Clean Energy Fuels Corp.

Greetings and welcome to the Clean Energy Fuels second quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the 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, Mr. Robert Vreeland, Chief Financial Officer. Thank you, sir. You may begin.

Thank you, operator. Earlier this afternoon, Clean Energy released financial results for the second quarter ending June 30, 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 that 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. Companies 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, 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 8K 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. This was a great quarter for us. In Q2, we signed the most important commercial agreement in the history of our company with Amazon. Our business is growing again and surpassing pre-COVID levels. We raised $200 million in growth capital. Our earnings were better than expected. And there continues to be an increased understanding of the role our renewable fuel can play in addressing climate change today. Notably, our fuel volume surpassed 100 million gallons a quarter again. a healthy 13% increase over the second quarter of 2020 when the pandemic had begun to take hold. We saw volumes bounce back in all sectors, and the good news in particular is that airport fleet volumes increased 36% and transit increased 24% compared to a year ago, which surpassed our own internal projections. Our renewable natural gas, or RNG, volumes grew 19% over the same period, quarter a year ago and continues to become a larger share of our overall fuel mix. Our efforts to accelerate the demand for this ultra clean fuel is only matched by our focus on bringing on additional RNG supply to meet the growing demand, which I will elaborate on in a minute. As you know, we are focused on providing more and more RNG, a fuel that can be rated to have a negative carbon intensity allowing our customers to meet their transportation sustainability goals easily, immediately, and affordably. I'm going to let Bob go into more detail about our strange revenue number this quarter, but it's not hard to see. There were accounting-related non-cash charges that highly impacted it, most notably the Amazon warrant charge. Excluding the non-cash charges, our revenues would have been $79 million, a 29% increase an apples-to-apples comparison to the second quarter of 2020, which was $61 million. Our balance sheet has significantly improved, placing us on solid footing. During the second quarter of the year, we added $200 million of cash through an at-the-market equity offering managed by Goldman Sachs. In fact, the demand was so high, we raised $100 million in one day during the second round of the offer. We finished the quarter with $254 million in cash and investments after contributing $50 million into our negative carbon intensity RNG development JV with BP. Our debt at the end of the quarter was $42 million. This places us in a strong financial position as we expand our fueling infrastructure for our new large anchor customer, Amazon, and make investments in RNG production to ensure a growing supply of RNG fuel in future years. Our adjusted EBITDA for the second quarter was $14 million, a 51% increase over the adjusted EBITDA in the second quarter of last year. Overall, it was a strong quarter financially and operationally. Regarding the supply of RNG, let me just quickly report that our efforts to make agreements with dairies is moving along very well. No other company has as compelling an offer as we do. With a strong balance sheet supported by our JVs with Total Energies and BP, and the largest vehicle fueling infrastructure in the country, which provides the mechanism to generate the valuable environmental fuel credits, dozens of dairies from California to Texas to the upper Midwest are in discussions with us. We have already signed our first partners and have a robust development pipeline. But before the RNG from these new partnerships comes online, we are also aggressively and continuously signing RNG supply contracts with third parties to meet today's growing demand. Since the beginning of the year, we have secured an additional 53 million gallons of RNG with a healthy pipeline of additional supply agreements. As I mentioned, our base of existing customers is back to previous levels, and we are adding new businesses as well. The adopt-a-port program with Chevron, which makes replacing old, dirty diesel trucks with clean R&G trucks affordable for smaller operators in the ports of L.A. and Long Beach, continues to expand. Financing for over 485 heavy-duty trucks is either closed or is in the contracting phase. These trucks will fuel in the ports at our surrounding network of R&G stations in Southern California. We're working our way through the additional $20 million of financing that Chevron recently committed to the program, and I believe it will accelerate as the state of California soon distributes another round of its grants for clean trucks, making the switch to R&G all that more appealing. On the East Coast, our existing customer, Manhattan Beer Distributors, recently announced that they would be expanding their natural gas fleet to 29 trucks, which will fuel at our stations in the New York City area. And in the middle part of the country, we signed a new customer, Calm Energy, a large regional fuel provider in Nebraska. We will be taking over the operation of three stations that sell an approximate 900,000 gallons of CNG a year, and we forecast that to grow as Calm adds medium and heavy duty trucks to their fleet. Another new customer, the city of Fort Smith, Arkansas, will begin to fuel a new fleet of natural gas refuge trucks and has plans to convert their entire fleet to natural gas. These are a sampling of recent agreements, but of course the biggest deal signed during the second quarter of this year, well, in fact, the biggest deal we have signed since the company began was the agreement with Amazon. I spent quite a bit of time discussing on the last call, so I won't go into much more detail today, But since our last call, Amazon issued their latest sustainability report. And in it, they confirmed for the first time that they plan to initially deploy 2,700 heavy-duty natural gas trucks by the end of the year. And all the fuel we will provide for Amazon will be R&G. We are making good progress on the additional stations that we plan to construct for Amazon. And Amazon continues to deploy its heavy-duty truck fleet. In addition to the fueling infrastructure expansion, we are facilitating training classes with the Natural Gas Vehicle Institute for dozens of maintenance technicians who will be keeping the Amazon trucks on the road. Our excitement about our new relationship with Amazon has only increased since our last call. The significant fueling agreement and their right to buy clean energy shares, provided they purchase hundreds of millions of gallons of RNG, demonstrates the overall commitment and strategic alignment that one of the world's largest companies, which moves more goods than anyone else, has made to renewable natural gas. We are seeing that message open doors with other fleets, which have been a little hesitant in the past to think about leaving diesel. And fleets are feeling other pressure points as well. I don't have to tell this audience that companies are under increased scrutiny to find ways to reduce their carbon footprint. Investors, regulators, and the public are asking to see specific plans to meeting their emission reduction goals. I'm going a little bit off the farm here, but it's my belief that our RNG fuel solution has the momentum versus other alternatives. It's almost becoming a weekly occurrence where we see stories about transit agencies turning back electric buses because of serious issues, including thermal events. And by the way, where I come from, we call those fires. or delays and rollouts of electric heavy-duty trucks and other promises and claims not kept by startup OEMs, or the lack of charging and fueling infrastructure for large vehicles, the expense of charging and fueling infrastructure, and a growing realization that there is no perfect clean solution, highlighted by a recent in-depth story by the Los Angeles Times about the environmental impacts and problems associated with the mining of minerals for large batteries. Now, don't get me wrong. I think electric and fuel cells will be fine in the light duty space. And as I've said before, our experience in station construction, along with our access to RNG fuel supply, which can be used as a clean feedstock in time, will allow us to expand into other alternatives as our customers do. In fact, we have recently submitted bids to build hydrogen stations for transit agencies that will be testing a handful of hydrogen buses. But for fleets of large vehicles, which are looking for immediate and significant carbon reduction solutions, we think there is nothing comparable to RNG. It's becoming easier to make our sales pitch. A fuel produced from capturing naturally occurring methane at dairies, which number in the tens of thousands, and then turning it into a transportation fuel, displacing a harmful incumbent fuel is an easy story. This two-pronged missions mitigation is why RNG fuel can receive a negative carbon intensity rating and why more fleets like Amazon are realizing it's the easiest and most cost-effective way to meet their aggressive sustainability goals. We already have a nationwide fueling infrastructure in place that is expanding. Cummins provides a natural gas engine that performs as well as its diesel counterpart, albeit with 90% fewer tailpipe emissions. And a carbon negative fleet can be deployed in short order at much less cost than other untested alternatives. We've recently begun an exercise to dive deep into large heavy duty truck fleets with specific data that demonstrates to companies how they can reduce their greenhouse gas emissions. As an example, At their request, in July, we provided one of the country's largest fleets, which operates thousands of heavy-duty diesel tractors, with specific data about how they could achieve their long-term carbon emissions reduction goal by replacing only 1,200, that's 1,200, trucks over three years with R&G. Using the same California Air Resources Board carbon intensity scoring, this company would have to purchase over 6,400 electric heavy-duty trucks or 13,000 fuel cell trucks to achieve the same carbon reduction as only 1,200 trucks running a negative carbon RNG. As I mentioned at the top of my remarks, the second quarter was a great one for clean energy. Our recurring business is returning to normal levels, and we're beginning to see real growth in our fuel volumes driven by new customers, in no small part by one in particular, Amazon. And we are on solid financial ground as we continue to make additional investments for future growth. And with that, I'll turn the call over to Bob.

Thank you, Andrew, and good afternoon, everyone. And I'll reiterate what Andrew said. The second quarter was a good financial quarter for us. We started to see the anticipated rebound in volumes along with good fuel margins and a continued favorable environmental credit market for D3 RINs and LCFS. Of course, our GAAP results, as reported, were significantly impacted by the non-cash contra-revenue charges of 78.1 million from the Amazon warrants. But looking at our non-GAAP earnings, we earned a penny a share with adjusted EBITDA of $14 million. These contra-revenue charges related to the Amazon warrants is why we are reporting a revenue number of a half a million dollars for the second quarter. Without those warrant charges and changes in fair value of our Zero Now hedge, our revenue was $79 million, or 29% above 2020 second quarter revenue of $61.3 million on a comparable basis. The Amazon warrant non-cash contra revenue charges for the second quarter included $76.6 million related to the immediate vesting of approximately 25 percent of the warrant shares and $1.5 million related to ongoing fuel delivery to Amazon under our fueling agreement. We will continue to record non-cash contra revenue charges each quarter that could be in the range of three to four million dollars per quarter related to the ongoing spending on fuel by Amazon. As also note, the contra revenue charge related to the immediate vesting in the second quarter was higher than our initial estimate of 68 million due to additional warrants being issued in connection with our share issuance from our at the market stock offering program. As such, we've updated our guidance for our estimated gap loss to $86 million for 2021 to reflect the increased contra-revenue charges in the second quarter, which has no impact on our cash flows or adjusted EBITDA. We are maintaining our adjusted EBITDA guidance for 2021 of $60 million to $62 million. Now continuing on with the second quarter, total volumes were 101.4 million gallons compared to 89.5 million gallons a year ago. Andrew noted the big increases coming from airport fleets and transit sectors, which have been the most impacted by the pandemic. Trucking and refuse also saw year-over-year volume gains. And our RNG volume grew 19% to 42.9 million gallons in the quarter, up from 36 million RNG gallons in the second quarter last year. Our effective price per gallon in the second quarter of 2021 was 67 cents per gallon compared to 58 cents a gallon a year ago. This reflects generally higher natural gas prices and related prices at the pump as well as significant gains in our D3 REN revenue. Both station construction sales and the alternative fuel tax credit revenues were better than a year ago by 15 percent and 20 percent respectively. collectively an improvement of $1.7 million for the second quarter compared to last year. Our overall gross profit margin improved in the second quarter of 2021 compared to 2020, exclusive of the non-cash contra revenue and non-cash fair value changes in our zero now hedge. Exclusive of these non-cash items, our gross margin was $32.1 million in the second quarter of 2021, compared to $22.8 million in the second quarter of 2020, or a 41% improvement. Increased volumes together with a rise in our margin per gallon from a year ago were the primary drivers of this year-over-year improvement in margins. Our effective margin per gallon for the second quarter of 2021 was 26 cents per gallon compared to 20 cents a gallon a year ago, also reflecting the greater fuel volumes and higher RIN pricing. We believe our margin per gallon will remain within our expected range of 22 cents to 26 cents for the year, but as we've seen, we've been at the high end of that range in our first two quarters. Our SG&A was $21.6 million in the second quarter of 2021 compared to $16.9 million a year ago, an increase of $4.7 million of which 57% or $2.7 million of that increase relates to an increase in stock compensation as expected. Our gap net loss, for the second quarter of 2021 was $79.7 million, which includes the effects of the non-cash warrant contra revenue charges and the zero now hedge changes. Our non-GAAP net income for the second quarter was $1.8 million, or one cent per share, which we believe is more indicative of our operating results. Our adjusted EBITDA of $14 million for the second quarter of 2021 compares to $9.2 million a year ago, which again highlighted the benefit of increased volumes and improved margins principally associated with our RNG deliveries. Our cash flow provided from operations amounted to $9.7 million for the second quarter of 2021 compared to $54 million in the second quarter of 2020, which that figure included two years of alternative fuel tax credit collections in the second quarter of 2020. Exclusive of Changes in operating assets and liabilities, cash flow from operations was $14.3 million in the second quarter of 2021 versus $6.6 million in the second quarter of 2020. CapEx spending was $4.6 million for the second quarter of 2021. Of course, we see that amount increasing as our station building continues and ramps up as we accommodate principally Amazon. And Andrew mentioned our cash and investments of $254 million with debt of $42 million at the end of June 2021. We contributed $50 million in June into our R&G investment with, or JV with BP. And we anticipate funding our R&G JV with Total Energies on a project by project basis as specific projects are approved for funding. Our share of the net results of these JVs is and will continue to be reflected in our adjusted EBITDA as we progress forward in bringing projects up and producing RNG. With that, operator, we can open the call to questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to move your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for your questions. Our first question comes from the line of Eric Stein with Craig Hallam. Please proceed with your question.

Hi, Andrew. Hi, Bob. Hi, Eric. Hey, so I know you mentioned that Amazon, and not a surprise that it's helping more broadly in discussions with customers, but maybe could you talk about specifically Amazon suppliers, maybe some specific data points as much as you can share, traction you're making there, and kind of how you see that overall volume opportunity.

You know, our stations that we're building for Amazon are going to be open to the public. And, of course, you know, knowing our business, Eric, you know when I open to the public, that means they're open to other truck companies, right? And in that case, I think it's likely to be other vendors and suppliers as well as other fleets that operate for Amazon. We have seen a few companies that haul for Amazon begin to bring natural gas trucks into their fleet. And I think you'll see more of that in the future. And that's really all I can talk about right now. But I know that as I believe that Amazon looks at their emissions and their goals and their reductions in the future, they're going to try to encourage many of the people they work with to bring on cleaner and cleaner vehicles over time. And, you know, we hope to be right in the middle of that and, you know, kind of stay tuned.

Yep.

Okay.

Well, maybe just sticking with that. I mean, is there any way, obviously, as you've got the joint ventures now, you've brought on more supply, you've had the supply agreements in, in hand for some time, you know, maybe the size of the pipeline for Redeem, you know, whether it's versus a year ago, three years ago, you know, anything along those lines would be helpful.

Right. And I'm going to be a little cagey here, Eric, and it's just because I guess there's a lot of good news here, which is there are a lot of competitors that are out there trying to develop dairy projects. And you know, in one way, that's really a good thing, right? Because that's just confirming for me that there's a lot of money and there's some big players with deep pockets recognizing that this is a really viable fuel that's economic and that has a great role to play in reducing carbon emissions today. So that's good. Remember that we're ahead, even while we're competing at, let's call it, at the dairy location. Often, We're, I don't want to say the only game in town. We often get, though, the supply from our competitors as they go, as they look to put it in a vehicle tank, right? Because we have the infrastructure. So, you know, just because we're not developing a dairy farm and harnessing the dairy fuel for our own account, that doesn't mean that we don't ultimately bring that low carbon negative fuel to our customer, our fueling station. Now, obviously, we'd like to get a lot of it on the upstream side because that makes economic sense for us as well. But just want to kind of keep that in mind. So if you go back and look three years, I mean, there was hardly anything going on in the dairy business. So when you look at the pipeline today, it's dramatically increased. And I've said on a previous call, I'm not going to dissect it today. I said in the previous call that we've got several projects going. that are either in, you know, that we've given the notice to proceed, that are either in construction or signed or in our pipeline. That's grown since our last call, but I'll just kind of leave it at that right now. But yeah, Eric, compared to where we were several years ago, I mean, you know, remember, we were early in this business. We started, I guess we were the first ones to put landfill gas in a truck 10 years ago, right? And so up until recently, it was all landfill gas. And it'll continue. There's a lot of landfill gas in the United States, and it'll continue to be a lot of landfill gas. But you'll also see more and more dairy and farms, hogs coming on board because of its low-carbon nature. So over time, for instance, let me give you one other little point. And I can't go back a few years, but... Our carbon intensity is coming down. And by the end of this year, our carbon intensity will be, in the fourth quarter, is going to be approaching zero for our fuel. And, you know, it wasn't too many years ago. It just wasn't that way. And it's coming down fast because as you bring on this negative carbon fuel, you know, it's so much lower carbon that it brings down the other. So that's a good thing.

Yeah, no, it's good. Maybe last one for me, just, I mean, great to hear a rebound in transit and airport. Have you seen any, you know, any change or, you know, with variants and things along those lines, or is that something that you kind of feel like those two areas are back on track and they should continue to grow going forward?

Yeah, we're seeing them all grow. You know, I don't think airports aren't fully back. I mean, they've come back a long way, and I'd say they're back to about, you know, where we were before. But they're still not, you know, I don't think they're operating on, you know, all cylinders yet, just based on what I know on passenger load. But they're pretty, you know, they're essentially back to where we were before. But I think there's growth there. But transit buses, you know, and I've said this in kind of the early days of the pandemic, they kind of flipped the switch, right? They went from 100% to 50%, and they drop it in big pieces. And it doesn't have as much to do necessarily with the passenger load on a given day as it does that they just turn on different routes. And we've seen the transit back to normal. pre-pandemic levels. So the transits back, we have seen transit properties growing. We see transit buses taking delivery of new natural gas transit buses. So I think you'll see both those segments continue to grow. So that's good news that we're starting to finally see some growth back. Now, refuse grew last year, right? I want to say 8%, and it's continuing this year. along those lines.

Okay, thanks a lot. You bet.

Thank you. Our next question comes from the line of Rob Brown with Lake Street Capital Markets. Please proceed with your question.

Good afternoon. Hey, Rob. Hey, Rob. I just wanted to get a little more color on the Amazon build-out. Where are you at in terms of getting stations completed, and do you expect to have really all of them by the end of the year, or what's sort of the timeline there?

Right. Now, of course, we've told Amazon we're going to bring those stations on as quickly as we can. And, of course, as you know, as we build those stations, the toughest part, just to be candid, and we are with Amazon and other of our customers know this, the longest lead part of developing a station is the siting of the land and is the permitting and is the due diligence on the utility and the permitting. The utilities and the acquisition of land or the leasing of the land, that's the longest lead item. The construction is actually the shortest part. So we've made very good progress of the new locations. The majority of them have been completed. You know, we've gotten through the real estate piece of this, and you'll begin to see a construction phase on most of these stations being developed in the latter part, third and fourth quarters of this year. Some of those will get probably finished next year as well early, though. But we're making good progress on all of them. And, you know, we're also making additional investments and adding to existing stations. As I think I said maybe in the last call, you know, we're currently fueling Amazon trucks, and we've seen them at our existing network where we've actually been fueling Amazon trucks at 37 of our different stations already. And some of those network locations are receiving some increases, additional investment to make sure that they can, you know, serve the Amazon characteristic fleet, you know, well. as well as we can, and so that's what's going on. So I feel pretty good. We monitor it very carefully. And, you know, look, real estate locations in the Northeast are not easy to come by. There's a lot going on up in certain states right now, but we've made pretty good progress on it.

Okay, great. Thank you for that, Keller. And then in terms of the fuel volume or the accounting of the revenue,

think Bob you mentioned some some offsets going forward could you just give some color on sort of is that volume driven or is that kind of a fixed fixed amount it's it's volume spend driven so you know they you know Amazon vests and the warrants as they spend and there's there's thresholds and milestones frankly but you know from an accrual accounting standpoint you assume they'll you know, make the various thresholds. So it's kind of, you know, we're going to record those as the spend occurs. And that's how that'll, that's where those will, where those will come from.

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

Thank you. Our next question comes from the line of Pavel Malchenov with Raymond James. Please proceed with your question.

Thanks for taking the question. So we're obviously waiting for the infrastructure bill to pass. And I noticed that one of the changes from the original March version to what's actually going to be voted on is there is some provision for buses that are low emission but not zero emission. Have you guys looked at whether net gas can be included within that?

Right. Pavel, we were heavily involved in that. So, you know, you go back about six or eight years when the no-low program was put in place, and it always envisioned low NOx, which is natural gas, bus. It's just that the Obama administration decided not to ever fund any natural gas buses. And so the low, no low program was always used as a slush fund for electric vehicle programs. And it was on the order of 100 million bucks, 150 million bucks. So in the scheme of transit, it didn't really amount to much, right? Because that doesn't go very far in the electric world. And so Come this year, there were some United States senators on the Republican side with some Democrat colleagues, in fact, Chairman Brown, that just felt like the no low program should return to the original legislative intent, which is that if you could put help fund low, you know, low NOx buses, especially using RNG on the road, which have arguably a lower carbon content than electric, that that should get put in place. And so when you look at the plus up, so the low, no low program has gone from on the order of a couple hundred million bucks a year to 5 billion, right? 5.25 billion. There's a 25% carve out of that $5.25 billion low-NOx buses, which would be natural gas buses. So it's a big, for me, it's a big recognition, and it's a carve-out, right? It's solid. So you've got a billion dollars, basically, there that's going to be for natural gas buses. And so we're real pleased about that. And when you kind of compare that versus the other $3 billion that's going to go to electric, you're going to get, on a bus-on-bus comparison, you'll have about as many natural gas buses funded as you will electric. So, yeah, we're on top of that one.

Okay. Okay. Now, I appreciate the detail. Going back to your comment in the intro about certain municipal bus fleets that are unhappy with their electric purchase, do you know of any specific examples of a city fleet that, you know, did a pilot or initial deployment of electrics and then essentially gave up on it and said, we're going to go back to what we had before.

You mean like Foothill, you mean?

Well, I mean, yeah.

You mean transit properties that tried it and just said, ah, no thank you?

Exactly, and actually walked away from electrification entirely.

Well, I think, and I know you follow this, so you may know, but I believe Albuquerque did. And I imagine they're still running some, but I'm pretty sure Foothill Transit has decided that they're... In fact, Foothill Transit is going to now go with, I guess they're going to take a swing at hydrogen. Indianapolis... You know, that was a disaster. And Duluth. So I don't know of any others, but those are the ones that come to mind. I'm sure there are others that just haven't had a good experience.

Okay. I mean, that's helpful. I'm just trying to kind of visualize how common this is. you know, kind of reversal.

You know, look, I know it always comes across, I pick on them, but I, and I, and I, and I do, I do in a way, but you know what, I sort of recognize that there may be a role for the public funding to sometimes push on these extravagant technologies. And, and, you know, we saw that 20 years ago with natural gas buses, right? Transit fleets were funded natural gas when that wasn't the thing to do, right? And so occasionally the public monies are being used here to push on the technology side. And that's one thing, okay? Though, Pavel, what you and I talked a lot about over time is that, you know, when you have something that's being funded 93% by the feds, okay, you don't really look at it as a dollar and cents, you know, cost-effective thing. You just don't. You don't have to. But when you start looking at a private sector fleet, then it's totally different. When it's 100% your own money, then this really does come into play. And that's where I always try to let people know is don't think because somebody's funding or fielding some electric transit buses that that necessarily translates to, you know, private sector, you know, trucking company doing the same thing because there's different economics at that point. And I think that's important for people to understand.

Yeah, no, I appreciate the perspective. Thank you, guys. You bet.

Thank you. Our next question comes from the line of Manav Gupta with Credit Suisse. Please proceed with your question.

Hey, Bob, Andrew. I mean, I'm trying to understand this. You put in about $50 million with the BPJV, and then you are saying, you know, for total, it's going to be more project by project based. And I know you can't get too specific, but let's say we are looking out to year end 2022, or you pick 2023, like how many dairies are you targeting would have contracted with you? And how many do you think would be online between BP and Total? Just some rough numbers so we can model those JVs a little better. Okay.

Yeah, that's, well, Manav, that's a good question. But there's, you know, all these dairy projects, you know, vary kind of so much with the size. And, you know, what we have said is, you know, generally speaking, we're talking about it in gallons, and you're going to spend on the negative amounts. carbon, the dairy are going to spend maybe $20 million per million gallons, right? And so, you know, when you start to do that math, I mean, our intent is to spend, you know, the full $100 million in the BP deal and the full $100 million in the total energy deal. And it could go bigger, but let's just say, we'll go through both $100 million. So that would be, you know, kind of $200 million, you know, at the JV level, $100 each. And that might be leveraged.

So, Manav, I don't know that you're going to get from us today a dairy count and head count and gallon count of low CI count that you can put in your model. But what we have said is by 2025, 100% of our fuel is going to be that way. And what we have said is that we're working with very large fleets, that if you just, and I think you did it in one of your fine notes, if you kind of run out and use Amazon and do the multiplier on gallons, and all of that has to be RNG, you can see we need another 100 million gallons, 50 to 100 million gallons just for them. So there's going to be a lot of money put to work here from us, our partners, and also for others that we're going to have to bring in because the future is going to be landfill and dairy projects over time. That's the future. It's not going to be the fossil. It's going to be this RNG coming to bear.

Yeah. With, you know, with, significant flow from those investments more in 2023. You know, so, I mean, I think the point is, the intent is to spend the full amount of capital there. There can be leverage at the project level. So, and there typically would be.

Well, and Total Energies has indicated their preference to upsize that JV, and they've said that they would like to see that go up to $400 million. So we're not ready to do that right this second, but we know that that's their intent, and that's what they would like to do. So there will be a lot of money on our side put to work.

Perfect. I had a policy question. On one hand, we obviously see the Biden administration – about lowering carbon emissions and everything. And then all you see from most members of the administration talk about is EV. I think even today, it was all EV. There are one or two senators like Senator Amy Colbert or some other people who are talking biofuels, but most of the time, what we hear from media at least is, is just EV. And again, you guys are very close to all this. Like on the ground, do you think the current administration is more supportive of biofuels? Or do you think it's just the support is just EV and nothing really has changed even from the Trump era?

Oh, you know, I think it's been easy. It's frankly easy for politicians to just at this point, just kind of lump it all in. You know, it's gotten to be very comfortable to sort of talk about an EV, solar and EV future. I mean, that's kind of what the environmental community likes to hear. That's kind of what they've adopted. Now, if you press, and it's why you see that that bill that Pavel and I just talked about, all of a sudden there was a 25% carve-out for low NOx, which is natural gas. which natural gas, there is a recognition that you should try to do whatever you can today to lower emissions and not wait. Because, you know, that and we don't really get any pushback from either side of the aisle is when you really address it. As you know, there isn't a fuel cell truck today. There isn't a hydra that you can buy. And frankly, there's not really an electric. So that is code for if you don't do something that's available today, you're just allowing that to go to diesel. And that's why you just saw this carve out in this low-no program. You know, I would call your attention, Manav, and to others on the call, and it may be a little hard to find, but the executive officer of the South Coast Air Quality Management just wrote a really compelling, I guess, rebuttal. to the environmental justice community and some of the health communities that were kind of roughing the South Coast Air Quality Management District, who was responsible for the air quality in Southern California. And frankly, have been on the leading and bleeding edge of air quality issues for the last 50 years. And his name's Wayne Nastri, and I would encourage you, N-A-S-T-R-I, and if you'd like, we'll send it to you if it's hard to find, but if you go online, He has out yesterday or the day before a six-page single-spaced written letter where he calls out that low NOx natural gas has got to be part of the equation to do what you can do today for air quality because, frankly, when he looked and when his – as much as they've spent $350 million on electric technologies in the last few years, probably done more than any other local agency supporting electric, they are the first to admit that they have to do other things to continue to bring down and improve the air quality and tailpipe emissions and carbon emissions. And so what Wayne was arguing is that This idea that it's natural gas or it's low NOx or it's RNG versus electric is a foolish thing to get engaged in, that you have to employ all these technologies, otherwise you get diesel. And so this is a long-winded, so I would encourage everybody to look at that because here is a professional officer in charge of air quality that makes the case for why you need to be doing RNG and natural gas technologies right now. It doesn't mean that you're against electric. It just means that's what you have today and you need to do it. And that's the same thing that we'll see in the federal level when it all shakes out. For instance, natural gas is in the corridor program. So all you're going to read about is electric charging stations in this new corridor program. Well, no, there's natural gas that's funded in that too. It's just not as environmentally, politically correct to talk about that.

Perfect. My last question is, you currently, I think the quarter, 42.9 million gallons of RNG was supplied. Help us understand how much of that was landfill versus the dairy farm and how that has trapped over the last one year or so.

Well, you're consistent, Binov. On that, I don't know that we're going to break that down for you either. But we are increasing our dairy farm. And if you kind of look back, you know, last year you were 2% dairy. And by the end of this year, you'll be up to 10% dairy. And so that's kind of a way to think about it. And, of course, we'll continue to bring on dairy at a higher, you know, more and more as we go. Because of what it does for us, Bob.

I don't know if you have another way to... Well, we've delivered... We have taken supply of more dairy through the first six months than we did all of last year. Okay. And we were probably almost up, you know, close to 100% from one quarter to the next. So that is... So the dairy is growing as expected. But there's still... plenty of rooms, kind of good news, bad news thing, because, you know, frankly, the numbers that we see in front of us that was a very good quarter are not heavily weighted toward dairy RNG. There's some in there for sure. And we also had the, you know, some very nice RIN pricing. So we just have, we continue to have the upside in the replacement. And to your question that you know, those stats should tell you some, at least in terms of that pace is going with the growth rate of the dairy.

Thank you so much for taking my questions. Oh, you bet. Thank you.

Thank you. Our next question comes from the line of Jason Gableman with Cowan. Please proceed with your question.

Hey, guys. I wanted to ask, hey, I wanted to ask first on, I guess, this margin range that you've provided. Could you just help us understand what's, kind of driving the potential for it to come in at the high end versus the low end? Is it just RIN volatility? Is that kind of the main factor? And if so, what's the sensitivity there?

It's some of that, Jason, but it's not all banked on that. So it's also just an anticipation of volume rebounding from the pandemic. I think Eric had a question, too, on that. But, you know, we all know this variant stuff's going on, but frankly, we're not seeing anything like that right now impacting our volume. So we still are anticipating that we're going to gradually recover. And so as we put on more fuel volume and we grow volumes, that really also is a driver to our margin per gallon, along with You know, the RINs, that's helpful. But, you know, the LCFS has been, you know, is lower than when we started the year, right? So that, you know, hasn't necessarily been off the charts. It's still strong. It's by no means not good. But, you know, that's kind of off. The RINs picked up. So there's always a little bit of this and that that goes on. But then the fuel... And there's a little mix in there too, right? Yeah, the increase of fuel volume with greater... And looking at the Amazon fuelings, you know, those types of volumes help in that, absolutely, because those are, you know, those are our core fuel volumes. So we see that increasing.

Okay. Great. And then I guess just more broadly on the volume outlook, now that they've kind of rebounded to 2019 levels, I think your 2Q was flat with where 2Q19 was. Can you give us a sense of the volume trajectory moving forward into next year? And if you expect kind of, and within that, I guess, the RNG volume growth as well?

Yeah, I think, you know, we said at the beginning of the year that we'd kind of, we'd come out at Q4 at around a 12% kind of, 12% year-over-year, 12% to 15% in volume growth. So I think that we'll get there with our Q4. Q3 will be not at that level, but it'll rise. And then Q4 will kind of be at maybe 12% to 15% above what it was a year ago. And then assuming... There's no real setback from what's going on out there. You know, we should be in, you know, a solid double-digit volume growth. But that's, you know, we still want to see how all the various deals shake out before we give too much guidance toward the 2022 volume. But, you know, it should be north of 10%. as we go into that.

Great. And then the last one, just on the equity raise you did in the quarter, did you consider other channels of financing? Why was, I guess, the equity more attractive than whatever other options that you could have pursued?

Sure. You know, Jason, we were always looking at different things, right? And in our history, you know, we've done, we've, we've had, convertible notes and so so we were always looking for what we thinks the best and and You know, we're not we're not You know because we we did this this latest a couple rounds of equity I mean, I don't think one should assume that that's the only thing we're going to do well there's probably a time when some other debt on these projects and would would make some sense and But we felt like with what was happening in the market at the time and the need for growth capital that it was prudent for us to put some on the balance sheet when we had a chance.

All right, great. Thanks a lot. I appreciate the answers. You bet. Okay.

Thank you. Our final question comes from the line of Todd Firestone with Evercore ISI. Please proceed with your question.

Good afternoon. Thanks for taking my question. I had a couple of questions. One was maybe I could come out at a little different angle. Are you able to disclose or have maybe an internal estimate of what one of the Amazon trucks would use annually on a gallon basis?

Oh, I don't know that we've ever really said exactly, but look, It wouldn't be – I'm not divulging any Amazon secret. When you look at kind of normal over-the-road trucks that kind of operate like Amazon, I think – and I've been saying this for years, right? It's somewhere between kind of depending if they're regional or a little more super regional. They tend anywhere between 12,500 and 20,000, right? So, I mean, I think if you were to use a number in the 14,000, 15,000 gallon, that's sort of a good – a good placeholder for an over-the-road truck, a JB Hunt type truck, those kind of big over-the-road trucks in that neighborhood.

Great. I really appreciate that. Second question is just on the number of stations and the logistics around that. And I apologize if you disclosed on a prior call, but is there going to be a hard or soft cost contingency built into, you know, building out these stations. So what I'm really trying to get at is, are you seeing trouble getting, you know, workers and crews to build these stations? And is there any reason to be concerned about that?

Well, we've seen, like everybody else, we've seen some cost increases. I don't know that it's been, you know, I don't know that we've been faced with, you know, horror stories on that, but it concretes up a little bit. Some of our steel cylinders we have seen. Now, we were lucky in that we kind of pre-ordered some, and we were able to get some supply that will take us through, I think, almost all of our first initial build for Amazon. But, you know, we always put a contingency on the construction here, somewhere between 10% and a little bit more. So we'll probably eat up some of that, I would guess. But we haven't seen anything that's been – you know, completely off scale, I wouldn't say.

Right. And, and I think labor wise, we, you know, we're active in station builds have been right. So we've been keeping a lot of people employed. And so that's, that kind of remains the case on that front. We've got good contracts.

We have good subs that have been continuing and through kind of thick and thin, they worked with us last year and this year. So we're not seeing, we're not having to go out and hire, you know, Dozens and dozens of new construction guys, which I think could be a little daunting. We have some pretty well squared away firms that have long history with us.

I appreciate that color. That's all I have. Okay. Thanks, Todd.

Thank you. We have reached the end of our question and answer session. I'd like to turn the floor back over to Mr. Littlefair for any closing remarks.

Good. Well, thank you, Operator, and thank you, everybody, for participating and listening in today, and we'll keep you posted as we go forward on R&G and our station build-out and growth plans. Talk to you next time. Thank you.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.