Q1 2024 EVgo Inc Earnings Call

Participants

Heather Davis; VP, IR; EVgo Inc

Badar Khan; Chief Executive Officer, Director; EVgo Inc

Olga Shevorenkova; Chief Financial Officer; EVgo Inc

Gabe Daoud; Analyst; TD Cowen

Chris Dendrinos; Analyst; RBC Capital Markets

Stephen Gengaro; Analyst; Stifel, Nicolaus & Company, Incorporated

Chris Pierce; Analyst; Needham & Co.

Andres Sheppard; Analyst; Cantor Fitzgerald & Co.

Bill Peterson; Analyst; JPMorgan

Presentation

Operator

Thank you for standing by, and welcome to the EVgo First Quarter 2024 earnings conference call. (Operator Instructions) Thank you. I'd now turn the call over to Heather Davis, Vice President, Investor Relations. You may begin.

Heather Davis

Good morning, and welcome to EVgo's First Quarter 2024 earnings call. My name is Heather Davies, and I'm the Vice President of Investor Relations at Veeco. Joining me on today's call are Badar Khan, EVgo's Chief Executive Officer, and Olga Shevorenkova, EVgo's Chief Financial Officer. Today, we will be discussing EVgo's first quarter financial results and our outlook for 2024, followed by a Q&A session.
Today's call is being webcast and can be accessed on the Investors section of our website at investors dot Veeco.com. The call will be archived and available there along with the company's earnings release and investor presentation after the conclusion of this call.
During the call, management will be making forward-looking statements that are subject to risks and uncertainties, including expectations about future performance factors that could cause actual results to differ materially from our expectations are detailed in our SEC filings, including in the Risk Factors section of our most recent annual report on Form 10-K. The Company's SEC filings are available on the investor section of our website. These forward-looking statements apply as of today, and we undertake no obligation to update these statements after the call. Also, please note that we will be referring to certain non-GAAP financial measures on this call. Information about these non-GAAP measures, including a reconciliation to the corresponding GAAP measures, can be found in the earnings materials available on the Investors section of our website.
With that, I'll turn the call over to Badar Khan, EVgo's CEO.

Badar Khan

Good morning, everyone, and thank you for joining us today. Before I begin the call, I'd like to take a moment to congratulate and thank all of you. In addition to our first quarter financial results today, we also announced that August will be departing the Company at the end of the month to pursue a different opportunity with a private company. Olga has been a trusted and valued partner to me since I joined the Vigo and has been critical in driving the success of the Company since he joined de Vigo as a private company six years ago, on behalf of the entire Indigo family, we wish her well in her future endeavors. Many of you know, Stephanie Li, our SVP of Accounting and Finance, who will serve as interim CFO from the time of August departure until a permanent successor is onboard. We are well underway with the search process and look forward to updating you when we have news to share.
I will now turn to our results for the quarter. EVgo posted yet another excellent quarter, more than doubling revenue and nearly tripling throughput year on year nine. Tesla electric vehicle sales grew 29% year over year, demonstrating continued demand for EVs. With the level of utilization we continue to see at our network. We not only have a clear path to EBITDA breakeven in 2025. But with the operating leverage in the business, we expect we could have annual adjusted EBITDA of $200 million in three to five years' time, representing a very compelling investment.
I'm excited to share our results from Q1 with you today as well as talk about our key priorities over the next year or so let me also take a moment to address the change in our competitive landscape. If Tesla's decision to halt further growth of charging stations was designed to allow them to focus on their automotive business and particularly more affordable vehicles than this will be a positive for EV adoption. We know from experience both here in the U.S. as well as in other countries that affordability is a key driver of mass adoption. Companies like EVgo are now adding public charging stations at a pace that didn't exist when Tesla began their supercharger business.
In fact, I expect capital will be more interested in participating in this space in this new competitive context, allowing companies like ITO to plug the gap left behind and accelerate their charging station growth. We added over 900 stores last year, most of which were state of the art ultrafast three 50 kilowatts stations faster than Tesla's to 50 kilowatts Supercharger network. We're excited to be able to add next connectors to our chargers later this year. And welcome more tests the drivers to our network as well as help site hosts Durbin far along the process of adding new DC, fast charging stations and of course, offer employment to as many talented employees as we can.
As we've discussed in our last two calls, we see very strong unit economics in our business and expect to see that continue for the foreseeable future as EV demand exceeds supply of charging stations.
Now turning back to our earnings. This past quarter. We had a great first quarter in 2024, with throughput nearly tripling year over year, while revenues grew just over twofold. Revenues from the owned and operated charging network grew faster. We grew our operational stores by 38% and are on track to add 800 to 900 new owned and operated stores this year. Customer counts continue to grow faster than VIO. growth in the first quarter than we were just under 1 million at the end of the quarter. We continue to see clear evidence of operating leverage that we've talked about in detail in our last two calls, with both expanding adjusted gross margins, especially in our owned and operated business and in adjusted G&A, translating into strong bottom line improvement year over year. You guys' model is unique in that we own and operate DC fast charging stations where customers are going about their lives.
Our growing network of over 1,000 locations within a 10 mile drive for over 145 million Americans. And we have a network plan and strategic site hosts that allow EVgo to continue our rapid expansion serving more EV drivers. Demand for EVs, especially amongst non tester brands, remained strong this quarter with new BEV. sales up almost 30% year over year. This past quarter, we saw especially strong sales growth from Ford, Rivian, Hyundai and Kia.
More affordable EV models are coming supporting the growth of DC fast charging as these models tend to attract a higher share of customers without access to home charge. It's also worth remembering that the number of BEV.s sold this quarter is roughly equal to what was sold in all of 2020. Although noncash vehicles account for the vast majority of our network throughput today, we expect to start adding next connectors to our chargers later this year. And given our locations tend to be closer to our EV drivers live and go about their daily lives and our networks increasingly ultrafast three 50 kilowatt chargers versus testers to 50 kilowatt superchargers, and we offer convenient customer features like auto Charge plus we look forward to welcoming more Tesla vehicles onto our network.
As we discussed in our financial webinar a few weeks ago because of our proprietary network planning, resulting in carefully selected site locations and conservative underwriting process. We have very compelling unit economics. We reached a level of scale in kilowatt hours per store that enabled us to generate positive annual cash flows on a per-store basis by the end of last year and in Q4 2023, the top 15% of our stores were generating over $30,000 per store on an annual basis.
As a reminder, throughput is the product of charge rate and utilization multiplied by 24 hours charge rate is the speed with which EVs take energy into the car. And utilization is the percentage of time an individual store is being utilized over the past two years, we have seen very strong increases in both utilization and charge rate, resulting in near quadrupling in daily throughput per store in three to five years' time, we expect to have around 7,000 stores. And at that point, we would expect cash flow per store across the whole network to be around $37,500 per store annually driven mostly by increased charge rates and a conservative utilization assumption and a level of throughput per store already achieved by the leading edge of our network.
Today, this level of annual cash flow provides a very strong return when considering we're expecting around $96,000 net CapEx per store for 2024 vintage stores. And that's before any CapEx reductions. We would expect to see over time, some of which I will talk about later on this call.
As we've described in our prior two calls, EVgo has significant operating leverage with around 40% of our cost of sales in charging network gross margin is fixed per store and around 70% of adjusted G&A is fixed across our existing site host partners. We've identified approximately 10,000 stores that currently pencil to our double-digit return expectations.
But we've assumed here that we will continue store growth at the 800 to 900 new stores per year that we're currently growing. We're making good progress in securing financing that allows us to grow at least at that rate, which I'll cover later, taking the estimates from the prior slide and assuming 7,000 stores, our owned and operated network would generate significant contribution dollars that fall straight to the bottom line. Once fixed G&A costs have been covered and taking those same estimates, we expect to roughly $70 million of fixed costs to be covered by full year 2025. And therefore, the scale of 7,000 stores in three to five years' time, the company will be generating around $200 million in adjusted EBITDA annually with very significant continued growth beyond that.
Of course, this is prior to the contribution of any extend or ancillary and tech-enabled services. Not only does our business benefit from such strong operating leverage, but we also benefit from a significant tailwind in the form of rising charge rates. As we have said before, the charge rate on our network is a function of the speed that batteries can be charged and the average power rating of EVgo chargers on our network. Both are rising vehicles sold today have significantly higher charge rates than the average charge rates of all BEV.'s on the roads, which will include many older vehicles with lower charges.
In fact, over 80% of all BEV. sold today have charged rates over 50 kilowatt and over 50% are over 90 kilowatt. We conservatively assume battery electric vehicles are sold using a 2023 sales mix with no improvements to either vehicle mix or battery technology. And that represents roughly 70% of the assumed increase in charge rate from 43 to 80 kilowatts across our network in three to five years' time.
EVgo continues to add mostly three 50 kilowatt charters to our network. And today, nearly 40% of our network is 350 kilowatts versus 22% a year ago. Therefore, the average mix of our charger network also increases over time and contributes the other 30% of the assumed growth in network charge rate. The combination of the two lease charge rates are expected to improve significantly benefiting the Company.
High charge rates means the same kilowatt hours can be dispensed over much less time, meaning we realize the same return with lower utilization. Our charge rates drive three sources of upside that we are not assuming first higher charge rates could drive up EV adoption because customers favor faster charging times higher. Ev adoption drives up utilization, second, higher charge, which could actually drive up the share of DC fast charging because customers are able to charge their cars for the same number of miles, much faster leading customers to become more confident in on-the-go public charging and less concerned with charging at home. Therefore, higher charge rates could lead to higher utilization and thus even higher returns per store.
If we had the same utilization in three to five years' time as the top 15% of our stores today with 80 kilowatt charge rates, we would double the cash flow per store to over $75,000 annually. And third, higher charge weights translate into much improved CapEx efficiency because it allows a smaller number of chargers for the same kilowatt hours to spend. Again, we have not assumed any of these upsides or any improvements in battery technology nor improvements of the mix of new vehicle sales in our expected economics in three to five years' time.
Let's now turn to our four key priorities over the next year or so first. And as you've heard a lot on prior earnings calls, we remain focused on improving the customer experience. Second area we will discuss further in future calls are the steps we are taking to improve efficiency in the business above and beyond the operating leverage we've talked about on the past two calls third, another area we will discuss more in future calls are the initiatives we are now putting in place to ensure we are attracting and retaining a greater number of higher value customers on our network.
And finally, we will provide a little more detail on progress on securing financing to get to free cash flow breakeven on customer experience. We know that there are four things that customers value the most first having lots of stores at a site. So they never have to wait for a charge. Second, a high-powered chargers available. So they can fuel up quickly, third, having reliable solution that works right on the first trial.
And fourth, a hassle free payment process for customers just plug the connector in and the payment is processed automatically. Over the past quarter, we made progress on each of these key metrics. We continue to deploy mostly six stores per site. And so the percentage of sites with six stores or more continues to rise. And we are aiming for around 20% by the end of this year. We're mostly also only deploying three 50 kilowatt chargers now and so the percentage of stores with three 50 kilowatt chargers have nearly doubled year over year, and we expect that to be close to 50% by the end of this year. One-and-done also continues to rise, and we expect another step-up in performance in Q4 when we release a key software update.
And finally, the percentage of sessions initiated with auto Charge plus has also increased significantly. And now that more than 50 models are part of this program, we expect to see continued growth in this metric during 2024. We believe the benefit of these improvements will ultimately result in customers gaining further confidence in public charging, driving up utilization and throughput on our network.
As EVgo continues to scale rapidly, we've begun to turn our attention to identifying and delivering efficiencies, not just in operating costs, but also in the capital costs of the charges. In November last year, we began prefabrication of stations, which is expected to result in an average of 15% of the construction costs of a station at eligible sites and also to reduce station installation time lines by as much as 50%. We expect over a third of stores operationalized in 2025 to benefit from this approach, and we continue to grow this over time.
Our core owned and operated business has very compelling unit economics and enormous growth potential. In January of this year, we streamlined and refocused Certen teams to support near-term growth efforts in this core area. This strategy is already beginning to show in our financial results. In addition, over the course of this year, we began implementing multiple upgrades to our ChargePoint management system, including releases that allow for predictive maintenance and automated diagnostics capabilities that will directly lead to fewer truck rolls, fewer customer calls and faster customer issue.
Resolution call center costs are a sizable portion of our sustaining G&A and are expected to decline this year as we complete the offshoring of around 90% of our core volume, which is anticipated in Q3 this year. The combination of all these efforts is expected to lower our sustaining G&A per store run rate by around 15% by the end of this year.
On the CapEx side, in addition to the prefab aluminum skids for station construction. We began last year, we're implementing a series of incremental improvements, including a transition from copper to aluminum conductors, multi-sourcing switchgear and various other EPC improvements that collectively aim to deliver around a 10% reduction in operationalized charger cost per store for 2025 vintage stores. We're also engaged in exploring joint development of next generation charge in architecture with an industry-leading partner that aims to lower CapEx per store by as much as 30% and a step change in customer experienced due to a customer focus design and improved firmware, with first deployments expected in the second half of 2026.
This level of improvement in CapEx per store could improve our IRRs by at least 7 percentage points. Indigo has had success in growing our recurring customer base through B2B relationships like our OEM charging credit programs as well as our rideshare programs. And together with our subscription plans these programs account for over half of our throughput today. In other words, over half of our throughput comes from higher usage, relatively predictable customer segments that represent stickier kilowatt hours. We reached almost a million customer accounts at the end of the quarter. The significant milestone of EVgo underscoring the quality of the EVgo network. We believe our scale and position among customers is a competitive advantage that allows us to target and attract more higher value retail customers as well as increase the value of existing customer relationships.
To that end, we hired a new EVP of growth. Scott Levitt earlier this year, who brings a wealth of experience and track record in exactly these activities from companies like Google recovery and Philips Electronics. We started executing segment-specific marketing campaigns using low-cost methods to identify, attract and retain customers who are most likely to be attracted by our convenient charging network, close to where they live work and go about their lives.
We've also begun piloting new automated demand-based dynamic pricing that is now live across a portion of the network with a phased expansion planned during the course of this year in Q2 this year, these efforts will be significantly enhanced when we expect to go live with the modernized customer data platform. All of these efforts are expected to not just ensure we continue to grow our customer base at a faster pace than EVgo growth, but also increased the throughput and average unit margins per customer.
Our remaining key priority in the near term is to secure additional funding that allows us to reach a level of scale where we are self-financing, but also accelerate the rate of new stores, operationalized per year from the 800 to 900 we are expecting to add this year, we plan to build on the track record already established with successful grand collections in prior years, a successful partnership with GM on the follow-on offering we completed in May last year.
We continue to have substantial additional capacity under the ATM program we launched in November 2022, and we believe we're also making progress in pursuing nondilutive financing options. As we've discussed, we expect around 40% of 2024 vintage CapEx to be offset from grants, OEM payments and incentives, including executing on our first 30 C transaction over the next few months that provides us with sufficient capital to continue our CapEx plans well into 2025.
We continue to be pleased with the dialogue we're engaged in with the DOE loan program office for loan under the Title 17 clean energy financing program. We believe we have a high-quality loan application that addresses the need for more public charging infrastructure built at scale across the US. While we have not disclosed the quantum of loan, we are seeking I can advise that if we are successful, we believe it will be sufficient to not only expedite our journey to self financing, but also meaningfully accelerate the annual rate of store growth.
Given the unit economics we've disclosed, we are now also concurrently engaged in multiple potential options for further commercial nondilutive financing that could be contemplated alongside the DOE loan. Indeed, spring commercial bank financing for new asset classes is an intended goal of the deal we loan program office. I'll now hand over the call to Olga, who will run through our strong financial performance for the first quarter of this year.

Olga Shevorenkova

Thank you. Bought our before I dive into EVgo 's first quarter 2024 financial results, I wanted to express gratitude for having had an opportunity to serve as EVgo's Chief Financial Officer, made part of the team focused on growing the EVgo over the past six years and working closely with our investors and analysts has been a pleasure and a remarkable journey. I am proud of all we have accomplished. I'm excited about the path forward. We have a well-planned transition in place, as Bahram mentioned, and the deep bench of talent in the finance organization that will ensure a smooth handoff.
With that said, I will now discuss our first quarter results. EVgo started 2024 delivering another strong quarter of growth and execution. Revenue in the first quarter was $55.2 million, which represents an 118% year over year increase. This growth was primarily driven by increased charging revenue. Retail charging revenues of $18.3 million grew from $6.6 million in the first quarter of 2023, exhibiting a 177% year over year increase.
Commercial charging revenues, which primarily includes revenue from our rideshare partnerships of $5.8 million, increase from $1.7 million in the first quarter of 2023, exhibiting a 240% year over year increase and extend revenue of $19.2 million grew from $10.3 million in the first quarter of 2023, increasing 86% year over year.
We added 250 new operational installs in Q1, including the Extend. Total stores in operation were approximately 3,240 at the end of March 2024, including 130 EVgo extend store, increasing 38% from the end of March 2024. During the first quarter of 2024, EVgo added 109 new customer accounts, which shows 63% increase versus 67,000 customer accounts added in Q1 2023. EVgo ended the quarter with more than 981,000 customer accounts, 60% increase over the end of Q1 2023.
EVgo's network throughput continues to grow, reaching over 53 gigawatt hours and nearly tripled year over year and again grew over four times faster than the growth in VIL. I would like to reiterate what drives the growth. First and foremost, EV adoption continues. And as Badar has just mentioned, non Tesla EV sales, which is the market EVgo primarily addresses today increased 29% year over year in the first quarter.
Second, easy buyers are shifting from only two months adopters with a higher portion of multiunit dwell. The EV vehicle miles traveled is increasing nearing parity with internal combustion engine vehicles. Fourth, rapid growth in rideshare, and finally, heavier less efficient EV models. As a result, utilization averaged approximately 19% across the network in the first quarter of 2024, 53% of our stores had utilization greater than 16%. Over 40% of our stores have utilization greater than 20% and over 20% of our stores had utilization greater than 30%.
As I touched on earlier, revenue grew 118% in the first quarter of 2024 to $55.2 million. Adjusted gross profit was $17.3 million in the first quarter of 2024, up from $6.4 million in the first quarter of 2023. Adjusted gross margin was 31.3% in the first quarter of 2024.
Q1, revenue usually includes breakage related to our Nissan contract. In Q1 2024, breakage revenue was roughly $2.5 million when removing debt adjusted gross margin was 28% in Q1, which is more in line with our expectations of mid to high 20s for the rest of 2024.
When you compare this adjusted number to similar adjusted number from Q1 2023, we still see an increase of 11 percentage points from 16.8% in the first quarter of '23, demonstrating the leverage effect of throughput and corresponding revenue growth on the store dependent components of cost sales. Adjusted G&A as a percentage of revenue improved significantly from positive 104.6% in the first quarter of 2023, 44.4% in Q1 of this year, demonstrating the leverage effect from G&A. Adjusted G&A went from $26.5 million in Q1 2023 to $24.5 million in Q1 2024, clearly illustrating our focus on lean operations and path to profitability.
Adjusted EBITDA was negative $7.2 million in the first quarter of 2024 a $12.9 million improvement versus negative $20.1 million in the first quarter of 2023. Cash, cash equivalents and restricted cash was $175.5 million as of March 31st, 2024. Cash used in operations was $14.1 million in the first quarter, narrowing from the first quarter of 2023.
Capital expenditures were $21.1 million in the first quarter. Capital expenditures, net of capital offset was $13.6 million in Q1 of 2024. Now turn into reconfirming our 2024 guidance, we will continue to expect full year 2024 revenue to be in a range of $220 million to $270 million and adjusted EBITDA to be in the range of negative $48 million to negative $30 million. We continue to expect capital expenditures net of capital offset be in the $95 million to $110 million range was the main use of CapEx and 800 to 900 new EVgo on stalls this year.
We are as confident as ever, that EVgo goes on a clear path to an important inflection point in our business, hitting adjusted EBITDA breakeven, even though expect to be adjusted EBITDA breakeven for the full year of 2025. This is based on the expectation that electric vehicles and operations will continue to grow as an easy goal will continue to expand its network and realize operational efficiencies. We'll look forward to sharing our progress in 2020 for you throughout the year. Operator, we can turn the call over to Q&A.

Question and Answer Session

Operator

(Operator Instructions) Gabe Daoud, TD Cowen.

Gabe Daoud

Again say thanks and morning, everybody or good morning, everyone, and congrats, Olga on the new opportunity, but I was hoping we could just maybe get some general thoughts on the A piece of news that hit recently or around Tesla and playing off the Supercharger team and that may be impacting the pace at which they grow the Supercharger network.
Can you maybe just give a little bit of context or thoughts around how this could impact the V-Go in both maybe the near and long term from a market share perspective?

Badar Khan

Thanks, Gabe. This is a fairly significant change in the competitive dynamic in the charging space. I think it's positive for the sector. And for EVgo, it's positive in my mind because it allows Tesla to focus on cars and more affordable cars as they've been talking about recently and with the model two, I think that's great for EV adoption. I think we all see that affordability. It is a key driver of shifting from early adopters to the mass adoption. We see that from almost all the other OEMs on their earnings calls in terms of building out more affordable vehicles. So I think that's a positive. I think it's a it's very positive for EV go. I think that we have talked about very strong economics here on this call, and I expect to see that continue for frankly that or improve in the foreseeable future.
I expect to see that demand exceeds supply of charging stations for some time. And companies like EVgo just really didn't exist 12 years ago when the when tested began a supercharger business, but they exist today. We added over 900 stores as we said last year, which are state-of-the-art ultrafast three 50 kilowatt chargers. I expect that capital will be more interested in participating in this space in this new competitive dynamic, allowing companies like ourselves and others to to pick up some of the slack in terms of charging station growth that Tesla may be leaving behind.

Gabe Daoud

Perfect. That's helpful. That's great color. And then I guess just as a follow-up, maybe switching gears to financing. You noted about are in I mean, in your prepared remarks, 30 C. maybe set to kick off over the next couple of months. Is there any additional color you can provide on just expectations? And maybe remind us if that [800 to 900] new stores this year are fully qualified for that 30% reimbursement.
And then the second part of that question is, Jeff, the DOE loan process. If you can maybe just dial in a bit more detail on that and maybe specifically just timing around when you think we can get an answer.

Badar Khan

No, sure. Sure. So maybe I'll ask Olga just to comment on the 30 C. transaction over the course of this year. But if I start with the DOE loan and look, we we think we have a very high-quality application in front of the DOE loan program office, which and we've been under in dialogue with them for quite some time.
At this point, we're pleased with our progress. We know it's a very important part of President Biden's agenda. And given again, I think the unit economics that we've shared with you on this call and previous calls, I think which would suggest that I think anyone would look at this and think this is a pretty good, a pretty good investment.
And in terms of timing, this is not a a 2025 thing. We are expecting us to be if we're successful to be to be over the course of this year. We have not shared a quantum, but what I can share with you is that we'd expect the quantum here to accelerate our rate of growth from the [800 to 900] stores that we're doing this year, the 900 plus that we did last year and at the same time, accelerate our point our journey to free cash flow breakeven at a higher rate of store growth. That's that's what we're looking at for the DOE loan. Of course, it's not our only source of non-dilutive financing. Again, as I said before, I think that the economics here are very attractive and will attract capital to this business.
And I think that will increase with this. The landscape that we've just talked about last week. And we are engaged in conversations with counterparties around the similar sorts of financing, non-recourse project financing. And so those are things that can be done in combination with the DOE loan program, office loan. And then also if you want to just provide a little insight from the third again.

Olga Shevorenkova

And maybe a little a little add on about the DOE loans were applying under Title 17 of that LTO program and gave you free to do research and see what kind of other companies did that and what quantum they obtained, I think it will give you a good feel for what we're looking for as well. And on 30 c., roughly 35% to 40% of our portfolio last year and this year qualifies we're working on are effectuating the first transaction and sale.
Our 2023 portfolio will be the first one of the first transactions done of this map of this nature in the industry and certainly will be the first one for EVgo. So takes a little bit of time to put the to put them and the transaction documents in place. But we see a very strong interest for the set of portfolios. And it is clear to us that the very robust market is emerging to be able to trade these credits in the future on a regular basis.

Gabe Daoud

Okay.
Okay.
That's great. Very helpful. But Arnaud, thanks.
Thanks so much again.

Badar Khan

Thanks, Kate.

Operator

Chris Dendrinos, RBC Capital Markets.

Chris Dendrinos

Good morning. Thank you. I think I guess I wanted to kind of dial in a little bit into on the operations side of things and maybe just start here on the throughput, it looks like maybe December, I want to say it was around 201 kilowatt and so the implied in the quarter was a bit lower on that kilowatt hours per day. Can you just kind of talk about the dynamics there? Is there any sort of seasonality going on? Or how should we kind of think about, I guess, throughput growth going forward?

Badar Khan

Yes, Chris, that's exactly at its seasonality where we've been growing so fast over the last couple of years. We haven't even seen it in our numbers, but we're finally seeing it. And that's really hit April's throughput per store per day. It's well over 210 kilowatt hours per store per day. So that's in line with what we were expecting.

Chris Dendrinos

Thank you. And then I'm I guess I think I think you mentioned some some software updates that might have been going out later this year. Can you kind of just update us on sort of what's going on there and the expectations for that?

Badar Khan

Yes. It's look, we it was a company we have been so focused on building a growth engine that can add a very carefully selected stores that generate that we expect to generate very strong returns. That's the proprietary network plan and site selection process. We've really refined that to a point where it's I think it's just humming super nicely. We shared, I think on the Q4 call that we're actually exceeding our throughput expectations versus the modeling that we've done.
So we think that we're it's a great process, but it's also one that's conservative but really we're really shifting our focus from not just building the growth engine but to making it more efficient. And that is something that we can do today as a result of the scale of the business, and we see that showing up in multiple areas, one of which is the inefficiencies in the operating cost of the business. There are multiple software and process improvements, none of which are, frankly, they're not there are not things that are things that haven't been seen elsewhere in pretty much every other industry in the world.
We're just deploying the technology today. And those are things that allow us to have a better sense of predictive maintenance diagnostics around our equipment where they're not performing as we'd expect it will be software in terms of handling customer calls in a way that allows us to expedite resolution faster. Again, these are not these are not game changing technology improvements, which is bringing what exists in other and other sectors to our own sector. And in terms of expectations, we shared with you our sustaining G&A cost per store in our on the webinar and in fact, assure that it is one of the slides here, fairly significant reduction of the next three to five years. We're expecting the software updates just for this year to lower sustaining G&A by a by around 20% run rate, so Q4 versus Q4 last year.

Chris Dendrinos

Got it. Okay.
Thank you very much.

Badar Khan

Yes.

Operator

Stephen Gengaro, Stifel.

Stephen Gengaro

Thanks. Good morning, everybody. I think two from me from the first, Tom, you had a you had a good a good first quarter and you kind of reaffirmed your guidance for the year. When we think about your 2025, you talked about EBITDA breakeven. It feels almost a little conservative versus kind of where the path you're on right now.

Badar Khan

So I was just kind of curious if you could, if you could if you could comment on those expectations and what drives you there to where we were very pleased with that quarter this year, we have three more quarters to go. And so we just came out with our guidance for this year and also for EBITDA breakeven just sort of seven or eight weeks ago.
So we thought it was too early to make any changes to that. I can tell you that it would change the competitive dynamic that we've just been talking about it awareness as a for instance, we're in a conversation with many site hosts across the United States that were well along the path towards putting in DC fast charging stations in their locations for the first time that our stock.
And we're, of course, happy to be able to pick up potentially at some of those locations if they meet our return expectations, that would allow us to accelerate our store growth potentially faster and cheaper. And as I've talked about before, we've got a significant set of tailwinds in terms of charge rates, charge rates improving, allows customers to be more confident in On the Go DC, fast charging and charge rates actually improve EV adoption we hire all the OEMs talking about more affordable vehicles later this year and into next year. So there's a set of factors here that that actually would suggest we could be doing a lot better. It's too early for us to talk about 2025 on this call, but perhaps we'll talk about 2025 in Q2 and Q3 calls.

Stephen Gengaro

Great. Thanks. Thanks. That's good color. And the other question I had and you sort of just answered it, but when you were talking about the different financing options, you mentioned the ability to potentially accelerate growth beyond the 800 to 900 stores per year. That suggests to me that if you could do that, there is plenty of room for and sites that you've identified that would be profitable and meet your IRR hurdles, even if you even if you grew the store count at a much at a higher rate, as is that fair exactly right, Stephen.

Badar Khan

We find that there's about well, first of all, we've got about 50 strategic relationships with site hosts across the country. And there are well, there's over 100,000 sites that we've identified that we could potentially get after. But in that subset of over 10,000, that actually meet our return expectations.
And again, I think with the competitive dynamic shift from last week. Those are likely to be very attractive locations for us to get after. And so yes, we don't. I think when we when it comes to capital allocation. We will once we cover our costs and we're Janet, which we'll be we'll do next year, and we're generating EBITDA at positive EBITDA.
The question for us is do we return capital to shareholders or do we keep deploying capital to build out locations? Unit economics would clearly suggest it's in everyone's interest to for the Company to grow our store base faster than the eight to nine hundreds, just given the returns that we're expecting. And so that's what we'll be looking to do.

Stephen Gengaro

Great. No, that's great color. Thank you.

Operator

Chris Pierce, Needham & Co.

Chris Pierce

I guess a good morning or good morning to everyone on. Can you just talk about what you're seeing broadly over the past year or so. Are there I know you guys identified sites, you want to drop your Level three equipment in that site, but are you seeing an industry shift at all where people that had maybe considered at level to say, level two, charging equipment are now moving towards Level three because the customers demanding higher speeds. I'm just trying to get a sense of if you look at how people have thought about this industry growing through 2030 level to sort of dominating the conversation. But it seems like over the past year or so level three, is that that dominate the conversation. So I just wanted to kind of get your thoughts around that.

Badar Khan

Yes, it's a question, Chris. And I think that Tom, look, I think the I think the sort of landscape is sort of waking up to the potential for Level three in a way that maybe didn't exist a few years ago. And again, I talked about charge rates in my script. I kind of went onto I went on a little longer maybe, but I did that because I the there's a tremendous tailwind here that benefits DC to public DC, fast charging charge rates improve and you can charge your vehicle at significantly faster times, maybe half the time.
I think you're going to be more comfortable the public charging less reliant on the charging at home and for site hosts to be able to have an offer that that feature for their customers, which we know it's something that customers value. I think it's I think it's only it's only one direction of travel. And the question is how much share does DC fast take of overall charging over the course of the next several years. We believe it's going to continue to grow not just because of charge rates, but also because as these vehicles become more affordable and customers without access to private driveways are more likely to be buying more affordable vehicles and therefore, more reliant on charging and likely will be will prefer faster charging.

Chris Pierce

Okay. And you talked about demand bridge pricing as something you guys might experiment with down the road. Yaki talked about pricing in general. Is that something where there is there really no price pressure that you're seeing now given the rate of growth of EVs and the lower rate of growth in charging equipment out there or is there other certain times of the day where there is pricing pressure on your network? Or is this not something that you're seeing right now?

Badar Khan

Knock this out because we have very different customer segments that are charging on our network. We have rideshare segments for high frequency customer, high high usage customers. And that's and when you put them all that will put all the sort of higher usage customers together, it's over half of our kilowatt hours, which I consider to be quite sticky and more predictable and reliable and love to have more and we're expecting to target and have more. But as we think about pricing, there's different different term times of the day and or pricing will appeal to different customers.
So we are shifting some of our higher usage customers to or times of the day where it's where there's less utilization in our network earlier times, we call them early bird or off-peak rates, they tend to be lower rates that frees up the locations for customers that are less frequent users and perhaps potentially less sensitive towards price. So that's the kind of work we're doing. It's time-based pricing, location-based pricing, dynamic pricing is not a dynamic. Demand-based pricing is not a new concept and it's not something that we're considering. We are now deploying it.
And so a lot less around 5% of our network today has dynamic demand-based pricing, and we expect to roll that out over the course of this year. And I expect that will deliver some fairly solid improvements to actually our margins, which have already improved over the course of last year.
As you see in our results, margins from our charging business have gone have doubled over the course of the last year. And that's that's partly or significantly driven through the leverage that exists in our cost of sales.

Chris Pierce

Okay. And I guess just ask one last question of for Olga. On ancillary revenue. We've seen that grow pretty dramatically. I know we're talking about small numbers, but what is the margin profile of this business is that the 10-K talks about as a software to your revenues? Are we talking 75%, 80% gross margin, that type of business and that is providing a gross margin uplift as well? Or am I but that's right.

Badar Khan

Olga, do you want to take that question on ceramic and metal?

Olga Shevorenkova

So yes, most of that revenue is coming from Block shared the yields of charge and company which we bought rather it was three years ago. But it also has our behind defense fleet contracts, which is a couple of them, which we've talked about on prior on prior earnings calls. So the margin profile is a mixture of the two. And of course, any software driven revenue include inflection will be very high.
Margins will look at any SaaS SaaS type of a company and you'll get an idea what kind of gross margins we're talking about. The other business would get mixed in here just behind defense has a more extended like margin profile to be more like a low double digit territory. So the there is a bit of a game of a revenue mix happening here. But considering that it's a very small, it's still relatively small revenue contribution. Most margin trends have been played by interplay of expand and the core charge in business rather than outsourcing.

Chris Pierce

Okay. Perfect. Thank you.

Badar Khan

Thanks, Chris.

Operator

Andrew Shepard, Cantor Fitzgerald.

Andres Sheppard

Interest, everyone. Good morning and congratulations on the quarter and thanks for taking our questions.

Badar Khan

Yes, thank you.

Andres Sheppard

And I just wanted to maybe come back to the or the utilization rate. You know that seems to be growing again at a very rapid pace, which is great. And I'm just wondering, you know it I realize you don't guide this, but just maybe some direction here would be helpful. You know, how should we think about that network throughput throughout the year? I know you touched on seasonality a little bit, but you know, at this rate you know, what should we be thinking of that a gigawatt hour to be north of 200 or 215 for the year? In other words, how should we think about the network throughput throughout the rest of of this year? Thank you.

Badar Khan

Yes. I mean, look, I'll let me just I'll ask Julian to give you some thoughts about 2024 specifically. But as you can see in the compelling unit economic slide, and we've talked about in our webinar a few weeks ago, the utilization of the top 15% of our network is already at 41%. And we're not expecting 41% utilization across our entire network. In fact, we've said that we expect to see utilization in three to five years in the low 20s. We don't expect anything more than that to get to double-digit returns. And so that's I mean, that's a way of thinking about utilization in the medium term, it's obviously a combination of utilization and charge rate that delivers throughput per store, which is the quantity of the Q2 revenue formula. But maybe I'll do you want to just provide some thoughts from 2024 specifically?

Olga Shevorenkova

Yes. So as you correctly mentioned, we did not guide to two gigawatt hours. Maybe I can give you a little bit of a path to get there yourself. So we gave color during our last call, we expect extend revenue to be roughly 35% of our revenues this year at the midpoint of the range. And the ranges [$220 million to $270 million]. So the if you subtract that right, then the rest of the variability comes from still prevailing uncertainty of EV sales this year said, as or other ways, it comes from uncertainty on the final number of the throughput number. So if you take our average pricing, which you can derive from our financial statements, you can very easily get to a range of gigawatt hours, which we're thinking about for this year.

Andres Sheppard

Okay. I guess that's helpful. But so but then fair to assume maybe a higher some more seasonality in Q4 since that's usually the strongest easy quarter. And I'm just trying to figure out like a should we should it be a smooth, gradual number quarter over quarter or should we account for some seasonality throughout the year?

Olga Shevorenkova

Yes, we would expect smooth. And however, again, if the sales assumption, we don't have control and have a have a dinner kind of understand exactly how it will play out for the rest of the year. We'll have an expectation that it will be small. But if you think about seasonality and driving patents. Then Bureau of Transportation statistics actually publishes that's publicly available data and you could see how their driving patterns play out between the quarters by using that information, I think it will be actually quite healthy.

Andres Sheppard

Okay? And we think this will take a look at that move.

Badar Khan

Andres, just as a reminder, EV sales obviously is a driver of revenue. But but our throughput grew four times faster than the growth of EVVIO. quarter-over-quarter, which we've talked about for a for a couple of several quarters at this point. So new sales, but it's also the share of DC fast charging. It's rideshare growth. It's more affordable vehicles leading to customers who don't have private driveways charging on public infrastructure. So it's a revenue is a function of all of these things combined, and we expect to see it grow sequentially over the quarter over the year.

Andres Sheppard

Yes.
And I think it's also a result of the utilization rates of the average utilization rates per charger, which is continuing to increase.
Right, which you mentioned earlier.

Badar Khan

Yes.
Okay.

Andres Sheppard

Maybe just one last question by the way, Olga, sorry, I wish you all the best in your future, and we'll certainly we'll certainly miss you.
And maybe one last question for you. I guess is just on the liquidity. Can you just remind us with the, let's call it, $176 million in liquidity as of Q1, excluding any maybe funding or any external funding, what is the expected run rate.

Olga Shevorenkova

Correct. We will confirm that's still the message. However, I'm not excluding any grants which we will be collecting. It's not necessarily nav is a big driver. There was we discussed at length at the previous call we are have applied and have been awarded a variety of different graph grants across the country from a variety of different programs that are awarded to us. And the collection is just it's a question of execution and time. And so that is baked into all of our central planning and budgets and whatnot. So when we talk about some about cash that is certainly included because that is part of the business model.

Andres Sheppard

Okay, got it. Very helpful. Thanks again, congratulations on the quarter. I'll pass it on.

Badar Khan

Thanks, Andreas.

Operator

Bill Peterson, JPMorgan.

Badar Khan

Hi, Bill.

Bill Peterson

Hi, good morning. Thanks for taking the questions. I wanted to ask about reliability and uptime, how the how the funds, I guess, proceeding on your network and your way to quantify the operational benefits from the new program that you've started employing last year, but you can quantify what you've seen thus far?

Badar Khan

Yes, we see a great improvement and again, built into what we think about the customer experience. Uptime is a component of experience to us as having led many asset-based businesses in my career, uptime is a component of the customer experience, which continues to improve, but so does ensuring that the payment process is as fast and as quick as possible, making sure that there's a charger available when a customer goes to a site, which is why we're targeting more more chargers per site as well as a lot is enormous.
Much feedback with customers favor faster sites that we're prioritizing the three 50 kilowatt charger, but uptime is certainly improving. Some of the software updates that I talked about earlier in terms of predictive maintenance and sort of a diagnostic support are all designed towards improving uptime even more over the course of this year, which leads to a reduction in truck rolls, customer calls and costs in the business to work through feel pretty good about it.

Bill Peterson

Okay. Thanks for that. And then wanted to talk about gross margin trajectory. I guess taking into account your expectations around utilization, number throughput, how should we think about the gross margin trajectory based off of what you talked about earlier time of day charging price increases. Can you give us potential, I guess, energy rate either increases or these M&A charges? And then to remind us, is there any seasonality for that? And in terms of how that would flow through on the gross margin line?

Olga Shevorenkova

Yes, yes. So gross margin, we reported over 30% for the Q1. However, in my prepared remarks, I mentioned that we had a $2.5 million of Nissan breakage recognition, which is typical for Q1 net of inflates inflates the margin. So like adjusted adjusted gross margin is in the high 20s and the expectation for the rest of the year is mid to high 20s.
So there is a seasonality to that number because we're seeing a customer of various utilities and utilities tend to have summer and winter tariffs and summer and summer is defined in a variety of different ways across the 20 utilities, but it tends to be around the real summer versus around the real winter and summer tariffs are a little higher than winter, in some cases, actually quite a bit higher the winter. So you should expect to see a little lower margin over the summer period picking back up by Q4 to the winter.

Badar Khan

And maybe, Bill, if I could just make sure that we were talking about gross margin. We are talking with August, talking about the entire business, both our charging business as well as our non charging revenue. We have provided disclosure for you to see for yourself margins in our charging business specifically, and they were 15%, roughly 15% last year. And it's right in 2022 up to up to about 28% in 2023. And this for this first quarter of 2020 for the or in the mid to high 30s for charging business itself, we up until 11 A.M. end-of-life.

Olga Shevorenkova

I'm ended well business when I quoted the absolute numbers when I talk about the dynamics related to charging business, when we talk about the dynamics and extend business, just to add to what Barbara said that you probably see a stable gross margin profile throughout the year versus Q1 and Q4.

Bill Peterson

Okay. Thanks, Olga, and Thanks, Pieter.

Operator

Yes, this concludes our question and answer session. I will now turn the call back over to CEO, Badar Khan for some final closing remarks.

Badar Khan

Great. Well, look, thank you, everyone, for the call. We had a great another great and record quarter as you heard, we have very compelling good economics and operating leverage that drives very strong EBITDA in the near term and a growth engine that is generating strong returns for our investors, the change in the competitive landscape that we've that we've talked about presents even greater opportunities for Obigo to accelerate growth and deliver even stronger returns, taking advantage of the multiple sources of competitive advantage that we now have. And I look forward to providing updates on these competitive advantages in our priorities and progress on subsequent calls.
Thanks very much, everyone.

Operator

This concludes today's conference call. Thank you for your participation. You may now disconnect.