Clean Energy Fuels Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 7, 2024

There are 11 speakers on the call.

Operator

Good day, and welcome to the Clean Energy Fuels Second Quarter 2024 Earnings Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Bob Freeland, Chief Financial Officer. Please go ahead.

Speaker 1

Operator, earlier this afternoon, Clean Energy released financial results the Q2 ending June 30, 2024. If you did not receive the release, it is available on the Investor Relations section www.cleanenergyfuels.com, where 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. 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.

Speaker 1

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 the date of this release. The company undertakes no obligation to publicly update any forward looking statements or supply new information regarding circumstances after the date of this release. The company's non GAAP EPS and adjusted EBITDA will be reviewed on this call and exclude certain expenses that the company's management

Speaker 2

does not believe are indicative of the company's

Speaker 1

core business operating results. Non GAAP financial measures should be considered in addition to results prepared in accordance with GAAP and should not be considered as a substitute for or superior to GAAP results. The directly 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 ks today. With that, I will turn the call over to our President and Chief Executive Officer, Andrew Littlefair.

Speaker 2

Thank you, Bob. I'm pleased to report that we reached the midpoint of 2024 in a strong financial position driven by very solid second quarter following an equally good Q1. We reported $18,900,000 EBITDA for the quarter versus $12,000,000 in Q2 of 2023. Sold 57,000,000 gallons of RNG during the second quarter and revenue was $98,000,000 versus $90,000,000 for the same quarter in 2023. We ended the quarter with just shy of $250,000,000 in cash and investments.

Speaker 2

I'm going to keep my remarks relatively short today, but I do want to highlight some of our accomplishments during the quarter, which help to explain the good results. The achievements in Q2 are a great microcosm of Clean Energy's overall business and what sets us apart from virtually any other company in the low carbon energy sector. This begins with the completion of the expansion to our Boron facility, the only natural gas liquefaction plant in California, increasing its output capacity by 50%. Much of the new demand for LNG has been driven by the commercial maritime overall and Patia Hawaii in particular. Patia is now operating 3 large container ships on clean burning LNG between the ports of Long Beach, Oakland and Honolulu.

Speaker 2

Fuel volume from these ships has grown from a little over 500,000 gallons a month in August of 2022 to over 2,100,000 gallons of LNG in May of this year. By doing so, patient ships have obtained a 90% reduction in NOx and a 25% reduction in carbon dioxide compared to ships operating on traditional fuels. After years of hard work by our team members, we have constructed an extensive fueling infrastructure across North America that is second to none in the business. The owner operate over 600 fueling stations throughout the U. S.

Speaker 2

And Canada. While many of these are private, meaning they were built for a single fleet customer like a transit agency or a sanitation company. Over 200 of them are accessible to the growing number of fleets that are testing a natural gas truck or adding trucks to their existing fleets. Because the networks have grown geographically and the environmental benefits of RNG are becoming better known. We've strategically located many of these fast fill stations along interstates in the highly traffic locations where fleet vehicles operate, such as distribution centers.

Speaker 2

Increased recurring fueling at our existing stations is one of the driving factors of our revenue growth at healthier margins. As you know, we have built 19 of these publicly accessible stations with Amazon as our anchor customer. We are now beginning to see more trucks from other fleets fueling at them as well. We're in the process of executing a similar infrastructure strategy in Canada with our partner Tourmaline, the largest independent gas producer in Canada. Together, we are building a series of stations in Western Canada that will be anchored by existing customers, but available for additional new fleets.

Speaker 2

Because of its range, power and torque, the New Cummins X15N engine seen as an excellent fit for the terrain and logistics of Canadian trucking. 2nd and third stations under our Tourmaline partnership are scheduled to open this fall. Here in the U. S, the fueling agreement that we signed in the Q2 with SeaMex, one of the largest cement companies in the world is a great example of a fleet that is expanding with natural gas trucks in Southern California and taking advantage of our growing network of RNG stations throughout the region. As I have said on these calls many times, we are convinced that the heavy duty transportation industry, which is looking for ways to decarbonize, can't find a better, more immediate and affordable solution than renewable natural gas.

Speaker 2

There's also a growing realization that other new shiny penny alternatives are years away from being deployed in any meaningful way and could be out of the reach for many fleets in the foreseeable future. We've all read the numerous stories in the financial media and especially in trucking publications, chronicling the footfalls of electric vehicles and the lack of charging infrastructure. On the flip side, after the media spent years writing about the other alternatives that are now having trouble getting traction, we're seeing more coverage of the Cummins X-fifteen engine, including a recent piece in the Commercial Carrier Journal by Jason Cannon, a well respected veteran trucking reporter. Indulge me while I read how Jason ended his very thorough review after test driving a Peterbilt truck equipped with the X-fifteen N. Natural gas lost its seat at the head of the fuel of the future table when the potential of battery electric and hydrogen started turning heads.

Speaker 2

But natural gas right now checks a lot of boxes for fleets looking to reduce emissions without sacrificing payload, build time and range. Peterbilt's UltraLoft 12 speed makes the strongest case for driver comfort that natural gas has ever had. Jason chronicles in his review the bumpy ride that natural gas has had in the heavy duty trucking space over the last 10 or 12 years. And those of you that have followed Clean Energy and heard me on these calls have lived through it as well. But with the introduction of RNG, a fuel that scores better than any other in reducing carbon emissions and a new engine that finally checks all the boxes operationally for the industry.

Speaker 2

We along with a growing number of experts believe the time is right for heavy duty natural gas trucking. To ensure our network of stations has the RNG to put in the tanks of those trucks, continue to have great success in partnering with a growing number of RNG suppliers around the country for their offtake. And as you hopefully saw in a series of announcements over the last few months, we continue to make nice progress in our own production of low carbon RNG from dairies with 6 projects now producing RNG. Daryl Mas is one of the most well respected developers in the RNG industry. So we were pleased to sign an agreement with this company to build a series of projects utilizing the covered lagoon method that Mas Energy has refined over the years.

Speaker 2

We've approved a cluster of dairies in Georgia and Florida and other single dairy projects in New Mexico, Nebraska and South Dakota. Engineering has begun on these projects with completion scheduled in 20252026. We also recently broke ground for an RNG digester at South Fork Dairy in Texas. The owner, Frank Brand, has rebuilt the 16 1,000 cow dairy and we couldn't be prouder to call him our partner in the project. Injection of RNG into the pipeline recently began at our Ash Grove Dairy project in Minnesota, one of the projects we developed with our partner BP.

Speaker 2

And last month, we successfully monetized the investment tax credit generated by our 1st dairy RNG project, Del Rio. Credit sale generated approximately $9,000,000 of net proceeds to the project. Plan is to monetize the investment tax credits on our other 5 currently operational projects over the next 12 months. That is a good segue on how I'd like to close my remarks and address an area that I know we're all watching closely, which is the election in November. I know many of you are attempting to calculate the different outcomes and if or how they will impact the overall energy transition space and companies like Clean Energy.

Speaker 2

Like most companies in the low carbon energy sector, we feel questions by investors. And while I won't speculate on any particular outcome, I will say this, we partner with landfills and dairy farms to deliver low carbon domestically produced biofuel to commercial transportation customers, produce and deliver sustainable fuel, which generates environmental and financial benefits for the agriculture, municipal waste and transportation industries. We strongly believe that this will continue to be embraced as a win win solution by any administration or leadership in Congress. As an example, we will be hosting next week the Chairman of the House Ways and Means Committee, Jason Smith, with several other members of Congress, including Representative Brian Fitzpatrick, who is the Republican co sponsor of the RNG tax credit legislation. These members are coming to our headquarters where we and executives from UPS and WM will show off the latest technology in natural gas trucks and brief them on the benefits of RNG production and fueling to rural America, municipalities and industries.

Speaker 2

We were very pleased that the RNG tax credit bill introduced by Representatives Fitzpatrick and Democrat Linda Sanchez in the House early this year was recently mirrored in the U. S. Senate. With a bipartisan companion bill co sponsored by Senators Mark Warner and Tom Tillis. I started my career in politics, so I know just enough to be dangerous.

Speaker 2

But as I said, we feel comfortable that no matter the outcome in November, there is wide spread and cross the aisle support to produce a fuel that tremendously helps the U. S. Agricultural industry, both environmentally and financially, including creating jobs in rural America and decarbonizes heavy duty vehicles in a way that no other alternative has been able to seriously address. Now I'll hand the call back to Bob, who will go into more detail about our strong quarter.

Speaker 1

Thank you. Thank you, Andrew, and good afternoon to everyone. We had a good second quarter for 2024. We continue to see good results from our fuel distribution business, including good volumes and margins at our station network, plus strong RIN pricing and our LCFS revenues were back on track, albeit at a lower trending LCFS credit price during the quarter. On a GAAP basis, we reported a net loss for the Q2 of 2024 of $16,300,000 or $0.07 per share, which is the same as last year's GAAP net loss and per share amount, although we got there in different ways.

Speaker 1

On an adjusted non GAAP basis, we reported net income of $2,700,000 or 0 point 0 $1 per share in the Q2 of 2024 versus breakeven non GAAP results last year for the Q2. And as Andrew mentioned, our adjusted EBITDA was $18,900,000 for the Q2 of 2024 compared to $12,100,000 the same period in 2023. And just to clarify upfront here, our LCFS revenue of $4,400,000 for the Q2 of 2024 includes $2,200,000 of LCFS credit revenue that we discussed on our last earnings call, where we mentioned that we had transacted our Q1 2024 LCFS credit sales in April of 2024 due to the Easter holiday. Then for the Q2, we transacted our 2nd quarter LCFS credit sales in June. So we got back on track there.

Speaker 1

That was also for about $2,200,000 thus taking our total LCFS to $4,400,000 for the quarter. While the added LCFS revenue from the April sales boosted our Q2 results, we still saw incremental gains in our fueling business in the Q2 of 2024 compared to last year, principally due to a better mix of higher margin fuel sales and higher RIN pricing that helped to offset some of the lower LCFS pricing that we saw. On a year to date basis, our financial results are well above last year with a GAAP net loss of $34,700,000 for the 1st 6 months of 2024 compared to a GAAP net loss of $55,000,000 for the 6 months ended June 2023. And adjusted EBITDA for the 6 months ended June 24 was $31,800,000 versus $8,200,000 for the same 6 month period in 2023. Last year was negatively impacted by the extraordinary high gas costs in California in the Q1 of 2023, which did cost us about $10,000,000 last year.

Speaker 1

But with an improvement in our adjusted EBITDA year to date of $24,000,000 means that we are seeing marked incremental improvements here in 2024 for the 1st two quarters beyond the recovery from last year's gas costs anomaly. In fact, on a GAAP earnings basis, our GAAP net loss of $34,700,000 year to date is running better than planned. As such, we're updating our GAAP net loss guidance to be in a range of $91,000,000 to 81,000,000 dollars for 2024 versus our previous guidance of a range of a GAAP net loss of $111,000,000 to $101,000,000 basically an estimated $20,000,000 improvement to our GAAP net loss. We're not changing our 2024 adjusted EBITDA guidance of $62,000,000 $2,000,000 because the improvement in our GAAP guidance is due to higher interest income, lower depreciation expense, lower stock compensation expense and lower Amazon warrant charges, none of which impact our adjusted EBITDA. With adjusted EBITDA of $31,800,000 for the 6 months ended June 30, 2024, we feel confident in maintaining our annual outlook for adjusted EBITDA of $62,000,000 to $72,000,000 And finally, I wanted to make a few comments around our RNG volumes and our total revenues for the Q2 of 2024 to provide some more insight on the trends that we saw there.

Speaker 1

On the RNG volume front, we reported 57,100,000 gallons of RNG sold for the Q2 of 2024 versus last year's Q2 was 58,600,000 RNG gallons and the Q1 of 2024 it was 58 1,000,000 RNG gallons. The slight decline in the Q2 of 2024 compared to last year and the Q1 of 2024 is a result of about 5,000,000 RNG gallons that we sold outside of our station network a year ago and in the Q1 of 20 24 that didn't repeat in the second quarter. We 2024 outlook, where back in February, we had identified certain RNG volumes that we had distributed outside of our 2024 and that's really kind of what we saw in this Q2. So frankly, we were able to make up a lot of that, to get to the 57 by distributing RNG into our network. And in fact, that change by doing that in RNG gallons was part of the reason why our overall fuel margin improved in the Q2 of 2024 as we were also then able to pick up the margin on our underlying commodity of fuel sale in addition to the RIN and the LCFS.

Speaker 1

On a year to date basis, through June of 2024, we've delivered 115,000,000 gallons of RNG. Our target that we estimated back in February of 2024 for RNG gallons for 2024 was 245,000,000 gallons. Reaching 245,000,000 gallons will be, a bit of a challenge at this point in the year. So we're going to what we do see though is that we really, can deliver somewhere between 95% and maybe 100% of that 245,000,000 gallon target for 2024. And I'll just point out that as we're seeing in our financial results that ultimately that mix of RNG delivered is also an important part of contributions to our bottom line results.

Speaker 1

On the revenue front, Andrew noted our revenues for the Q2 of $98,000,000 compared to $90,500,000 a year ago Q2. There was one item that certainly muted that year over year increase. It would have been higher. But last year, we had 3 point $6,000,000 in revenue related to the non cash change in fair value of derivative instruments. And in 2024, that number was 100 $1,000 So you got about a $3,500,000 number in the prior year number change.

Speaker 1

And apart from that, then kind of all the categories, all the sources of our revenue were increased. Our fuel sales were greater. This was from higher vehicle fuel sales on higher volumes. We saw higher RIN revenue in the Q2 compared to a year ago, driven by RIN pricing that was up 76% and higher LCFS revenue, although that was mainly due to the April sales that I mentioned previously. And then we also had an increase of nearly $1,000,000 in our alternative fuel tax credit revenue.

Speaker 1

So kind of across the board increases there. From a more recent standpoint, when we look at our Q2 2024 revenue compared to our Q1, that's down approximately 5%. I will say about 30% of that decline relates also to a change in the non cash fair value of derivative instruments. And then the other reason for the decline from Q1 was largely because of natural gas and that flow through of the commodity cost that we've talked about before that impacts revenue and it impacts our costs. We saw dramatic reductions in natural gas from March actually through June on that.

Speaker 1

So, but the point, I guess the important part there in terms of that trend is these are normal contributors impacting our revenues that largely they do not have a dollar for dollar impact to cash margins at our stations. And nothing that we see in that trend from the Q1 to the Q2 was pointing to any fundamental change or decline in our business. With that, operator, we can open the call to questions.

Operator

First question comes from Eric Stine of Craig Hallum. Go ahead please.

Speaker 3

Hi, Andrew. Hi, Bob.

Speaker 1

Hi, Eric.

Speaker 3

Hey. So, you mentioned in the release 7% volume growth at your stations. I'm just curious if you could break down specifically or from a high level by your key end markets, I guess specifically trucking and refuse. And then would love your updated thoughts on timing of the X15N. I know that it's certainly moving towards production and launch, but really hasn't got going yet in a big way.

Speaker 3

So just updated thoughts would be great.

Speaker 2

Most of that percentage increase comes from trucking, Eric. And if not almost all of it. And on the Cummins launch, I mean, let's just kind of review for everybody. Earlier in the year, the early introductory engines were put out some of the nation's largest fleets. It was interesting, Cummins a couple weeks ago mentioned that those test vehicles have accumulated a 1,000,000 miles.

Speaker 2

And the company feedback, driver feedback has been, I think, just short of tremendous. The torque and fuel economy and ride has really been has come to the surface is what we were hoping. The next phase was has been the delivery now of kind of preproduction units. These are units that actually got built on the line, but before the sort of the formal. So there's been another batch of trucks that have now been delivered.

Speaker 2

In fact, for instance, we got one. We're very excited about it. It'll go into our demo fleet here next week. Beautiful trucks. And so that'll be the next batch that'll be operating.

Speaker 2

The order book has been opened and I think that opened March or April. But now the orders and purchases is something now at this point, as you know is between Cummins and their customers. We are working hard with Cummins, PACCAR and the dealership owner groups as we're all kind of working and working with our channel partners to get these orders in. And now I have heard anecdotally that at some recent industry meetings Cummins has stood by that they still believe that they'll sell 3,000 units. Now as we've talked about on these calls for the last 6 months, we know that these engines are going to these trucks will likely get into service at the latter part of 2024.

Speaker 2

So not a big volume thing for us, but we're all anticipating these orders because next year we pick up another OEM, so you'd have more the engines could go into a greater number of vehicles. So we're very excited about it so far. I hope we'll begin to see some announcements for some of these fleets, but that's really up to the fleet incumbents at this point. But we're working hard on it and we're optimistic.

Speaker 3

Yes. I mean, I believe that Cummins recently talked about 8% is where they see adoption going out a little open on the timing just because of moving parts, but that was good to see.

Speaker 2

Eric, that's and yes, I don't know the timing. That was I think over an extended period of time. So I don't know what that means, 3 years or whatever. I've always sort of in what I heard on those early Cummins discussions is that there would be a few 1024 and maybe as many 7,025 and then they got then they started talking about percentages. So I'm not holding the CEO to it.

Speaker 2

I love of course hearing that the CEO thought enough about this product to talk about in our earnings call And not knowing the exact timing of it, 8% equates to something close to 20,000 units, right? 20,000 units translates into somewhere around 300,000,000 gallons of fuel. So for the industry, for the RNG industry, for those of us in the downstream part of the business is big. And recall right now, we're talking about somewhere around selling 240,000,000 gallons of fuel this year. So we have the largest market share here by far.

Speaker 2

So this is very this Cummins X15 and as we've stressed is really important for us and the industry.

Speaker 3

Yes, absolutely. Maybe for my last question, just on the upstream or upstream for an update, you talked about the 6 projects that are operating that are producing RNG. I mean, still kind of the timeline that you start to see an EBITDA pickup late in 2024 and that those start to contribute I guess, fully in 2025? And then maybe what are your plans here for the remainder of the year?

Speaker 1

Yes, Eric. Generally, yes, that's correct. I mean, we're still going to be working with inside our guidance that we gave for the RNG JV investments, which was negative $10,000,000 to negative $14,000,000 EBITDA. But yes, just working within there contemplates monetizing gas that's being produced, but certainly not at kind of full capacity. And yes, the goal would be to be as close to full capacity by the end of this year for sure, going into 2025.

Speaker 1

That's right. So, we're excited about it. It's frankly, it's good stuff as we when you finally get to see the fruits of your labor with the pipeline quality gas going into the pipeline from these projects. So that's the main point.

Speaker 2

But then of course you'll add the Moss projects, but all of the other projects that are under construction, they're all really late 2025, right? And so they don't contribute a lot in 2025, but they're big for all large relatively large projects, so 20 25.

Speaker 3

Right. They'll follow the same timeline as the 6 that you've got this year where they come on and it takes a bit. Okay. Thanks a lot.

Speaker 2

You're

Operator

welcome. The next question comes from Rob Brown of Lake Street Capital Markets. Go ahead please.

Speaker 4

Hi, good afternoon. Hi.

Speaker 1

Hi, Rob.

Speaker 4

First question is the non Amazon fueling, you talked a little bit about those stations or the Amazon stations fueling non Amazon trucks. Could you give us a little color on how that's ramping and what you're seeing there?

Speaker 2

You're saying what's the ramp on Amazon stations? No, the non Amazon fuelers that are at those stations. Yes. Well, obviously, once we have more fleets that begin to accept Cummins X-fifteen. So that's really 25 and then you'll see more of it.

Speaker 2

But like for instance, we have some large fleets, NFI, WM, Ecology, DHL, I mean, those are the kinds of fleets that are beginning to show up at these at the public, let's call it the public side of these Amazon locations. So large fleets that have a lot of trucks, Kenan Group And so that was as designed, right. We knew and Amazon wanted to have public fueling at those locations. They're in perfectly located warehouse and logistic areas and so they really lend themselves to a lot of fleets and I hope we're just seeing the beginning of that, Rob.

Speaker 4

Okay, perfect. Thank you. And then on the kind of back to the RNG facilities that have opened and started running, I realize it's early, but how are you what are sort of learnings there in terms of the operations? Are you seeing the flows that you want and the margins you want? And how is the operations looking there?

Speaker 2

Well, I think we're learning a lot as we go here and the commissioning seems to have taken as we've talked about on these calls a little longer than we've all wanted, but maybe that in retrospect, maybe that's to have been expected. We after a 60 day kind of commissioning phase, we begin to inject and then we tune, right. I mean that's kind of what's happening is we begin to get all the pieces, the upgrading equipment, the compressors, we get the kicks out and we see the uptime come up and that we're seeing that in Del Rio. We've made some adjustments in some pipelines and some different things and we've had, I think it was in June, very nice increases in production. So I think that's where all of these will go.

Speaker 2

And in one of our large projects where we're handling manure right now in Idaho, we're handling more manure than we thought was possible. So just when we think things sometimes are slower and a little more difficult, we're pleasantly surprised on the quality and how these things are working. I think, Rob, generally while slower, operating has been good. We'll continue to

Speaker 1

in house

Speaker 2

operations more. We know a lot about operating stuff and we're going to continue that. We've now really fully integrated our engineering teams and some of our operation folks and some of our SCADA systems. And we're trying to bring some efficiencies that we've learned through operating several 100 fueling stations and some LNG plants to this. And I think we'll be pleased that we're doing that.

Speaker 2

And that's sort of new and as these last five projects come on, we're beginning to kind of get our arms around it and staffing up.

Speaker 4

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

Operator

The next question comes from Manav Gupta of UBS. Go ahead please.

Speaker 5

Two quick policy questions and I'll ask them upfront. First, any time line we should think about on terms of 45 z, when can we get some kind of more guidance from treasury? And on a similar line, when can we expect some kind of update from carb on the whether it's a 7% step down or 9% step down? And I'll turn it over. Thank you.

Speaker 2

Yes. Manav, on carb, we believe that in the next 2 or 3 weeks, CARB should release, this is kind of funny, released their 15 day notice, which I don't know best we can all tell, it's going to be about 30 days before the November 8 hearing. So I mean that seems to be on track. I think CARB is working on that now. So we should see the agenda and the items on it here in the next couple of 3 weeks is what I'm being told and that's for November 8 and that's still there's always time for that to be changed I guess, but that still seems to be on track.

Speaker 4

45V,

Speaker 2

that I think we're still kind of assuming what I was told from sort of a senior policy person that would know about this that we should expect something out of treasury, some initial rule sometime at the end of the summer, so like in September. And so I kind of thinking that's the way that's going to go. But we got some more time to wait on that.

Speaker 6

Thank you.

Speaker 2

You

Operator

bet. The next question comes from Joshant Alianni of Jefferies. Go ahead please.

Speaker 7

Hi, thank you for taking my question. I just have one. Maybe could you talk a little bit about your EBITDA cadence for the second half of twenty twenty four? Historically, we have seen it kind of ramp up quarter over quarter with 1Q being the lowest. So if you follow a similar cadence, then is it fair to say that there's a chance to hit the higher end of the guide?

Speaker 7

What are some puts and takes there?

Speaker 1

Yes. Shneur, you are correct that we have seen a bit of a kind of a ramp up in that cadence. And generally speaking, we would expect to see some of that general same profile as we look at the second half of the year. But in terms of getting to the high end, oh gosh, there's always a possibility. That's why I have that range there.

Speaker 1

We're feeling good about where we are right now within that range. And as we've always said, it's kind of all about volume. So, we do the best that we can to predict that volume. And we're constantly looking at recent trends. So there's a chance.

Speaker 1

Thank you.

Operator

Our next question comes from Matthew Blair of Tudor, Pickering, Holt. Go ahead please.

Speaker 8

Thank you and good morning and congrats on the solid results. I think what stood out this quarter was just the rising unit margins in your Downstream Refueling segment. So I was hoping we could dig into that a little bit. Bob, you mentioned that the mix improved. Does that just to the share of RNG versus non RNG, because it did look like that picked up a little bit.

Speaker 8

And I was also hoping you could talk about, did lower California natural gas prices also help out in terms of your unit margins? Thanks.

Speaker 1

Okay. Yes. Right, Matthew. I will say that the lower gas costs did help us because we continue to enjoy a pretty healthy spread. As an indicator, we're always kind of comparing the say NYMEX to your WTI crude.

Speaker 1

And when that spread is large like it has been, it just means that we've got some pretty good pricing power, if you will, at the pump. So that helps us. And particularly with the amount of volumes we have in California, when California moves like it did, That's helpful. And then on the yes, on the mix, I am referring to the fact that, as we see more vehicle fueling kind of at the stations, it's not really RNG versus CNG or RNG versus not as much. It's the type of gallons.

Speaker 1

And look, as we're seeing some increases, that's why we indicated that part of that increase was in trucking and that's an area where that's your kind of sweet spot of fuel margins. So as that goes, you'll see those improvements.

Speaker 8

Okay. Okay. And then with the Supreme Court reversing the Chevron decision, are you expecting any impact on the RFS program and any sort of corresponding potential decline in RIN prices?

Speaker 2

No, Matthew, I'm not a scholar on all of that, but I followed some of this. And a lot of the underpinnings on the for instance on the laws passed by the Congress, it's not that every law passed by Congress is the same, right, as what might be applicable to what happened in the Chevron deal. And I think that the RFS, the way I've been kind of following the trades and some of the people that have been following it, I think the RFS is in pretty good footing. And so I don't know that that's in let's call it in immediate jeopardy, not sure about that. I'm sure there will be those that will try to that don't like the RFS might try to work on that.

Speaker 2

But I'm thinking the RFS and the way that came through Congress and the way it's been dealt with over time, I'm thinking it's on more sure footing. But there'll be a lot of tests on some of these things. I mean, for instance, there's been there have been those that have thought that the Republican controlled house might try to put a congressional review act and to try to undo some of the IRA. And I'm sure there's those though about an hour ago, I saw 18 Republican members of the House put a letter into the speaker saying, hey, as you look at repealing the IRA, there's a lot of stuff in there that we like. So this isn't occasionally when people look at this, they think it's this is all going to get poured out.

Speaker 2

This is all very simple and it's not. It's a little more complicated than that. I would say that on, for instance, on the Congressional Review Act, things like that, that takes the Senate as well. So that means you'd have to clear the 60 votes there. So that's why that's not used that often.

Speaker 2

Now a new administration could certainly impound certain funds that have been put through and make it difficult to spend them in different categories. And so we'll see how all goes. There's a lot of water could come under the bridge before that all happen.

Speaker 8

Great. Thank you.

Speaker 2

Hey, Matthew. Well, one of the that was Matthew, wasn't it? Yes. One other thing is, since I've followed the RFS now, I don't know how long that's been in law, 12 years, a long time now. That particular law is really bipartisan.

Speaker 2

You have the ethanol producing states and I mean, you have a lot of there 10 years ago, there was talk that a Republican Congress might try to unwind the RFS. And I really do believe the RFS is on a lot more solid footing today than it's ever been before. We see really bipartisan participation on supporting a renewable fuel standard. Sorry. Go ahead, operator.

Operator

Okay. Thank you. Our next question comes from Craig Shere of Tuohy Brothers. Go ahead, please.

Speaker 9

Good afternoon. Thanks for taking the questions. Did I hear correctly that the first upstream JV project recovered $9,000,000 for your portion of the ITC? And how much total do you expect from the other 5 projects? And using that as a backdrop, can you kind of opine more generally on how you feel about capital funding into 2025, 2026?

Speaker 2

Well, the $9,000,000 is total project. And Bob, I don't know that I have a number on top of my head on Well, I would say

Speaker 1

that the other 5 are generally speaking in around the same size, if you will. So they probably will they may have some of the same qualified assets in that ballpark. So it shouldn't be too much different than that. But there's a number of things that can go in there with pricing in the market and all that, but that's in the ballpark.

Speaker 2

And

Speaker 1

I mean, we'll use that capital at the project level, if you will. New projects maybe right at the same project, I mean, depending, but

Speaker 2

And then our capital for the projects that we've talked about Moss and a couple of our other projects are covered right now. We either have the money at the JV or we have the capital. The projects that we've talked about on these calls, we've got the capital committed in the bag.

Speaker 1

And available to us. I mean, we have $100,000,000 Additional value.

Speaker 2

So we're good on that, Greg.

Speaker 9

Got you. And separately, a diversified peer company with landfill RNG exposure just announced their 1st discretionary institutional fixed price contract with a public utility. It was over 5 years or I'm sorry, it was just 5 years. But they expect future agreements longer tenure. Now I know this is not the market for your ultra low C and I dairy gas, but as landfill gas is pulled out of the system, if this becomes a trend, one especially if that happens just as all these 15 liter trucks hit the market, demand for there is going to go up dramatically, right?

Speaker 9

So maybe you could opine about what you see as supply and demand for RNG these days?

Speaker 2

Supply and demand pretty good balance. There's a lot of RNG projects coming on, a lot of landfill projects and low CI projects. I don't anticipate a real problem. Now I hope we get into a real problem, right? I hope we start creating that we hit that 8% number and we need $300,000,000 a year.

Speaker 2

The industry has a tough time keeping up with that because that's every year, right, you need to create that. But let me remind you that Bob and I talk about it quite a bit, you probably heard us talk about it. Right now, you're dispensing as you're in California at our 140 or 50 stations, I think, somewhere around a minus 140 to 150 on the CI index. And I don't know that you need to supply someone fuel at minus 150. So my point is that as you blend that fuel, you can fuel more vehicles, right.

Speaker 2

So we have a very significant fleet where their fuel just by the way it works in the contract, I think they're getting -353. Well, that's unusual and other fleets won't get that. So my point is you're going to be able to have plenty of RNG to get customers at either just a negative fuel number or 0 number. So you'll have plenty of RNG, Greg, as you go forward here. Don't sweat that.

Speaker 2

And I also happen to think that as the 15 liter comes on, the market's going to move, continue to move. Look, 80% of the RNG today in America goes into transportation because it's where you get rewarded for it the best. So yes, look, I'm all for it. If somebody wants to do whatever they want to do is okay by me. But you watch, most of it will end up going to the hardest decarbonized place, which is transportation where you make the most money on it.

Speaker 2

I also have to having said that, I happen to think that the large AI and data center people are going to start getting more comfortable with needing natural gas for their data centers. You'll see that as a trend. It was all going to be wind and solar and now you're going to start hearing that well, maybe some natural gas would be okay. Well, I think that's a beautiful opportunity to blend in RNG and bring that fossil down to 0. So there'll be lots of opportunities for RNG.

Speaker 2

That's what gives us confidence in making these investments because use it in a vehicle, use it in the data center, use it in other places, use it to make hydrogen. I think there's a great future for the RNG because it's the lowest carbon feedstock really out there.

Speaker 9

Thank you.

Speaker 2

But have no fear, I'll still stick that over the next decade, you'll have a couple of 1,000,000,000 gallons of RNG from manure and there are several 1,000,000,000 more gallons that will be brought on from the landfill wastewater, food waste. So we're not trying to replace every gallon of diesel or all natural gas that's making a power today, but there's there'll be several 1,000,000,000 gallons of RNG, which is a long way from where you are today.

Speaker 9

Fair enough. Thank you.

Operator

Our next question comes from Pavel Molchanov of Raymond James. Go ahead please.

Speaker 6

Thanks for taking the question. Maybe kind of macro question first. Price of oil is at the lowest level in about 24 months. And I think there's some fear in the market about kind of recessionary pressures potentially impacting demand. And obviously, you have a useful kind of channel chat on certain use cases.

Speaker 6

So are you seeing demand softening in recent weeks months?

Speaker 2

On our transportation, no. But I don't know that we are the best check on that, Pavel, while we have a pretty good feel for how our fleets operate, we haven't seen any decline there. But we don't see people sidelining transit buses or refuse trucks or the delivery type fleets trucking that we fuel. I guess I thought where you were headed is, do we see a decline in oil? Are we concerned that you're going to wake up and it's going to fit dollar oil?

Speaker 2

And I guess I'd be curious your thoughts on this. I'm kind of thinking that you're going to bounce along the lower part of the $65 to $75 and if you are, you'll have $3 gas versus $60, $5 oil and for us that would be very constructive. Right now, you're trade right now, the between natural gas today at $2.09 and oil at $75 I mean, you're 36 to 1 on a BTU equivalency. So you're really at the high end. And of course, we like that, but we don't need that.

Speaker 2

We were happy for a long time at 15 to 16 to 1.

Speaker 6

Right.

Speaker 2

So there's a lot of room kind of there, I think.

Speaker 6

Okay. We talk a lot about the drivers of your product margin, not as much about the service line item. When I look at your service business, revenue kind of has this very consistent growth, but it looks like the margin has come down maybe over the last couple of years from 40 ish percent down to closer to 30, 3.0. Any reason for that?

Speaker 1

Pavel, I'm going to put this out there and call it inflation. It's just a bit more yes, it's just a bit more costly on all of this. We're still okay with our margin. We're not okay with it kind of coming down, but we do know why it's come down. Sometimes it can ebb and flow a little bit because just based on the types of maintenances that are done, but I think fundamentally, we see that, but

Speaker 2

it's still

Speaker 1

good service recurring revenue on it, but it's I'm just going to say it's a little bit more on the cost front. Now we're looking at we're as we renew contracts and that sort of thing, I can tell you in this day, we are we're certainly getting our fair share as we as things come up for renewal address the pricing versus what it's costing all across the board with wages and materials and that sort of thing to support itself. Or we're kind of addressing it as well.

Speaker 6

Okay. We haven't touched on this maybe a year or so now. Is there anything interesting happening with the Long Beach adopt the port initiative that you guys had with Chevron a couple of years ago?

Speaker 2

Well, it's kind of we just keep at it, Pavel. We've actually expanded it, kind of re if you will refill or refilling up the bucket of funds from Chevron to continue to do more trucks. Some of the regulation at the port, the electric push for electric in some of the new fleet rules have made it somewhat daunting for our those small fleet operators down there to kind of shoot the through the needle on what's required in order to put in for grants and timings. I mean, they made it kind of a mess trucks that are kind of in trucks that are kind of in the process to buy new trucks with the Chevron grants. And so I don't know there's been any change other than we've continued just slowly but surely add trucks into the port.

Speaker 1

And even in other areas around Southern California. Yes.

Speaker 2

It doesn't have to be it doesn't really we called it adopt a port because we were very clever on the naming, but it's really that program could

Speaker 1

be anywhere in the state of California. And in

Speaker 2

fact, I think the other day, we talked about a fleet up in the Central Valley that was trucking fleet that's putting in for those grants right now.

Speaker 1

So it's yes, it's still in the offering.

Speaker 9

All

Speaker 6

right. Thanks very much.

Speaker 2

Welcome.

Operator

The next question comes from Betty Zhang of Scotiabank. Go ahead please.

Speaker 10

Thanks. Hi, Andrew. Hi, Bob. Thanks for the update. Just one question for me.

Speaker 10

When you guys are talking about RNG volumes, it seems like in previous quarters you talked about having sold 5,000,000 gallons outside of your station network. So I assume that would be into non transportation markets, but you guys talked about how clearly the economics are better in transportation markets. So I'm just wondering what the thought process was like there. And if there's opportunity to do more, would you take it?

Speaker 1

Yes. Betty, it's all kind of factors into the whole supply demand optimization of what goes on in a quarter. And so kind of our first area of delivery is always our stations for the highest economics. And then just on occasion, if we see an opportunity where because we have so much supply, folks will maybe get into a predicament, if you will, where they need RNG. And so we take that opportunity to do it.

Speaker 1

So that's kind of where that happens. And yes, it's not over. It's just last year we had done some that was fairly regular and we weren't clear on whether that was going to necessarily happen again. Although a little bit of it did happen in the Q1, which is why we still saw it. And then really in the Q2, it wasn't needed.

Speaker 1

And so that's what we

Speaker 2

But we'll continue. That will always be potentially on the table.

Speaker 1

It always is, yes.

Speaker 2

Yes. It is.

Speaker 1

So, 1st and foremost, we go to clean energy stations and all throughout our network and

Speaker 2

It's probably I don't know if this is the right way to categorize it though, Betty. It's more short term than it is that we're making a long term play of moving RNG into the data center type thing that we talked about. This is where a particular Yes, I would say to satisfy a customer and we're able to wholesale it over to them.

Speaker 10

Got it. Thanks.

Speaker 1

And so it could very well end up in transportation.

Speaker 2

In fact, I think a lot most of it did.

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Earnings Conference Call
Clean Energy Fuels Q2 2024
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