Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with EVgo’s unaudited condensed consolidated financial statements and related notes thereto as of and for the three and nine months ended September 30, 2021 and 2020 included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties, and assumptions that could cause EVgo’s actual results to differ materially from management’s expectations due to a number of factors, including those discussed in the sections entitled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” in the Registration Statement. Factors which could cause such differences are discussed therein. Unless the context otherwise requires, all references in this section to “EVgo” for any period on or before January 15, 2020 refer to “EVgo Services” as the predecessor company, and its consolidated subsidiaries, for the periods after January 15, 2020 through the closing of the CRIS Business Combination refer to “EVgo Holdco” as the successor company and its consolidated subsidiaries and for any period after the closing of the CRIS Business Combination, refer to EVgo Inc. as the successor company and its consolidated subsidiaries.
Overview
EVgo owns and operates the nation’s largest public DC fast-charging network for EVs by number of locations and is the first EV charging network in the United States powered by 100% renewable electricity, through the use of renewable energy credits (RECs). EVgo seeks to locate its charging infrastructure in high traffic, high density, urban, suburban and exurban locations to provide EV drivers of all types with easy access to convenient, reliable high-speed charging. EVgo’s network is currently capable of natively charging (i.e., charging without an adaptor) all EV models and charging standards currently available in the U.S., and serves a wide variety of private retail and fleet customers. Founded in 2010, EVgo has been a leader and innovator in the EV charging space and is well-positioned to continue to capitalize on its sustainable first-mover and first-learner advantages as EV adoption accelerates. To take advantage of the expected rapid growth in North American EVs on the road, EVgo is rapidly expanding its network of owned charging stations, prioritizing development of locations with favorable traffic and utilization characteristics.
EVgo’s primary business is the provision of EV charging services to individual EV drivers, fleet customers, and fleet owners through its owned infrastructure. As the owner of charging infrastructure, EVgo also monetizes regulatory credits generated by its charging activities. EVgo partners with a wide range of automotive OEMs, transportation network companies (“TNCs”), rideshare operators and other channel partners to build chargers in locations important to those partners, acquire EV customers and provide charging services to EV owners and drivers. Additionally, EVgo develops and deploys charging solutions for light-, medium-, and heavy-duty EV fleets and other fleet partners, in which it may retain ownership of the charging infrastructure in exchange for contractual or guaranteed payment streams or may pursue other business models to take advantage of these incremental revenue streams. EVgo is currently piloting and expects to offer its charging as a service (“ChaaS”) solution and additional cloud-based, value-added services to drivers and partners to enhance the customer experience by layering EVgo’s proprietary technology functionality on top of its charging network. These include smart reservations, loyalty and microtargeted advertisement programs, seamless entry to parking garage pay gates, shopping coupons and Autocharge, a technology that allows registered customers to use their vehicles as identification and authorization for fast-charging, thus bypassing the need for separate payment.
EVgo undertakes and manages the siting, development and installation of the charging stations, operates and maintains the stations for use by EV drivers, and typically retains ownership of the chargers. EVgo uses software-enabled functionality of its network to provide remote monitoring and management of the charging stations, to manage all aspects of vehicle charging, backend operations and payment processing, and to convey real-time information on station location, status, charging equipment availability and pricing to EV drivers and partners. EVgo designs its network of fast charging stations to continue to scale with rapid electrification of transportation and meet all major customer use cases and requirements expected in its served markets.
EVgo has established fleet relationships with automotive OEMs such as GM, Tesla, Nissan and BMW; rideshare and other fleets such as Uber and Lyft; site hosts such as Whole Foods, Safeway and Kroger; state governments including California, Virginia, Pennsylvania and Washington; and a wide range of electric utilities. EVgo believes these fleet
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relationships will facilitate EVgo’s long-term growth at or above the unprecedented rate of growth of the EV market generally over the next several years.
EVgo has multiple channels through which it earns revenue. EVgo’s principal revenue stream is from the provision of charging services for EVs of all types on EVgo’s network. In addition, a variety of business-to-business commercial relationships provide EVgo with revenue or cash payments based on commitments to build new infrastructure, provide guaranteed access to charging, and offer marketing, data and software-driven services. EVgo also earns revenue from the sale of regulatory credits generated through sales of electricity and its operation and ownership of its DCFC network. This combination of revenue streams can drive long-term margin expansion and customer retention.
Specifically, revenue is earned through the following streams:
● Charging revenue, retail: EVgo sells electricity directly to drivers who access EVgo’s publicly available networked chargers. Various pricing plans exist for customers, and drivers have the choice to charge as members (with monthly fees and reduced per minute pricing or per kWh pricing available in California), through a subscription service or as non-members. Drivers locate the chargers through EVgo’s mobile application, their vehicle’s in-dash navigation system or third-party databases that license charger-location information from EVgo. Additionally, EVgo has established interoperability and roaming agreements with other charging networks allowing EVgo customers to charge seamlessly at non-EVgo stations and allowing non-EVgo customers to utilize EVgo chargers. EVgo believes roaming agreements are an effective avenue to acquire customers, enhance customer experience and accelerate EV adoption. EVgo installs its chargers in parking spaces owned or leased by commercial or public-entity site hosts that desire to provide EV charging services at their respective location. Commercial site hosts include retail centers, offices, medical complexes, airports and convenience stores. EVgo believes its offerings are well aligned with the goals of site hosts, as many commercial businesses increasingly view EV-charging capabilities as essential to attract tenants, employees, customers and visitors, and achieve sustainability goals. Site hosts are generally able to obtain these benefits at no cost when partnering with EVgo, as EVgo is responsible for the installation and operation of chargers located on site hosts’ properties.
● Charging revenue, OEM: EVgo is a leader in OEM charging programs and has pioneered innovative revenue models to meet a wide variety of OEM objectives related to the availability of charging infrastructure and the provision of charging services for EV drivers. EVgo contracts directly with OEMs to provide charging services to drivers who have purchased or leased such OEMs’ EVs and who access EVgo’s public charger network, to expand EVgo’s network of owned DCFCs and to provide other related services. Other related services currently provided to OEMs by EVgo include data services and digital application services. EVgo views its OEM relationships as a core customer acquisition channel.
● Charging revenue, fleet : High volume fleet customers, such as TNCs or delivery services, can access EVgo’s charging infrastructure through the EVgo public network or take-or-pay agreements for dedicated stations. Pricing for charging services is negotiated directly between EVgo and the fleet owner based on the business needs and usage patterns of the fleet and can be volumetric-based for public network arrangements or take-or-pay arrangements with minimum fee per stall for dedicated stations arrangement. Typically in these arrangements EVgo contracts with, and bills, the fleet owner directly rather than individual fleet drivers utilizing EVgo chargers. Access to EVgo’s public network allows fleet and rideshare operators to support mass adoption of transportation electrification and achieve sustainability goals without needing to directly invest capital in charging infrastructure or incur operating costs associated with charging equipment.
● In addition to offering access to its public network, EVgo offers dedicated charging solutions to fleets. As part of this offering, EVgo typically builds, owns, and operates charging infrastructure for the exclusive use of a dedicated customer and is currently piloting flexible ownership models, such as its ChaaS offering. EVgo’s dedicated and ChaaS offerings provide a value proposition for fleets who might otherwise feel compelled to procure, install and manage their own Electric Vehicle Service Equipment (“EVSE”). EVgo offers a variety of pricing models for its dedicated charging solutions, including a mix of volumetric commitments and variable and fixed payments to EVgo for provision of its services. ChaaS and dedicated charging allow for tailored fleet charging solutions without requiring fleets to directly incur capital expenditures or operating and management
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costs related to charging EVs. Together, EVgo’s dedicated charging solutions and public fleet charging services provide fleets with a more robust and flexible charging solution.
● Network revenue, OEM.: Revenue related to contracts that have significant charger infrastructure build programs, which represent set-up costs under ASC 606. Proceeds from these contracts are allocated to performance obligations including marketing activities, memberships, reservations and the expiration of unused charging credits. Marketing activities are recognized at a point in time as the services are performed and measurement is based on amounts spent. For memberships and reservations, revenue is recognized over time and measured based on the charging activity of subscriber members at each measurement period. Any unused charging credits are recognized as breakage using the proportional method or, for programs where there is not enough information to determine the pattern of rights exercised by the customer, the remote method.
● Ancillary revenue : Historically, ancillary revenue has consisted primarily of maintenance services and development and project management revenue, including EVSE installation, networking and operations. EVgo also provides data-driven and technology-driven services to its retail, OEM, fleet, government, and site hosts to best meet their needs. These offerings currently include customization of digital applications and charging data integration. EVgo is currently piloting micro-targeted advertising services, smart charging reservations, loyalty programs, and access to chargers behind parking lot pay gates. EVgo believes the ability to layer ancillary revenue streams on core charging revenues differentiates EVgo and enhances brand loyalty from customers and partners.
● Regulatory credit sales : As a charging station owner and operator, EVgo earns regulatory credits, such as Low Carbon Fuel Standard and other regulatory credits, in states where such programs are enacted currently, Fast Charging Infrastructure in California and Clean Fuel Standards in Oregon. These credits are generated through charging station operations based on kWh of charging electricity sold. EVgo earns additional revenue through the sale of these credits to buyers obligated to purchase the credits to comply with the program mandates.
Recent Developments
COVID-19 outbreak
The global outbreak of COVID-19 has resulted in the implementation of numerous actions taken by governments, governmental agencies, multilateral organizations and other entities in an attempt to mitigate the spread of the virus. These measures have resulted in a significant reduction in worldwide economic activity and extreme volatility in the global financial markets which have affected new car sales, including EVs, and significantly reduced people’s mobility, and the accompanying demand for charging services. EVgo experienced a significant decline in monthly GWh throughput beginning in March 2020. Between March and July 2020, EVgo deactivated chargers due to decreased usage as a result of COVID-19, experiencing downtime when host sites were closed. As economic activity has resumed and new EV sales have increased, charging revenue for the three months ended September 30, 2021 was higher than the last pre-COVID quarter, the three months ended December 31, 2019, by 40%.
The COVID-19 pandemic also impacted EVgo’s operations through construction delays and supply chain and shipping constraints. EVgo delayed operational dates of over 400 chargers by six to nine months due to delays in various stages of site planning and construction caused by COVID-19. When governments and businesses shut down in response to shelter in place orders and other similar actions by state and local governments, permitting, inspection and other city and municipal services were suspended or otherwise impacted, and EVgo had reduced access to host sites for construction and on-site survey and design. EVgo also experienced delays in its site host negotiations as hosts devoted more time to day-to-day operations and employee health and safety. Finally, for some contractual commitments, EVgo is required to adhere to a construction schedule over specific timeframes. Those timelines were impacted due to delays associated with COVID 19, and it is possible that the ongoing pandemic could continue to impact these timelines in the future.
As part of the modified business practices in response to COVID-19, the incremental costs encompassed mainly the purchase of personal protective equipment, a subscription to Go Evo, a COVID-19 employee screening app, and COVID-19 testing expenses, which in total were not material.
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How COVID-19 will affect EVgo’s future business results is unclear. While the disruption is expected to be temporary, there is considerable uncertainty around the duration and magnitude of this disruption. The Company expects continued significant, negative impacts to its financial position, results of operations and cash flows in 2021 and beyond as charging revenue and regulatory credit sales are expected to decrease significantly due to the disruption. Development and commissioning lead times are expected to be extended as a result of the lockdowns and other measures taken by the state and local governments to mitigate the spread of COVID 19. The extent of the financial impact and duration cannot be reasonably estimated at this time.
CRIS Business Combination
On January 21, 2021, we, SPAC Sub and EVgo Parties entered into the Business Combination Agreement. On the CRIS Close Date, EVgo Inc. consummated the CRIS Business Combination and pursuant to the Business Combination Agreement:
(i) EVgo Inc. contributed all of its assets to SPAC Sub, including but not limited to (1) funds held in the Trust Account (as defined below), net cash proceeds from the PIPE, any cash held in any working capital or similar account (net of transaction expenses); and (2) 195,800,000 newly issued shares (the “EVgo Holdings Class B Shares”) of its Class B common stock, par value $0.0001 per share (“Class B common stock” and, together with Class A common stock, “Common Stock” and such transaction, the “SPAC Contribution”);
(ii) immediately following the SPAC Contribution, EVgo Holdings contributed to EVgo OpCo all of the issued and outstanding limited liability company interests of EVgo Holdco and, in connection therewith, (1) OpCo as recapitalized as set forth in the amended and restated limited liability company agreement entered into on the CRIS Close Date between the Company, EVgo OpCo, Merger Sub, and EVgo Holdings entered into on July 1, 2021, and (2) EVgo OpCo issued to Holdings 195,800,000 units of EVgo OpCo (“EVgo OpCo Units” and such transactions, the “EVgo Holdings Contribution”);
(iii) immediately following the EVgo Holdings Contribution, SPAC Sub transferred to EVgo Holdings the EVgo Holdings Class B Shares and the right to enter into the Tax Receivable Agreement (as defined below) (such transactions, the “SPAC Sub Transfer”); and
(iv) immediately following the SPAC Sub Transfer, SPAC Sub contributed to EVgo OpCo all of its remaining assets in exchange for the issuance by EVgo OpCo to SPAC Sub of a number of EVgo OpCo Units equal to the number of shares of Class A common stock issued and outstanding after giving effect to the CRIS Business Combination and the PIPE (the “Issued OpCo Units,” such transaction, the “SPAC Sub Contribution” and together with the SPAC Contribution, the EVgo Holdings Contribution and the SPAC Sub Transfer, the “Transactions”).
In connection with the CRIS Business Combination, the members of EVgo OpCo entered into the EVgo OpCo A&R LLC Agreement. The EVgo OpCo A&R LLC Agreement, among other things, admitted SPAC Sub as the sole managing member of EVgo OpCo. In accordance with the terms of the EVgo OpCo A&R LLC Agreement, the holders of EVgo OpCo Units generally have the right, subject to certain limitations, to redeem one EVgo OpCo Unit, together with one share of Class B common stock, for either one share of Class A common stock, or, at EVgo OpCo’s election, the cash equivalent to the market value of one share of Class A common stock, pursuant to and in accordance with the terms of the EVgo OpCo A&R LLC Agreement To the extent EVgo OpCo has available cash and subject to the terms of any current or future debt instruments, the EVgo OpCo A&R LLC Agreement requires EVgo OpCo to make pro rata cash distributions to all holders of EVgo OpCo Units, including SPAC Sub, in an amount sufficient to allow SPAC Sub and EVgo Inc. to pay its taxes and to make payments under the Tax Receivable Agreement. In addition, the EVgo OpCo A&R LLC Agreement will require EVgo OpCo to make non-pro rata payments to SPAC Sub to reimburse it for its corporate and other overhead expenses, which payments are not treated as distributions under the EVgo OpCo A&R LLC Agreement. See “Agreements Related to the Business Combination—Tax Receivable Agreement’’ in the Registration Statement.
At Closing, CRIS, SPAC Sub, EVgo Holdings and LS Power Equity Advisors, LLC, as agent, entered into the Tax Receivable Agreement. The Tax Receivable Agreement generally provides for the payment by the Company Group to TRA Holders of 85% of the net cash savings, if any, in U.S. federal, state and local income tax and franchise tax that
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the Company Group actually realizes (or is deemed to realize in certain circumstances) in periods after the CRIS Business Combination as a result of (i) certain increases in tax basis that occur as a result of the Company Group’s acquisition (or deemed acquisition for U.S. federal income tax purposes) of all or a portion of such holder’s EVgo OpCo Units pursuant to the CRIS Business Combination or the exercise of the redemption or call rights set forth in the OpCo A&R LLC Agreement and (ii) imputed interest deemed to be paid by the Company Group as a result of, and additional tax basis arising from, any payments the Company Group makes under the Tax Receivable Agreement. The Company Group will retain the benefit any remaining net cash savings. If the Company Group elects to terminate the Tax Receivable Agreement early (or it is terminated early due to the Company Group’s failure to honor a material obligation thereunder or due to certain mergers, asset sales, other forms of business combinations or other changes of control), the Company Group is required to make an immediate payment equal to the present value of the anticipated future payments to be made by it under the Tax Receivable Agreement (based upon certain assumptions and deemed events set forth in the Tax Receivable Agreement).
CRIS PIPE ONE, LLC purchased 500,000 shares of Class A common stock in the PIPE for a total purchase price of $5,000,000. Ms. Comstock, a member of EVgo Inc.’s board of directors, is an investor in CRIS PIPE ONE, LLC. In addition, the PIMCO private funds or their affiliates purchased 5,000,000 shares of Class A common stock in the PIPE for a total purchase price of $50,000,000. The PIPE financing was consummated concurrently with the closing of the CRIS Business Combination. The purpose of the PIPE is to raise additional capital for use by EVgo following the closing of the CRIS Business Combination.
The shares of Class B common stock of CRIS automatically converted into shares of Class A common stock at the time of the CRIS Business Combination on a one-for-one basis, subject to adjustment. In the case that additional shares of Class A common stock or equity-linked securities were issued or deemed issued in excess of the amounts offered in the Initial Public Offering and related to the closing of an Initial Business Combination, the ratio at which shares of Class B common stock of CRIS converted into shares of Class A common stock were adjusted so that the number of shares of Class A common stock issuable upon conversion of all shares of Class B common stock of CRIS equaled, in the aggregate, on an as-converted basis, 20% of the sum of (i) the total number of all shares of common stock outstanding upon completion of the Initial Public Offering, plus (ii) all shares of Class A common stock and equity-linked securities issued or deemed issued in connection with the CRIS Business Combination (excluding any shares of Class A common stock or equity-linked securities issued, or to be issued, to any seller in the CRIS Business Combination, and any private placement equivalent warrants issued to the Sponsor or its affiliates upon conversion of loans made to the Company).
Following the CRIS Business Combination, CRIS was renamed “EVgo Inc.” The CRIS Business Combination was accounted for as a reverse recapitalization. EVgo OpCo was deemed the accounting predecessor and the combined entity was the successor registrant of the CRIS Business Combination, meaning that EVgo OpCo’s financial statements for previous periods will be disclosed in the registrant’s future periodic reports filed with the SEC. Under this method of accounting, CRIS was treated as the acquired company for financial statement reporting purposes.
Recargo acquisition
On July 9, 2021, a subsidiary of EVgo acquired Recargo from an affiliate of innogy SE, a European electric utility company based in Germany, for $25.0 million in cash, including repayment of $3.0 million of indebtedness, pursuant to the Stock Purchase Agreement, dated July 9, 2021, by and among innogy e-Mobility US LLC, innogy SE solely in its capacity as guarantor, and EVgo Recargo HoldCo LLC. Recargo is an electric vehicle (EV) cloud-based data solution provider formed in 2009 and focused on EV app development, market research, data licensing, reporting and advertising.
Key Components of Results of Operations
Revenue
EVgo’s revenues are generated across various business lines. The majority of EVgo’s revenue is generated from the sale of charging services, which are comprised of retail, OEM and fleet business lines. In addition, EVgo generates ancillary revenues through the sale of data services, consumer retail services and the development and project management of third-party owned charging sites. EVgo also offers network services to OEM customers, including memberships and
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marketing. Finally, as a result of owning and operating the EV charging stations, EVgo earns regulatory credits such as California LCFS credits which are sold to generate additional revenue.
Revenue from related parties
Historical revenue from related parties consists primarily of revenue received from the Nissan Agreement for the period in which Nissan was a minority owner of EVgo. EVgo provided, and continues to provide, several service offerings under the Nissan contracts, including charging and ancillary services. As of January 16, 2020, the date LS Power completed its acquisition of EVgo, Nissan is no longer a related party. In addition, during 2020, EVgo entered into various agreements with an affiliate of LS Power for the purchase and sale of California LCFS credits at prevailing market prices.
Cost of sales
Cost of revenue (exclusive of depreciation and amortization shown separately below)
Cost of revenue consists primarily of energy usage fees, site operating and maintenance expenses, warranty and repair services, and site lease and rent expense associated with charging equipment.
Depreciation and amortization
Depreciation and amortization consists of depreciation related to EVgo’s property and equipment associated with charging equipment and installation and includes the amortization of EVgo’s capital build liabilities.
Gross profit (loss) and gross margin
Gross profit (loss) consists of EVgo’s revenue less its cost of revenues and depreciation and amortization. Gross margin is gross profit (loss) as a percentage of revenue.
Operating expenses
General and administrative expenses
General and administrative expenses primarily consist of payroll and related personnel expenses, IT and office services, customer service and network charges, office rent expense and professional services. EVgo expects its general and administrative expenses to increase in absolute dollars as it continues to grow its business but to decrease over time as a percentage of revenue. EVgo also expects to incur additional expenses as a result of operating as a public company, including expenses necessary to comply with the rules and regulations applicable to companies listed on a national securities exchange and related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, as well as higher expenses for general and director and officer insurance, investor relations and other professional services.
Transaction bonus
Transaction bonus consists of expenses related to the contingent transaction bonus awarded to certain eligible employees in connection with LS Power’s acquisition of EVgo on January 16, 2020 (the “LS Power Acquisition Date”).
Depreciation, amortization and accretion
Depreciation, amortization and accretion consists of depreciation related to EVgo’s property, equipment and software not associated with charging equipment, and, therefore, not included in the depreciation and amortization expenses recorded in cost of sales. This also includes amortization of EVgo’s intangible assets and accretion related to EVgo’s asset retirement obligations.
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Operating loss and operating margin
Operating loss consists of EVgo’s gross loss less general and administrative expenses, transaction bonus expense, and depreciation, amortization, and accretion in operating expenses. Operating margin is operating loss as a percentage of revenue.
Interest expense, related party
Interest expense, related party consists primarily of interest due under the Secured Grid Demand Promissory Note, dated January 16, 2020, by and between EVgo Holdco and EVgo Holdings (the “LS Power Note”). Pursuant to the terms of the Business Combination Agreement, the LS Power Note was cancelled immediately prior to the CRIS Close Date and deemed to be an equity contribution to the Company, immediately followed by a contribution of such equity interest by EVgo Holdings to EVgo Holdco.
Other income, net (including related party)
Other income, related party, consisted of income received under agreements with NRG and Nissan. On June 16, 2017, EVgo entered into a Master EV Services Agreement with NRG to install and operate a network of EV charging stations on behalf of NRG. NRG compensated EVgo for costs incurred for operating the charging network. In addition, on March 29, 2016, EVgo entered into a Program Services Agreement with Nissan to install and operate a number of chargers on behalf of Nissan. Nissan compensated EVgo for costs incurred for operating the charging network. Under both agreements, the cost of the chargers was included in property and equipment and the related capital build liability for each agreement is included as a long-term liability on the balance sheet. Subsequent to the LS Power Acquisition Date, income received under the NRG and Nissan agreements are disclosed as other income, net.
Other income, net, consists primarily of income received under agreements with NRG and Nissan subsequent to the LS Power Acquisition Date as well as unrealized gains on marketable securities.
Change in fair values of warrant and earnout liabilities
The change in the fair values of the warrant and earnout liabilities represents the gain (loss) on the adjustments to mark the warrant and earnout liabilities to fair value for each reporting period.
Key Performance Indicators
EVgo management uses several performance metrics to manage the business and evaluate financial and operating performance. EVgo considers the following indicators to be of critical importance:
Network throughput
Network throughput represents the total amount of kWh that was consumed by EVs using chargers and charging stations on EVgo’s network. EVgo typically monitors kWh sales by business line, customer, and customer class. EVgo believes monitoring of component trends and contributions is the appropriate way to monitor and measure business-related health.
Number of DC stalls on EVgo’s network
Number of DC stalls represents the total number of DC stalls that EVgo has operational on its network. One stall can charge one vehicle at a time. There are certain configurations of EVgo sites where one DC charger is capable of charging one vehicle at a time, all chargers at such a site will be counted as one stall per one charger. There are certain configurations of EVgo sites where one DC charger is capable of charging two vehicles simultaneously; all chargers at such a site would be counted as two stalls per one charger.
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The following table represented network throughput and number of DC stalls on EVgo’s network:
Combined
Successor
And
Successor
Predecessor
September 30,
September 30,
2021
2020
Network throughput (GWh) for the three months ended
8.0
4.0
Network throughput (GWh) for the nine months ended
18.2
11.5
Number of DC stalls on EVgo network
1,595
1,412
Factors Affecting EVgo’s Operating Results
EVgo believes its performance and future success depend on several factors, including those discussed below:
● EV Sales . EVgo’s revenue growth is directly tied to the adoption and continued acceptance and usage of passenger and commercial EVs sold, which it believes drives the demand for electricity, charging infrastructure and charging services. The market for EVs is still rapidly evolving and although demand for EVs has grown in recent years, there is no guarantee of such future demand. Factors impacting the adoption of EVs include perceptions about EV features, quality, safety, performance and cost; perceptions about the limited range over which EVs may be driven on a single battery charge; availability of services for EVs; consumers’ perception about the convenience, speed and cost of EV charging; volatility in the price of gasoline and diesel; EV supply chain disruptions including but not limited to availability of certain components (e.g. semiconductors), ability of EV OEMs to ramp-up EV production, availability of batteries, and battery materials; availability, cost and desirability of other alternative fuel vehicles, plug-in hybrid electric vehicles and high fuel-economy gasoline and diesel-powered vehicles; and increases in fuel efficiency. In addition, macroeconomic factors could impact demand for EVs, particularly since EVs can be more expensive than traditional gasoline-powered vehicles. If the market for EVs does not develop as expected or if there is any slowdown or delay in overall adoption of EVs, EVgo’s operating results may be adversely affected.
● EV drivers’ usage pattern . EVgo’s revenues are driven by EV drivers’ driving and charging behaviors. The EV market is still developing and current behavioral patterns may not be representative of future behaviors. Key behavioral shifts may include but are not limited to: annual vehicle miles traveled, preferences for urban, suburban or exurban locations, preferences for public or private fast charging, preference for home or workplace charging, demand from rideshare or urban delivery services, and the emergence of autonomous vehicles, micromobility and mobility as-a-service platforms requiring EV charging services.
● Electrification of fleets . EVgo management projects meaningful revenue contribution from light-, medium-, and heavy-duty fleet charging as commercial and government fleet owners accelerate electrification initiatives. EVgo faces competition in the fleet segment, including from certain fleet customers who may opt to install and own the charging equipment on their property, but believes its unique set of offerings to fleets and existing charging network positions EVgo advantageously to win business from fleets. Fleet owners are generally more sensitive to the total cost of ownership of a vehicle than private-vehicle owners. As such, electrification of vehicle fleets may occur more slowly or more rapidly than management forecasts based on the cost to purchase, operate and maintain EVs and the general availability of such vehicles relative to those of legacy internal combustion engine vehicles. EVgo’s, and other competitors’, ability to offer competitive charging services and value-added ancillary services may impact the cadence at which fleets electrify and impact EVgo’s ability to capture market share in fleets. Additionally, federal, state and local government support and regulations directed at fleets (or lack thereof) may accelerate or delay fleet electrification and increase or reduce EVgo’s business opportunity. EVgo’s management is currently monitoring several key rules that may encourage fleet electrification including California’s Advanced Clean Truck Rule and the implementation of California’s Clean Miles Standard as well as similar proposals in other zero emission vehicle states.
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● Competition . The EV charging industry is increasingly competitive. The principal factors on which industry participants compete include charger count, locations and accessibility; charger connectivity to EVs and ability to charge all standards; speed of charging relative to expected vehicle dwell times at the location; DCFC network reliability, scale and local density; software-enabled services offering and overall customer experience; operator brand, track record and reputation; and access to equipment vendors, service providers and policy incentives, and pricing. Existing competitors may expand their product offerings and sales strategies, new competitors may enter the market and certain fleet customers may choose to install and operate their own charging infrastructure. If EVgo’s market share decreases due to increased competition, its revenue and ability to generate profits in the future may be impacted.
● Regulatory environment . EVgo is subject to federal, state and local regulations including consumer laws and regulations, tax laws and regulations, consumer privacy laws and regulations, engineering and civil and electrical construction laws and regulations. EVgo’s current business plan assumes no material change in these laws and regulations. In the event any such change occurs, compliance with new laws and regulations might significantly affect EVgo operations and cost of doing business.
● Government mandates, incentives and programs . The U.S. federal government, some state and local governments, and certain utilities provide incentives to end users and purchasers of EVs and EV charging stations in the form of rebates, tax credits, grants and other financial incentives. The EV market relies on these governmental rebates, tax credits, and other financial incentives to significantly lower the effective price of EVs and EV charging stations. However, these incentives may expire on specified dates, end when the allocated funding is no longer available, or be reduced or terminated as a matter of regulatory or legislative policy. In particular, the credits under Section 30C of the Code, and state, local and utility funding allocations may sunset or become fully utilized without renewal. There can be no assurance that any of these programs, including credits under Section 30C will have sufficient availability or be extended, or if extended, will not be otherwise reduced. Any reduction in rebates, tax credits, grants or other financial incentives, including the credits under Section 30C of the Code, could negatively affect the EV market and adversely impact EVgo’s business operations and expansion potential. In addition, there is no assurance EVgo will have the necessary tax attributes to utilize any such credits and may not be able to monetize them given the nascent state of the market for such credits or be able to monetize such credits on favorable terms. New tariffs and policies that could incentivize overbuilding of infrastructure may also have a negative impact on the economics of EVgo’s stations. Furthermore, future tariffs and policy incentives may favor equipment manufactured or assembled at American factories, which may put EVgo’s fast charging equipment vendors at a competitive disadvantage, including by increasing the cost or delaying the availability of charging equipment, by challenging or eliminating EVgo’s ability to apply or qualify for grants and other government incentives, or by disqualifying EVgo from the ability to compete for certain charging infrastructure buildout solicitations and programs, including those initiated by federal government agencies.
● Technology Risks . EVgo relies on numerous internally developed and externally sourced hardware and software technologies to operate its network and generate earnings. EVgo engages a variety of third-party vendors for non-proprietary hardware and software components. The ability of EVgo to continue to integrate its technology stack with technological advances in the wider EV ecosystem including EV model characteristics, charging standards, charging hardware, software and battery chemistries will determine EVgo’s sustained competitiveness in offering charging services. There is a risk that some or all of the components of the EV technology ecosystem become obsolete and EVgo will be required to make significant investment to continue to effectively operate its business. EVgo’s management believes EVgo’s “build, own and operate” model is well-positioned to enable EVgo to remain technology-, vendor- and OEM-agnostic over time and allow the business to remain competitive regardless of long-term technological shifts in EVs, batteries or modes of charging.
● Sale of regulatory credits . EVgo derives revenue from selling regulatory credits earned for participating in low carbon fuel standard programs, or other similar carbon or emissions trading schemes, in various states and jurisdictions in the United States. EVgo currently sells these credits at market prices. These credits are exposed to various market and supply and demand dynamics which can drive price volatility and are difficult to predict. Price fluctuations in credits may have a material effect on future earnings. The availability of such credits depends on continued governmental support for these programs. If these programs are modified, reduced or eliminated,
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EVgo’s ability to generate this revenue in the future would be adversely impacted. In addition to current programs, EVgo’s management is currently monitoring proposed programs in Colorado, New York, Massachusetts, Washington, New Mexico and several other states, along with a potential federal program, as potential future revenue streams.
Results of Operations
EVgo accounted for its acquisition by LS Power as a business combination under the terms of ASC Topic 805, Business Combinations (“ASC 805”). Pursuant to ASC 805, EVgo elected to apply push-down accounting. Under this method, the purchase price is allocated to the identifiable assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. Any excess of the amount paid over the estimated fair values of the identifiable net assets acquired is allocated to goodwill. Refer to Note 3 of the notes to consolidated financial statements as of and for the years ended December 31, 2020 for EVgo Holdco, included in the Super 8-K, for additional information. As a result of the acquisition, EVgo’s consolidated financial statements for the period from and after January 16, 2020 are presented on a different basis than that for the periods before January 16, 2020 due to the application of purchase accounting as of acquisition date and, therefore, are not comparable.
The acquisition resulted in the following principal impacts for the period subsequent to the acquisition date:
● Increased depreciation, amortization, and accretion in operating expenses resulting from recording of tangible and intangible assets at fair value;
● Increased interest expense resulting from entering into the LS Power Note with EVgo Holdings in conjunction with the close of the business combination; and
● Increased stock-based compensation expense resulting from the share-based compensation plan formed in accordance with the terms of the acquisition agreement.
EVgo believes reviewing its operating results for the three and nine months ended September 30, 2020 by combining results of the 2020 predecessor period and 2020 successor period is more useful in discussing overall operating performance when compared to the 2021 successor period. Results presented separately for the predecessor period and successor period are included within the financial statements included elsewhere in this quarterly report.
45
Three months ended September 30, 2021 and 2020
The tables below present EVgo’s results of operations and revenue for the following periods:
Successor
Three months ended September 30 ,
Change
(dollars in thousands)
2021
2020
$
%
Revenue
$
6,181
$
3,572
$
2,609
73
%
Cost of revenues (exclusive of depreciation and amortization shown separately below)
(4,814)
(3,468)
(1,346)
39
%
Depreciation and amortization
(3,020)
(2,651)
(369)
14
%
Gross loss
(1,653)
(2,547)
894
35
%
General and administrative
20,882
7,996
12,886
161
%
Depreciation, amortization, and accretion
3,394
2,474
920
37
%
Operating loss
(25,929)
(13,017)
(12,912)
(99)
%
Interest expense
11
410
(399)
(97)
%
Interest income
(33)
(54)
21
39
%
Other expense (income), net
143
(5,897)
6,040
102
%
Change in fair value of earnout liability
(3,695)
—
(3,695)
Change in fair value of warrant liability
(45,946)
—
(45,946)
Net income (loss)
23,591
(7,476)
31,067
416
%
Less: net income (loss) attributable to noncontrolling interest
17,461
(7,476)
24,937
334
%
Net income attributable to Class A common stockholders
$
6,130
$
—
$
6,130
Gross margin
(26.7)
%
(71.3)
%
Operating margin
(419.5)
%
(364.4)
%
Network throughput (GWh)
8.0
4.0
Number of DC stalls
1,595
1,412
Successor
Three months ended September 30,
Change
(dollars in thousands)
2021
2020
$
%
Revenue
Charging revenue, retail
$
3,203
$
1,592
$
1,611
101
%
Charging revenue, OEM
151
219
(68)
(31)
%
Charging revenue, fleet
688
420
268
64
%
Network revenue, OEM
351
84
267
318
%
Ancillary revenue
1,104
497
607
122
%
Regulatory credit sales
684
760
(76)
(10)
%
Total revenue
$
6,181
$
3,572
$
2,609
73
%
Charging revenue, retail
Charging revenue, retail, for the three months ended September 30, 2021 increased $1.6 million, or 101%, to $3.2 million compared to $1.6 million for the three months ended September 30, 2020. Period-over-period growth was due to an overall increase in usage and subscription fees driven primarily by a growing number of customers and increased charging volume as well as the ongoing recovery from COVID-19.
Charging revenue, OEM
Charging revenue, OEM, for the three months ended September 30, 2021 decreased $0.1 million, or 31%, to $0.2 million compared to $0.2 million for the three months ended September 30, 2020. The decrease was primarily driven by the end of one of our OEM programs.
46
Charging revenue, fleet
Charging revenue, fleet, for the three months ended September 30, 2021 increased $0.3 million, or 64%, to $0.7 million compared to $0.4 million for the three months ended September 30, 2020. The increase was attributable to new fleet contracts that became effective during 2021, increased charging volume by our public fleet customers as well as the ongoing recovery from COVID-19.
Network revenue, OEM
Network revenue, OEM, for the three months ended September 30, 2021 increased $0.3 million, or 318%, to $0.4 million compared to $0.1 million due to increased revenue under an OEM agreement related to marketing activities, memberships fees and the breakage of prepaid charging credits.
Ancillary revenue
Ancillary revenue for the three months ended September 30, 2021 increased $0.6 million, or 122%, to $1.1 million compared to $0.5 million for the three months ended September 30, 2020 ended. The increase was primarily due to the acquisition of Recargo and subsequent inclusion of Recargo’s revenues into Ancillary revenue as well as an increase in other revenue.
Regulatory credit sales
Regulatory credits for the three months ended September 30, 2021 decreased $0.1 million, or 10%, to $0.7 million compared to $0.8 million for the three months ended September 30, 2020. The period-over-period decrease was primarily due to lower network throughput during the prior periods in which the regulatory credits were generated – January 2021 to March 2021 and January 2020 to March 2020, respectively, resulting in less regulatory credits that were available for sale. Network throughput generated during the period from January 2021 to March 2021 was impacted by COVID-19 compared to network throughput generated during the period from January 2020 to March 2020.
Cost of sales
Cost of revenues (exclusive of depreciation and amortization shown separately below)
Cost of revenues for the three months ended September 30, 2021 increased $1.3 million, or 39%, to $4.8 million compared to $3.5 million for the three months ended September 30, 2020. The increase in cost of revenues was due to an increase of $0.8 million in non-energy costs due to an increased stall count and $0.8 million in increased energy and other variable costs due to increased throughput offset by a $0.3 million decrease in engineering, procurement, and construction costs and development cost of sales.
Depreciation and amortization
Depreciation and amortization for the three months ended September 30, 2021 increased $0.4 million, or 14%, to $3.0 million compared to $2.7 million for the three months ended September 30, 2020 due to a higher stall count.
Gross loss and gross margin
Gross loss for the three months ended September 30, 2021 improved $0.9 million, or 35%, to $1.7 million compared to $2.5 million for the three months ended September 30, 2020. Gross margin for the three months ended September 30, 2021 improved 45% to negative 27% compared to negative 71% for the three months ended September 30, 2020 due to the improved leveraging of both energy and non-energy related costs due to higher revenue, as well as improved ancillary margin.
47
Operating expenses
General and administrative
General and administrative costs for the three months ended September 30, 2021 increased $12.9 million, or 161%, to $20.9 million compared to $8.0 million for the three months ended September 30, 2020. The difference was driven by $1.8 million increase in professional services and $8.0 million due to increased payroll expenses, driven by higher headcount and higher share-based compensation, a $1.3 million increase in project development expenses and a $1.5 million increase in insurance expense.
Depreciation, amortization and accretion
Depreciation, amortization and accretion expenses increased by $0.9 million, or 37%, and was $3.4 million and $2.5 million for the three months ended September 30, 2021 and 2020. The increase was primarily due to higher asset retirement obligation accretion and non-site related depreciation.
Operating loss and operating margin
During the three months ended September 30, 2021, EVgo had an operating loss of $25.9 million, an increase of $12.9 million, or 99%, compared to $13.0 million for the three months ended September 30, 2020. Operating margin for the three months ended September 30, 2021 decreased to negative 419% compared to negative 364% for the three months ended September 30, 2020. The deterioration in operating loss and operating margin period-over-period was primarily due to an increase in general and administrative expenses, partially offset by the improvement in gross margin.
Interest expense
Interest expense for the three months ended September 30, 2021 decreased $0.4 million, or 97%, to approximately $11,000 compared to $0.4 million for the three months ended September 30, 2020. The decrease was related to conversion of the borrowings under the LS Power Note to equity on the CRIS Close Date.
Other expense (income), net
Other expense (income), net, for the three months ended September 30, 2021 decreased $6.0 million, or 102%, to other expense, net, of $0.1 million compared to other income, net, of $5.9 million for the three months ended September 30, 2020. The decrease was primarily due to the decrease in income from one of the capital build programs that ended during 2020 and to a lesser extent, an unrealized loss on investment.
Changes in fair values of warrant and earnout liabilities
The change in the fair values of the warrant and earnout liabilities were due to the liabilities that were assumed in connection with the CRIS Business Combination. For the three months ended September 30, 2021, there was a $49.6 million gain primarily due to the change in the fair values of the liabilities from the CRIS Close Date through September 30, 2021.
48
Nine months ended September 30, 2021 and 2020
The tables below present EVgo’s results of operations and revenue for the following periods:
Combined
Successor
and
Successor
Predecessor
Nine months ended September 30,
Change
(dollars in thousands)
2021
2020
$
%
Revenue
$
15,095
$
10,381
$
4,714
45
%
Cost of revenues (exclusive of depreciation and amortization shown separately below)
(11,927)
(9,574)
(2,353)
25
%
Depreciation and amortization
(8,172)
(7,001)
(1,171)
17
%
Gross loss
(5,004)
(6,194)
1,190
19
%
General and administrative
46,227
23,507
22,720
97
%
Transaction bonus
—
5,316
(5,316)
(100)
%
Depreciation, amortization, and accretion
8,448
7,032
1,416
20
%
Operating loss
(59,679)
(42,049)
(17,630)
(42)
%
Interest expense
1,926
812
1,114
137
%
Interest income
(34)
—
(34)
Other income, net
(489)
(10,169)
9,680
95
%
Change in fair value of earnout liability
(3,695)
—
(3,695)
Change in fair value of warrant liability
(45,946)
—
(45,946)
Net loss
(11,441)
(32,692)
21,251
65
%
Less: net loss attributable to noncontrolling interest
(17,571)
(32,692)
15,121
46
%
Net income attributable to Class A common stockholders
$
6,130
$
—
$
6,130
Gross margin
(33.2)
%
(59.7)
%
Operating margin
(395.4)
%
(405.1)
%
Network throughput (GWh)
18.2
11.5
Number of DC stalls
1,595
1,412
Combined
Successor
and
Successor
Predecessor
Nine months ended September 30,
Change
(dollars in thousands)
2021
2020
$
%
Revenue
Charging revenue, retail
$
7,505
$
4,174
$
3,331
80
%
Charging revenue, OEM
633
1,053
(420)
(40)
%
Charging revenue, fleet
1,725
1,131
594
53
%
Network revenue, OEM
1,158
298
860
289
%
Ancillary revenue
2,147
1,036
1,111
107
%
Regulatory credit sales
1,927
2,689
(762)
(28)
%
Total revenue
$
15,095
$
10,381
$
4,714
45
%
Charging revenue, retail
Charging revenue, retail, for the nine months ended September 30, 2021 increased $3.3 million, or 80%, to $7.5 million compared to $4.2 million for the nine months ended September 30, 2020. Period-over-period growth was due to an overall increase in usage and subscription fees driven primarily by a growing number of customers and increased charging volume as well as the ongoing recovery from COVID-19.
49
Charging revenue, OEM
Charging revenue, OEM, for the nine months ended September 30, 2021 decreased $0.4 million, or 40%, to $0.6 million compared to $1.1 million for the nine months ended September 30, 2020. The decrease was primarily driven by the end of one of our OEM programs.
Charging revenue, fleet
Charging revenue, fleet, for the nine months ended September 30, 2021 increased $0.6 million, or 53%, to $1.7 million compared to $1.1 million for the nine months ended September 30, 2020. The increase was attributable to new fleet contracts that became effective during 2021, increased charging volumes by our public fleet customers and also due to the ongoing recovery from COVID-19.
Network revenue, OEM
Network revenue, OEM, for the nine months ended September 30, 2021 increased $0.9 million, or 289%, to $1.2 million compared to $0.3 million due to increased revenue under an OEM agreement related to marketing activities, memberships fees and the breakage of prepaid charging credits.
Ancillary revenue
Ancillary revenue for the nine months ended September 30, 2021 increased $1.1 million, or 107%, to $2.1 million compared to $1.0 million for the nine months ended September 30, 2020. The increase was primarily due to the acquisition of Recargo and subsequent inclusion of Recargo’s revenues into ancillary revenue and an increase in equipment sales and engineering, procurement and construction revenue.
Regulatory credit sales
Regulatory credits for the nine months ended September 30, 2021 decreased $0.8 million, or 28%, to $1.9 million compared to $2.7 million for the nine months ended September 30, 2020. The period-over-period decrease was primarily due to lower network throughput during the prior periods in which the regulatory credits were generated, July 2020 to March 2021 and July 2019 to March 2020, respectively, resulting in less regulatory credits that were available for sale. Network throughput generated during the period July 2020 to March 2021 was significantly impacted by COVID-19 compared to network throughput generated during the period from July 2019 to March 2020.
Cost of sales
Cost of revenues (exclusive of depreciation and amortization shown separately below)
Cost of revenues for the nine months ended September 30, 2021 increased $2.4 million, or 25%, to $11.9 million compared to $9.6 million for the nine months ended September 30, 2020. The increase in cost of sales during the nine months ended September 30, 2021 was due to an increase of $1.6 million in non-energy costs from an increased stall count, $0.9 million in increased energy and other variable costs due to increased throughput offset by a decrease of $0.2 million in equipment cost of sales and engineering and construction costs.
Depreciation and amortization
Depreciation and amortization for the nine months ended September 30, 2021 increased $1.2 million, or 17%, to $8.2 million compared to $7.0 million for the three months ended September 30, 2020 due to a higher stall count.
Gross loss and gross margin
Gross loss for the nine months ended September 30, 2021 improved by $1.2 million, by 19%, to $5.0 million compared to $6.2 million for the nine months ended September 30, 2020. Gross margin for the nine months ended
50
September 30, 2021 improved 27% to negative 33% compared to negative 60% for the nine months ended September 30, 2020 due to the improved leveraging of energy and non-energy related costs, energy costs, as well as improved ancillary margin.
Operating expenses
General and administrative
General and administrative costs for the nine months ended September 30, 2021 increased $22.7 million, or 97%, to $46.2 million compared to $23.5 million for the nine months ended September 30, 2020. The increase was due to $6.6 million in increased professional services, $7.5 million in increased payroll expenses due to higher headcount and higher share-based compensation, $1.0 million increase in marketing expenses, and $3.7 million in project development costs and $1.5 million insurance expense.
Transaction bonus
There was no transaction bonus awarded during the nine months ended September 30, 2021. Transaction bonus for the nine months ended September 30, 2020 was $5.3 million, which was awarded to certain eligible employees in conjunction with the acquisition of EVgo Services by LS Power.
Depreciation, amortization and accretion
Depreciation, amortization and accretion expenses for the nine months ended September 30, 2021 increased $1.4 million, or 20%, to $8.4 million compared to $7.0 million for the nine months ended September 30, 2020. The increase was primarily due to additional amortization expense recognized as a result of the acquisition of EVgo Services by LS Power.
Operating loss and operating margin
During the nine months ended September 30, 2021, we had an operating loss of $59.7 million, an increase of $17.6 million, or 42%, compared to $42.0 million for the nine months ended September 30, 2020. Operating margin for the nine months ended September 30, 2021 improved to negative 395% compared to negative 405% for the nine months ended September 30, 2020. The improvement in operating margin period-over-period was primarily due to improved gross margin.
Interest expense
Interest expense for the nine months ended September 30, 2021 increased $1.1 million, or 137%, to $1.9 million compared to $0.8 million for the nine months ended September 30, 2020. The increase was related to increased borrowings under the LS Power Note entered into in January 2020.
Other income, net
Other income, net, for the nine months ended September 30, 2021 decreased $9.7 million, or 95%, to $0.5 million compared to $10.2 million for the nine months ended September 30, 2020. The decrease was primarily due to the decrease in income from one of the capital build programs that ended during 2020.
Changes in fair values of warrant and earnout liabilities
The change in the fair values of the warrant and earnout liabilities were due to the liabilities that were assumed in connection with the CRIS Business Combination. For the nine months ended September 30, 2021, there was a $49.6 million gain due to the change in the Company’s stock price from the CRIS Close Date through September 30, 2021 .
51
Non-GAAP Financial Measures
This Quarterly Report includes the non-GAAP financial measures: “Adjusted Cost of Sales,” “Adjusted Gross Profit (Loss),” “Adjusted Gross Margin,” “EBITDA,” “Adjusted EBITDA” and “Receipts.” EVgo believes these measures are useful to investors in evaluating EVgo’s financial performance. In addition, EVgo uses these measures internally to establish forecasts, budgets, and operational goals to manage and monitor its business. Further, due to the nature of certain OEM contracts, there is a significant timing difference between cash receipt and revenue recognition, therefore, EVgo believes Receipts (defined below) provides valuable insight to the ongoing performance and liquidity of the business. EVgo believes that these non-GAAP financial measures help to depict a more realistic representation of the performance of the underlying business, enabling EVgo to evaluate and plan more effectively for the future. EVgo believes that investors should have access to the same set of tools that its management uses in analyzing operating results.
Adjusted Cost of Sales (defined below), Adjusted Gross Profit (Loss) (defined below), Adjusted Gross Margin (defined below), EBITDA, Adjusted EBITDA (defined below) and Receipts are not prepared in accordance with GAAP and may be different from non-GAAP financial measures used by other companies. These measures should not be considered as measures of financial performance under GAAP, and the items excluded from or included in these metrics are significant components in understanding and assessing EVgo’s financial performance. These metrics should not be considered as alternatives to net income (loss) or any other performance measures derived in accordance with GAAP.
Adjusted Cost of Sales, Adjusted Gross Profit (Loss), Adjusted Gross Margin, EBITDA and Adjusted EBITDA. EVgo defines Adjusted Cost of Sales as cost of sales before: (i) depreciation and amortization, (ii) shared-based compensation, and (iii) OEM reimbursement. Adjusted Gross Profit (Loss) is defined as revenues less Adjusted Cost of Sales. Adjusted Gross Margin is defined as Adjusted Gross Profit (Loss) as a percentage of revenues. EVgo defines EBITDA as net income (loss) before (i) interest expense, (ii) income taxes and (iii) depreciation and amortization. EVgo defines Adjusted EBITDA as EBITDA plus (i) stock based compensation expense, (ii) loss on disposal of assets and (iii) other unusual or nonrecurring income (expenses) such as bad debt expense.
During the third quarter of 2021, the Company changed its presentation of certain costs that were included as a component of cost of sales in previous periods. The Company now presents these costs as a component of general and administrative expenses. The following is a reconciliation of the previous and current presentation of cost of sales to adjusted cost of sales:
Combined
Combined
Successor
Successor
and
and
Successor
Predecessor
Successor
Predecessor
Three months ended
Nine months ended
September 30,
September 30,
(dollars in thousands)
2021
2020
2021
2020
Cost of sales, under previous method
$
9,054
$
6,953
$
23,343
$
19,267
Reclassification
(1,220)
(834)
(3,244)
(2,692)
Cost of sales, as reported
7,834
6,119
20,099
16,575
Less: Depreciation and amortization in cost of sales
3,020
2,651
8,172
7,001
Less: Stock option expense and other
3
(9)
(9)
(23)
Adjusted cost of sales
$
4,811
$
3,477
$
11,936
$
9,597
52
The following unaudited table presents the reconciliation of net loss, the most directly comparable GAAP measure to EBITDA and Adjusted EBITDA for the three and nine months ended September 30, 2021 and 2020:
Combined
Successor
and
Successor
Successor
Predecessor
Three months ended
Nine months ended
September 30,
September 30,
(dollars in thousands)
2021
2020
2021
2020
Net income (loss)
$
23,591
$
(7,476)
$
(11,441)
$
(32,692)
Adjustments:
Depreciation
3,079
2,669
8,308
7,051
Amortization
2,951
2,147
7,246
6,113
Accretion
384
309
1,066
870
Interest income
(33)
—
(34)
—
Interest expense
11
410
1,926
812
State and local taxes
—
(11)
—
(5)
EBITDA
$
29,983
$
(1,952)
$
7,071
$
(17,851)
Share-based compensation
4,282
243
5,293
708
Loss on disposal of asset
292
146
639
442
Unrealized loss (gain) on investment
143
—
(436)
—
Bad debt expense
124
60
292
163
Change in fair value of earnout liability
(3,695)
—
(3,695)
—
Change in fair value of warrant liability
(45,946)
—
(45,946)
—
Release of contingent liability
—
(3,978)
—
(3,978)
Nonrecurring costs (1)
545
74
1,722
5,381
Adjusted EBITDA
$
(14,272)
$
(5,407)
$
(35,060)
$
(15,135)
(1) Includes non-recurring expense of $5.3 million of transaction bonus costs related to LS Power’s acquisition of EVgo incurred during the nine months ended September 30, 2020.
The following unaudited table presents the reconciliation of net loss, the most directly comparable GAAP measure to EBITDA and Adjusted EBITDA for the three and nine months ended September 30, 2021 and 2020:
Receipts . We define Receipts, a non-GAAP financial measure, as total revenue plus change in deferred revenue over the same period. Pursuant to the term of certain OEM contracts, we are paid well in advance of when revenue can be recognized according to ASC 606; usually, the payment is tied to the number of stalls that commence operations under the applicable contract arrangement. We believe that Receipts provides investors insight into cash generated from our customers and our periodic performance and liquidity. We use Receipts to monitor and measure our commercial performance, liquidity and growth as our OEM customers pay us in advance for placing stalls in operation and then we recognize a portion of the related revenue over time.
53
The calculation of Receipts is set forth in the table below for the following periods:
Combined
Combined
Successor
Successor
and
and
Successor
Predecessor
Successor
Predecessor
Three months ended
Nine months ended
September 30,
September 30,
(dollars in thousands)
2021
2020
2021
2020
Receipts
Total revenues
$
6,181
$
3,572
$
15,095
$
10,381
Change in deferred revenue (1)(2)
165
(132)
20,943
(421)
Total Receipts
$
6,346
$
3,440
$
36,038
$
9,960
Year-over-year percentage change in total Receipts
84%
262%
(1) As presented on or derived from our condensed consolidated statements of cash flows.
(2) Change in deferred revenue, for the nine months ended September 30, 2021, includes the first payment received in March 2021 of $20.0 million under one of our OEM agreements.
Liquidity and Capital Resources
EVgo has a history of operating losses and negative operating cash flows. As of September 30, 2021, EVgo had a cash balance of $521.1 million and working capital of $501.0 million. As of December 31, 2020, EVgo had a cash balance of $7.9 million and a working capital deficit of $43.6 million. The Company’s net cash inflow for the nine months ended September 30, 2021 was $513.2 million. We believe our cash on hand as of September 30, 2021 is sufficient to meet our current working capital and capital expenditure requirements for a period of at least twelve months from the date of this Quarterly Report.
To date, EVgo’s primary sources of liquidity have been cash flows from the CRIS Business Combination, government grants, strategic relationships with OEMs and loans and equity contributions from its previous stockholders, including Vision Ridge Partners and LS Power. EVgo’s primary cash requirements include operating expenses, satisfaction of commitments to various counterparties and suppliers, and capital expenditures (including property and equipment). EVgo’s principal uses of cash in recent periods have been funding its operations and investing in capital expenditures.
Following the consummation of the CRIS Business Combination, the Company Group is obligated to make payments under the Tax Receivable Agreement. The actual timing and amount of any payments that may be made under the Tax Receivable Agreement are unknown at this time and will vary based on a number of factors. For more information about these factors, see “Agreements Related to the Business Combination — Tax Receivable Agreement” in the Registration Statement. However, the Company Group expects that the payments that it will be required to make to TRA Holders in connection with the Tax Receivable Agreement will be substantial. Any payments made by the Company Group to TRA Holders under the Tax Receivable Agreement will generally reduce the amount of cash that might have otherwise been available to EVgo Inc. or EVgo OpCo. To the extent EVgo OpCo has available cash and subject to the terms of any current or future debt or other agreements, the EVgo OpCo A&R LLC Agreement will require EVgo OpCo to make pro rata cash distributions to holders of EVgo OpCo Units, including SPAC Sub, in an amount sufficient to allow the Company Group to pay its taxes and to make payments under the Tax Receivable Agreement. EVgo Inc. generally expects EVgo OpCo to fund such distributions out of available cash. However, except in cases where the Company Group elects to terminate the Tax Receivable Agreement early, the Tax Receivable Agreement is terminated early due to certain mergers or other changes of control or the Company Group has available cash but fails to make payments when due, generally the Company Group may elect to defer payments due under the Tax Receivable Agreement if it does not have available cash to satisfy its payment obligations under the Tax Receivable Agreement or if its contractual obligations limit its ability to make these payments. Any such deferred payments under the Tax Receivable Agreement generally will accrue interest at the rate provided for in the Tax Receivable Agreement, and such interest may significantly exceed the Company Group’s other costs of capital. In certain circumstances (including an early termination of the Tax Receivable Agreement due to a change of control or otherwise), payments under the Tax Receivable Agreement may be accelerated and/or significantly
54
exceed the actual benefits, if any, the Company Group realizes in respect of the tax attributes subject to the Tax Receivable Agreement. In the case of such an acceleration in connection with a change of control, where applicable, EVgo Inc. generally expects the accelerated payments due under the Tax Receivable Agreement to be funded out of the proceeds of the change of control transaction giving rise to such acceleration, which could have a significant impact on our ability to consummate a change of control or the proceeds received by our stockholders in connection with a change of control. However, the Company Group may be required to fund such payment from other sources, and as a result, any early termination of the Tax Receivable Agreement could have a substantial negative impact on our liquidity or financial condition.
Cash flows for the nine months ended September 30, 2021 and 2020
Combined
Successor
and
Successor
Predecessor
Nine months ended
September 30,
(dollars in thousands)
2021
2020
Cash flows used in operating activities
$
(17,797)
$
(20,262)
Cash flows used in investing activities
(62,441)
(11,935)
Cash flows provided by financing activities
593,452
37,401
Net increase in cash and restricted cash
$
513,214
$
5,204
Operating Activities. Cash used in operating activities for the nine months ended September 30, 2021 was $17.8 million compared to $20.3 million during the nine months ended September 30, 2020. The period-over-period decrease was primarily due to the increase in deferred revenue funds received of $21.4 million partially offset by a $15.5 million increase in net loss, excluding noncash adjustments.
Investing Activities. Cash used in investing activities for the nine months ended September 30, 2021 was $62.4 million compared to $11.9 million during the nine months ended September 30, 2020. The increase was primarily due to an increase in purchases of property, equipment and software of $27.7 million from increased chargers purchased, and more charging stations in construction during the nine months ended September 30, 2021 compared to the same prior-year period and $22.8 million paid, net of cash received, for the acquisition of Recargo, Inc.
Financing Activities . Cash provided by financing activities increased for the nine months ended September 30, 2021 by $556.1 million to $593.5 million compared to $37.4 million in the same prior-year period. The increase was due to $601.6 million in proceeds received in connection with the CRIS Business Combination, partially offset by $28.1 million in transaction costs paid in connection with the CRIS Business Combination.
Working Capital . EVgo’s working capital as of September 30, 2021 was $501.0 million, compared to a deficit $43.6 million as of December 31, 2020. The increase in working capital was primarily due to the proceeds received in connection with the CRIS Business Combination, net of the transaction costs paid.
Off-Balance Sheet Arrangements
EVgo did not have any off-balance sheet financing arrangements as of September 30, 2021 or December 31, 2020.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of our financial statements requires us to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses and related disclosures of contingent assets and liabilities. Managements bases these estimates on its historical experience and various other assumptions that it believes to be reasonable under the circumstances. Actual results experienced may vary materially and adversely from our estimates. Revisions to estimates are recognized prospectively.
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The Company’s significant accounting policies are discussed in Note 2 of the notes to the consolidated financial statements as of and for the years ended December 31, 2020 and 2019 for EVgo Holdco, included in the Super 8-K. The following is a significant change to these policies during the three months ended September 30, 2021.
Warrant liability
The Company accounts for its issued and outstanding warrants as liabilities at their fair value and adjusts the Warrants to fair value at the end of 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 the statements of operations. The fair value of the redeemable warrants sold as part of the units in the Company, which consisted of one share of Class A common stock and one half of one redeemable warrant of the Company (the “Units”), in the Company’s IPO (“Public Warrants”) has been estimated using the Public Warrants’ quoted market price as of September 30, 2021 and December 31, 2020. The Private Placement Warrants were valued using a Modified Black Scholes Option Pricing Model for initial and subsequent measurements.
Recent Accounting Pronouncements
For a discussion of EVgo’s new or recently adopted accounting pronouncements, see Note 2 of the Condensed Consolidated Financial Statements of EVgo as of and for the three and nine months ended September 30, 2021 and 2020.
Internal Control Over Financial Reporting
In connection with the preparation of the Company’s condensed consolidated financial statements as of and for the three and nine months ended September 30, 2021, EVgo Holdco’s condensed consolidated financial statement as of and for the nine months ended September 30, 2020 and the audit of EVgo Holdco’s consolidated financial statements as of and for the year ended December 31, 2020, material weaknesses were identified in its internal control over financial reporting. See the section titled “ Risk Factors —Financial, Tax and Accounting—Related Risks— We have identified material weaknesses in our internal control over financial reporting. If we are unable to remediate these material weaknesses, or if we identify additional material weaknesses in the future or otherwise fails to maintain an effective system of internal control over financial reporting, this may result in material misstatements of our consolidated financial statements or cause us to fail to meet our periodic reporting obligations ” in the Registration Statement.
Jumpstart Our Business Startups Act of 2012 (“JOBS Act”)
On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. Following the CRIS Business Combination, EVgo is an “emerging growth company” under the JOBS Act and is allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. EVgo elected to delay the adoption of new or revised accounting standards, and as a result, EVgo may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As a result, EVgo’s financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
As an “emerging growth company,” EVgo is not required to, among other things, (a) provide an auditor’s attestation report on our system of internal control over financial reporting, (b) provide all of the compensation disclosure that may be required of non-emerging growth public companies, (c) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis) and (d) disclose comparisons of the chief executive officer’s compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of the IPO or until EVgo otherwise no longer qualifies as an “emerging growth company.”
Following the CRIS Business Combination, EVgo was and currently is a “smaller reporting company” as defined under the Securities Act and the Exchange Act. EVgo may continue to be a smaller reporting company so long as either
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(i) the market value of shares of its common stock held by non-affiliates is less than $250 million or (ii) its annual revenue was less than $100 million during the most recently completed fiscal year and the market value of shares of its common stock held by non-affiliates is less than $700 million. If EVgo is a smaller reporting company at the time it ceases to be an emerging growth company, EVgo may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company, EVgo may choose to present only the two most recent fiscal years of audited financial statements in its Annual Report on Form 10-K and have reduced disclosure obligations regarding executive compensation, and, similar to emerging growth companies, if EVgo is a smaller reporting company under the requirements of (ii) above, EVgo would not be required to obtain an attestation report on internal control over financial reporting issued by its independent registered public accounting firm.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined in Rule 12b-2 under the Exchange Act. As a result, pursuant to Item 305(e) of Regulation S-K, we are not required to provide the information required by this Item.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.