Earnings Call Transcript - EVGO Q2 2022

Operator, Operator

Greetings, and welcome to the EVgo Second Quarter 2022 Earnings Call. All participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. This conference is being recorded. It is my pleasure to introduce your host, Ted Brooks, from Investor Relations for EVgo. Thank you. You may begin.

Ted Brooks, Investor Relations

Welcome to EVgo's second quarter 2022 earnings call. My name is Ted Brooks and I head Investor Relations of the Company. Today's call is being webcast and can be accessed from the Investor 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 & Presentations section of the Investors page after the conclusion of today's call. Joining me on today's call are Cathy Zoi, EVgo's CEO; and Olga Shevorenkova, the Company's Chief Financial Officer. Today, we will be discussing EVgo's latest financial results for the second quarter of 2022, followed by a Q&A session. During the call, management will be making Forward-Looking Statements regarding the 2022 fiscal year and our outlook for expected growth and investment initiatives. These forward-looking statements involve risks and uncertainties, many of which are beyond our control and could cause actual results to differ materially from our expectations, including among other risks and uncertainties, the severity and duration of the effects of the COVID-19 pandemic. These forward-looking statements apply as of today, and we undertake no obligation to update these statements after the call. For a more detailed description of factors that could cause actual results to differ, please refer to our Form 10-Q filed soon with the SEC and posted to the Investor 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 the 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'll turn the call over to Cathy Zoi, EVgo’s CEO. Cathy?

Cathy Zoi, CEO

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

Olga Shevorenkova, CFO

Thanks, Cathy. I will start with a review of the key operational highlights before turning to our financial results, followed by some additional details on the financial impact of the Pilot Flying J and GM partnership we have recently announced. During the second quarter, we placed 170 stalls into operation across 17 different states. The number of stalls in operation or under construction was 2,397 at the end of the second quarter, with a total of 1,937 stalls being in operation and 460 under construction. Our active engineering and construction development pipeline remains strong and increased from 3,344 stalls at the end of the first quarter to 3,669 at the end of the second. Operational stall growth has picked up pace year-to-date. Though some challenges remain on the utility side, where we're still experiencing energization delays, we do affirm our total stalls in operation or under construction guidance of 3,000 to 3,300 by the end of 2022. In July, we entered into a long-term supply agreement with Delta Electronics for the procurement of 350 kilowatt chargers. This agreement will provide charger supplies through 2026 and covers a substantial portion of our obligations under the new eXtend deal with Pilot and GM. Network throughput was 10.1 gigawatt hours for the second quarter of 2022, an increase of 66% over the second quarter of 2021. We benefited from seasonality as more consumers took to the road during the spring and summer period, continued growth in EV sales, and a rebound in rideshare. We expect the positive impacts of seasonality to continue through the summer. Our customer count increased by 18% compared to the first quarter of this year, and is now 444,000. Turning to financial results, we reported $9.1 million of revenue in the second quarter of 2022, which is an increase of 90% over the second quarter of 2021. Charging revenue was $5.3 million, up 66% over the second quarter of last year. Strength in retail charging, which was up 76% year-over-year, helped drive over half of the increase in overall revenue. Regulatory credit sales were $2.1 million. As a reminder, we expect regulatory credit sales growth to modulate in the third quarter as it was sold off from our existing bank of credit and will revert to business as usual. Adjusted gross margin was 37.2% for the second quarter, reflecting the increased benefits of amortizing our fixed cost base over a larger network throughput and acceleration of LCFS revenue recognition. Overall, year-over-year adjusted gross margin increased by approximately 15 percentage points with roughly 9 percentage points of those added by LCFS acceleration. We expect that to normalize and modulate starting in the third quarter. CapEx increased substantially to $44 million this quarter as we continue to accelerate the deployment of chargers. General and administrative expense was consistent with ramping up personnel as needed to accommodate the growth. We reported adjusted EBITDA of negative $19.8 million versus negative $11 million in Q2 2021, which was also consistent with the ramp in personnel growth and expenses associated with being a public company. We ended the quarter with $372 million in cash and short-term investments and remain well-capitalized at this time. Turning to our new EVgo eXtend partnership with Pilot Company and General Motors. The agreement calls for the construction of up to approximately 2,000 fast charge installations, primarily over the next few years, and up to 500 Pilot and Flying J locations across the United States. We have not disclosed the terms of this deal, but I would like to draw your attention to the cash flow profile of our core, developed, owned, operate model versus a new eXtend model. In the annual cash flow examples you see here, and this is for 2023 vintage projects, in both cases, the year zero cash flows are negative. In the core, developed, owned operate model, as you would expect, due to the incurrence of capital expenditures, and then turned positive in year one as the project grows operational. Those cash flows are recurring in nature and grow over the life of the project as more EVs are on the road, throughput increases, and the operating leverage is being realized. For the eXtend model, EVgo sees positive cash flow immediately. This is because our customer incurs the upfront capital expenditures, while EVgo generates margin as the developer and builder of the project, as well as going forward as we earn ongoing revenues from providing operations, maintenance, and networking services under the contract. The introduction of eXtend helps optimize near-term utilization risk in corridor sites. We expect these sites will ramp in terms of utilization more slowly than our traditional urban sites. But at the same time, those are important locations to build EVgo's presence as we improve national coverage. We believe that these eXtend partnerships create long-term value for EVgo as they provide the opportunity for long-term service cash flows, site expansion and refurbishments, and customer acquisition and retention. Lastly, I would note that we are affirming our 2022 operational and financial guidance and look forward to sharing more updates as the year progresses. As a final note, EVgo is now Form S-3 eligible in accordance with customary market practice and with EVgo's obligations under our registration rights agreement, subscription agreement, and warrant agreement. We intend to file an S-3 shelf registration statement following the filing of our second quarter 10-Q. The Form S-3 will register the shares owned by a controlling shareholder, and other shares entitled to registration rights and provides us greater flexibility for potential primary issuances over time. With this, I will conclude and turn the call over to the operator for questions.

Operator, Operator

Our first question comes from Gabe Daoud with Cowen.

Gabe Daoud, Analyst

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

Cathy Zoi, CEO

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

Olga Shevorenkova, CFO

Yeah, I would concur that some of the PFJ revenues and some of the fleet contractual revenues are scheduled to kick in closer to Q4, in the second half of the year. And that explains heavier loads on the second half of the year versus what you see in the first year. But as we said, we're firm in our forecast, our guidance at this time, and we are tracking towards it.

Gabe Daoud, Analyst

And maybe as a follow-up, thinking about all the moving pieces on the policy front and eXtend, obviously, the Pilot deal is pretty nicely to extend the network. But just curious, I guess how big of a contributor do you think eXtend becomes particularly as NEVI in some spots, I think, as you mentioned before, might not make the most sense to own and operate? So just trying to get a sense of how big eXtend can really be over the next call two to three years?

Cathy Zoi, CEO

I think you've pinpointed the main issue. The primary objective of NEVI is to achieve national coverage, focusing on corridors and rural areas. Your expectation that this will likely be a gradual process is accurate. Anticipating this, we developed EVgo eXtend and formed a significant partnership with Pilot Flying J, which greatly enhances our revenue and product mix. There is more to look forward to because Pilot Flying J is not the only entity with a presence in corridors and rural areas; many rural gas station operators are eager to join the electrification movement. With EVgo's decade-long successful operation of our network, we are well-positioned to integrate this into our business moving forward. We will share specifics as soon as possible and look forward to discussing this promising business development.

Operator, Operator

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

Andres Sheppard, Analyst

To follow up on that first question, in order to meet your revenue guidance for later this year, can you discuss whether you expect any seasonality in the third and fourth quarters and if that might be more heavily concentrated? Any insights you could provide would be helpful.

Olga Shevorenkova, CFO

To reiterate, our core retail business, which relies on drivers using EVs, is influenced by seasonality and EV sales. We anticipate that winter seasonality may have a negative impact, while fall will be neutral. The summer seasonality is clear, but we expect continued growth in our customer base. We recently onboarded approximately 6,000 to 7,000 new customers this quarter and expect this trend to continue, contributing to increased revenue through the end of the year. Importantly, our forecast is skewed towards the second half of the year due to certain contractual revenues starting at the end of Q3 and the beginning of Q4, specifically from the new PFJ contract and some fleet agreements. So, we have two developments occurring simultaneously.

Andres Sheppard, Analyst

Regarding the NEVI program, I understand this has been briefly discussed, but I'd like to clarify. It appears that you have already held sessions with 36 states that have submitted plans, and these plans are anticipated to be finalized later in September. Could you provide some insight into your interactions with the states? While I know you're not providing specific numbers, perhaps you could share a bit more detail? Additionally, you've mentioned a timeframe of Q4 '22 or Q1 '23, and I'm curious if we can further quantify that.

Cathy Zoi, CEO

I’d like to share some quantities as well, but we can't disclose specific figures. What we know is that there will be a significant amount of money starting to flow, likely in Q4 this year, and more significantly in Q1 2023. We're excited that our experience, best practices, and discussions have positioned us as a thought leader for state Departments of Transportation designing their programs. We are recognized for our experience and willingness to collaborate. Many programs are saying they will conduct competitive solicitations based on proven track records, which gives EVgo an advantageous position to capture our share of that business. There’s a projected $5 billion over the next few years, and they're looking for companies capable of delivering on their promises, which aligns with EVgo's strengths. We plan to actively participate in these bidding processes because they are competitive solicitations, and we are well-prepared. Our history of successfully accessing funding should provide confidence that we will gain momentum as we move into implementing the NEVI program.

Operator, Operator

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

James West, Analyst

Good morning, Cathy and Olga. Cathy, I have a broader question for you. We've observed shifts in interest rates and equity prices, which have clearly affected the cost of capital in our industry. There are many competitors out there, and while I use air quotes for that, some of them are not financially strong, unlike your company. As you engage with current and potential customers and they consider how to collaborate with charging providers, have they begun to recognize the economic reality we’re facing? Are they starting to understand that there will be a shakeout in the market with some winning and others losing? The companies with solid capital backing are currently the clear winners, especially given the recent changes in the capital markets and the cost of capital.

Cathy Zoi, CEO

Yes, that's a great question, James. I think it's likely part of all our B2B business development discussions. The most important thing we're noticing is our proven track record of delivery. We have strong partnerships that consistently seek us out for more. Our collaboration with GM is continually strengthening, and now Toyota is joining in. We were already on track, delivering the necessary chargers and providing customer benefits well before the capital markets became so unpredictable. If you're involved in the electrification of transportation, there’s a lot of immediate work, but it’s also a medium-term opportunity. If you're looking to partner with someone whose chargers will be around for about ten years, you want a partner who can effectively manage those assets, whether we own them or the other party does. That’s why Pilot is enthusiastic about working with us, due to our track record. Access to capital markets as they continue to grow will favor well-capitalized companies over others. This economic reality is probably more relevant in your area than in our operational focus, but it's essential to partner with reputable providers, and EVgo certainly fits that description.

James West, Analyst

Right. Okay. That makes sense. Thanks for that. I have a question for Olga regarding the utilization for cash flow examples. I'm curious, as I believe you are now fairly cash flow positive at certain locations in California, possibly in Brooklyn as well. What is the utilization number or how should we consider the amount of EVs needed to achieve cash flow positivity on a per location basis? This information would help us understand how to model each location when we reach cash flow positivity and assign value to those stalls.

Olga Shevorenkova, CFO

That's a great question. The answer is that it varies because cash flow positivity in different locations depends on several factors. One of these is the number of electric vehicles using our network and the density of end users, including how many people are using public charging versus charging at home. We also need to consider whether there is a Low Carbon Fuel Standard in the area, which affects places like California differently than non-California regions. Additionally, the cost of energy matters, with prices ranging from about $0.07 in Seattle to $0.40 or $0.50 on the East Coast. Because of these diverse factors, it's challenging to determine a precise number for EV concentration. However, for areas with lower utilization and a presence of LCFS and lower energy costs, you might see cash flow positivity at single-digit utilizations. Medium markets probably require low double digits. In markets characterized by high energy costs and lack of incentives, the needed number increases. In California, places like San Francisco, Los Angeles, and Santa Barbara, along with high EV adoption areas in Arizona, such as Phoenix, are among our best-performing markets. We've also seen significant growth in locations on the East Coast, like Connecticut, over the last six months. We will continue to provide updates on market progress, but it remains difficult to specify a single number across the country.

Operator, Operator

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

Unidentified Analyst, Analyst

Hey team, it's Alex Rabel stepping in for Ryan. Unfortunately, he's busy with something else. I have a couple of quick questions about eXtend specifically. How would you describe the margin profile, particularly distinguishing between the initial site development installation and the recurring fee element?

Olga Shevorenkova, CFO

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

Unidentified Analyst, Analyst

And then just one more on the policy sort of landscape, if you will. I mean, how do you see the practicality of the, I guess, sort of revitalized section 30C tax credits, given location provisions, no direct pay? I mean, how do you guys see your capacity to sort of extract value from that going forward? Sounded positive, but curious if you can sort of parse that a little more for us?

Cathy Zoi, CEO

I actually think it's a positive development. While there isn't direct pay involved, the transferability of a tax credit is significant. In other sectors, it's not overly complicated to handle. This represents real value for us. There are specific locations where we definitely want to leverage that value. Without the tax credit, we might not have been very interested in those areas. Therefore, I believe that the provisions related to section 30C in the Inflation Reduction Act will be important for us, allowing EVgo to expand our presence and reach in the coming years.

Operator, Operator

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

David Kelley, Analyst

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

Olga Shevorenkova, CFO

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

David Kelley, Analyst

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

Cathy Zoi, CEO

I'll start with the macro, but we're really excited about the PlugShare platform and the attention it's receiving. Over the past year, we've invested significantly in enhancing the platform and expanding its advertising capabilities. We've made advancements in our software infrastructure that have allowed us to increase impressions by six times, which is fantastic. Additionally, PlugShare is a customer-curated community, and we're aware that some of the 2.5 million users may prefer to avoid ads. That's the purpose behind PlugShare Premium, which provides an ad-free experience for users. It's still in its early stages, but some users have expressed their willingness to pay for an ad-free environment because they love PlugShare. We'll provide updates on its growth, but early feedback from that segment of the user base has been very positive.

Olga Shevorenkova, CFO

Yes. I would add that we definitely saw an immediate increase in interest from hundreds of people wanting to try it out. Philosophically, our goal with PlugShare premium is to introduce different features and potentially raise the subscription price over time, but we will inform the market about when and how that will occur. This is a positive first step, and we are already seeing a favorable response, indicating that people are interested in using premium products and willing to pay for them. We will continue to provide updates on how the premium product will develop over time, and we are quite excited about it.

Operator, Operator

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

Bill Peterson, Analyst

Thank you for taking my questions. While I understand that absolute CapEx trends are not fixed, how are you approaching CapEx for stall trends? I know you have faced an inflationary environment, and it seems to have increased significantly this year. As you consider your eXtend program and other initiatives for GM, do you anticipate any relief in these costs or a decrease in cost per site in the future?

Olga Shevorenkova, CFO

We are starting to see the first signs of easing. In the second half of the year, we're looking at around $140,000 to $145,000 per stall, primarily driven by inflation related to labor. We've initiated several strategies to mitigate this and find savings in other areas, particularly regarding labor costs. While labor isn’t becoming any less expensive, we are aiming to be more strategic. We're achieving better prices in equipment, as noted in our new contract with Delta, which is encouraging. Additionally, we are benefiting from increased competition and higher volumes in the industry, keeping equipment prices under pressure. We're also refining our site selection to prioritize locations with shorter utility runs and exploring other efficiency improvements. We expect to see significant enhancements in CapEx as we approach midyear and into next year, but we will provide market updates closer to that time. Overall, we're noticing some improvement; however, high inflation continues to be a challenge, and we're actively seeking savings in a few areas while facing ongoing pressures from rising costs in labor and certain equipment.

Bill Peterson, Analyst

Okay. Embedded in your full year guidance, I'm curious, were you expecting LCFS credits to trend, I guess, in the second half of the year? What is the, I guess, expectation?

Olga Shevorenkova, CFO

Yeah, we're expecting them to stay flat at what we traded. The last time we traded, we traded at roughly $95 per credit. And so we expect that to stay flat through year-end. Well, that’s to be seen if that works out. We are exposed to volatility and LCFS expiration.

Operator, Operator

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

Noel Parks, Analyst

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

Cathy Zoi, CEO

I appreciate this question. The EVgo Innovation Lab is crucial for our success. It is available not only to all the OEMs and car manufacturers but also to all charging companies. This facility acts as a central hub where we examine all the chargers entering the market and test them with current and upcoming vehicles. It creates a vast ecosystem ensuring everything functions smoothly. I can tell you that whenever a new car model is introduced, the automotive engineers are thrilled and it looks impressive. However, if you were to ask our CTO what percentage of these cars work seamlessly with all chargers when they first arrive at the lab, the answer would be nearly zero. That's why our lab is essential for making sure the ecosystem operates properly. We're still in the early stages of this system, and both car manufacturers and charging companies understand that. When we choose a new supplier for our charging equipment, they undergo a thorough evaluation. They must meet our defined specifications and confirm compliance, while also considering the economic aspects. Once they clear those steps, we start testing at our lab, which involves hardware, firmware, software, and testing with various available vehicles. In summary, we're optimistic about the industry’s ability to meet our strict standards to ensure outstanding driver experiences. This process requires significant effort from our team, and we work collaboratively with both vendors and OEMs. Ultimately, this will position us well for the electrification of transportation in the U.S. and help create satisfied drivers.

Noel Parks, Analyst

Right. Yeah, so important for adoption and acceptance going forward. I just want to turn for a moment to the multifamily market. You mentioned the California Award, and it does seem like one of the sleeping giants out there as far as the ultimate potential, not everyone has a garage. And I'm just curious, is there any special characteristics for the contracts for that market that you're devising? Or is it pretty similar to any commercial setting?

Cathy Zoi, CEO

What's unusual about this situation is that 30% of Americans don't have access to home charging due to lacking a garage or carport. If we want the entire country to transition to electric vehicles, which we expect to occur over the next 10, 15, or 20 years, we need to ensure access to charging. The initial assumption was that Level 2 chargers would need to be installed in apartment buildings since residents often stay there overnight. However, the innovative approach in California suggests that convenient fast charging could be a more practical solution, allowing people to charge for 15 to 30 minutes instead of retrofitting parking garages in apartments. This is an exciting development as it offers apartment residents the opportunity to charge near their homes quickly. The $3.6 million California initiative reflects this, and we believe other regions will look to these results to facilitate charging access for apartment dwellers. Rather than retrofitting basements and garages—especially in apartments without garages—we are enthusiastic about optimizing urban spaces for fast charging instead of dedicating entire parking lots to overnight charging.

Operator, Operator

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

Oliver Huang, Analyst

Just a quick follow-up to the CapEx question from earlier. Besides the ramp-up being a primary driver, are there any details with respect to how much of the increase is due to increasing of charger output capacity size materially or any decreases to capital cost incentives or offsets when compared to recent quarters?

Olga Shevorenkova, CFO

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

Oliver Huang, Analyst

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

Olga Shevorenkova, CFO

So, let me clarify some of the earlier comments; they were related to the PFJ construct, which will be more ancillary revenue or eXtend revenue reported separately and some of the fleet contracts, which will fit in the fleet revenue. We do not expect much of a ramp-up over OEM non-charging revenue. That's amortizations of Nissan and GM contract prepayments, and they happen in. So it's complicated accounts in those, but those amortizations are tied to how many cars of those particular OEMs are on the road, and overtime, they will ramp up. But we don't see much lumpiness this year. So for the near term, you could just assume kind of a continuation of the trend you see now.

Operator, Operator

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

Maheep Mandloi, Analyst

Hey, good afternoon. Maheep Mandloi here from Credit Suisse. Thanks for taking the questions here. Maybe quickly just on the charging volumes throughput to see ramp embedded in for Q3, Q4 here. Could you talk about that, like what's driving that visibility? We saw a 30% jump in Q2 sequentially. Is that something we should expect for Q3, Q4 as well? And or does it include any of the PFJ GWh as well? Thanks.

Olga Shevorenkova, CFO

So do you mind clarifying what line items is your question about? Sorry, I missed it.

Maheep Mandloi, Analyst

The throughput, the 50 to 60 GWh for the full year kind of implies almost a 19 GWh run rate in Q3 and Q4.

Olga Shevorenkova, CFO

Yes. So PFJ KWh won't be included in that, we expect some ramp-up on both retail and fleet size that will drive the increase.

Maheep Mandloi, Analyst

Got it. And then just that the revenue share is like that’s somewhat flattish over year quarter-over-quarter, anything specific on that end? Like, could we see a similar mix shift in the second half or what drove that flattish charging revenue here?

Olga Shevorenkova, CFO

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

Maheep Mandloi, Analyst

Yes, I apologize for the confusion. I was likely referring to the ramp-up, which is $5 million specifically for the charging revenues.

Olga Shevorenkova, CFO

Yes, it's roughly $5.2 million in Q2 versus $3 million, $4.4 million in Q1, so we do see it close to a 20% of the ramp-up. And just one more question for me on the regulatory credits. Can you provide any information on the timing of the inventory sale I saw in Q2? Is there a reason behind it? Also, do you have any more left in venture now? Yes, we no longer have any remaining inventory. We discussed this previously, but it's a complex issue, so I will clarify. Earlier this year, we transitioned to a third party for our LCFS trading, which enabled us to recognize LCFS revenue as it is generated rather than experiencing a six-month delay. In the past, we would generate our kilowatt-hours, receive LCFS credits, and then trade them six months later. Now, with immediate recognition, for the first half of this year, we acknowledged revenue as it was generated. This means that kilowatt-hours produced in California translated directly into credits, and we recognized revenue accordingly. Additionally, we sold off the six months' worth of credits from the previous recognition method during Q1 and Q2. This situation is unique, and moving forward, LCFS revenue recognition will only be linked to the kilowatt-hour throughput in California during the respective quarter.

Maheep Mandloi, Analyst

And just one last one from me, just on the bit long-term supply arrangement, could you just provide some more details around it or just help us understand what it entails, fixed pricing, duration or any color would be appreciated?

Olga Shevorenkova, CFO

Sure. It mostly covers our PFJ deal for the first phase of this relationship, and the deal does assume a fixed price and covers up to 1,000 charges, aka 2,000 stalls, because there was a power-shared configuration, and the deal is set up until 2026. We will be working on other supply agreements, and we will update the markets once that's possible. But that's the first in a row.

Operator, Operator

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

Craig Irwin, Analyst

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

Cathy Zoi, CEO

Thank you, Craig. As I mentioned earlier, our standard configuration is now 350, as the market is shifting in that direction. We are proactively installing 350s everywhere. After nearly five years at EVgo, we see that 50 kilowatts was previously regarded as fast charging, and while it still is compared to Level 2, we are advancing to higher power ultra-fast chargers. Regarding replacements, in the past, installing one or two 50-kilowatt chargers didn't require any utility or transformer upgrades, often because there was excess capacity at those sites. This made those projects easier without needing utility involvement. Currently, we are evaluating our entire network to determine whether to upgrade existing 50s efficiently or if it's better to build more capacity in those areas. Our COO, Dennis, is reviewing this. We have a replacement program for old chargers when feasible, but if a replacement requires substantial utility upgrades, it may be more sensible to construct new chargers nearby. Many customers still use the 50-kilowatt chargers effectively, so while we are focused on installing higher power units and upgrading quickly, we do not plan to phase out the 50s since they continue to serve many EV drivers well.

Craig Irwin, Analyst

I mean, just for the record, you have 125 out of your fleet of just around 2,400. 125 of those 250 kilowatt units, that compares to Electrify America just under 750. How long has this been a priority for you? Is this a priority that was established in the last year, or is this something that is building up momentum as far as the installs?

Cathy Zoi, CEO

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

Craig Irwin, Analyst

So you have a much smaller proportion of your fleet in 350s, right? Then your primary competitor out there, your primary competitor has just under 750 kilowatt fast chargers out there; you have 125. I'm just wondering sort of when the priority move for EVgo to be committed to 350 kilowatt units, right? It's a very small piece of your fleet. And what portion of the pipeline or the capital budget out there is committed to 350? Is it everything, is it 10%?

Cathy Zoi, CEO

The pipeline going forward includes 350s. Since we have been in existence longer, we have several 350s and 150s in our network. We are building quickly, and over time, we will have a greater proportion of 350s compared to 50s. We are focused on where the market is headed, and we are fully dedicated to this transition.

Operator, Operator

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

Cathy Zoi, CEO

Thanks everyone for joining us today. Go ahead, Ted.

Ted Brooks, Investor Relations

No. Go for it, Cathy. Sorry.

Cathy Zoi, CEO

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

Operator, Operator

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