call center expenses, and certain costs related to field and customer operations. Cost of goods sold includes charges aside depreciation, and amortization expenses, direct energy expenses, maintenance, rent, property taxes, payment processing fees, and other non-charging network costs related to activities that support ancillary revenue. Our adjusted gross profit for the third quarter was $1.4 million, representing a 22.2% adjusted gross margin, up from $1 million and 21.4% respectively in the second quarter. The margin increase was mostly driven by the inclusion of higher-margin Recargo revenues following our acquisition completed in early July. Adjusted cost of goods sold totaled $4.8 million for the third quarter, up from $3.8 million for the second quarter, driven by higher overall energy costs due to higher network throughput, and non-energy costs due to increasing the number of charging stalls. As part of our ongoing process to help our investors understand the drivers for EVgo's financial results, I wanted to take a moment to describe the components of our revenue. Revenue breaks down into four sub-categories; charging, regulatory credits, ancillary, and network. Charging revenue comprises roughly 65% of our total revenue as of today. We further breakdown charging revenue into three categories; retail, fleet, and OEM. Retail charging revenue, which rose by 28% in the quarter, is driven by retail customers charging at public stations on EVgo's network and comprises of membership or subscription payments, as well as volumetric-based payments. This revenue stream is driven by adoption by regular commuters who choose EVgo as their charging provider. Fleet charging, which rose 26% quarter-over-quarter, is comprised of both public and dedicated fleet charging activities. Everything from rideshare drivers charging at lunchtime to autonomous vehicles charging in depots, which could be revenue linked to volumes, as well as take-or-pay type payments EVgo received for stall usage at dedicated fleet depots. OEM charging revenue is associated with prepaid charging credits that EVgo's OEM partners, such as General Motors or Nissan, award to their respective customers. OEMs prepay EVgo for such credits, and EVgo recognizes the revenue when OEM customers show up to charge. This revenue line is driven by some of our OEM agreements and the number of vehicles these OEMs sell into the market, which is expected to increase with the adoption of EVs. Regulatory credit revenue is the next important component of our revenue stream and comprises approximately 10% of our total revenue. This largely reflects the monetization of credits EVgo sells under the low carbon fuel standards. The LCFS program, which is the most mature and advanced in California, requires companies to adhere to carbon emission targets. Those exceeding the limits are obligated to purchase credits to remain compliant. The alignment between EVgo's business model and the fact that our network is 100% powered by renewable electricity means we generate LCFS credits that we then sell in the market. Given that pricing is determined by market conditions, we expect to experience volatility in realized prices and have averaged $0.20 to $0.24 per kilowatt-hour over the last several quarters. In addition to California, Oregon has introduced its own regulated carbon reduction program, with prices lower at approximately $0.08 per kilowatt-hour. The state of Washington has recently created a program as well, which should be operational by 2023. If EVgo were to see the adoption of LCFS-style programs in other states, such as New York, where it has been proposed, it would represent upside to our base case forecast. To date, the vast majority of regulatory revenue at EVgo has been derived from California's LCFS program. Next is ancillary revenue, comprising 15% to 20% of our total revenue, including maintenance services, project management revenue, technology-driven services, consumer retail revenues such as reservations and coupons, as well as advertising revenues. EVgo's ancillary revenues also include recently acquired Recargo. Lastly, network revenue comprises 5% to 10% of total revenue and is recognized in association with the services we provide to OEM partners connected to significant charger infrastructure build programs. Additionally, let's take a moment to walk through the main components of our adjusted cost of goods sold. Energy remains the largest piece at roughly 45% to 50%, while site rent, property taxes, maintenance, and payment processing fees collectively comprise another 45% to 50%. The remaining 5% reflects other non-charging network-related items such as engineering and development costs and hosting fees. At EVgo, we have an ongoing focus on optimizing our cost structure, and as part of this effort, we are working with our utility partners to reduce energy costs. In Arizona, Connecticut, Illinois, and California, where we serve, we have seen electricity rate changes equating to an approximate 20% reduction in future EV charging rates in those locations. Additionally, further rate proceedings are pending in Arizona, Ohio, and Massachusetts, providing the potential for meaningful future rate relief. While our current footprint in some of these locations has been small, improving cost structures will support growth and EVgo's capital commitments in those areas. Before moving to the 2021 guidance update, I would like to elaborate on the relationship between EVs on the road, EVgo network throughput, and associated revenues, and the number of stations in operation on our network. As mentioned earlier, we observed 31% growth in network throughput in the third quarter, driven by the rising number of EVs on the road and corresponding customers who charge at EVgo locations. EVgo has consistently focused on geographies with the highest EV adoption. For example, in Los Angeles, our home market, approximately 90% of EV owners live within 10 miles of an EVgo charger, and current utilization in Los Angeles is at 9% to 10%. Our analysis suggests that we could see or radically pause the development of new stations for the next 15 months and still see growth in both throughput and revenues in line with prior periods before expecting to see any negative impact from availability. At present, we see a very similar picture in all our other key markets. Network throughput growth is a function of more drivers adopting EVs and the prudent selection of charger locations that accommodate and encourage that adoption. The new stations being developed as part of EVgo's build programs, as Cathy described earlier, will satisfy demand arising from vehicle sales in 2023 and beyond. A key takeaway is that whether a brand new charging station is energized this quarter or 2 or 3 quarters from now, it will not have a material effect on EVgo's overall network throughput or revenues in the near term. We are increasing our expectations for revenue, network throughput, and adjusted EBITDA for the full year of 2021. Our updated expectations forecast $20 million to $22 million of revenue, 24 gigawatt to 26 gigawatt hours of network throughput, and -$54 million to -$58 million of adjusted EBITDA. The increases in our forecast for revenue and adjusted EBITDA are driven by higher than estimated throughput on our network. As for stall guidance for 2021, we're issuing our first formal guidance of 280 to 320 newly operational stalls for the full year of 2021. It takes 80 to 90 days for stalls to become operational once construction begins. This considers our construction timing plus utility energization. While variability in these external factors may contribute to short-term shifts in operational status, we believe it is helpful to provide context on the number of stations expected to be under construction as of year-end. In addition to stalls in operation, EVgo expects 220 to 260 stalls to be under construction at the end of 2021, resulting in a forecasted total of between 1,890 and 1,970 operational or under-construction stalls as of December 31st. A final point on the timing and content of future results: we expect to report fourth quarter and full-year 2021 results in mid-to-late March. At that time, we will initiate operational and financial guidance for 2022. With that, we will conclude our prepared remarks and turn the call over to the operator to take your questions. Thank you.

Thank you. We will now be conducting a question-and-answer session. One moment please while we poll for your questions. Our first questions come from the line of Craig Irwin with Roth Capital. Please proceed with your questions. Craig, could you please check if you're on mute?

Hi, thank you. Good morning and thanks for taking my questions. Cathy, I wanted to start off by asking about the expanded relationship with General Motors. You added 500 sites, a dozen new geographic markets. Can you maybe give us a little color on how this expansion to what was already a pretty substantial agreement started? Right? How did the conversation with GM evolve to say, let's do more, let's do it faster, and what does this mean really for the outcome or what we should be looking at as far as the partnership between General Motors and EVgo over the next couple of years?

Hey, thanks, Craig. Look at the expanded relationship between GM and EVgo that we just announced as a home run for both companies. There's a larger updated program to the 3,250 stalls, delivering a higher NPV to EVgo than the original program, of course, and more geographic reach and DCFC presence for GM in markets where they plan to sell EVs. It doesn’t require more GM capital to get that done. So how's it structured? What EVgo has done is we’ve traded early builds in 2021, which required actually more GM subsidy to pencil for charger builds in 2023 to 2025 that do not require that subsidy as a result of higher EV penetration in those later years. If you build later, the same $90 million can buy an extra 500 charging stalls, and so we’re delighted because we get to enter new markets and build charging infrastructure where we have all the revenue side exposure, once those are built, and GM gets excited about entering those new markets where they want to sell EVs. It’s a great win-win. I mean, our relationship just continues to strengthen.

Perfect, perfect. So then, I wanted to ask a little bit about the Engineering and Construction (E&C) pipeline; 2,500 units up about 400, I think since last quarter. That's fairly substantial growth. Can you talk about how you're feeding the front end of the pipeline? Do we expect this kind of growth to potentially continue over the next number of quarters?

Craig, it's funny; in the old days, we had to explain to site hosts not only what an EV charger was but also what an EV was. We're now seeing from site hosts, and I mentioned a bunch of national brands, but it’s also local and regional brands that are out there in a retail setting; they are really excited about getting EV charging built. Everyone across the country seems to feel that momentum. So our expectation is that pipeline is going to continue to grow. We are a great counterparty, so site hosts are excited about working with EVgo.

Amazing, amazing. And then the 8 gigawatts in the quarter, right? A 31% growth sequentially? That's a pretty chunky results. Obviously, it's been sort of the view on the top line and, I would say, the bottom line this quarter. As we look forward over the next few quarters, if we see this above trend growth, is there an opportunity to maybe build the network faster? I know you optimized for utilization in different locations and calibrated what different geographic markets can bear. I mean, is this something we should read through as an indicator that there is room to go faster?

Look, you rightly point out that we do calibrate, and we've got, as Olga and I both mentioned in our remarks, we’ve got headroom on the network to absorb much more throughput that’s coming in, with the expectation of the EV penetration that will come from the various new models that will show up in 2022. But overall, the business model, as I've said many times, can accordion up or down, but it can accordion up very quickly. So if we see, for example, EV incentives from the federal government and EV sales go faster than what the market analysts have predicted, EVgo can get out there and build in more places. For us, it’s still about financial discipline: where is EV charging infrastructure going to pencil well and deliver the returns that our shareholders expect? We can move up or down as we need to.

Great. Congratulations on solid results here. I'll hop back in the queue.

Thanks.

Thank you. Our next questions come from the line of Gabe Daoud with Cowen. Please proceed with your questions.

Thanks. Good morning, everyone. Thanks for the prepared remarks. Super helpful. Cathy, maybe could we just talk a little bit about just the revised guidance for the remainder of the year? If I look at the new throughput estimate, it kind of implies maybe a sequential decrease in throughput in Q4. Is that just general conservatism? Is there anything else I should be thinking about related to throughput for the rest of the year?

Gabe, I'm going to turn it over to Olga.

Sure. Thanks, Cathy. So Gabe, it is both. It is a bit of general conservatism, but also Q4 is traditionally affected by Thanksgiving and Christmas. People actually don't tend to drive much over those holidays. They stay back home and enjoy their family time and dinners, and I think that influences our general conservatism. We’ll see how people behave this year, just based on our observations from past years over Q4.

Got it. Thanks Olga, that's helpful. Maybe just following up on the policy side, you mentioned BIF and funds potentially flowing through late '22 early '23. Curious, Cathy, how you balance this with, I think in the past, you may have mentioned EVgo not really being a Highway Corridor Company, and I think BIF funding will first be allocated towards a Highway Corridor. So could you maybe just talk about how you balance those two and does build-out accelerate as a result of BIF to capture these awards?

Yeah. Well, so first principle for EVgo, we’ll invest in charging infrastructure that pencils for our shareholders. In the past quarters, it didn’t pencil, so we didn't see us going deep into quarters with widespread support and the magnitude of that support for quarters. We will take a look at that, and we’ll be working with policymakers to see how that funding flows. Additionally, I'm sure you've also read that in certain places where the quarters are covered, the States are going to say, okay, now we're also going to do metropolitan areas. So we are clearly working closely with policymakers on how these programs will unfold, and you can be sure that EVgo will be coming to the party wherever there's an opportunity for us to build charging infrastructure that delivers returns that our shareholders expect.

So thanks guys, that's helpful, and then one just last one for me, just on rate reform in several states on the utility side and further proceedings pending; could you talk a little more about this? How long is the relief or demand charge holiday in place for? Could you maybe also just talk on the cost side, potential impacts related to increasing commodity pricing and thus electricity pricing and what that means to your cost of energy?

Yes. Let me talk about it generally, and then I'll discuss some specifics. But the general answer to your question, Gabe, is it's very jurisdiction-specific. In some places, you might get a demand charge holiday; in other jurisdictions, we're seeing specific EV rates that are going to be in place for a long time. What we want, obviously, is to garner rates in the places that Olga mentioned, which are favorable for us to build more infrastructure. So it's very jurisdiction-specific; there are many pending changes, and it takes time to go through regulatory processes. Olga, on the commodity stuff?

Sure. On energy prices, we are not subject to short-term volatility or inflation pressures on those. We're utility CNI customers, so our tariffs are regulated, and they are fixed. Over the long term, if the utility environment changes, they will revise those tariffs, and we will be a party to that. But not in the short term; what’s happening right now will not affect us in the coming year, I would say.

Great, really helpful. Thanks, everyone.

Thanks, Gabe.

Thank you. Our next questions come from the line of James West with Evercore ISI. Please proceed with your questions.

Hey, good morning, everyone.

Hey, James.

Cathy, curious; you mentioned a little bit about corridors earlier, but the highway strategy here is, you guys are seen as rightfully so the leader in fast charging. A lot of the range anxiety that people face, myself included, I guess in that, is that I know I can find an EVgo charger in Los Angeles, at a Whole Foods or things like that. But I'm not convinced I can do that on the highway if I want to take a longer trip. And so I recognize there's a returns focus to the business, but there's also that chicken-and-egg situation of range anxiety. How are you guys thinking about building out fast charging and into the highway system? Is that something that maybe you would work on with the GM relationship? I guess your overall strategy there would be great to hear about.

Yeah, when every car in America is an EV, then the corridors will pump just like metropolitan areas, right? But we’re in this interim period. I think the policy support that’s coming for corridors is going to change that equation and expand the aperture through which EVgo can make money for its shareholders. So we're excited about those possibilities, yes, and GM is excited about those possibilities. We’ll just continue to watch this space, James, and we’ll keep you posted on our business opportunities. Again, but we’re not going to deviate from our financial discipline. There are quite a few opportunities to have others come to the party to create circumstances where we can invest in new places and new ways, whether it’s corridors, rural areas, or new states to deliver those returns.

Okay. That makes sense. And then again, I do like to return to focus. Trust me, I get that. The permitting side and the easement side, it sounds like there's some progress being made here to speed up some of the network development. Is that due to people becoming more comfortable? Is it standardization of the permitting process? What do you think is driving that whole improvement?

If I look first and foremost, I think it's experience; there are literally thousands of local governments that are now being asked, many for the first time, can you approve the first charging station? They say what? We've got one example in Ohio where the local council has considered it three times: what is this? Do we need to ask the landscape guy how good does the plants look okay around this thing? I mean, that’s quite an extreme example, but I liken it to the DMV. When you go to the DMV, eventually they’re going to renew your driver’s license; you’re just not sure how long it will take. This is what dealing with local government authorities is like. Some are going to move quickly, others are going to take longer. What we're doing at EVgo is we’re building that into our planning now, because we’d be dreaming if we thought everybody was going to move to that electronic yes. They’re all going to be individual. So the flywheel is spinning, the processing is happening, and our Connect the Watts initiative is just growing; we had these quarterly salons and people from all across the country come on and share best practices. For example, in our last one, the state of New Jersey passed an ordinance to streamline local permitting; that representative of their journey came onto our Connect the Watts call and shared that experience with others, and they were all like, “Oh, that’s interesting.” So that’s just one of the things we’re doing at EVgo to encourage the streamlining of the process.

Very helpful. Thanks, Cathy.

Pleasure.

Thank you. Our next questions come from the line of Ryan Greenwald with Bank of America. Please proceed with your questions.

Hey, good morning, everyone.

Hey, Ryan.

Good morning. In terms of the increase in revenue expectations and the widening of the top end to $22 million, I know in the initial projections that you guys laid out you were excluding any revenue associated with the OEM payments. Just wanted to clarify if this new range is inclusive of that contribution as you have a bit more visibility here, and how much of the full-year revenue increase is attributed to this and any contribution from Recargo.

Sure. We do not include additional contributions from OEM revenues in here. OEM revenues sit in our balance sheet as deferred revenue and will be amortized in due course. So that increase is definitely not associated with that. It has some of the Recargo revenue; we’re not disclosing how much, but our ancillary revenue went up by 73% this quarter versus last quarter, and it was mostly driven by the inclusion of Recargo, so you could probably infer from that.

Got it, that's helpful. And then in terms of the regulatory credit revenue, the increase was pretty modest quarter-over-quarter, despite the meaningful pickup in throughput. Any color you can provide just in terms of latest trends you're seeing in terms of LCFS pricing and any dynamics around the FCI credits?

Sure. Right now, we are recognizing the revenue two quarters after we generate kilowatt-hours associated with that revenue. So pretty much, the Q3 LCFS volume is associated with Q1, and Q2 is associated with Q4 2020. There was no meaningful pickup between Q1 and Q4 due to severe COVID restrictions back then, which greatly affected Q2. So that's what you see in the Q2 to Q3 dynamics. On the bright end, we traded our Q3 volumes at $180 per credit. Right now, we're in a bit of a price compression environment, so we will probably see our Q4 volumes traded at lower than that. We don’t know that yet, and on FCI Credits, they are essentially the same as LCFS, so they get bundled together and traded in the same way; hence, they are subject to all the same pricing volatility increases or decreases.

Got it. Thank you for that. And then maybe just lastly, it looks like you guys are implying a year-end charger count closer to 1,700 versus the 2,200 plus that you guys laid out there in your initial projections. Appreciate the fact that you expect another 200 plus to be under construction, but could you just provide a bit more color in terms of how you're thinking about the impact into '22? I know there are a bunch of puts and takes here, but specifically around the delay in deployments relative to what you previously outlined?

Yeah. I just think what we've talked about, the flywheel and the pain points that are taking a long time. The permitting we’ve discussed, per James's question, and the utility easement process, is taking a bit longer. When our standard is that we’re going to market with typically a 350-kilowatt charging configuration, that almost always requires a service upgrade from the utility. If it requires a service upgrade, it takes more on the utility engineering side. Plus, if you have a service upgrade, it usually requires an easement or some sort of access agreement between the landlord and the utility itself. That just adds more time to the process. So that’s what we’re witnessing in terms of the timing of the chargers being installed. It’s not a question of, if; it’s more a question of how long it will take to get these things deployed. We’re not in any way concerned about it; we’re just being pragmatic and realistic about the time it will take.

In terms of financial impact, anything again to consider there?

I think what we’ve tried to explain is that what we're building right now is for future EV sales that will likely take place in '23, '24. So we've got a bunch of headroom on our current network to handle all of the EV sales that are coming. Whether we turn on 100 new chargers this quarter, next quarter, or even midway through 2022 is not going to impact revenues in any way.

Great. I'll leave it there. Thanks for the time.

Thank you. Our next questions come from the line of Maheep Mandloi with Credit Suisse. Please proceed with your question.

Good morning. Thanks for taking my questions. Just a quick follow-up on the previous question. If you can quantify how many of these stalls under construction are at existing sites versus new sites?

The vast majority of construction is at new sites. Go ahead, Olga.

I was about to say the exact same thing you have just answered.

Got you. And just a follow-up on that, I think Olga you mentioned the new chargers are not covering much of the 2022 revenues. So could you just remind us why that is? Why are you seeing a slower ramp here on new locations, and if the overall news flow around EVs and EV chargers is changing, any of that ramp-up for existing or new sites?

Yeah. Let me start, and then I'll toss it to Olga. So I wouldn't call it a slower ramp. I’d say it's a longer timetable to get things energized. For example, at the end of our end-of-quarter call with GM in Q3, we had built a whole bunch of stalls; dozens of them were finished, beautiful pictures. They were sitting there in the parking lot, but the utility hadn't come to do the final inspection and energization. I mean, literally dozens of them. So that’s a common practice that’s outside of our control. So Olga, over to you.

Yes, sure. On the ramp-up, when we say that new stalls don’t necessarily cover revenues, what we're saying is they don't necessarily create additional traffic right away. So if we opened, magically, 10,000 new stalls in Los Angeles, for example, you wouldn’t necessarily see the equivalent increase in traffic overnight, just because the number of cars in Los Angeles hasn't increased. When we open new stations, we see new customers and old customers redistributing, and people might prefer to use a new station over one they have been using before because it's closer or more convenient. So traffic tends to redistribute itself, and then this capacity gets filled as more cars come into the market.

Thank you. Our next questions come from the line of Jon Lopez with Vertical Group. Please proceed with your questions.

Hey, thanks so much. I had two, if I could. The first one, I just wanted to come back to the throughput question from a bit earlier. I apologize, but a year ago your throughput actually increased between calendar Q3 and calendar Q4. Why was that and what would make it different this year versus last?

So last year wasn't necessarily a reference case because the increases could have been attributed to COVID restrictions easing in Q4 in California, where, let’s not forget, 70 to 75% of all business happens. From my memory, the vast majority of Q4 was positively influenced as restaurants opened, and people started getting out on the streets. Then at the end of Q4 and beginning of Q1, they again introduced new restrictions due to a new wave of COVID. So I wouldn't necessarily look at 2020 and infer any normal patterns from that because COVID heavily affected it.

Got you. Okay. That helps. Thanks. And the second one, I wanted to come back to the GM commentary, and I apologize; I might not have caught all this, but I thought I heard you say that you're effectively trading off some higher-cost near-term units for some lower-cost units longer-term. Did I hear that right? Could you just tick through that; assuming I did hear right, what changes in the cost profile? Is the dollar value of that engagement actually different or the same dollar value but just a higher number of chargers?

Yeah, Jon, you didn’t quite hear right. Remember the principles of EVgo: we will invest in charging stations where it pencils, one of the key inputs being what’s the utilization on that station going to be? When you're building stations where, in the earlier years, when there are fewer EVs on the road, it takes more money from someone else to build them. So if you're building in 2021, the subsidy required by GM is higher. If you build in 2023, where EV penetration has increased, the required subsidy to make a charger pencil is much lower. So for the same $90 million of GM contribution, we've been able to build 500 extra charging stalls in the latter years of the build program, thus increasing the overall NPV.

That really helps Cathy, but sorry, is the total dollar commitment between the two of you unchanged, and the charger count higher?

Yes.

Okay. Got it. All right, thanks. Appreciate it.

Thank you. Our next questions come from the line of Stan Shpetner with Pickering Energy Partners. Please proceed with your questions.

Hi, thanks for taking my question. On fleet sales, as you continue to pivot towards fleet over time, do you maintain your long-term target to get fleet throughput to be about 2/3 of your total throughput? And as that trend continues, do you expect to see revenue growth sequentially to moderately lag the rate of your throughput growth?

Olga, do you want to take this one?

Sure. Not necessarily in the long run; in the short run, you might see those fluctuations, which could go both ways. You might see revenue growing quicker than throughput when we open new dedicated locations that start paying us immediately for all the stores open, but it takes our partners time to ramp up capacity. So if you look at quarterly developments in the next couple of years, you might see revenue growing but throughput not, or vice versa. In the long term, they should go hand-in-hand; we don’t foresee much overlap if you really take a step back and look at it multi-year.

So if you think about pricing terms then, isn't your fleet pricing somewhat of a discount to what you're charging on a retail level? And so that would have some impact on average pricing in a going forward basis?

If you look at the business overall, yes, that will have that effect. If you just take overall kilowatt-hour throughput versus overall revenue, because the per kilowatt-hour price for fleet is lower, you'll notice that's a fact. If you look at it in detail, you’ll probably see a much even development between the revenue and throughput.

Just one follow-on. As you think about being able to integrate additional services and related revenues with fleet customers on a medium- to long-term basis, how do you think about the margin profile of fleet revenues versus your retail business in comparison?

That’s an interesting question; our fleet business has two distinct parts: public and dedicated. Public is when we can give access to our fleet partners, and the cars come on our network; we provide volumetric discounts, so on a per kilowatt-hour basis, we make less margin, but volumes definitely make up for it, as they drive a lot. On a dedicated station, it’s a very different business model; we don’t take much risk on the throughput, and we charge a dedicated price for every stall our partners are using, which has very high margins and also strong downside protection. Overall, I think the margin profiles of the two businesses are similar when you look at the mix; however, if you look at only dedicated fleet business, it's a very advantageous business from a margin perspective.

Great. Thanks very much.

Thank you. That is all the time we have for the question-and-answer portion of today's call. We appreciate your participation. This does conclude today's teleconference. You may disconnect your lines at this time, and have a great day.

Thank you.

Thank you.