EVgo Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Filed November 12, 2021. EVgo operates a public EV fast-charging network and provides charging, network, ancillary and fleet services, and sells regulatory credits. The July 1, 2021 SPAC business combination created an Up-C structure; EVgo consolidated EVgo OpCo while former owner EVgo Holdings retained approximately 74% of its units. Comparisons with 2020 combine predecessor and successor periods where indicated and are affected by changes in accounting basis and entity structure.
Financial performance and liquidity
| Metric | Q3 2021 | Comparable 2020 | Nine months 2021 | Comparable 2020 |
|---|---|---|---|---|
| Revenue | $6.2 million | $3.6 million | $15.1 million | $10.4 million |
| Gross loss | $1.7 million | $2.5 million | $5.0 million | $6.2 million |
| Gross margin | (26.7)% | (71.3)% | (33.2)% | (59.7)% |
| Operating loss | $25.9 million | $13.0 million | $59.7 million | $42.0 million |
| Net income (loss) | $23.6 million | $(7.5) million | $(11.4) million | $(32.7) million |
| Adjusted EBITDA, non-GAAP | $(14.3) million | $(5.4) million | $(35.1) million | $(15.1) million |
Q3 net income included a $49.6 million noncash gain from remeasurement of warrant and earnout liabilities; $17.5 million of net income was attributable to noncontrolling interests. Income attributable to Class A shareholders was $6.1 million, or $0.09 per share. The nine-month loss reflects operating losses despite those fair-value gains.
- Revenue mix and growth: Q3 retail charging revenue rose 101% to $3.2 million and fleet charging rose 64% to $0.7 million; ancillary revenue rose 122% to $1.1 million, partly reflecting the Recargo acquisition. OEM charging revenue fell 31% to $0.2 million and regulatory credit sales fell 10% to $0.7 million. For nine months, retail charging grew 80%, while regulatory credit sales declined 28% to $1.9 million.
- Operating trends: Q3 throughput doubled to 8.0 GWh from 4.0 GWh; the network had 1,595 DC stalls versus 1,412 a year earlier. Nine-month throughput was 18.2 GWh versus 11.5 GWh. Gross margin improved, but operating loss widened as general and administrative expense increased 161% in Q3 to $20.9 million, including higher payroll and share-based compensation, professional services, development and insurance costs.
- Cash flow: For nine months, operating cash used was $17.8 million, investing cash used was $62.4 million, and financing cash provided was $593.5 million. Investing included $39.7 million of property, equipment and software purchases and $22.8 million for Recargo, net of acquired cash. Financing primarily reflected the business combination.
- Liquidity and debt: September 30 cash was $520.4 million, plus $0.8 million restricted cash; working capital was $501.0 million. At December 31, 2020, cash was $7.9 million and working capital was negative $43.6 million. Management said cash on hand should cover current working-capital and capital-expenditure needs for at least 12 months from the filing date. The $59.6 million related-party note, including accrued interest, was converted to equity at the business-combination closing; no note payable remained at quarter-end.
- Balance sheet: Total assets were $759.6 million and total liabilities $130.8 million. The balance sheet also reported $1.596 billion of redeemable noncontrolling interest, measured at redemption value, and a $967.0 million stockholders’ deficit. Warrant liabilities were $33.6 million.
Material changes and transactions
- The July 2021 CRIS business combination generated $601.6 million of reported financing proceeds; the filing separately reports $572.1 million of net cash proceeds after transaction costs and redemptions. The former owner’s related-party note was converted into equity, and the company began trading as EVgo on Nasdaq.
- EVgo acquired Recargo, an EV data and software business, on July 9 for approximately $25.0 million. The preliminary purchase allocation included $14.3 million of intangible assets and $8.9 million of goodwill. Recargo contributed approximately $0.6 million of revenue and $1.4 million of net loss from acquisition through September 30.
- In Q3, EVgo reclassified certain operating costs from cost of sales to general and administrative expense. Prior periods were revised; the change had no effect on operating loss, net income or earnings per share.
- Share-based compensation was $5.3 million for the nine months. The company reported $18.1 million of unrecognized RSU compensation expense expected to be recognized over a weighted-average 1.5 years.
Outlook, risks and unusual items
- Management expects continued network expansion and expects general and administrative expense to rise in absolute dollars, while declining over time as a percentage of revenue. No quantified revenue or earnings guidance is provided.
- COVID-19 had delayed commissioning of more than 400 chargers by six to nine months and caused construction, permitting, host-site and supply-chain delays. Q3 charging revenue was 40% above the last pre-COVID quarter, but management also described uncertainty and potential continuing adverse effects on revenue, regulatory credit sales, operations and cash flows.
- Under the GM agreement, EVgo must install 3,250 stalls by 2025 and maintain network availability of at least 93%. Failure to meet milestones or availability requirements could lead to termination and liquidated damages of up to $15 million. EVgo said it was not in default as of September 30. The Nissan program also has build deadlines and potential penalties for delayed sites.
- The Tax Receivable Agreement generally requires payment to former owners of 85% of certain realized or deemed tax savings. Early termination or a change of control could accelerate payments, potentially exceeding realized tax benefits and pressuring liquidity.
- A former-stockholder dispute seeks $5 million in contingent compensation. Management considers the claim without merit and the liability remote; EVgo Holdings agreed to indemnify losses up to $7 million, including legal costs. The filing says EVgo was not a party to other material legal proceedings.
- Management concluded disclosure controls were not effective at September 30 because of material weaknesses in financial-reporting controls, including segregation of duties, reconciliations, technical accounting review, journal-entry review and asset-retirement estimates. Remediation could continue beyond 2022 and is expected to require significant costs and resources. Management nevertheless stated the reported financial statements were fairly stated in all material respects.
- EVgo highlighted risks from EV adoption and usage, competition, regulatory and incentive changes, technology, construction execution and regulatory-credit price volatility. The filing said there were no material changes to previously disclosed risk factors.
Key facts for investors to verify
- How much of Q3 reported net income reflects the noncash warrant and earnout fair-value gains, and what underlying operating trends are evident in adjusted EBITDA and cash use?
- Whether charger deployment, utilization and network reliability meet GM, Nissan and other customer milestones, and whether construction and supply-chain delays persist.
- How the business combination’s Up-C structure, redeemable noncontrolling interest, potential OpCo exchanges and Tax Receivable Agreement may affect future ownership, cash distributions and liquidity.
- Whether EVgo remediates the disclosed material weaknesses on schedule and at what cost.
- Whether regulatory-credit revenue, customer concentration and OEM contract receipts remain dependable as the network expands.