2023-03-30 13:25:37 ET
Summary
- EVgo is rallying on a quarterly revenue beat, but the company continues to pile on large losses.
- The fast-charging company forecast another year of massive losses and investments in 2023.
- EVGO stock trades at a very rich valuation of nearly 20x low-end '23 sales targets of $105 million.
EVgo (EVGO) is surging on a quarter that beat analyst estimates. The market needs to carefully reassess the results of the EV fast charging company before deeming any value in the stock. My investment thesis remains ultra bearish on the stock after the company guided to substantial losses in 2023.
Source: Finviz
Tough Business Model
The biggest problem hurting people investing in the EV charging station space is misunderstanding the disconnect between future demand and current investment requirements. In the case of EVgo, the company is required to invest heavily in a charging station network prior to the existence of EV charging demand.
A prime example is the Q4'22 results where EVgo reported another massive loss. The company did smash revenue estimates and report shocking growth for the quarter, but the charging station company just piled on more losses selling fast charging equipment.
Analysts forecast Q4 revenues at $20.1 million and EVgo delivered a shocking headline revenue beat. Once investors dig into the numbers, the eXtend revenue mainly from the Pilot Flying J deal jumped to $16.7 million in the quarter, up from only minimal amounts in the prior quarter.
What's important to understand is that EVgo still reported an adjusted EBITDA loss of $20.1 million. The company reported a similar loss back in Q3 on revenues of just $10.5 million.
EVgo didn't provide details on the different profit margins of each revenue sector, but the general sector operation is to provide equipment at close to cost while trying to make the margin on actual charging or software revenues. In this case, the charging revenues were only ~$7.5 million in Q4'22.
The problem here is that adjusted EBITDA losses are bad enough, but this number doesn't capture the full picture with EVgo. The company spent $66.4 million on capex during the quarter alone and the adjusted EBITDA metric completely eliminates this cost by excluding depreciation costs along with interest expenses.
A prime example of the true deprecation costs of the charging stations is that the company had to already update old stations. EVgo upgraded 100 stalls last quarter and had to retire 160 stalls.
Massive Dilution Ahead
The good news for shareholders is that EVgo has jumped above $7 allowing the company to sale shares at a decent price. The bad news is that management sold 1.6 million shares for $10.4 million in the last quarter.
EVgo ended 2022 with a cash balance of $246 million, down from $485 million in the prior year. The 2023 guidance is for another adjusted EBITDA loss of $50 to $78 million leading to extensive cash burn.
For 2022, the EV fast charging station company burned $58.8 million from operations while spending $200.3 million on capex. The company has massive plans to expand the network in 2023 and beyond with a pipeline of ~4,000 stalls after only installing 670 in 2022.
Along with the Q3'22 earnings call , CEO Cathy Zoi highlighted a plan to raise up to $200 million in at-the-market stock sales:
With this in mind, after we file our third quarter 10-Q, EVgo is planning to file a prospective supplement to our recently filed S-3 in order to facilitate at-the-market sales of up to $200 million of our common stock. We plan to use the proceeds of this ATM program to opportunistically raise additional capital in order to take advantage of this robust and accelerating EV infrastructure sector.
Considering EVgo burned $249 million last year, the cash balance at the end of 2023 won't possibly cover the investing in the network during 2023. At the current market cap of nearly $2 billion, the fast charging company can raise additional cash at a reasonable dilution level.
The risk is the company being left with the need to raise cash on any weakness in the stock price. While the high stock price is good for reducing future dilution, EVgo has a $2 billion market cap with 2023 revenue guidance as low as $105 million with the upside to $150 million, mostly due to more low calorie eXtend revenues along with NEVI-funded projects.
The stock trades at upwards of 20x sales targets with large adjusted EBITDA losses ahead and significant cash burn from capex.
Takeaway
The key investor takeaway is that EVgo has a tough business model to understand how shareholders are ever rewarded. One must place aside feelings on the benefits of EVs and the needs of charging stations in order to make a smart investment decision.
The company has too much cash burn and share dilution ahead to warrant an investment. Investors should use the rally to sell EVgo.
For further details see:
EVgo Q4 Earnings: Not An Exciting Quarter