EVgo Inc. Q4 FY2023 Earnings Call

Good morning. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the EVgo's Fourth Quarter and Full-Year 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. Heather Davis, Vice President of Investor Relations at EVgo, you may begin your conference.

Good morning, and welcome to EVgo's fourth quarter and full-year 2023 earnings call. My name is Heather Davis, and I'm the Vice President of Investor Relations at EVgo. Joining me on today's call are Badar Khan, EVgo's Chief Executive Officer, and Olga Shevorenkova, EVgo's Chief Financial Officer. Today, we will be discussing EVgo's fourth quarter 2023 financial results and outlook for 2024, followed by a Q&A session. Today's call is being webcast and can be accessed on the Investors section of our website at investors.evgo.com. The call will be archived and available there along with the company's earnings release and investor presentation after the conclusion of this call. During the call, management will be making forward-looking statements that are subject to risks and uncertainties, including expectations about future performance. Factors that could cause actual results to differ materially from our expectations are detailed in our SEC filings, including in the Risk Factors section of our most recent annual report on Form 10-K and quarterly report on Form 10-Q. The company's SEC filings are available on the Investors section of our website. These forward-looking statements apply as of today, and we undertake no obligation to update these statements after the call. Also, please note that we will be referring to certain non-GAAP financial measures on this call. Information about these non-GAAP measures, including a reconciliation to the corresponding GAAP measures, can be found in the earnings materials available on the Investors section of our website. With that, I'll turn the call over to Badar Khan, EVgo's CEO.

Good morning, everyone, and thank you for joining us today. EVgo posted yet another great quarter and set of results in the full year. But before we dive into those details, since this is my first call as EVgo's CEO, I thought it worth taking a moment to remind everyone of the incredible and important journey we are on. Emissions from transportation represent the largest source of emissions in the United States, and that is why the work we do is so important. At EVgo, our mission is to accelerate the mass adoption of electric vehicles by creating a convenient, reliable, and affordable EV charging network that delivers fast charging for everyone. I believe EVgo represents a compelling value proposition for investors, not just because of where the company is currently trading. An investment in EVgo is clearly an investment in sustainability, but it is also an investment in a market that has a multi-decade growth trajectory without the need to pick one EV manufacturer over another. Our business model is also focused on the highest growth segment of the charging market, DC fast charging, a fact seen from the data today. We like our core business of owning and operating the charging network. We generate revenue every time a customer charges on our network, unlike a one-time equipment sale. As we continue to see, our revenue is growing faster than the growth of EVs. From customer capture through design development and construction to products and services that build customer loyalty, we have a growth engine that leverages key partner and OEM relationships across this entire cycle and is hard to replicate. Financial discipline is key throughout our business, from the proprietary network-planning model to determine where to locate our charging stations to the disciplined investment decision-making processes designed to ensure we generate double-digit returns and minimize reliance on shareholder capital. For over a decade, EVgo has built a growth engine that is benefiting from this megatrend towards electric vehicles and has delivered a near trebling of throughput and revenue for each of the past two years and is adding NPV at scale annually. And as you'll hear today, we have a clear path to adjusted EBITDA breakeven in 2025. We passed an important inflection point in 2023 as a result of the utilization and throughput levels we're now seeing across our network. The installed base is now profitable on a standalone basis. It's truly an exciting time at EVgo to be leading the company in the next phase of profitable growth. We had a great fourth quarter in 2023, and for the full year, we delivered record levels of throughput and revenue, nearly trebling year-over-year. On our Q3 call, we raised revenue guidance, and I'm very pleased to say we came in above the top end of that raised guidance at $161 million in revenue. Operationally, we had another strong year of customer account growth and growth in our network in both stalls and throughput. EVgo's path to profitability comes from strong top-line revenue growth, but also from operating leverage driving gross margin expansion. On our Q3 call, we also provided improved adjusted EBITDA guidance for the full year. So I'm also very pleased to say that we came in above the top end of that raised guidance at negative $58.8 million. As a reminder, EVgo currently has three main sources of revenue. Revenues associated with owning and operating our growing network of DC fast chargers, revenues from our capital-light eXtend business that complements our core business, with chargers owned by site hosts customers, and ancillary and tech-enabled services like our PlugShare business and fleet-focused business models. As we said in our preliminary results in mid-January, we plan to focus our growth efforts in the near-term on our core owned and operated business given that this business is most leveraged to EV adoption, is experiencing strong revenue and throughput growth, and is expected to generate the highest returns. As a result, we're targeting this to become the majority of our business. As you know, EVgo's almost 3,000 operational stalls span most of the country with stalls in over 35 states across over 50 national and regional strategic site hosts, and today, over 145 million Americans live within 10 miles of an EVgo charger. Across our site host partners, we've identified over 100,000 potential stalls for EVgo to build, which shows how far we can go, but also that we have plenty of opportunities to select some of the best sites. Two years ago, around one-third of our network throughput was outside California. By the end of 2023, that's grown to around half. In fact, Texas and Florida are two of our fastest-growing states in terms of throughput, proving that the growth of electric vehicles is occurring in both red states and blue. In 2021, consumers had approximately 31 EV models to choose from. Today, there are now more than 70 models with many more on the way from the OEMs. These models are not only becoming more affordable, but they are increasingly addressing all vehicle segments and their technology is improving. From EVgo's inception, we've made it a priority to serve all EVs, enabled by our innovation lab in LA, where we work collaboratively with OEMs to ensure interoperability between all EV models and our chargers. EVgo's commitment to serve all EVs includes adding NACS connectors to our network. For over a decade, the EVgo team has built and refined the growth engine that is now humming. From a proprietary process of determining whether and where to build, to construction, grant capture, customer acquisition, to ongoing maintenance, we are adding net present value every year. Foundational to this growth engine are the many years of experience we have in securing our supply chain, marquee site host relationships, excellent relationships and advocacy efforts with governments and utilities, an innovative tech platform, and our sizable OEM partnerships. When put together, this is difficult to replicate at this scale and with the customer experience we now offer, and reinforces our competitive advantage. There are several drivers underpinning the growth of transport electrification, although I recognize there may be speed bumps along the way. Despite some OEMs pulling back from their extraordinary ambitions over the past couple of years, commitments from OEMs towards investing in electric vehicles still represent over $400 billion. Fourteen states, representing over a third of the U.S. population, have adopted Advanced Clean Cars II, the regulation from the California Air Resources Board that phases out the sale of new ICE vehicles in favor of a 100% zero-emission future for new zero-emission vehicle sales. Rideshare companies have committed to an all-electric future with Uber setting the goal of having 100% of their rides in EVs in the U.S. by 2030. This is parallel to efforts of cities such as New York City, where Mayor Eric Adams signed the green rides rule, where all rideshare vehicles that operate in the city must be electric by 2030. Across the U.S., we see strong consumer preferences for EVs today, which we expect to gain momentum as the average price of battery electric vehicles becomes closer to and eventually becomes cheaper than ICE vehicles, with more new models being brought out every few months. Two years ago, the average BEV was around a third more expensive than the average ICE vehicle. Today, it is almost at parity without incentives according to Cox Automotive. Battery electric vehicle sales continue to grow year-over-year, and sales of non-Tesla vehicles, which are the majority of vehicles charging on EVgo's network, grew by 66% year-over-year and now represent approximately half of all 2023 battery electric vehicle sales, up from about a third in 2022. While there may be some uncertainty over the growth of EVs in the near term, estimates for 2030 remain very significant, implying CAGRs of 37% to 42% through that year. There are few industries in the world with this kind of growth rate underpinning the investment case. EVgo focuses on DC fast charging versus L2 charging. With DC fast charging, depending on the vehicle, it's possible to charge 100 miles in less than 10 minutes. These stalls are in premium convenient locations where people are going about their lives. Our core business generates revenue from the sale of electricity through these well-located stalls. In other words, we would continue to generate revenue even if there were no more new EV stalls. Because of decreasing vehicle efficiency due to larger EVs, we expect to see a higher growth rate of electricity consumption to power those vehicles. Therefore, we estimate the total addressable market or TAM is growing at a CAGR of up to 46% through 2030. Finally, DC fast charging share of the electricity consumption is expected to grow considerably over the next several years with an even higher CAGR of up to 60%, resulting in a $12 billion to $15 billion annual serviceable addressable market or SAM by 2030. That assumes a penetration of only up to 15%, implying decades of further growth. The growth of DC fast charging is not some hypothesis for a future yet to emerge. We believe that early adopters of EVs had access to at-home charging. As the market moves towards mass adoption, more buyers live in multifamily housing. We know from a study from UCLA that multifamily residents are more likely to rely on public fast charging for their needs. In just two years, the percentage of multifamily dwellers buying EVs has risen to 31%, up 10 points. The percentage of DC fast charging is growing as this transition unfolds. In California, over the last 2.5 years, we estimate that fast charging already accounts for over a quarter of all charging needs for EV drivers, up from an estimated 5% to 10% in 2021, and we expect this growth will continue over time. The second driver for the growth of DC fast charging is the growing number of rideshare drivers that drive EVs. The average rideshare driver goes three to four times more distance than the average commuter, who is more likely to live in multifamily housing and is more likely to not want to use valuable time during the day to charge their vehicle and is therefore very reliant on DC fast charging. This segment of drivers is growing very fast. Evaluating our usage on the EVgo network, rideshare drivers on average charge five times more than our average retail customer. As more rideshare drivers make the shift to electric, the amount of electricity dispensed to this group of customers has increased to 25% in the fourth quarter of this year, up from 11% in Q1 ‘21. One of EVgo's sources of competitive advantage, honed from over a decade of doing this, is a proprietary, sophisticated network planning process that informs where we locate our chargers. We ingest an enormous amount of data from EV adoption rates, forecast sales to density of multifamily housing, rideshare volumes, electricity costs, demand charges, and availability of grants, all at a census block level, which then tells us where to place chargers, how many, and at what pace within specific geographic bubbles that are projected to generate double-digit returns. We then turn to our extensive site partners to determine which of our partners' sites are best placed to build a site. The model is iterated continuously, comparing actuals with forecasts to improve the network planning process. You can see this financial discipline in the way we deploy capital, where we seek to minimize the amount of capital we deploy with offsets coming from a range of sources, including OEM payments and grants. As we discussed before, we receive approximately $33,000 per stall built under our partnership with GM, which is typically received within a couple of months of stalls going operational. We have over a decade of experience in successfully identifying, applying for, and securing grants at the federal, state, and local levels. The federal government has two primary programs to incentivize charging infrastructure: the expansion and extension of 30C, the alternative refueling property tax credit from the Inflation Reduction Act, and the NEVI program, with up to $7.5 billion of formula funding from the bipartisan infrastructure law. In January this year, the IRS clarified rules about 30C eligibility, essentially resulting in more sites being eligible for funding than we had previously expected. As a result, we now expect around 50% of our network plan to be eligible to receive 30C funding. Finally, EVgo and our partners through our eXtend business continue to win NEVI funding for highway sites. However, given our strategy is focused on higher density urban locations, our network plan is not dependent on NEVI funding as these sites are immaterial to our plan over the next couple of years. As a reminder, these diverse sources of funding can typically be stacked. In some cases, the funding stack may cover the vast majority of CapEx at a particular site. For sites that are expected to go operational in 2024, these offsets are expected to represent around 40% of the capital required for our owned and operated sites. EVgo's digital-first approach offers customers and partners alike a variety of offerings driving value. We've worked tirelessly to improve the customer experience, and a lot of that is driven through software. For example, Autocharge Plus, a seamless plug-and-charge experience, gets rave reviews from EV drivers, as do reservations. EVgo offers flexible pricing models with location-based, time-of-use, subscription, rideshare, and pay-as-you-go models available for drivers to choose what serves their needs best while optimizing profitability for EVgo. One of EVgo's core priorities is to offer a best-in-class customer experience. We know that there are four things that customers value the most. First, having lots of stalls at a site so they never have to wait for a charge; second, having high-powered chargers available so they can fuel up quickly; third, having reliable solutions that work right on the first try; and fourth, a hassle-free payment process. On each of these dimensions, EVgo has made great progress over the course of 2023. Across our over 950 locations, we nearly doubled the number of sites that have at least six stalls, and we're now targeting a minimum station size of six stalls per site, aiming for eight to ten if the site host has space. Across our nearly 3,000 stall network, we have more than doubled the number of stalls served by a 350-kilowatt charger. Rather than an asset-based reliability measure, we track what we call one and done, an internal but more customer-oriented metric that measures the percentage of time a customer has a successful charging experience within a reasonable time window on their first try. During 2023, our one and done rate increased over 600 basis points to 91%. Finally, we know that a key frustration for customers during the charging process is payment. As a result, we developed our Autocharge Plus feature, which allows drivers to just plug in and charge automatically without having to perform any additional steps. It makes charging easier and faster. During 2023, we nearly doubled the percentage of sessions using Autocharge Plus, which now has over 50 vehicle models eligible for it. This customer-centric model combined with our disciplined investment in building a world-class fast charging network is why I am so excited about our electric future. I'll now turn the call over to Olga, who will go through our financial performance for the fourth quarter and full-year 2023, as well as our initial outlook on 2024.

Thank you, Badar. EVgo ended 2023 with yet another strong quarter, mostly driven by the continued growth of our owned and operated charging network. Revenue in the fourth quarter was $50 million, which represents an 83% year-over-year increase. This growth was primarily driven by increased charging revenues. Retail charging revenue grew from $5.8 million in the fourth quarter of 2022 to $16.7 million in the fourth quarter of 2023, exhibiting a 186% year-over-year increase. Commercial charging revenue grew from $1.3 million in the fourth quarter of 2022 to $6.3 million in the fourth quarter of 2023, exhibiting a 378% year-over-year increase. eXtend revenue grew from $16.7 million in the fourth quarter of 2022 to $18.3 million in the fourth quarter of 2023, exhibiting a 10% year-over-year increase. We added over 930 new operational stalls to our owned and operated network during 2023, accelerating off the 670 new stalls we added in 2022. Sold and operational under construction inclusive of $196 sold was 3,550 as of December 31, 2023. During 2023, EVgo added over 866,000 new customer accounts, which represents the majority of all non-Tesla EV sales in 2023. EVgo ended 2023 with more than 884,000 customer accounts, a 60% increase over year-end 2022. EVgo's network throughput continues to accelerate in the fourth quarter, growing faster than EV VIO growth over the same time period. As Badar discussed earlier, EVgo is focused on the fastest growing segment of the charging market, DC fast charging, and it can clearly be seen in our numbers. This accelerated growth is driven by a number of factors, including EV buyers moving from early to mass adopters with a higher portion of multi-unit dwellers and the rapid growth in rideshare, as well as EV vehicle miles traveled finally catching up to those of ICE, increasing EV charge rates or how much electricity is delivered over the time period to a vehicle, and heavy, less efficient EV models. Utilization was over 19% across the network in December. Over 55% of our stalls had utilizations greater than 15% in December 2023, and over 40% of our stalls had utilizations greater than 20% in December 2023. Another way to look at stall level performance is to look at daily throughput per stall. There are two factors that drive this metric, time-based utilization and charge rate. As a reminder, charge rate depends on the car's battery but can be limited by some legacy fast chargers whose max capacity is lower than a specific car's charge rate. We expect average charge rates on our network to increase over time, driven by newer cars with bigger batteries and a higher mix of ultra-fast DCFC chargers on our network. Average daily throughput per stall was 200 kilowatt-hour in December 2023, up from 51 kilowatt-hour in December 2021, representing a 4x increase. Utilization grew around 3x over the same time period, demonstrating the impact of increasing charge rates on throughput per stall. Looking back two years ago, only 2% of our stalls were delivering 200 kilowatt-hours or more per day. As of Q4 2023, that number has increased to 42%. And on the lower end, three years ago, 60% of stalls were delivering less than 50 kilowatt-hours a day. Today, that number has shrunk to 16%. EVgo continues to realize operating leverage on its path to profitability. In the fourth quarter of 2023, we doubled our revenue while tripling our adjusted gross profit versus the fourth quarter of 2022. Adjusted G&A as a percentage of revenue decreased from 92% to 54% over the same time period. These improvements are driven by first, leverage within cost of goods sold and second, leverage within SG&A. Let us unpack both. For every stall we deploy, there is an amount of fixed or stall-dependent costs associated with it, including property taxes, rent, base maintenance, and demand charges. For every additional kilowatt-hour of throughput, these costs remain fixed per stall. Therefore, lowering stall-dependent costs as a percentage of revenue drives adjusted gross margin up. To help you model operating leverage in our core business, we have broken our adjusted cost of sales into two categories: charging network cost of sales and other cost of sales. Charging network cost of sales include all costs associated with running our core owned and operated charging network, whereas other cost of sales include costs of goods sold associated with our eXtend and ancillary business lines. Within charging network cost of sales, approximately 40% of costs are stall-dependent, in other words, fixed per stall. The other 60% of charging network cost of sales is throughput-dependent and includes volumetric energy costs and credit card processing fees. The increase in daily throughput per stall you saw on the prior slide was primarily behind the adjusted gross margin expansion from 18.3% in the fourth quarter last year to 26.5% in the fourth quarter of this year. We also have operating leverage in G&A. Adjusted general administrative expenses at EVgo can be broken down into two categories. First, the cost to sustain the existing charging network and other existing businesses such as call center, third-party IT, account management, marketing, sustainment, software, and hardware expenses. These costs represent roughly 30% of total adjusted G&A. Second, the cost to support growth of the charging network and other business lines, our so-called growth engine, which I have spoken at length about. These costs represent another roughly 30% of adjusted G&A. Finally, corporate overhead costs represent roughly 40% of total adjusted G&A. Gross costs are tied to the size of the growth engine and corporate costs are fairly fixed at this point. As a result, adjusted G&A has increased only 9% year-over-year, while, as mentioned earlier, revenue tripled, fully demonstrating the operating leverage within G&A. Both of those effects coupled with the increased scale of the charging network and other business lines have put us on a clear path to reach adjusted EBITDA breakeven. Importantly, we have passed an important inflection point in 2023, in that as a result of the utilization and throughput levels, we're now seeing across our network, the installed base is now profitable on a standalone basis. Adjusted gross profit was $13.3 million in the fourth quarter of 2023, up from $5 million in the fourth quarter of 2022. Adjusted EBITDA was negative $14 million in the fourth quarter of 2023, an improvement versus negative $20.1 million in the fourth quarter of 2022. Cash used in operations was $7.3 million in the fourth quarter. We added over 200 new stalls to our owned and operated network during the fourth quarter. Capital expenditures were $34.8 million in the fourth quarter. This includes expansion CapEx, renew CapEx, as well as capitalized engineering and construction and tech development costs. We are now reporting capital expenditures net of capital offsets, where capital offsets represent cash collected from various funding sources in a particular period. Specifically, in the fourth quarter of 2023, we collected $5.7 million in OEM infrastructure payments, all payments under the GM contract, and $7.4 million as proceeds from capital build fundings. All cash collected as part of various grants and incentive programs secured over prior periods. Thus, bringing capital expenditure net of capital offsets to $21.8 million for the quarter. For the full year 2023, total revenue was $161 million, nearly tripling compared to 2022. Revenue growth was primarily driven by charging revenue and EVgo eXtend. Retail charging revenue was $45.7 million, an increase of 142% compared to 2022. Commercial charging revenue was $14.5 million, an increase of 331% compared to 2022. eXtend revenue was $72.4 million, an increase of 292% compared to 2022. Adjusted gross profit was $41.8 million in 2023, up from $13.3 million in 2022. Adjusted gross margin was 26% for the full year 2023, up from 24.3% in 2022. This increase was driven by the operating leverage as discussed earlier. Greater leverage effects are observable when comparing adjusted gross margin in the fourth quarter of ‘23 to the fourth quarter of ‘22 versus comparing full year results. This is driven by accelerated LCFS revenue recognition in the first half of 2022, which drove margins higher in that time period. Adjusted G&A as a percentage of revenue improved significantly from 171.2% in 2022 to 62.5% in 2023, demonstrating the same leverage effect when looking at fourth quarter-to-fourth quarter numbers. Adjusted EBITDA loss improved by $21 million in 2023 to a loss of $58.8 million versus a loss of $80.2 million in 2022. Cash, cash equivalents, and restricted cash were $209 million as of December 31, 2023. Cash used in operations was $37.1 million for the year compared to $58.8 million in 2022, clearly demonstrating our focus on reducing the operational cash burn and setting EVgo on a clear path to profitability. In 2023, total CapEx was $158.9 million, and capital expenditures net of capital offsets were $122.8 million. The vast majority of the $159 million in CapEx was spent to grow our owned and operated network. Now turning to 2024 guidance. EVgo currently expects full-year 2024 revenue to be in the range of $220 million to $270 million and adjusted EBITDA to be in the range of negative $48 million to negative $30 million. Our guidance is informed by several scenarios, which account for a range of EV sales in 2024, utilization trends, and the pace of execution under our contract with the pilot company. We expect PFJ revenue to be roughly 35% of total revenue in 2024 when looking at the midpoint guidance range. We also expect PFJ revenue to be more or less equally distributed through the four quarters, with Q4 being slightly heavier than others. Charging network revenue is expected to grow sequentially throughout the year, driven by increasing VIO consistent with prior years. We also would like to add some color on our capital expenditures. Our current deployment plan is for 800 to 900 new EVgo-owned stalls, expected to be put in operation in 2024, with an average CapEx per stall of $160,000 before offsets. We expect capital expenditures net of capital offsets to be in the $95 million to $110 million range. As we have discussed at length, EVgo is on a clear path to an important inflection point of our business, hitting adjusted EBITDA breakeven. EVgo expects to be adjusted EBITDA breakeven for the full year of 2025. This is based on the expectation that EV VIO will continue to grow and that EVgo will continue to expand its network and realize operational efficiencies. EVgo ended ‘23 with $209 million in cash, cash equivalents, and restricted cash. Our current operational and network expansion plans give us runway through a good portion of 2025. EVgo is actively evaluating a number of non-dilutive sources of financing to fund the business beyond that point from both private and public sources, including the DOE Loan Programs Office. On the latter, EVgo has put together a high-quality DOE loan application that addresses the need for more public charging infrastructure to be judiciously built out at scale across the U.S. EVgo is a credible and sophisticated operator with over a decade plus track record focused on reliability and customer experience. We look forward to sharing our progress in 2024 with you throughout the year.

Your first question today comes from the line of Gabe Daoud from TD Cowen.

Maybe wanted to start with Olga, what you wrapped up with the 2024 capital offsets. I'm just looking at rough math, 900 stalls at $160,000 per stall, call it, over $140 million of capital. So I guess the offset would be around $30 million to $50 million or so. Could you maybe give a bit more detail on where all of that is coming from?

Let me kind of remind the timeline and component of all of this, and then I'll answer your question. When we talk about CapEx spend in a particular year, it's not necessarily spent on the chargers, which go operational that particular year because we probably already spent a good 30% to 40% of what's required to be spent to put 2024 assets in operation as of now, because you construct over 12 to 18 months with various stages of development. That said, within 2024 fiscal CapEx or cash CapEx we're going to spend, some of it will be spent on '24 assets. Some of it will be spent already on '25 assets. Some of it will be an early development cost for '26 and maybe even '27 assets for some early scope and exercises. So just to clarify, $160K by 800 to 900 won't get you to that precise number, so you won't be able to match it one-to-one. The same dynamics play out with offsets. One of the main components of offsets is grant funding. When the grants begin funding, you start invoicing them after the asset goes operational. It takes several months to collect that cash back. So there is a clear mismatch between when you spend the CapEx for this particular asset versus when you collected the offset. The cycle is a little shorter with OEM payments because they just pay quicker to commercial organizations. On 30C offsets, there will be a delay. It's unclear if we're going to be trading once a year those credits, twice a year, or maybe once transaction costs come down, and the overall industry matures, we may be trading every quarter, but there will still be a delay. So when you are looking at cash numbers within the year, the capital offsets versus CapEx, they don't relate to the same assets. That's why we introduced the concept of vintage CapEx or the concept of vintage offsets. When we compare the CapEx for specifically assets that go operational in '24 and capital offsets also related to those particular assets, we expect to offset roughly 40%. So 60%, comes net from EVgo, and 40% comes from other sources. Within the particular year, that number could fluctuate one way or the other depending on the timing of each of those components.

And maybe just sticking to that. So I guess '24, will that be the first year you'll attempt to monetize 30C credits? Just curious how that looks in the secondary market from a value standpoint? Is it like $0.90 on $1? Just how should we think about 30C value?

Yes. That's going to be the first time, and it's going to be the first time for a lot of actors in the market. Both buyers and sellers are trying to understand what will work for each party to transact. We have a lot of interest for our first portfolio, for our effect to a 2023 assets portfolio. I probably will not comment on the price just yet because we just started exploring it. Maybe when we speak next time in a couple of months, I'll give you a better indication of what that is if we’re sufficiently more along with one of the parties.

And then just a follow-up for me would be talking about some of the attractive economics here. Just curious if you could refresh maybe thoughts on you get to 2030, I know it's a long time from now and you do see $30 million to $40 million in VIO at 20% utilization. How does that translate to the financials and what the business actually looks like in terms of maybe EBITDA or free cash flow? Any kind of thoughts around that would be helpful. I know, again, longer dated, but just curious.

So, we obviously are looking at all of those numbers internally, Gabe. But we think that the more appropriate time and space to share something like that will be a separate occasion. We are considering conducting, kind of webinars, events of some sorts, where we will go into greater detail in our project unit economics and our more mid-term to long-term planning. In the meantime, we think with this call we gave quite a bit of information on the separation of fixed and variable costs within our cost base, how we're thinking about the charge rate and whatnot. Honestly, our business is tied to EV adoption, right? That's as a driver, and we've been saying it over and over again. The EV VIO grows, our business grows. Now I think you have enough information to try to even model it yourself and see. It's going to be big if we continue to deploy and grow alongside the adoption. How exactly it's going to look like from our perspective? I think a separate occasion is probably a better chance for us to share that information and talk about it at lengths.

Gabe, let me just quickly add to that. We've shared with you already in this call and our materials that this is the operational business. So the stalls that we have in the ground are covering their costs. If you exclude the cost of the growth engine and our corporate overhead fixed costs, the assets that we have in the ground at the 19% utilization rate are actually covering their costs today. As this business continues to scale, we should expect to see margins coming from those operational stalls well in excess of the fixed costs, certainly by 2030. I think anyone that will model this business will find it to be a pretty attractive business at that point.

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

I wanted to maybe touch on how should we be thinking about cost of energy, ASPs, and the utilization rate for 2024, particularly given the guidance that you issued? What kind of, in terms of modeling purposes, what will be a good way to think about the ASPs and the utilization rate? 19% as of year-end, which is great? Curious what you're targeting or what you might expect for 2024?

We don't disclose either, but I'll describe the dynamics here. On an energy cost front, we probably will see a slight reduction in 2024 because we're still observing the effect of amortization of demand charges, coupled with us moving to very favorable EV rates in a number of geographies. So you should see a slight improvement on that front. Regarding pricing, we probably will see a slight improvement as we've just made some changes to our algorithm and pricing strategy about a month ago. So it should take effect to probably gain a couple of cents there. If we're talking about the difference between the two, we definitely should assume some improvement on the energy margin.

So if I'm understanding correctly, then probably a reduction in ASPs for '24 and then maybe a gradual improvement in the utilization rate of the chargers for this year?

So the reduction in average sales cost is a reduction in energy cost, but improvement in ASP, average sales price, right? So the difference between the two is the margin that should expand a little bit in '24.

And Andres, just again, to reemphasize, you can see the operating leverage that exists in gross margin. We've shared with you how much of our charging COGS is fixed versus variable at a stall level. If we see growing utilization, growing throughput per stall, which you've seen a very significant increase over the last year, I'd expect us to see that operating leverage show through in expanding gross margin.

Just to maybe clarify, Andrés, adjusted gross margin is not just energy cost. There are a lot of different costs involved and it's fully loaded. It's quite a loaded number. There's maintenance, property taxes, AT&T and Verizon charges, rent. So when you're looking at adjusted gross margin, it doesn't just reflect the dynamics of the difference between the price and energy cost. Energy cost is another part of it. It’s a 60/40 split, to be precise.

Maybe switching gears on NEVI funding, obviously, understanding that you're not dependent on it, but just can you remind us what is the total amount that you have been awarded so far from NEVI? I think it was about $180 million in the last quarter. Just seeing if there's an update there. How should we be thinking about the awards for this year? Is there a target that you guys are expecting for? Or just trying to incorporate that into the model as well?

The NEVI funding, as you said, is not particularly material to our build plan. As we've said, we are focused on building infrastructure in kind of urban, suburban locations as opposed to highway corridors. So it's not a huge part of what we do. We are excited about supporting our partners, Pilot Flying J and GM through our extended relationships. We're excited about supporting them in deploying sites that may be eligible for NEVI funding, but it's just not really a particularly material part of our build plan today, at least in the near term.

Just to add to that, we view NEVI as one of many grant funds and sources we're applying for and we have what we call a big program and a bunch of other programs across different states. The amount that has been awarded but we haven't collected yet is in the tens of millions of dollars, just to give you a magnitude. So maybe small, but it doesn't necessarily mean our overall capital offset strategy is not working out. We are accessing it wherever we can, being guided by the principle of maximizing NPV rather than maximizing the grant captures. Some locations with grant captures don’t work for us, which is our strategy.

Sorry, I'm not sure if I missed it, but do we know then what the total awards are to date from NEVI? Again, I think it was $180 million as of last quarter. Is that number unchanged or is there?

I don't know if we have it at my fingertips, Andres, but we can get back to you offline on that.

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

Hoping you can help just with the full year view. I know you dropped a lot of breadcrumbs on how to think about your network operations. If we think about the trajectory between that business, which you said should see growth throughout the year. What about eXtend and tech-enabled services? Trying to get a better understanding of how the cadence goes through the year and maybe what's your underlying assumptions around BIO growth and so forth?

For the eXtend, we have a big contract with Pilot Flying J as we've talked at length. We are in full speed executing on that contract. We just gave some color in my prepared remarks that it will be roughly 35% if you take the midpoint range of revenue. That will bring us, by the end of 2024, roughly half of revenue collections from that contract. So another half will be left to collect over ‘25 and ‘26, and execute on that as well. We do not have any other big contract right now committed to EVgo. We're focusing our efforts on our owned and operated network. If a big lucrative deal like that comes our way, we'll go for it, and we’ll give an update. That's another way we'll be executing on. But as of now, that's not the case. So eXtend will turn into operational maintenance revenue for PFJ after we're done executing through and building out Phase 1 and Phase 2. On the ancillary services, that's mostly PlugShare at this point. We expect the revenue to grow, probably a little slower than VIO year-over-year, but you should see some growth in that business line year-over-year. That's how we view it as of now.

We've heard some prior commentary that you've talked in the past that maybe 10,000 additional stalls could potentially pencil for the team. Trying to get a sense for how you're thinking about the growth in this business. I think you exited this year around 3,000 operational with around 560 under construction. You didn't guide this year, but how should we think about new stalls for this year? And then how many are you planning on completing this year?

We did, Bill, in August comments. We said that we expect 800 to 900 new stalls going operational this year. That's just a little bit behind the 930 that we added for, well, that includes the 100 eXtend stalls that we added in 2023. We're quite focused, and you’re right that we've got a very large number of stalls that we think pencil. We are focused on ensuring that we are deploying the right number of stalls and minimizing capital from shareholder funds as we seek to execute on financing that extends the runway. If that means we're a couple of stalls less than new than this 2024 than we might otherwise have done, there are still 9,990 other stalls that pencil to our double-digit return framework.

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

So, two for me. One is a clarification. When you say that at the asset level, the charges are profitable. Do you mean all-in costs? Can you just give us color on what exactly you mean when you say the profitable at an asset level?

We do mean all-in cost and when we say all-in, it's all in and more. It's obviously all the direct costs like energy, maintenance, property taxes, rent, third-party IT charges, asset management, customer operations teams, call center. Then on top of it, we allocate a portion of other teams that are involved in sustaining and operating the network such as marketing, analytics, software, and hardware, and a couple of others. So it's a really, really full-on number. It's a pretty robust number when we say that it is positive.

From a bigger picture perspective, when we think about it, and when you guys think internally what Tesla has done opening up the network, one of the things I think about is having access to fast charging without having to wait. I would think that if I was a Tesla driver and showed up at a charging station and I had to wait for a Ford, I'd be upset. So I'm just trying to think about how do you think about their decision and whether that is a net positive or negative for you and how that works in the overall fast charging world we're living in?

It's a great question. I mean, I think we think the same as we have for quite some time, which is that Tesla opening up their network will contribute to lowering anxiety for customers in the purchase decision-making process for individual customers. I think that's a good thing for EV adoption and, obviously, for our business. Regarding customers utilizing Tesla's network, and again, we're talking about model year 2026. That's when the vast majority of OEMs are expected to have max ports available on their cars to be able to use their network in a significant way. I think that if that results in congestion at Tesla sites, then clearly we would expect to benefit from that. So we're expecting to see range anxiety being addressed at the purchase decision point for customers and we're expecting if there's congestion at Tesla sites for us to be picking up the additional volume.

And that's helpful. Just a quick follow-up to that. When you think about your detailed analysis of site planning, is that starting to become a part of the algorithm?

We consider a wide range of factors as I mentioned in our prepared remarks. We analyze forecast sales, neighborhood density, multifamily housing, rideshare, and importantly, the locations of other chargers. Currently, we find that approximately a quarter of EVgo's sites are situated in ZIP codes where we anticipate Tesla will allow charging for other OEMs. Therefore, we factor in all these elements carefully.

Your next question comes from the line of Craig Irwin from Roth MKM.

Most of my questions have been answered. Your acceleration that you saw in the OEM charging and commercial charging is counterintuitive with some of the things going on out there. There's rental companies reducing the size of their fleets and a bunch of announcements that suggest that might have gone the other way. Can you connect for us what's going right for EVgo there? Why are we seeing this acceleration and how sustainable is it likely to be this year?

Look, I think we all read the same things in the papers. We can clearly see that EV sales grew year-over-year, particularly for non-Tesla vehicles. Non-Tesla sales were up from 22% to 23%, up about 66%, as we said in our materials. We are also seeing on our network, as we've said in our remarks here and in prior calls, we're seeing a very significant increase in rideshare. So rideshare customers are taking advantage of our network, being able to charge at different times of the day at off-peak hours, and that rideshare volume is now 25% of our throughput. That's obviously very attractive, and we think that's something that's likely to grow, especially since we've seen commitments from the likes of Uber for 100% of their rideshare drivers to be driving electric vehicles by 2030. There are some factors here that I think are quite compelling. In terms of the near-term, from the data that I've seen, we are still seeing year-over-year growth in electric vehicle sales. So January sales, from what I've seen for battery electric vehicles, continue to go higher year-over-year, and I think that's also a positive for us.

I'm sure many of us on this call have heard anecdotal reports using rideshare services that people are switching and that they do it for economic reasons. Can you sketch out for us what the economic advantage might look like for a traditional rideshare driver? Is that something you might be able to do for us at this time?

I don't think we can do it on this call, but I think that it's an interesting question. We expect that rideshare customers, as they look at their costs, are finding that driving a battery electric vehicle is an attractive thing for them versus a gas vehicle. We can perhaps dig into that at a future date.

And we have reached the end of our question-and-answer period. I will now turn the call back over to CEO Badar Khan for some closing remarks.

Great. Well, thank you, everyone. As you heard, EVgo had a great fourth quarter and full-year beating the top end of our guidance. Our strategy to focus on owning and operating DC fast charging, we think is clearly working, and with very strong throughput and utilization that is now far outpacing the growth in EVs and our own stall growth. We've passed a key inflection point where our installed base is now profitable on a standalone basis. Our focus on customer experience combined with disciplined investment, I'm very excited about where our growth engine will take us, and I look forward to providing you an update on progress on our next call next quarter. Thanks very much, everyone.

This concludes today's conference call. Thank you for your participation. You may now disconnect.