EVgo Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties. Overview We are a blank check company formed under the laws of the State of Delaware on August 4, 2020 for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar business combination with one or more businesses. We intend to effectuate our business combination using cash from the proceeds of the IPO and the sale of the private placement warrants, our capital stock, debt or a combination of cash, stock and debt. We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete an initial business combination will be successful. Recent Developments On January 21, 2021, CRIS, SPAC Sub and EVgo Parties entered into the Business Combination Agreement. The transactions contemplated by the Business Combination Agreement are collectively referred to in this Item 2 as the “business combination.” Pursuant to the Business Combination Agreement, on the Closing Date: i. CRIS will contribute all of its assets to SPAC Sub, including but not limited to (1) an amount of funds equal to (A) funds held in the Trust Account (net of any amounts needed to effect redemptions elected by public stockholders and the payment of any deferred underwriting fees from the IPO), plus (B) net cash proceeds from the PIPE, plus (C) any cash held by CRIS in any working capital or similar account, less any transaction expenses of CRIS and the EVgo Parties; and (2) the Holdings Class B Shares; ii. immediately following item (i) above, Holdings will contribute to OpCo all of the issued and outstanding limited liability company interests of HoldCo and, in connection therewith, (1) OpCo will be recapitalized as set forth in the OpCo A&R LLC Agreement, and (2) OpCo will issue to Holdings the Holdings OpCo Units; iii. immediately following the item (ii) above, SPAC Sub will transfer to Holdings the Holdings Class B Shares and the right to enter into a tax receivable agreement; and iv. immediately following item (iii) above, SPAC Sub will contribute to OpCo all of its remaining assets in exchange for the issuance by OpCo to SPAC Sub of the number of OpCo Units equal to the Issued OpCo Units. The Business Combination Agreement contains customary representations, warranties and covenants by the parties thereto and the closing is subject to certain conditions as further described in the Business Combination Agreement. In connection with the execution of the Business Combination Agreement, on January 21, 2021, CRIS entered into Subscription Agreements with the PIPE Investors, pursuant to which the PIPE Investors have agreed to purchase, and the Company has agreed to sell to the PIPE Investors, an aggregate of 40,000,000 shares of Class A common stock, for a purchase price of $10.00 per share, or an aggregate purchase price of $400.0 million, in a PIPE. 22 Table of Contents Each Subscription Agreement contains customary representations and warranties of CRIS, on the one hand, and the applicable PIPE Investor, on the other hand, and customary conditions to closing, including the consummation of the proposed business combination. The purpose of the PIPE is to raise additional capital for use by HoldCo and its subsidiaries following the closing or the proposed business combination. Results of Operations We classify the warrants issued in connection with our IPO and concurrent private placement as liabilities at their fair value and adjust the warrant liability to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our statement of operations. We have neither engaged in any operations nor generated any revenues to date. Our only activities from January 1, 2021 through March 31, 2021 were organizational activities, those necessary to identify a target company for a business combination, as described below. We do not expect to generate any operating revenues until after the completion of our initial business combination. We expect to generate non-operating income in the form of interest income on marketable securities held after the IPO. We incur expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses. For the period from January 1, 2021 through March 31, 2021, we had a net loss of $30.9 million, which consists of operating costs of $1.9 million and a non-cash change in fair value of derivative liability of $29.0 million, offset by interest income from bank of $15 and interest earned on investments held in the Trust Account of $3.5 thousand. Liquidity and Capital Resources On October 2, 2020, we consummated the IPO of 23,000,000 units at a price of $10.00 per unit, which includes the full exercise by the underwriters of their over-allotment option in the amount of 3,000,000 units, generating gross proceeds of $230.0 million. Simultaneously with the closing of the IPO, we consummated the sale of 6,600,000 private placement warrants at a price of $1.00 per private placement warrant in a private placement to our stockholders, generating gross proceeds of $6.6 million. Following the IPO, the full exercise of the over-allotment option by the underwriters and the sale of the private placement warrants, a total of $230.0 million was placed in the Trust Account. We incurred $13.2 million in transaction costs, including $4.2 million of underwriting fees, $8.1 million of deferred underwriting fees and $0.9 million of other offering costs. For the period from January 1, 2021 through March 31, 2021, cash used in operating activities was $0.6 million comprised of net loss of $30.9 million and interest earned on investments held in the Trust Account of $3.5 thousand as offset by a non-cash change in warrant liability of $29.0 million, and the changes in operating assets and liabilities of $1.3 million. As of March 31, 2021, we had cash and investments held in the Trust Account of approximately $230.0 million. We intend to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account to complete our initial business combination. We may withdraw interest to pay taxes. To the extent that our capital stock or debt is used, in whole or in part, as consideration to complete our initial business combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies. As of March 31, 2021, we had approximately $0.4 million of cash held outside of the Trust Account. We intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete an initial business combination. 23 Table of Contents The Sponsor, or an affiliate of the Sponsor, or certain of our officers and directors or their affiliates may, but are not obligated to, extend us working capital loans as may be required in order to fund working capital deficiencies or finance transaction costs in connection with an initial business combination. If we complete an initial business combination, we would repay the working capital loans out of the proceeds of the Trust Account released to us. Otherwise, the working capital loans would be repaid only out of funds held outside the Trust Account. In the event that an initial business combination does not close, we may use a portion of proceeds held outside the Trust Account to repay the working capital loans but no proceeds held in the Trust Account would be used to repay the working capital loans. The working capital loans would either be repaid upon consummation of an initial business combination, without interest, or, at the lender’s discretion, up to $2.0 million of such working capital loans may be convertible into warrants of the post-business combination entity. The warrants would be identical to the private placement warrants. Except for the foregoing, the terms of such working capital loans, if any, have not been determined and no written agreements exist with respect to such loans. We do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business. However, if our estimate of the costs of identifying a target business, undertaking in-depth due diligence and negotiating an initial business combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior to our initial business combination. Moreover, we may need to obtain additional financing either to complete our initial business combination or because we become obligated to redeem a significant number of our public shares upon consummation of our initial business combination, in which case we may issue additional securities or incur debt in connection with such initial business combination. Subject to compliance with applicable securities laws, we would only complete such financing simultaneously with the consummate of our initial business combination. If we are unable to consummate our initial business combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the Trust Account. In addition, following our initial business combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations. Related Party Transactions Investment in the PIPE In connection with the execution of the Business Combination Agreement, CRIS entered into Subscription Agreements with a number of PIPE Investors, pursuant to which the PIPE Investors agreed to purchase, and CRIS agreed to sell to the PIPE Investors, an aggregate of 40,000,000 shares of Class A common stock, for a purchase price of $10.00 per share and an aggregate purchase price of $400,000,000, in the PIPE. CRIS PIPE ONE, LLC, which is affiliated with members of CRIS’s officers and directors, will be purchasing 500,000 shares of Class A common stock in the PIPE for a total purchase price of $5.0 million. In addition, private funds affiliated Pacific Investment Management Company LLC (“PIMCO”), which are investors in the Sponsor, or their affiliates will be purchasing 5,000,000 shares of Class A common stock in the PIPE for a total purchase price of $50.0 million. Payments to an Affiliate Commencing as of March 2021, CRIS has been and will continue to make payments of approximately $45,000 per month on an annualized basis to Climate Real Impact Solutions Services LLC, an entity owned by John Cavalier, our Chief Financial Officer and David Crane, our Chief Executive Officer and managed by Ms. Frank-Shapiro, our Chief Operating Officer, for consulting services rendered to CRIS. Messrs. Cavalier and Crane also receive health insurance benefits from Climate Real Impact Solutions Services LLC. Upon completion of the proposed business combination, it is expected that CRIS would cease to make any further payments. Promissory Note On March 31, 2021, CRIS issued the Holdings Promissory Note, pursuant to which CRIS borrowed $280,000 from Holdings in order to pay certain transaction expenses associated with the business combination. The Holdings Promissory Note bears interest at a rate of 0.12% compounded annually and is payable on the consummation of the business combination. If the business combination is not consummated, fifty percent (50%) of the principal balance of the Holdings Promissory Note will be forgiven and the remaining fifty percent (50%) of the principal balance will be repaid (i) immediately upon consummation of a separate business combination or (ii) to the extent that CRIS has funds available to it that are (a) in excess of budgeted expenses and obligations to trade creditors in the ordinary course of business and (b) outside of its Trust Account, in each case, no later than April 2, 2023. As of March 31, 2021, the outstanding balance under the Holdings Promissory Note was $280,000. 24 Table of Contents Off-Balance Sheet Arrangements We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of March 31, 2021. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as “variable interest entities,” which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets. Contractual Obligations We did not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than as described below. The underwriters are entitled to a deferred fee of $0.35 per unit, or $8.1 million in the aggregate. The deferred fee will become payable to the underwriters from the amounts held in the Trust Account solely in the event that we consummate an initial business combination, subject to the terms of the underwriting agreement. We entered into various consulting arrangements with several service provider for administrative services and potential target financial analysis and due diligence services to us. These arrangements provide for aggregate monthly fees of approximately $90.0 thousand. Critical Accounting Policies The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following critical accounting policies: Class A Common Stock Subject to Possible Redemption We account for our Class A common stock subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.” Shares of Class A common stock subject to mandatory redemption is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including common stock that feature redemption rights that is either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. Our Class A common stock features certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, shares of Class A common stock subject to possible redemption are presented as temporary equity, outside of the stockholders’ equity section of our balance sheet. Warrant Liability We account for the warrants in accordance with the guidance contained in ASC 815-40-15-7D and 7F under which the warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, we classify the warrants as liabilities at their fair value and adjust the warrants to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our statement of operations. The fair value of the warrants issued in the IPO has been estimated using a Monte Carlo simulation methodology as of the date of the IPO and such warrants’ quoted market price as of March 31, 2021. The private placement warrants were valued using a Modified Black Scholes Option Pricing Model. 25 Table of Contents Net Income (Loss) per Common Share We apply the two-class method in calculating earnings per share. Net income per common share, basic and diluted for Class A redeemable common stock is calculated by dividing the interest income earned on the Trust Account, net of applicable franchise and income taxes, by the weighted average number of Class A redeemable common stock outstanding for the period. Net loss per common share, basic and diluted for Class B non-redeemable common stock is calculated by dividing the net income, less income attributable to Class A redeemable common stock, by the weighted average number of Class B non-redeemable common stock outstanding for the period presented. Recent Accounting Standards Our management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our financial statements.