Clean Energy Fuels Corp.

Greetings and welcome to Clean Energy Fuels' first quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during a conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Robert Vreeland, Chief Financial Officer. Thank you. You may begin.

Thank you, Operator. Earlier this afternoon, Clean Energy released financial results for the first quarter ending March 31st, 2021. If you did not receive the release, it is available on the investor relations section of the company's website at 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 risk, 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 the statement is not forward-looking. 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 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. The 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. 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, the 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-K today. With that, I will turn the call over to our President and Chief Executive Officer, Andrew Littlefair.

Thank you, Bob. Good afternoon, everyone, and thank you for joining us. I will quickly touch on our financial and operational highlights and then spend some time speaking about our very important and exciting Amazon announcement. Our new strategic partnership with Amazon is multi-pronged and we believe positions clean energy very well for the future and confirms the direction we set for ourselves years ago. As anticipated, the COVID pandemic continued to impact our volumes, but with stronger environmental credit pricing, our adjusted EBITDA of $11.7 million was up 4% over last year. As with the rest of the country, we are optimistic that the overall economy, including transportation sectors specifically, will continue to rebound. Our balance sheet remains healthy with $146 million in cash and investments and $90 million in debt at the end of the quarter. All in all, a good quarter considering the lingering effects of COVID, which have hit two of our sectors the hardest, transit and airport fleets. But these two sectors have improved from their lows during the pandemic recession as people begin to travel more across town via a bus or across the country from one of the airports we serve. In fact, our business continues to expand with new customers, demonstrated in a press release we distributed yesterday that I hope you saw. which highlighted a number of recent fueling agreements we have signed. Now let's talk about Amazon. The recent announcement that we made with them is the most important commercial event in clean energy's history. Not surprisingly for a deal like this, we are under a nondisclosure restriction, so we are limited as to what we can say. And we don't want to get caught speeding because we don't need to. Even so, I want to make sure everyone fully understands the significance to clean energy. This new strategic partnership with Amazon is based on two different agreements. One is a commercial deal and is about Amazon agreeing to buy a substantial amount of renewable natural gas fuel through our stations, potentially hundreds of millions of gallons of RNG. This fuel will be consumed by a fleet of mostly heavy-duty trucks and some mid-sized trucks that Amazon is in the process of deploying, with many of the trucks already operating. These trucks will fuel at 27 of our existing stations around the country that we own and operate. And as Amazon deploys more RNG trucks, they will fuel at 19 additional clean energy stations that we plan to build by the end of the year. We've already identified most of the locations for these stations and in some cases have already secured the land. Clean Energy will own the new stations, and while it's nice to have a large anchor fleet customer like Amazon, these new stations will be available for other fleets to fuel as well. You've heard me speak in the past that one of the beneficial aspects of RNG is that it's a drop-in fuel, and that can be quickly and easily provided to a new customer at any of our fueling stations in the U.S. The Amazon fueling agreement is a perfect example of this, and in fact, one on steroids. As they deploy their new fleet of RNG trucks across 15 different states around the country, Amazon is immediately operating in the most sustainable way possible. Fortunately, we were the first to make RNG commercially available, and we have continuously worked for years to secure a growing supply of RNG. We have gained a deep knowledge of how to work with the different government agencies and utilities to provide the fuel to designated locations throughout our US network of over 540 stations. We also have the experience to navigate through the federal and state's environmental credit procedures, which allows us to provide ultra clean fuel for less than diesel. As I mentioned, because of our customers' wishes, I don't speak to the number of trucks that Amazon is deploying, but it is safe to say that by fueling at 46 different stations with routes crisscrossing the country, it is a substantial commitment. Another way to judge the scale of the fuel deal is through the lens of the second agreement, which involves our issuing a warrant to Amazon to purchase 53 million shares of our stock. As you might have read in our 8K or our proxy statement, The shares vest in multiple tranches as Amazon continues to purchase more and more RNG fuel from us, up to a total of $500 million. And that figure excludes any pass-through costs, such as gas, electricity, and transportation. So the actual number to our top-line revenue would be considerably higher. Clean Energy's executive team and board looked at the decision to allow Amazon to eventually purchase up to 20% of our outstanding shares very closely. We concluded that these agreements represent so much of what we have been working towards for the last decade and have the possibility to make a lasting effect not only on our business but on heavy-duty R&G fueling overall. By linking the fuel purchase agreement to the warrant agreement, Amazon is indicating they want a longer term and deeper partnership than just being a customer. As a strategic partner and potential substantial owner of Clean Energy, they now have a stake in our success and are incentivized to purchase more and more RNG from us. The better we do, the better Amazon and our shareholders do. Furthermore, if Amazon earns into the warrant and exercises it for cash, Proceeds to Clean Energy will be more than $700 million, and we're talking about a strike price of $13.49 per share. We believe the market share price of our stock at the time of exercise will be significantly higher than the strike price, creating a meaningful incentive and upside gain for Amazon, which would also mean tremendous upside to all Clean Energy shareholders. This is a great validation of the value of clean energy, especially when looking back to the not too distant past. In short, we believe this strategic partnership with Amazon could be worth $1.5 billion or more in gross proceeds between revenue from fuel sales and proceeds from cash exercise of the award. It is an extraordinary statement that one of the largest brands in the world, Thank you for joining us. The two largest waste companies in the U.S., WM, it is now officially called, and Republic Services And the two largest transit agencies in the country, New York MTA and LA Metro, among many others All of which are operating thousands of heavy-duty trucks, refuse trucks, and buses with RNG every day By doing so, these fleets of large vehicles are keeping hundreds of millions of tons of greenhouse gas from escaping into the atmosphere To the skeptics that say RNG might be a niche fuel, I would say it's real and having a significant and profound effect on the climate change today. And in doing so, it easily and cost-effectively for the operators of these fleets. Let me depart here for a second from my script and talk about kind of the context of the way I look at animal waste and as it develops into RNG. You know, if you look at the current studies out, There's probably about 30 billion gallons of RNG from all sources that's available in the United States, and that's on an annual basis. And of course, that would take into account landfills and wastewater treatment and dairy hogs, dairy cows, etc. I'd like to focus, though, on the fact of when people think about this, well, gosh, this may be kind of a niche. Well, I think that when you look at the low-hanging fruit, and others agree with me on this, in fact, the Major energy companies, staff agrees. There's probably 5 to 7 billion gallons of dairy RNG available annually. Now that's going to take 5 to 10 years to bring it all online, probably 5 to 7 years. And at the cost of 50 to 70 billion dollars. But these RNG facilities are very economic. And so you think, well, that's kind of a niche, five to seven billion gallons. After all, the United States is using 35 billion gallons of diesel annually. But when you put that on the carbon scale and you recognize that this fuel is three to four times less carbon than diesel per gallon on the carbon scale, you can see that you're really talking about removing 20 billion gallons of diesel annually from the roads. So it's a huge and very important contribution to our effort to combat climate change and reduce carbon. This growing demand for RNG and particularly RNG from dairies and agricultural facilities, which is rated by the California Air Resources Board as much as two to three, three and a half times cleaner than any other alternative, helps to bring into focus the other agreements that we finalized in the first quarter. The two joint ventures that we now have in place with Total and BP to bring more of this ultra-clean RNG online is already showing great progress. We are working with multiple dairy owners to construct, own, and operate digesters and RNG processors at their facilities. In fact, just this morning, we signed an agreement with a family-owned dairy to construct a digester, which is expected to add over 1.2 million annual gallons of negative carbon RNG supply when it comes online. The capital allocated towards these projects and the resulting additional R&G supply will keep us well positioned in meeting the growing demand by Amazon and other new customers. So thank you for allowing me a little more time to expound on our new relationship with Amazon. I think it is important for everyone to know the significance of it and the long-term benefits it has to the upward trajectory of clean energy's business, particularly if you are a shareholder. And as you know, a portion of the warrant needs to be approved by a shareholder. Clean Energy's Board of Directors has already approved the warrant and strongly recommends that our shareholders do the same. We have never been more excited and optimistic about the future and how clean energy has positioned itself over the last few years to take advantage of the world's heightened awareness of the actions urgently needed to address climate issues. The transportation industry must play a large role in this and we have the solution. And with that, I will hand the call over to Bob.