Clean Energy Fuels Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 9, 2023

There are 10 speakers on the call.

Operator

Afternoon, ladies and gentlemen, and welcome to the Clean Energy Fuels First Quarter 2023 Earnings Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Tuesday, May 9, 2023. I would now like to turn the conference over to Robert Rielin, Chief Financial Officer of Clean Energy Fuels.

Operator

Please go ahead.

Speaker 1

Operator, earlier this afternoon, Clean Energy released financial results for the Q1 ending March 31, 2023. If you did not receive the release, it is available on the Investor Relations section of the company's website at www.cleanenergyfuels.com, The call is also being webcast. There will be a replay available on the website for 30 days. Before we begin, we'd like to remind you that some of the information contained in the news release and on this conference call contains forward looking statements that involve risks, uncertainties and assumptions that are difficult to predict. Words of expression reflecting optimism, satisfaction with current prospects, As well as words such as believe, intend, expect, plan, should, anticipate and similar variations identify forward looking statements, but their absence does not mean that the statement is not forward looking.

Speaker 1

Such forward looking statements are not a guarantee of performance, and the company's actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such Differences are described in detail in the Risk Factors section of Clean Energy's Form 10 Q filed today. These forward looking statements speak only as of the date of this release. The company undertakes no obligation to publicly update any forward looking statements or supply new information regarding the circumstances after the date of this release. Company's non GAAP EPS and adjusted EBITDA will be reviewed on this call and exclude certain expenses that the company's management does not believe are indicative of the company's core business operating results.

Speaker 1

Non GAAP financial measures should be considered in addition to results prepared in Comparable GAAP information, reasons why management uses non GAAP information, a definition of non GAAP EPS and adjusted EBITDA, and a reconciliation between these non GAAP and GAAP figures is provided in the company's press release, which has been furnished to the SEC on Form 8 Okay, today. With that, I will turn the call over to our President and Chief Executive Officer, Andrew Littlefair.

Speaker 2

Thank you, Bob. Good afternoon, everyone, and thank you for joining us. Well, for the Q1, the good news is that our underlying growth and fundamentals were strong. Bad news is our Q1 results were impacted by an anomaly and hopefully a one time occurrence, which was a historic spike in natural gas prices in California, resulting in a $10,000,000 compression in our profits. A confluence of events, Including unusually cold weather in California, the lack of natural gas storage capacity by the gas utilities And the El Paso pipeline that supplies 20% of the natural gas to California being out of commission, all contributed to cause the price of natural gas spike as high as $50 an MMBtu here in California in January.

Speaker 2

The move From $7 an MMBtu in November to January was a 600% increase, translating into an increase in our costs at Pump from approximately $1 a diesel equivalent to $7.50 We did everything we could to mitigate this Unprecedented chain of events that impacted the cost of our commodity. But California continues to be our biggest market by far With the largest transit agencies in the state, dozens of refuse truck fleets, airport vehicles and a growing number of heavy duty trucks all fueling at our network of 150 stations across the state. We passed along some of the increase in fuel costs to these customers, but we felt we can only do so much. Good news is that they understood in large part

Speaker 3

because every household and

Speaker 2

business in California was also seeing their Sold and business in California was also seeing their gas bills at least triple, if not quadrupled during January. The other important point of this historic increase is that the price began to moderate in February, although there were still some balancing effects that we were feeling. The El Paso pipeline is back online and gas utilities have filed plans for additional storage. And as of March, the price of natural gas at the SoCal City Gate was back closer to $7 an Mbtu. Something else that has been impacting our bottom line and that we discussed on last quarter's call is the price of the environmental credits.

Speaker 2

I know these are followed closely by many on this call. And as you know, there has been a nice turnaround in the California low carbon fuel credit price recently, About a 35% increase. But for the majority of Q1, prices were on the low end and had an impact on our adjusted EBITDA when compared to a year ago. By March, credit prices were in line with our plan, if not exceeding. In the Q1, we sold over 53,000,000 gallons of renewable natural gas, which was 34% more than we sold in the same quarter of last year.

Speaker 2

We won several large transit contracts, converted existing customers from traditional CNG, more profitable RNG and opened additional RNG stations where Amazon heavy duty trucks Our revenue for the quarter was $132,000,000 $48,000,000 more than Q1 2022, But this was heavily impacted on the plus side by the commodity price in California that I just spoke about. By the time we got to March, We saw our overall business begin to write itself and track the plan that we had

Speaker 1

at the beginning of the year.

Speaker 2

Our balance sheet remains in very good shape with 2 $20,000,000 in cash and investments, in addition to $132,000,000 cash off balance sheet at our RNG supply joint ventures. As I spoke about last quarter, our first RNG supply project, Del Rio Dairy in Texas is now online. We now have 3 dairies In commissioning and 2 others in final construction. By summertime, we should have 6 projects producing RNG. Many of you have read about the tragic fire at South Fork Dairy in Texas, where we had plans to build an RNG digester.

Speaker 2

While we have funded some design, engineering and early equipment purchases for that project, we had not started on-site construction And we are now working with the dairy owner as he plans to rebuild the barn and repopulate the herd. We will keep you updated on his progress. We've added expertise in construction, project management and origination to our RNG team that are keeping our projects moving along at a good pace. Not only clean energy and our customers remain bullish on this ultra clean fuel, Washington knows the benefits of RNG as well. I hope you saw the announcement that a bill was introduced last month in the U.

Speaker 2

S. House of Representatives, provide a dollar per gallon tax credit for vehicles that use RNG. It's interesting to note that the bipartisan bill is being cosponsored by a Republican member from a rural district, Congressman Brian Fitzpatrick, And a Democrat from an urban Southern California District, Congresswoman Linda Sanchez. These members understand both the environmental benefits of RNG, Which reduces air pollution and carbon emissions and that the investment of tens of 1,000,000 of dollars per new RNG digester benefits They're agricultural communities. We believe a companion bill will soon be introduced in the Senate by another bipartisan coalition.

Speaker 2

70% of all on road fuel used in natural gas vehicles in 2022 in the U. S. Was RNG, which is a great testament to its acceptance and the ease to transition it to existing fueling infrastructure and fleets. I think a tax credit would be a big boost to the adoption of RNG if it passes. We're also very excited about the rollout of the new Cummins 15 liter natural gas engine.

Speaker 2

It seems like a week doesn't go by that we don't hear some good some of the country's largest fleets Like Walmart, Werner, Knights with taking delivery of these preproduction 15 liter engines. I've spoken multiple times on these calls about the of this 15 liter engine to the heavy duty truck market because it delivers the power, torque and economics the industry needs. It is incredibly gratifying to see the early response. A few weeks ago, I was with the CEO of the largest trucking company in Canada And a customer of ours, Murray Mullen, and he is anxiously waiting the delivery of 2 test 15 liter engines in a few months. I've gone on a little long and my goal is to keep my remarks shorter, giving us more time to get to your questions.

Speaker 2

But I do want to end by highlighting why I was in Canada, Which was for a significant announcement with the largest natural gas company in Canada and one of the most successful energy companies in North America over the last Couple of decades, Tourmaline. Mike Rose, Tourmaline's Founder and CEO, and I announced that the 2 companies are partnering to build A network of natural gas stations across Western Canada, primarily targeting the heavy duty truck market. We've identified locations for the first four With 1 already operating in Edmonton and have plans to eventually add 15 or so stations that will be co owned by the 2 companies, Clean Energy will build and operate the stations. We are very bullish about this new partnership with Tourmaline as well as our overall business. As I detailed at the top of my remarks, we experienced some headwinds at the beginning of the year, but the momentum has already shifted back.

Speaker 2

RNG continues to be a breakthrough fueling solution, allowing fleets to decarbonize quickly and affordably. No other company is better positioned for the RNG future with our expanding low carbon supply and our growing fueling infrastructure. Thank you for your time today. And now I'll hand

Speaker 1

the call over to Bob. Thank you, Andrew, and good afternoon to everyone. Let me start with giving a little color, a little more color around the $10,000,000 drag on earnings in the Q1 from the high California natural gas prices. The quick math on that is that we have about 2,000,000 gallons per month With exposure to natural gas price movement in the California market. And we saw an incremental price increase of around $6.50 a gallon.

Speaker 1

That's an increase in our cost. We were able to increase our retail prices by $2 a gallon. So taking our price at the pump to $7.99 a gallon versus diesel at the time was 5.99 So that left us about $4.50 a gallon that we absorbed, plus we experienced some elevated gas utilities at our California LNG plant for about another $1,000,000 impact. So disappointing when we really were having a nice quarter, but That is passed and frankly without that anomaly the quarter was really more in line with what we were expecting. Recent trends in the natural gas prices relative to oil remains healthy, meaning we have a strong economics at our retail pricing.

Speaker 1

LCFS credit pricing has increased into the mid-80s from the low-60s, which is where it was at on our last call. And even more recently, there's been a nice rise in RIN pricing. So the current economic landscape is good for us, And we think that we can recover much of the $10,000,000 anomaly by the end of this year. Moving on and looking at Volumes, we saw increases in volume across all of our core sectors with the largest gains Coming from transit and trucking when compared to a year ago. The transit sector has seen more recovery this year and we've also had some nice customer gains.

Speaker 1

And then our volumes with Amazon continued to increase, which is helping to drive the trucking sector growth. Both of these sectors, the transit and trucking, contributed to the growth in fuel gallons, which was up 18% year over year. And then transit also contributed to service gallon growth, which was 7% compared to the Q1 of 2022. We reported a GAAP operating loss of 35,400,000 dollars for the Q1 of 2023 on revenues of $132,000,000 Compared to a GAAP operating loss of $20,000,000 on $83,000,000 in revenue a year ago Q1. On the downside for the Q1 results of 2023 compared to the same period in 2022, We have the $10,000,000 drag from the California gas spike in 2023.

Speaker 1

Our increased volume with Amazon resulted in incremental Amazon warrant charges of $10,000,000 in 2023 And our RIN and LCFS revenues combined were down $4,500,000 from a year ago due to the lower credit prices. On the upside, in 2023, we have $4,300,000 of incremental alternative fuel tax credit revenue compared to a year ago as the alternative fuel tax credit was not in effect in the Q1 of 2022. Our adjusted EBITDA was negative $4,000,000 for the Q1 of 2023, which includes The $10,000,000 negative impact from the California gas prices. We've also In our table in our press release, we've disclosed the EBITDA components of our RNG supply JVs Since we are operating one project and we'll be operating more this year. Having said that, our adjusted EBITDA of the negative 4,000,000 Breaks down as a negative $2,900,000 coming from the distribution business and negative $1,100,000 coming from our RNG supply business.

Speaker 1

And you can calculate these figures utilizing the press Release in our 10 Q, but we intend to update our company presentation on this adjusted EBITDA to Show you the 2 different contributors to the adjusted EBITDA. We're going to update our company presentation that we'll put on to our website And with that, operator, please open the call to questions.

Operator

Thank you. Ladies and gentlemen, we will now conduct the question and answer session. Followed by the one on your touch tone phone. You will hear a 3 tone prompt acknowledging your request. Your first question comes from Eric Stina with Craig Hallum.

Operator

Please go

Speaker 4

ahead. Hey, Andrew. Hi, Bob.

Speaker 2

Hey, Eric. Hey, Eric.

Speaker 4

Hey. So thanks for the details on the RNG pipeline. Maybe if you could go beyond that a little bit. I know in the past you've talked about Kind of the next level, which is the number of plants that you've got In engineering phase and I'd also love to hear just kind of the size of the pipeline as it stands now maybe versus 6 months ago, 12 months ago?

Speaker 2

Right. So, we slice Eric, thanks. We slice these things differently. So, when you kind of When you sort of boil it all down, we have 9 under construction. Now one of those is South Fork And I can go in a little more detail on that in a minute, but you have 9 under construction, you have 4 under engineering.

Speaker 2

And engineering in these projects is Pretty detailed, right? So it's you're spending some money at that point and you're getting up to about 30% drawing. So they're well underway and you have MOUs and everything. And then we have 2 kind of on the early stages of development, so they're about to enter engineering. So those are the projects, let's just call them You're really moving forward.

Speaker 2

Then the pipeline can kind of ebbs and flows, Eric, there are 18 to 20 active in the pipeline or

Speaker 4

We're dealing with

Speaker 2

the farmers and passing paper back and forth. And so now just to be clear, that number could probably Well, I mean, our guys are in touch with more than that, but that's the number that I asked for this morning as we're kind of looking at Those that we really are starting to get a real nice line of sight on, there are more. But time will tell over here over the next few months Kind of which ones then move into the real active pursuit. But the pipeline is robust And our guys have really done, I think, a nice job on not only on the pipe And for development, but also on the RNG supply side, which is very active for us as well.

Speaker 4

Got it. And just curious, well, I guess, first of all, I mean, I think in the past, you talked about an ultimate goal. I mean, obviously, you could Expand beyond this with BP and Total at some point, but I think targeting like 105,000,000 gallons. Is that still a number we Yes.

Speaker 2

Still, I'm glad you bring that up because it's still because we've kind of talked about it. We did acknowledge on the last Call, that some of these projects were taking a little bit longer and so there's a little slippage, if you will, to the right. But The main goal is still in place that what we laid out about a little over a year ago of the 105,000,000,000 100,000,000 gallons of our own equity account with our partners on the supply side, that's still we're still on track for that. Now, We've always been very clear that some of that will be greenfield that will develop, some of it could be in M and A. And so we'll still work on that, but we still like that number.

Speaker 2

Frankly, I'd like to see that go up, but our partners are still hooked with us on that. And then at the same time, that's in development 2026, we have to then bring a lot more third party low CI gas and landfill gas To the equation as well. So we're very busy on that front, but we really haven't changed the size What we're trying to achieve or the money that we're going to need to spend with our partners on it.

Speaker 4

Yes. Okay. Thanks for that. And then I guess maybe last one for me. Just I think last quarter with the Amazon stations, you would not through anything that you were doing.

Speaker 4

It was more Permitting delays, those sorts of things. Curious where that stands? Has that loosened up a little bit? And when you might get back to what you would view more of a normal rollout, if you're not ready?

Speaker 2

It has. We worked really hard. We have a very large team On the site acquisition, entitlement, permitting side of the equation and then of course construction, And we've worked hand in glove with our friends at Amazon as well, our construction party and all of that team, Starting late last year to see what we could do to streamline the process and working together, utilizing all the levers that we have, I'm happy to note that we have 7 stations that are under construction right now and that will come on In the next 5 months and I reviewed that with Amazon the other day and The entire, maybe less one of the original stations that we signed on to Amazon that we've disclosed Should be completed by the end of the year. So there's a lot more to be done there. It has sped up some.

Speaker 2

We get a little break with the weather, right? I mean, we've made tremendous Progress in a couple of the stations here in California here in the last 6 weeks after the rain stopped, and that's also the case in other parts of the country. So I'm feeling good. We have cameras on all those locations and we have meeting, a standing meeting with the big team every Friday morning at 8:30 and A lot of activities for bringing those projects along. So I'm feeling much better about that.

Speaker 2

And those are like magic, Eric. You open one of those stations and Literally within a few days, even before we were in final commissioning and ready to get the occupancy permit from a city, there was 158 trucks sitting there. And so it's a beautiful thing when you see it. And so we're very excited about

Speaker 4

it. All right. Thanks, Andrew.

Speaker 2

Okay. Thank you.

Operator

Your next question comes from Rob Brown with Lake Street Capital Markets, please go ahead.

Speaker 1

Hi, good afternoon. Hey, Just following on with Amazon, how many stations are now open? And do you have a sense of how much the truckload you're feeling at the moment?

Speaker 2

Well, now you remember, I always give this little warning and then I get in trouble if I'm but I do know this, That we you know there's a couple of pieces to that, right? So, we early on going back, I guess, what, 18 months ago, we As they began to take trucks, we opened up our nationwide network of stations. And as of last week, in my meeting with folks at executives at Amazon, I reported that we've We fueled heavy duty trucks, Amazon trucks and mediums at 101 of our different stations. And that's A daily occurrence and as of last week, it appears to us because it changes from time to time, You're approaching 1500 trucks that are fueling on a daily basis.

Speaker 1

Okay, great.

Speaker 3

Now

Speaker 2

as those stations that I just discussed with Eric come online, you'll see that number, I hope go up. And I know that through the public information that Amazon has disclosed, I think they've admitted to 2,000 or 2,500 trucks that they've Disclosed. And so our number should continue to go up as these stations come online.

Speaker 1

Okay. Thank you. And then on the 15 liter rollout that They're testing right now. How does that ramp roll out? How do you sort of see that flowing into the fleet over the next 2 or 3 years?

Speaker 2

It was really pleasing to see I would like to say that Cummins has really gotten into this in a big way. And you may see it, Rob, but gosh, in the last 6 weeks, Almost every week, there's another announcement coming out about different parts of the business. And last week at the ACT Expo in Stannahon, Huge presence by Cummins. One of my salesmen reported that he thought there was as many as 20 Cummins individuals there. Now they had a couple of the other fuels, but about Fully half of that pivot was natural gas portion of a lot of customer interest there.

Speaker 2

In fact, Rob, one of the only The Ride and Drive, fuel cells and electric vehicles and all the showbiz Advanced Technology Innovation there. The only vehicle that made it there under its own power to be In the Ryder Drive, the heavy duty was the Cummins natural gas product that was driven in. It was actually being operated at the time by Walmart. Those vehicles, the way I understand it, and you may get better information from Cummins, but the way I understand it, there's about 40 of some of the nation's largest fleets that are in line now to are kind of In sequence to take delivery of those vehicles, those are new engines that are being placed into Existing diesel OEMs, right, into trucks, so they have to go to the shop from the fleet and put in the new And some of those are on the road now, some of them, some of those fleets I mentioned in my remarks. And I haven't seen anything official But the early reports are that the lady that drove the truck from Walmart had just A very good report that she imparted there to the people at the Expo.

Speaker 2

So I have my fingers crossed that the customer experience is going to be good, the torque and horsepower is good. I saw, I think today Cummins made another announcement on their upfitting program on their new design back of cab. And I really like this because you're beginning to see sort of the OEM nature that Cummins can bring now with their upfitting The capability to bring the fuel system and everything together as a factory product, They've improved that. They have 170 gallon option and I think 130 gallon options, it really looks slick.

Speaker 1

It's like lighter, £400 lighter.

Speaker 2

Yes, that tank package is 4 thank you, Bob, it's £400 lighter. So, things like things are going well and I'm hoping I can never I always get out there a little bit ahead of myself, but the story is later this year, The kind of order book will open at some point and I'm hoping that we begin to see those orders taken for that engine.

Speaker 1

Okay, great. Thank you. I'll turn it over.

Speaker 5

Okay.

Operator

Your next question

Speaker 6

Hey, guys. I actually quickly wanted to touch a little bit on the 3rd party volumes. Some of your upstream projects are delayed. Some of your competitive upstream projects are also slightly delayed. But in your guidance, you had indicated that you're still seeing very strong contractual volumes From third parties for both landfill and dairy RNG, can you talk a little bit about your 3rd party volume contracts as they relate

Speaker 2

Sure, Bob, you may have those. I think it's handy here. But we The 3rd party, I'll start Manav, good to hear your voice. The 3rd party is a very important piece To our story, until we begin the well, it always will be, right? I think what the count is, we have 63 different RNG suppliers.

Speaker 2

So we work with almost everybody in the business, landfill and dairy. Our dairy is Increasing dramatically this year that we're bringing in from 3rd party. I think it's going from roughly in California from 20,000,000 gallons Our load of dairy RNG last year to something closer to $60,000,000 for 2023, so a big nice increase. And we had what about a 20% increase in third party supply for 2023. That's Right now, on budget, so we'll end up with about 234, I think, 1,000,000 gallons For the year and it's going well Manav.

Speaker 1

Yes. Andrew, I agree. And I think, I mean, it ebbs and flows As we have always seen it, but it's not really being impacted By us seeing that projects are delayed kind of thing. But we because all of our third party supply is pretty much operating units. And so Anything that we come across there might be from an operational matter where yield is a little different, but Because we're kind of spread out with a number of the suppliers, then all that is anticipated.

Speaker 1

And we're planning on our 234,000,000 gallons from third party for this year.

Speaker 2

Yes. So I think we're on track on that. So no, it's a good question. Are we seeing a slowdown? And no, I think we'll be able to meet our demand with our which In large part due to our 3rd party supply.

Speaker 6

Yes, congrats on that. And a quick follow-up and then I'll turn it over. You mentioned in your opening comments, you are seeing some improvement in LCFS prices. There were meetings at Help at Carp. They are looking to make some changes over there to support higher carbon prices.

Speaker 6

You guys obviously talk to them a lot more than we can. So Help us understand a little bit better what's going on with carbon? Are we actually serious about making some changes, which will help support higher carbon prices in the future? And I'll turn it over after that. Thank you.

Speaker 2

Okay. Well, I would say, first off, we're in Weekly and daily contact with different groups at them as they look at adjustments to the low carbon fuel Standard program, which kind of the way it works Manav is there will be one more kind of Community workshop will at the end of this month, end of May, 1st June, then you should see some time, these These things are set in stone right now, but it looks to us pretty closely that in June, July, you'll begin to then Sometime in mid June, you'll have a proposed rule out on And adjustments to the low carbon fuel standard and the Board will then begin to hear that some 30 days or so after. So sometime in late July, August, that will kind of move along. And of course, There'll be a lots of input on that. I wouldn't say that the ARB is looking to make adjustments to raise the price.

Speaker 2

I don't know that they would agree with that. I think they're looking to make some adjustments in the program To increase the compliance curves that is require more obligation By the obligated or compliance by the obligated parties to use more renewable fuel, low carbon fuels in the state, You know that we're at about 20%, and so there's a couple of choices that's sitting before ARB, all of which are constructive for our business, we believe. The biomethane business is 30%, increasing from 20% to 30% or 35%. And an awful lot of the industry and others have weighed in that we think the time is right to move to 35%. And we believe that the industry is Willing to spend the money, private sector willing to bring spend the money to be able to get to the 35% over time.

Speaker 2

So That's exciting. We think that will shake out. There are some other things that are kind of I would consider sort of Some hurdles about where the supply could come from and how long it could go into certain how long could RNG go into certain markets and we're Making our views known on that, if the ARB finally on this point, if the ARB moves to a 35% Compliance level, you're going to need all the R and D you can get from all over the United States. And I hope that's where they'll land. And if so, that will, I think, possibly impact prices.

Speaker 2

And I think, frankly, you're seeing The market begin to bet a little bit that there is going to be a higher obligation threshold and I think that's why the prices move from $60 to $85 $62 to $85 And it likely Could move a little bit higher. Even though it doesn't take effect for another year, right.

Speaker 6

Thank you so much guys. Thank you.

Operator

Your next question comes from Tushyant Elani with Jefferies.

Speaker 7

Hi, Andrew. Hi, Bob. Thank you for taking my questions.

Speaker 2

Yes, hi.

Speaker 7

My first one is on the Tourmaline contract. Could you kind of share Some more color around the economics of it, the cadence of RNG stations coming online over the next couple of years. Yes, just maybe some more color around that.

Speaker 1

Yes. Well, we have line of sight on 4. 1 is actually operating And we'll get those we should get those constructed for the most part this Year, maybe going into the Q1 of 2024 on the other 3. And then But we've already identified probably 10 others in that market And those will come on. So like our whole model is we got to get to go through a period to build them.

Speaker 1

It doesn't take that long. What we're most excited about there is the is our partner there Tourmaline. They're in this to drive Adoption of natural gas heavy duty trucks. They want natural gas heavy duty trucks on the road up there in Canada. And as Andrew and I have been up there, the view is very bullish on that type of vehicle.

Speaker 1

They do need the 15 liter. So that also plays Timing is good because if we had all the stations right now, we wouldn't probably have the vehicles, so we don't. So we need to hurry up and get those built and then we're working. The thing is with Tourmaline, they have so many operations. They see All of the various geographic areas where there's thousands of trucks going by locations each day.

Speaker 1

So we'll get about 4 in this year, early part of next year and just keep on going from there.

Speaker 2

The nice thing in Canada is you have a huge vast resource of natural gas and you have very expensive diesel. So, you really have economics. This thing sits on its own bottom up there. And over time, you will You don't parse in some RNG, but and everybody's open to that. And as you know may know, There is a federal RNG, low carbon fuel program in Canada.

Speaker 2

It kind of kicks in phases in over time. I think it's already in BC, but so everybody understands that you'll begin to blend in RNG later, But it will start out, compressed natural gas and the economics that will look good as compared to diesel.

Speaker 7

Understood. And then just a quick follow-up on that. In terms of permitting, how is that coming along? Are there any issues around that? Or like is it relatively easier to get it versus what you've seen versus Amazon?

Speaker 1

Yes. I wouldn't say easy, but we on these on the first four, we're pretty well into those. And, no, you always have it, but I do believe that these the areas Our kind of heavy industrial and I saw that it's just I don't know that the permitting is going to be As prevalent as it is, is when we want to put something into San Bernardino.

Speaker 7

Understood. Understood. And my final question and then I'll turn it over. It's just on Del Rio in terms of pathway approvals. How is that Coming along and then any kind of thoughts on the other facilities that are going to come on this summer.

Speaker 7

I think you talked about 6 flowing by summer. So just If you could share some color on the pathways approval for these?

Speaker 2

Yes. Pathways take longer. So you will begin to operate these These things will come on production and then you'll put into storage, right? The pathways can take We got to work on this. The industry, everybody is aware of it.

Speaker 2

Pathways, in my humble opinion, take way too long right now, right? Pathways can be anywhere from 12 months to longer. You don't have to wait for the pathway, but you can't operate to your full Potential and you have to store some gas. That pathway is underway, but that takes a while.

Speaker 1

Yes, because you have to run the dairy to get you have to get a number of months of operational Stated that they collect and then establish the CI scores. All that is in the works, if you will. But that will take some time.

Speaker 7

Understood. Thank you. I'll turn it

Speaker 2

over. Okay. Thank you.

Operator

Your next question comes from Matthew Blair with TPH. Please go ahead.

Speaker 8

Hey, good afternoon, Andrew and Bob. Could you talk about how the economics for Dairy RNG will change in 2025 When the benefits of the IRA flow through, should we expect that you would receive a PTC Approximately $80 per MMBtu in addition to the existing support from D2 RINs and LCFS programs?

Speaker 1

So we'll get PTC at whatever we hope it's $80 But it would be in addition, Matt, I mean to your point, it's kind of on top of the economics that we've already that we've built into Justify the investment, it's additive for sure. And the big question is on How much? But we continue to hear that it could be substantial.

Speaker 2

Yes, Matthew, it's graded on the carbon intensity of the fuel And it has that rule has to be promulgated by the Treasury Secretary. So that hasn't happened yet. So We don't want to count our chickens before the hatch, but we think it could be substantial as possible. Yes.

Speaker 1

And it's relevant in the marketplace. So there's it's in the narrative for sure.

Speaker 8

Sounds good. And then could you talk about what gives you confidence to keep the full year guide of $50,000,000 to $60,000,000 EBITDA? Are there any parts that are coming in better than expected that would offset the $10,000,000 loss from high California natural gas prices in Q1?

Speaker 1

Yes. I mean, we've sensed now some of this has to say, but look, When we set our plan and talked about our guidance, we said we're kind of going low on LCFS in the low 60s. And that's at right now 85. And if there's more encouraging news, that could go even more. So I think the LCFS is cooperating nicely.

Speaker 1

The RIN is cooperating nicely. And then just in general, kind of the underlying commodity economics at our stations Before the credits, we're at like a 30 plus spread between WTI Crude And NYMEX. Okay. So you're at $70 something $2.26 And when we see that, that just means that we're very competitive. We have a low cost delivered product that's against A relatively high priced competitor in diesel and that so that's good for us.

Speaker 1

So I like all that Moving forward, we have enough of the year, you have about 9 months. So we feel like You could erase kind of our $10,000,000 hickey, if you will, and stay with it.

Speaker 8

Sounds good. And then last question, I think you have stations in Seattle and Tacoma And Washington State unveiled their LCFS program. Could you talk about how that's going and whether you're starting to receive like any sort of LCFS Contribution from Washington so far?

Speaker 2

We do. We participate in the program in Oregon and Washington. I don't believe we collect anything yet in British Columbia, But I can't give you any more specifics than that. I don't We have it not material. Not material yet.

Speaker 2

Not material, but we'll be I'm trying to get back On that, but I just don't know, it's not a lot. We have few stations up there.

Speaker 3

Yes. It is.

Speaker 2

Well, it will grow. So it's going

Speaker 1

to it will be meaningful. It doesn't really make the radar at the moment, but we see volume up there. So Oregon, a little less, but

Speaker 2

Higher pricing.

Speaker 1

They have great prices. So I mean, It's more about the truck traffic and that sort of thing. It's not anything that we're doing to not be there. Sounds good.

Speaker 4

Thanks for the information. I'll try to get that number,

Speaker 2

Matthew. I'll try to get a number.

Speaker 8

Okay, great. Thanks.

Speaker 1

Okay.

Operator

Your next Question comes from Paul Cheng with Scotiabank. Please go ahead.

Speaker 9

Hey, guys. Good afternoon. Hi. Andrew and Bob, just two questions. 1, in Amazon, can you talk about The path to profitability on that joint venture, I don't think they are profitable yet.

Speaker 9

And what is the economy of scale that you need in order for you to really get profitable on there? And also that if We're looking at there's a multiple avenue, I suppose, that you can get to total corporation profitable over the next, Say by 2025, you have the plan go through. What is the most critical path for that the most important driver In your opinion for you to get to profitability.

Speaker 1

Okay. Okay. Paul, on your first question on Amazon, let me see if I get this right on kind of Amazon profitability, if you will. Okay. So I don't know that we've and we haven't, I know.

Speaker 1

I won't say I don't know. I'll say we have not discussed The economics on Amazon, so I'm curious I'd be curious as to maybe what you're looking at to say, When would Amazon be profitable or not? I think that Certainly, one of the things we see in our numbers is the Amazon warrant charge, okay? That's not an item that affects the kind of cash collected at the station In terms of when we transact on price per gallon and just what all is entailed relative to that. So, there is that aspect to it.

Speaker 1

So, and the Amazon weren't charged will be here for a while as they Consume the amount of spend that was targeted for them to earn the warrant.

Speaker 9

Yes. Maybe let me rephrase it. If I exclude the warrant charges, is your Joint venture with Amazon today, you don't have to tell me the exact number, but can you share whether they are profitable?

Speaker 1

Well, I'll say this. We are investing in building stations And we have a model that would suggest that we need a fair return on investments. And so and it's fair. Look, all that's kind of negotiated, but Understood that the commitment that we have with Amazon is good for both Parties. Okay.

Speaker 1

So we make we should be able to make money, and they should be able to get one of the best fuels at the lowest cost Around with the RNG and all of that. And then The more they spend is based on volume that so that benefits us. So that whole program is good and I'll say that it's beneficial. Yes.

Speaker 2

I would just add, I mean, Paul, it's not spec, right? We're not specking stations hoping that an Amazon truck is going to show up, right. So there is a we are working hand in glove with Amazon and We have a relationship to volume commitments for developing these stations and that's beneficial for both companies.

Speaker 3

Okay.

Speaker 1

And on your other question in terms of overall corporate Profitability, what's needed there to really kind of get over the line of, Let's call it positive net income, if you will. And Ultimately, it's about volume and the adoption of heavy duty fleets of natural gas vehicles. Yes. I mean that drives everything, Paul, it really does. I mean All the projects of RNG supply, and look, we so we're but we're bullish on that because Well, I mean, because it's kind of the epitome of renewable energy that's running our transportation fleet.

Speaker 1

So Yes, of course. We're but the and part of that the big part of that Paul is because for a while, We're already kind of built out to take on much more volume. And so that can That would really kind of pop with us, because we could already take on a lot of capacity without Really expanding much more significant CapEx. And so that's really the that's the play on it. And The big market that is just untapped literally is the Class 8 heavy duty truck market that's 40,000,000,000 plus gallons a year that predominantly uses the 15 liter engine.

Speaker 9

So And so that Bob or Andrew, do you think that path to profitability, the critical mass is like what 80,000,000 or 100,000,000 gallon sales or that what is that number in your opinion

Speaker 1

Well, good question. And there's a lot under that, Because as we go through, as we just talked about, with our Amazon warrant charge and that sort of thing, but It won't. I'll just say this, it's not a tremendous lift because you can kind of you can start to do the math and say if you added 100 1,000,000 more gallons at $0.45 $0.50 a gallon on a margin, Without expending a whole lot of other OpEx, you're putting in you're dropping in another $50,000,000 that Puts us on the positive side kind of thing. All right.

Speaker 9

We do. Thank you.

Operator

Your next question comes from Craig Shere with Tuohy Brothers. Please go ahead.

Speaker 5

Good afternoon. Thanks for fitting me in. Wanted to just dig a little bit into the EBITDA ramp. First, for This year in terms of making up for the $10,000,000 drag in mostly January, it sounds like pricing power on low gas prices That all things are mainly equal from here forward with LCFS and RINs, who knows. That's just kind of a static situation where you have an opportunity.

Speaker 5

So If everything remains the same as it is today, should we assume that making up that $10,000,000 would be kind of ratably equal over the next three quarters if it happened versus rising over time or how do you see that progression?

Speaker 1

Well, yes, it rises. I mean, the progression Our progression has been nice that it'd be our progression would be somewhat similar to last year, which was it rises. But the reason it rises is because of volume. It's not rising because we're Saying that LCFS is going to go 85, 90, 110. We're not We're kind of playing that out.

Speaker 2

It's volume ramp. It's mainly volume and it's Amazon station volume ramp, other stations that come on, it's volume ramp. And it's always And I know it frustrates some of you that want we should maybe and we're working on maybe a little more clarity Quarter over quarter, but we've always had those of you that fall, we've always had a ramp that starts a little bit low in the Q1 and then Ramps as they take trash trucks and we finish stations and it's always the case and it will be a case again this year.

Speaker 5

I hear you. I'm sorry, maybe I didn't ask clearly. The ramp in terms of volumes is always a part of the plan. But the January dislocation was not and the very widespread that you're enjoying between gas and diesel today Is not. And so to the degree upside versus plan for the remainder of the year can make up for January.

Speaker 5

I guess what I'm trying to ask is all assuming I have no idea what the future is, but assuming all things remain equal, Is there there's no special reason to think that you're going to have a stronger upside versus As planned in the Q4 than in the second. Is that a fair statement?

Speaker 1

Well, I think we already answered and you said that wasn't the answer. It would be stronger because of the volume, But on a relative basis, you get there, I mean, you're going to see the ramp and you're going to see kind of the well, we didn't see really any benefit, Much of a benefit other than in kind of in March in Q1, but certainly not at these kind of current So all I can say is that you have the same ramp, but you have better economics than what we planned. Right. I mean, so

Speaker 2

So therefore, as the volume goes up, that's very impactful.

Speaker 1

Yes, it does, as you get more volume at better economics. But those the volumes to your point, that's in the plan, that's fine. But what's Not in the plan is kind of the LCFS and the RIN and as well as the spread that we're seeing on oil to nat gas. I mean those have profound effects. So if you just say, look, all else equal and lay in this new pricing, That's how you get there.

Speaker 5

Fair enough.

Speaker 1

You don't have to go through any other big hoops.

Speaker 5

Let me pivot to the upstream. You announced kind of a breakout, Which is nice of the 2 business lines in terms of the adjusted EBITDA. Assume that the RNG supply is merely an issue of fixed overhead on a burgeoning business, that Obviously, it's moving towards breakeven and positive EBITDA, but you've got these delays that you alluded to on these Could we reasonably expect your upstream business To be breakeven to positive by the first half of twenty twenty four?

Speaker 1

Sure. Yes. I mean, yes, I mean, there's ways that you Yes. There's ways that you get there, which is by producing the gas and then there's economics on the gas and that's what gets you at breakeven?

Speaker 3

Yes.

Speaker 5

Yes. Great. Thank you.

Speaker 2

By the way, Matthew Blair may operator, if I can just Matthew Blair may be gone, but the answer was in Washington In Q1, we did a couple of 1,000,000 gallons and 50% of it was RNG.

Operator

Thank you. Your next question comes from Chris Sung with Weber Research. Please go ahead.

Speaker 3

Hey, good afternoon, Andrew and Bob hopping on for Greg. Thanks for taking my question.

Speaker 1

Hi, Chris.

Speaker 3

Sorry, I just wanted to just dig in on the previous question on EBITDA and perhaps asking in a slightly different way. Like How did Q1 and Q2 so far compare to your internal expectations for the last quarter? Like with negative margins, right, with the historic ramp in Natural gas prices, higher volumes kind of hurt your full year EBITDA guidance. So just wondering like was most of it Most of the $10,000,000 hit, was it just on pricing or mix of higher than expected volume for the quarter? And how does that fit into the rest of your full year guidance,

Speaker 1

Yes, the $10,000,000 It was really on the cost of gas. Okay. So you take that out and Then our quarter was within our plan. All things considered, so there's kind of there Volume and other margins and just all throughout. So we're kind of we met our expectation other than

Speaker 2

$50 yes.

Speaker 1

Other than the $54 California Gas. So Okay. Great. Right. So we feel like, okay, well, that was there, but you have a $10,000,000 hole that you've dug.

Speaker 1

What does the environment look like today? Look, if nothing had changed, I'd probably have to say there I would say there's be hard pressed to say you're going to make up a $10,000,000 hole, But things have gotten more positive than what we kind of laid out a couple of months ago in terms of what our assumptions were. So that's good for us. I mean, the environment's that's a good environment. We're just disappointed that We had to absorb what went on, which was I mean, frankly, it was horrific.

Speaker 1

The checks that I was writing for Gas bills was out of it was just unbelievable. And our customers too, we had a whole campaign To contact our customers because we have a lot of kind of pass through gas costs as part of the Arrangement and so we had customers that was going to get a bill from us that was 7 times What they've seen in the past and that adds ramifications all throughout. Are they going to be able to pay? I mean, it was devastating to a lot of industry here in California.

Speaker 2

Restaurants were not a business.

Speaker 1

Yes. There is no question. I mean, we've seen some of the other groups in the alternative energy, the energy transition that We're fairly well kind of blown away. A big part of their quarter was also this topic. So I feel like we financially, yet again have weathered a significant storm.

Speaker 1

That was not that's not just a little talking point and okay, it cost us $10,000,000 It was That's a lot of money and it was huge. And that's after we took prices up to nearly $8 a gallon Compared to diesel at $5.99 Yes.

Speaker 6

Yes. No, right. I kind of see it,

Speaker 3

it's silver lining, right? It's like The pricing or facility with RNG? Sorry?

Speaker 1

Yes. The silver lining, I mean, I Speak too highly of it because we've had a fair number of events We've had to weather in the Q1, but right now the economics Are good for us. And it looks good. I mean, the 15 liter, the excitement around that, Canada, It looks good looking forward.

Speaker 3

Great. And I'm going to try to squeeze one more question in. I know we've asked about this in the past and it's Always good to kind of check-in. Is there any updates on the rail or marine markets with respect to commercialization or timelines through commercialization for RNG and or Arjun, via R and D?

Speaker 2

On the marine market? Okay. Marine market. Well, the only update I would say is our second ship is Being cooled down it's not our ship. The second patient ship is being cooled down in Brownsville at the end of this week And we'll then complete a sea trial and begin to move to the Port of Los Angeles.

Speaker 2

So that's nice. Every time those There'll be 2 in service later here in the next month or so and they use a quarter of a 1000000 gallons of LNG On a round trip. So we like that and the 3rd ship should be here late 2023. No real Chris, now I may be behind here. No real Hydrogen or RNG going into shipping yet, not as far as we know, but we are putting LNG in a few And there are some other very large shipping lines that are out talking to us and others about more ships to be brought into the port.

Speaker 6

No, I appreciate the color. Thank you for that. I'll turn it over.

Speaker 5

Okay.

Operator

Your next question comes from Nathan Gabelian With Cowen, please go ahead. Yes.

Speaker 1

Hey, it's Jason Gabelen from Cowen. But all my questions have actually been answered. So

Speaker 3

There are

Operator

no further questions at this time. I turn the call over to Andrew Littlefair for closing remarks.

Speaker 2

Operator, Thank you. Thank you everyone for joining us today and we look forward to updating you on our progress next quarter. Good afternoon.

Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your

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Earnings Conference Call
Clean Energy Fuels Q1 2023
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