Clean Energy Fuels Corp.

Greetings and welcome to Clean Energy Fuels' fourth quarter 2022 earnings conference call. At this time, all participants are on a listen-only mode. A 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. I would now like to turn the conference over to your host, Mr. Robert Freeland. Thank you. You may begin.

Thank you, operator. Earlier this afternoon, Clean Energy released financial results for the quarter and year-ending December 31, 2022. 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 identifying 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 factor section of Clean Energy's Form 10-K 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, 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. We continue to make excellent progress on the execution of our RNG business strategy over the last quarter. With our investments in renewable natural gas facilities and new stations, we expanded our leadership position. Clean Energy remains the largest supplier of RNG used as a transportation fuel in North America. In the important California market, more than half the RNG used to fuel natural gas vehicles is from Clean Energy. In 2022, our California RNG portfolio had a weighted average carbon intensity of minus 51, which demonstrates the success of our RNG strategy to develop and secure the lowest carbon RNG available in the market. We expect the carbon intensity of our product to continue to decline as our dairy investments begin producing gas this year. We funded our joint ventures for the projects underway while strengthening our balance sheet, leaving us well positioned for the future. The fourth quarter of last year, we sold over 54 million gallons of RNG, which was an increase of 21% compared to the same quarter in 2021. The expansion of our relationship with Amazon is having a positive impact on this growth. And we're also seeing increased demand for the clean fuel from other heavy duty trucking firms, as well as transit, refuse and other sectors. Our revenue for the quarter came in at $114 million, which was 22 million more than Q4 2021. We generated $13 million of adjusted EBITDA for the quarter. Bob will get into more details about our financial performance momentarily, but let me just say we acknowledge that our 2022 adjusted EBITDA number ended up lower than we expected it to be at the beginning of the year. We experienced a few sustained headwinds in the latter part of the year that impacted our results. The biggest contributor to this was the lower prices of the environmental credits of California's Low Carbon Fuel Standard Program, or LCFS, the federal RINS program. The LCFS credit prices declined almost 60% over the course of the year, and it was just too much to overcome in the fourth quarter. Also, the rollout of the new stations that we are building for Amazon around the country has been slower than we projected. Competition for prime real estate near distribution centers, entitlements, and permitting approvals put several stations behind our initial timeline for completion. We believe we've turned the corner on several of the issues that have hindered us and slowed our station construction. Also, we believe we are at the lows of the environmental credit and regulatory situation, and credit prices should improve over the medium term. And as I previously mentioned, we continue to be pleased with the way we are performing on our plans that we laid out to you over a year ago to expand our business, particularly having more control over the supply of low-carbon RNG flowing to our fueling infrastructure, with 13 dairy projects underway. We remain confident that the investments we're making today will generate attractive returns in the future. But for 2023, we believe we will continue to see pressure on the environmental credit prices. And another step to position us for future growth, we secured a $150 million sustainability-linked loan with Riverstone Credit Partners last quarter. This should keep our balance sheet healthy as we continue to build fueling stations and additional RNG facilities with our partners, Total Energies and BP. At the end of 2022, we had over $263 million in cash and investments. This is after contributing nearly $178 million into our RNG production joint ventures since their inception and expanding our fueling infrastructure by funding 23 additional station projects during 2022. Speaking of new RNG production, it doesn't seem that long ago I participated in a groundbreaking at Del Rio Dairy in the Texas Panhandle, which is Clean Energy's first biogas digester to be built from the ground up. I'm pleased to announce today that as a few weeks ago, the methane captured from the manure produced by Del Rio's 8,000 dairy cows is now being injected as renewable natural gas into the pipeline. That capacity will flow at a rate of 140,000 mm BTUs, ultimately translating into 1.1 million gallons of ultra-low carbon fuel at clean energy stations annually. We've also made a good progress at other dairies with construction underway on projects in Iowa, Minnesota, Idaho, and three in South Dakota. Engineering has begun at another five sites. Overall, we are pleased with the progress of our new RNG supply facilities. Remember that when these dairy digesters begin to produce RNG over the next two years, This fuel will receive some of the lowest carbon intensity scores available for our customers and generate the greatest number of credits. No other alternative fueling solution comes close to the negative CI scores that R&G produced at agricultural facilities receive. And the beauty is that R&G drops right into the existing pipelines and then into our existing fueling infrastructure. On the RNG demand side, as I previously mentioned, we opened new stations as part of our announced agreement with Amazon. In addition to the 80-odd existing clean energy stations that had been supporting the Amazon fleet of heavy duty trucks, new stations in four states have been added to our fueling network. All these stations are purpose-built for Amazon, but also have public access and are strategically located in and around distribution centers allowing for fleets from a variety of companies to fuel with RNG. One station that has been only open for a few months has already become our largest by monthly volume. There are another handful of stations that will be opening in the next few months with a robust schedule through the rest of this year. We are particularly excited that these stations will be open and accessible for truck fleets when the new Cummins 15-liter natural gas engine hits the market next year. As the commercial introduction of heavy duty electric trucks and the required charging infrastructure continues to get pushed out, this next generation of Cummins natural gas engines, combined with our already installed RNG fueling infrastructure, will accelerate fleet's ability to reach their emissions reduction goals a lot quicker. Before I close, I wanted to mention that we added One of the largest transit agencies in the country is our customer in the fourth quarter, San Diego MTS, which signed a contract for 86 million gallons of RNG fuel for its fleet of 764 buses. We also renewed an RNG contract with the largest transit agency in the country, LA Metro, during Q4, and we'll be supplying them 20 million gallons of RNG annually for their bus fleet. Our relationship with refuse customers continues to expand during the quarter with new contracts with Athens Services, Burtec Waste, and additional stations for Republic Services. We remain as optimistic as ever about the future of renewable natural gas, both as a direct transportation fuel, as well as for an ultra clean feedstock for other alternatives. If quickly be one of the largest developers and owners of dairy RNG production, and are growing our leadership position in the distribution of RNG. Thank you for your time today, and now I'll hand the call over to Bob.

Thank you, Andrew, and good afternoon to everyone. As reported today, we finished 2022 with $420 million in revenue and a gap loss of $59 million. versus 2021 revenues of $256 million and a GAAP loss of $93 million. Our adjusted EBITDA for 2022 was $50 million versus $57 million in adjusted EBITDA last year, which last year included $4 million of earn-outs from our sale of RNG assets to BP. On an adjusted non-GAAP basis, we reported net income for the year 2022 of approximately $3 million versus non-GAAP net income of approximately 8 million in 2021. Now, although our adjusted EBITDA fell short of our estimate of approximately 60 million, the variances to our estimates were temporary in nature, we believe, and timing related in terms of volume associated with station builds and SG&A spending. In our view, nothing systemic or, permanent in nature. For example, we thought there could be some rebound in the LCFS credit prices during the fourth quarter, and the LCFS credit prices actually remained at their lowest level of the year throughout the fourth quarter. Now, LCFS prices have gone up recently, so a little later than we anticipated, but still moving up as we thought as additional information is kind of hitting the marketplace around that program. We also saw the price of natural gas double for the month of December in California, increasing the equivalent of a dollar a gallon in our largest market. And we had some delays in station openings, which pushed out volumes. And our fourth quarter SG&A spending increased, which was largely due to really our own success in adding personnel to accommodate our RNG growth activities. Looking forward, we believe we have upsides ahead given where the credit prices are today. Miller and we're much closer to opening more stations to support Amazon. And our RNG dairy projects continue to proceed well with tailwinds from the Inflation Reduction Act ahead of us. And with that, I mean, I'll go into our 2023 outlook here in a moment. I'd like to take a moment here just as a reminder on our presentation. We've presented our volumes and revenue tables in our new format in our Form 10-K that we filed today. We made this change in the third quarter in our 10-Q filing where we separated fuel volumes and the O&M service volumes, and we enhanced our revenue disclosures around our volume-related product and service revenues. With that, I wanted to inform you that today we posted an updated company presentation on our investor relations website that provides this new volume and revenue table format for all four quarters of 2022. In the back of that presentation that was posted, we have had some questions on visibility to the first quarters of 2022 in the new format, so we're accommodating So now taking a closer look at the fourth quarter of 2022, our revenues were 113.8 million compared to 91.9 million a year ago. The higher volumes and fuel prices along with higher station construction sales in the fourth quarter of 2022 contributed to the increase over 2021. With the lower environmental credit prices in 2022, offsetting some of those revenue increases. We reported a gap net loss of 12.3 million in the fourth quarter of 2022 compared to a gap net loss of 2.4 million in 2021. On a non-GAAP basis, adjusted EBITDA for the fourth quarter of 2022 was 12.6 and the adjusted non-GAAP net income was 2 million. That's for the fourth quarter of 2022. This compares to adjusted EBITDA of 18 million and adjusted non-GAAP net income of 6.4 in the fourth quarter of 2021. For the quarter, our overall product and service margins were slightly higher in the fourth quarter of 2022 versus 2021, despite the lower credit prices. However, our spending on growing our R&G business was higher in 2022, as expected and planned, and as well, as I mentioned, 21 benefited from the earn out income of approximately $4 million when comparing the two periods. Andrew noted that we finished the year with approximately $264 million in cash and investments which included proceeds from a debt raise of $150 million in December. As part of that financing, we paid off the equipment financing debt at NG advantage of approximately $27 million. Also, as of the end of December 31st, 2022, we had contributed, we have contributed $178 million into our RNG supply joint ventures with our partners Total Energies and BP. Cash provided by operating activities for 2022 was $66.7 million. And we had, that's against, we had $44.5 million of property and equipment purchases. These are both up from 2021 where operating cash flow was $41.3 million and property and equipment purchases was $23.1 million. So, nice on the cash front. Now, looking at 2023, We normally provide annual guidance, which we'll do here. We've provided our annual outlook in our press release for a GAAP net loss of a range of 105 million to 115 million, which is reconciled to our outlook for adjusted EBITDA of a range of 50 million to 60 million. On the gap net loss, you'll note a large increase in the Amazon warrant incentive charge, which is associated with an estimated volume increase for Amazon in 2023 as we complete more stations. Revenues are projected to be around $350 million. That's our gap revenue. That's net of around $66 million in these incentive charges. Our 2023 outlook reflects continued double-digit fuel volume growth in the range of 15 percent to 20 percent. Much of that is RNG, which is also projected to grow in that same range. Service volumes growth is expected to be in the mid-single-digit range. Our outlook reflects environmental credit prices that really don't rebound much from what we saw in the fourth quarter of 22 and starting 2023. So as we know those have been, they were lower in the fourth quarter and so we're kind of seeing that continuing on in 2023 and our outlook contemplates that. Our SG&A spend will increase slightly to around $30 million per quarter, which is up a little bit from the fourth quarter, as we've added personnel at the end of 2022. And the stock compensation kind of levels out, but that is about $5 million to $6 million higher in 2023 versus 2022. We're estimating around $25 million to $30 million of cash flow from operations, mostly reflecting added interest costs And our capex spend is estimated around $90 million. That's at the core business of clean energy. We may also contribute up to $40 million more into our R&G supply joint ventures. And that's on top of the $178 million that we've already contributed. And frankly, that doesn't bring in potential pipeline. And for this exercise, that's really what we... you know, have good line of sight on it, but it could be higher. Clearly, the credit pricing environment, inflation, and industry volatility have changed from the beginning of 2022, but we feel very good about the view forward and upside possibilities with continued volume growth, the tailwinds from the Inflation Reduction Act, and the forthcoming launch of the Cummins 15-liter engine, and, you know, just frankly, the continued demand for this very low carbon fuel of RNG. With that, operator, please open the call to questions.

Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation to indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the store keys. One moment, please, while we poll for questions. Our first question comes from Manav Gupta with UBS. Please proceed with your question.

Good afternoon, guys. I just wanted just if you could, you mentioned earlier on the call 13 dairies in progress. So if you could help us understand the pace of development here, what stage of development are they, and if you could be a little more granular and let us know how many of those should be online by end of first half or by year end. And the bigger question I'm trying to get to here is, Bob, is it looks like the dairies are in progress, but you're not really accounting for too much of EBITDA contribution from these dairies in 2023. That's why The guidance is relatively flat, so if you could talk about that also.

Correct. Okay, I'll address that. You're correct. And I've actually, you know, we've, even a year ago, we contemplated 2023 would be minimal contribution. So we will be flowing gas in a number of projects. But, you know, there's time between flowing gas and revenue recognition which has to do with the whole you know pathway certification and when we really can do get to meaningful revenue so you're correct there's not much of a contribution there in 23 and then you know we'll see how 24 kind of shakes out and just for sure as we go into 25 and 26 and you know there you start to get into the Inflation Reduction Act and contributions that could happen there. So that's why. But I will also say, you know, a big part of the forecast being kind of flat as well is the credit price deal. You know, we, going into the fourth quarter, we felt that there would be more information about kind of the pathway forward, if you will, particularly in California. But we also knew the RIN had information there that just didn't really materialize, in our view, very meaningful. So the market kind of stayed flat. We're not going to kind of say that that, you know, try to predict exactly when that will turn around. We're bullish on it and know that we believe that it will. But, you know, we're... that's just a big part of the flatness because we're kind of assuming, you know, fairly recent credit prices stick around. You know, on the dairies, yeah, on the dairies, look, they're, you know, probably nine of those are, well, seven, eight are constructing for sure. And I think we'll get, a number of those absolutely, well, one's already flowing gas and we'll, we'll get, um, maybe four or five in, in 23. But again, you're not really seeing an EBITDA, but, um, you know, which is okay. It's, it's, you know, that's a long time and we've, um, recognize that. But, um, You know, we're also very mindful of the execution on, you know, operational execution on these, which is going well. I mean, I think we've experienced some of the delays that a lot of the folks in the industry are seeing just on equipment and things like that. But relative to, it was pretty exciting to, you know, finally start injecting gas into the commercial pipeline at one of our dairies. So, you know, that's one of the keys as well is getting those things running.

Bob, my quick follow-up here is, if I remember correctly, and let me know if I'm wrong, but last year at the R&G Analyst Day, you had come out with a full budget, I think somewhere between 1.2 to 1.4, which was what you would have to put in to develop this R&G offering and take it to the gallon volumes that you were targeting. And what I'm wondering here is, with the IRA, Inflation Reduction Act, and direct pay, there's a 30% ITC credit now. So in your mind, does that final capex number that you need to develop your RNG offering fully, does it drop by 25, 30%? If you could talk about that.

Well, I think, Manav, of course, the ITC will apply and it will reduce our capital by 30%. Now, that tends to flow in, you know, year after but i mean no that's real and so it will lighten the capital load by 30 percent our projects will qualify and you're right um that is the scope when we looked at uh you know what we talked about a year ago uh to get to the roughly 100 million gallons of our own equity uh you know projects equity you know uh r g projects you know That number still holds. We still believe that's a good number. And so there's more work to be done and there's more money to be raised. There's more debt to be organized. There are a lot of opportunities, a lot of projects still to come. You know, we feel good about the projects, 13 that we have underway, which, you know, if you look back 18 months ago, you know, we've moved quickly. We have a robust pipeline of more projects. We haven't lost any through all of it, even with the reduction of the credit price. We haven't lost any enthusiasm. What we try to stay focused on here is we have the lowest carbon fuel that's commercially available today in the world. And there's a lot of regulatory policy issues folks speaking at all sorts of different levels and projecting how that fuel should be used and how it might be used and trying to micromanage the way the market will work. But you know what we know is we have a really low carbon fuel that can be used today that can be disseminated in the nation's pipelines now. And when we look at that fuel, and we compare it to the other technologies that are available that most people want to talk about right now, we feel very well positioned. So there's more to be done, and you'll see that come on. And so don't be surprised if you see us, you know, continue to do things to, you know, move along that pathway that we all talked about a year ago, because we haven't lost any interest in that.

Thank you so much.

Our next question is from Rob Brown with Lake Street Capital Markets. Please proceed with your question.

Hi, Andrew and Bob. I just wanted to double check. Did you say $350 million of revenue? I'll look back here. Was that the fuel volume revenue or the total revenue?

That was total. That's net of? I'm just, you know, put it out there. That's net of about $66 million in, you know, non-cash incentives. Yep. Got it. Just so you know. Yeah.

Thank you. And then I know you give some color on the Amazon station activity. How many stations do you sort of plan this year? And, and I guess maybe where's the uncertainty yet on getting some of those things open? Are you still seeing the permitting delays or is that, that sort of started to be worked through?

Uh, Rob, we, uh, what we've announced, you know, I, I have to be careful with my friends, uh, there, they, they don't want me talking too much, uh, about what we've previously announced. So, you know, we, we made an announcement that we would, uh, develop 19 stations through them. So we've, you know, you can slice and dice this number all out. We build a, uh, we've, we've, we've built, um, and open four of those. So you could assume that the remainder of that for the most part will come on in production in 2023. But we've got a lot underway and, and in various stages right now, some of those will be finished right toward the end of the year, October, November timeline. But, you know, there'll be, there'll be, half of them will come on in the first half of the year. So that's really important for us. What we've seen, Rob, is it's different. You know, we've built, you know, building stations is not new for us, right? In our history, we've built close to 750 station projects. We actually, one year, you'll remember, Rob, we built 87 truck stops in one year. And then I think the next year was a like number. So building stations is not new guys, what has been a little challenging is greenfield locations, right? So you're building truck, what's called the truck stops from scratch, in and around highly sought distribution centers. So the locating, the coordination with Amazon, then the entitlements and the permitting, entitlements really more, those of you who haven't built anything in a while, The entitlement process in the country is daunting, and that can be anywhere from, you know, six months to a year. So, you know, we have a lot of these projects we've been working on now for quite a while. And then the permitting less so, the construction part of it is not anything that's much different than what we've always seen, which is five to six, you know, five months. So a lot more to be done this year, and we hope we'll just continue on that next year as well.

Okay, thank you. I'll turn it over.

Our next question is from Eric Stein with Craig Hallam. Please proceed with your question.

Hi, Andrew. Hi, Bob. Hey, Eric. Hey, so just coming back to the 2023 EBITDA guide. So looking for modest growth there, and I know part of that, so you've got RNG plants, I guess, pushed out a little bit. You know, you're still conservative on the credit side, and you've got higher OPEX. But you've got some areas where you're more optimistic as well. You know, I guess, is that a fair way to characterize it, one? And then secondly, can you just talk about maybe the linearity of it throughout the year? I know that the natural gas spike in California was, I believe, even more pronounced in the first quarter. So, you know, how do you expect to start the year? and then maybe how it plays out for the remainder of the year.

You know, Rob, when we're assigning, I'll let Bob get on here in a second, but when you're assigning the EBITDA and why that is what we're guiding to, Look, and it may kill me here, but if you went back to credit prices of last year, you'd add 44.5 million of EBITDA. So we're trying to be responsible by not trying to project, you know, get over our skis on projecting what's going to happen in the oil CFS. We remain bullish. We think the fact that California is now talking about increasing the obligation curve 20% to 30%, look, that's a huge increase. We believe that when that finally gets done, that'll put pressure on LCFS prices. In fact, when you go back from the workshop that happened just a few days ago, you know, the LCFS price is up. So we actually thought that was supposed to happen and it was supposed to happen back in November last year. So it happened now. So, you know, we're mildly bullish on what's going to happen with the LCFS. uh and we certainly are in the medium term that probably be more 24 25 but it's not the fact that the rng projects uh you know are not on production yet because we always we always knew that those would come on and really contribute in 24 as most do with the credit prices bob now you might fix me up here on that but no um no i agree there um

Eric, you asked about the linearity, um, versus.

Yeah. I mean, versus getting guys. Yeah, I know, but I mean, yeah, exactly.

Look, here's here. Well, um, you know, last year didn't bode too well without a little bit of linearity, but I would say that, um, or, you know, talking about it. So I'm going to say that there's a little bit of, you know, similarity between the years where, um, You know, historically, Q1, we've, you know, it's just a little bit of a slower quarter. And then, you know, as we talk about completing stations, they're not all going to get done, you know, here in March kind of thing. So that plays into, you know, increasing volumes throughout the year. And you are correct, Eric. It is interesting. I'll put that little caveat out there. Um, California did have a huge issue with, with natural gas prices in January. Like more, I noted that natural gas prices doubled in December. So they went from like $7 an M to 15 and that's about a dollar. Um, then they went from 15 and M to 50. So, um, that's kind of mind-boggling, and we're going to see some impact from that. There's no doubt about it. I mean, it's, you know, like usual, I mean, it may be some painful. The good news is we have a fair amount of the year to try to manage around that and recover from it, but that's something that, you know, that's kind of part of how we do things. I didn't get out there and necessarily change guidance on January at all. But it's something that's, you know, those are the types of things that we had some headwinds in in 22. Frankly, we had it in the third quarter. And then we thought we, again, that was part of the optimistic view of the fourth quarter was that we had that high gas price from the third quarter out of the way. And just when we thought we were kind of out of the woods, California, our largest market doubles. So You know, all of that is temporary volatility. You know, so, I mean, our view is long on this solution and the fuel and, you know, we've got projects being built out and, you know, so we're in this for the long haul.

Got it. That's helpful. Maybe... Just going into the RNG, just maybe an update. I know you've provided it before, but as you see the JVs playing out, ultimately the number of projects you see and then maybe the average gallons per project.

Thank you.

You know, these projects tend to be, the dairies tend to be, oh, Eric, I'm sorry. Eric, these projects tend to be in the range of one and a half to two million gallons, two and a half. Now we have one underway in Idaho right now. It's a really big project, five, five million. But let's just say two million is a good number. So you can see that we've got many more projects to come on, which we are very excited about. The scope and the size of the market is, still big. Now what you'll have, Eric, is you won't have as many 10,000 cow dairies or larger, but you'll begin to cluster these. And so there's dozens and dozens of projects that are still out there. In fact, right now we have 27, I think, in our pipeline. So not of the ones we've discussed, not of the 13 that are sort of, I put, under construction and underway. We've got another 27 that we've, you know, we're talking to and trading paper with. So I think we've always sort of said that you'd be in the, you know, 35 to 40 project before this is, you know, before we realize what we laid out for you last year.

Okay, thank you.

Our next question is from Matthew Blair with Tudor Pickering Hull. Please proceed with your question.

Hey, good afternoon, Andrew and Bob. Thanks for taking my question. So I think if I heard correctly, you were saying that your current profitability would look more like $95 million at 2022 credit prices. And I think at one point you were you were providing a 2023 guide of 136 million. So could you walk through the delta between that original 2023 guide, 136 million, and then the 95? I mean, I guess, would that be just an assumption of lower volumes coming through in 2023 than what you originally envisioned?

You know, Matt, I would say there's... Yes. A little bit of that. I mean, you know, we're in a little bit of different world than we were at the beginning. Um, I, you know, look back to January 22, you know, credit prices were extremely high and, um, you know, we're just, the world was in a little different place. And, um, so I think that, I mean, for sure the lion's share of it, you know, it's just simply an assumption on credit prices that, that that's huge. The other, The other gap there is where I'm going to say nothing notable other than a little here and a little there. And, you know, kind of as, as you, as, as your environment changes, you know, you get, you know, plans change and, you know, for us, you know, I, as usual, I really feel that it's, it's kind of timing related of, you know, of when the volumes come on is the biggest piece. It really is. And, and so it's not if it's when, and just how, you know, we're always constantly trying to get engaged. Um, you know, when will the trucks show up at the fueling station, you know, going through the buying cycle and the adoption and all of that and getting it there. And, you know, as things move and look, moving out stations, these, you know, various, when we open up stations, because we're their purpose-built stations for all of our customers these days they were building them because there's a need for volume so as soon as they open the fuel starts flowing so it's you know that that volume kind of follows how you're opening stations for the most part I mean we get more volume at our existing stations as well but that's it I mean it's just

I think, Matthew, probably if you were to go back and try to piece it together, and of course I was just giving you kind of a back of the envelope that gets you close to 95 or 100, it's timing. It's timing on the projects, right? We probably realize today these projects take a little bit longer to come on production than we thought a year ago.

Okay.

The other thing, and let's not go down this too long, but there is some good news in here, right? When we were laying it out for you a year ago, we didn't have the IRA. We didn't have an ITC, and we sure didn't have a producer production tax credit. You lay that in and put any kind of number on it that they need about in 25, 26. Those are really big numbers. So it's all going to work out here in the wash. I mean, in those numbers, when you put, like, $4 or $5 or $6, whatever you want, I'm going to let you do it, not me. Those are big numbers out there that could be attributable based on the production tax credit.

Okay, and I just want to confirm that the $50 to $60 million for 2023, that does not include any ITC add-backs, correct?

Correct. Well, yeah, and it wouldn't necessarily. I mean, the ITC is more of an investment tax credit, but, yeah, there's no IRA number in the $50 to $60.

Great. Thank you very much. Okay. You bet.

Thank you.

Our next question comes from Greg Wachowski with Weber Research. Please proceed with your question.

Hey, good afternoon, guys. I don't mean to beat a dead horse here, but just going back to the financial metrics and projections from the RNG day a little over a year ago, obviously a lot has changed. I'm just wondering, you know, what at all can we still take away from, you know, the 2022 to 2026 projections, you know, whether it's, can we slide things to the right? Is the general ramp or the, you know, the, the shape of the ramp still intact? Should we just be kind of haircutting everything by a certain percentage or, you know, should we just wipe it out altogether? Just curious when you look at that, you know, what can we still take away from, from those numbers?

Well, let me hit some of the broad strokes is, uh, we still see the need almost exactly the same as we did. So the, the 2026 number of, you know, I don't have firmly 459, you know, whatever the total was, we still see that. We still see the third party, uh, in the exactly the same place. And by the way, we're kind of on track on being able to lay that in as we thought. And then, um, the, uh, the RNG dairy in our account and our partner's account, we haven't come off of that. Now, I think it may be that you might need to slide everything six months to the right. I think that's probably prudent to do. And of course, as we've all discussed here this afternoon, the credit prices that we used back then are different, so we all have to employ our best thinking on those credit prices. We happen to believe that by the time you get to 24 and 25, you know, the credit prices will strengthen substantially. And then, of course, you know, we like some of the benefits that we've received from the IRA. Certainly the production tax credit is very meaningful out there as well. So we haven't really, you know, pivoted in terms of saying, oh, you know what, let's not do this RNG or let's not pursue dairies or let's not pursue third party. It's all pretty much still intact. And, you know, if you want to critically look at what's changed, you could say, well, some of these projects, dairy projects are probably taking a little bit longer to build. But I mean, gosh, in the scheme of things, you know, when you have 30, 35 projects, underway, you know, it's, I don't know how meaningful that is. And if there's an impact, it could be in, you know, late 23, 24, early 24, but I think it's generally going to hold in pretty well.

Okay, that's helpful. Go ahead, Bob.

No, go ahead. Oh, well, yeah, look, I mean, maybe I'm saying the same thing, but, you know, so it gets tempered a little bit. But then, you know, frankly, we have, you know, we have tailwinds from the IRA that come in there and really help that out. Because you can, you know, you can look at a model like that and simply, you know, change a credit price and the numbers would go down. I mean, I can tell you the math on that. If you take the LCFS from, you know, from 185 to 100 or 62, it's going to go down. Now, we don't believe that for that five-year period.

We will do our partners, by the way.

Yeah, so maybe there's a little temperament there. But then, you know, we also didn't plan in 25 for production tax credit to come in as well. You know, we're almost kind of back in. So I think that, you know, in general, the shape of the curves and the potential out there is still there. Okay.

That's helpful. I'm not going to ask you for exact numbers, but is it fair to say then that, you know, when we look out into 25 and 26, uh, you know, the Delta between your revised estimates for those years is smaller than, you know, looking at 2023 kind of right in front of us right now. Is that fair to say?

Yeah, that's fair to say.

Okay. That's helpful. Uh, and then one more, if I could just, uh, I think it was mentioned in your prepared remarks, uh, it's about competition, uh, for the Amazon sites. Can you maybe elaborate on that a little bit more? Um, you know, things, things outside of just permitting, um, What competitive forces were at play?

Greg, if what I... Competition, and maybe you thought of competition to build natural gas and R&G fueling. That's not the kind of competition. It's just pressure on real estate competition. What kind of scarcity? And what kind of property cities want in their city?

Okay. Okay. So it's not, it's not others kind of doing this, not others trying to do the same thing that you're doing. It's just, you know, different, different uses for the land in general. Exactly. Exactly. Gotcha. Okay, cool. That's helpful. Thanks a lot, guys. I'll pass it on.

Yeah, you bet. Thank you.

Our next question comes from Pavel Machanov with Raymond James. Please proceed with your question.

Thanks for taking the question. I know you're not giving guidance formally beyond 2023, but you said that you expect California LCFS pricing to improve over the next two years. What gives you the confidence in that directionally?

Yeah, Pavel, what gives us the confidence on it is that the low carbon fuel standard is working. And RNG is an important component of it. And I think that we feel fairly confident, certainly after the workshop of the 22nd, that all of the comments were supportive of an increased obligation curves, increasing the obligation and compliance curves from 20% to 30%. And I think there's a chance that they could go to 35%. And then, you know, there's this new concept that they've now, The staff has actually endorsed, which is kind of a ratchet, that if you're in an oversupplied market, that they could ratchet down the compliance curve. So, you know, you could kind of theoretically go from 30 to 32. So I think all of that is you're going to need all the R&G you can get. So I think you're going to be back in a much more supportive environment for increased prices.

Okay. Let me ask a similar question about RINs, which I think for the year as a whole, RINs were as large as the tax credit and California combined. The EPA seems to be kind of rethinking the entire RVO framework, including these electric RINs that that are being discussed. What's your thinking directionally on where that goes?

Yeah, I, Pavel, I actually think that, you know, we've learned a lot over these last few weeks since they came out with their new proposal on the RVO and for the renewable fuel standard and the ERIN. I think they've over, I think they've overshot And the EPA has. And when you look at the four or so largest organizations that the EPA listens to, you know, the Renewable Fuel Association, AFPM, and API, and RNGC, just to name a few, all of them, growth energy, all of them are unanimous in that the proposed ERIN framework won't work. And then, you know, specifically as we look at it, Pavel, you know, the way they kind of engineered the equivalency of how they would have credits, what kind of level of credits you would get depending where you put your fuel and where, frankly, the EPA wanted the fuel. I don't think that's probably going to end up being the way it's going to be. being enacted. The idea that they kind of jury rigged the math to create RENs out of thin air, frankly, to incent RNG to go to make electricity for light duty electric vehicles versus putting RNG into a hard to decarbonize heavy duty truck. I don't think that that's going to end up being the case. And I think was almost just too much, you know, it's just going to fall apart under its own weight. There's two obvious and the moving the origination from the producer at the, you know, that the other day, Pavel, I was with the chairman of the agriculture committee. and a member of Congress who happens to own a dairy farm and happens to have a RNG digester out at his dairy farm in Central Valley, California. We're standing on the bladder on top of the lagoon there and filled up with methane that this guy's capturing. We, by the way, get all that gas and it goes into heavy duty trucks. And I said to the chairman of the Agriculture Committee, I said, well, now there's one for you. And I pointed at the congressman whose dairy farm it was, and I said, can you imagine that the EPA has proposed that the generator is no longer Congressman Valadao, and it's no longer, they're not the generator here at the dairy farm. They're going to pass that on to Ford or to someone making electric vehicles in Detroit or Elon Musk. And he said, well, you gotta be kidding me. How is that going to, how could that possibly bleed? So that's just another example of, of what was going on in this deal. And I just don't think that's, uh, again, all it's going to end up being enacted that way at all. Appreciate the call on that. I think, I think, and I think what's going to happen above L is you should, you'll see, perhaps they're under obligation to enact the RBO by June. Now, whether or not they do that, I don't know. I'm not sure they're going to get this all cleaned up and figured out, uh, uh, uh, the Iran, uh, to be able to, to make that date. And so, you know, wouldn't surprise me, uh, that the Iran, uh, maybe gets delayed some and restyled some, and that they go with some other kind of RBO, uh, in June. So we'll, we'll, you know, we'll have to see.

Just a quick, a quick question. at the end. Smaller programs, but do you get anything from Oregon or Washington State LCFS?

We do, but a little bit. We have several customers. I'm looking at one of my guys, Oregon. Yeah, Oregon, for sure. Washington State, not quite yet, but we will there. Oregon program, credit prices are working. They're nice, but we don't do a lot of people up there yet about But I think we have four or five customers right now. Okay.

Thank you, guys. Okay. Our next question is from Craig Sherry with Tui Brothers. Please proceed with your question.

Good afternoon. Thanks for taking the questions. So, I mean, obviously, neither CARB nor the EPA wants these programs to implode. So, I guess what I want to ask is, one, do you see a silver lining that the regulators feel more pressured with these low prices? And two, do you see any catalysts for other state programs? And there were some draconian problems. possible recommendations with options being evaluated by the CARB, kind of eliminating projects past a certain line in the sand from west to east or other things. Do you see them starting to shy away from some of those draconian changes and just focus on total supply-demand in terms of, you know, the carbon reduction, you know, track versus tweaking the market, you know, in other ways.

Yeah, well, Craig, look, I think, I hope what I've been trying to say on this call is that I'm actually somewhat optimistic of the way both these programs are going to end up. And it hasn't helped. You know, as the markets watch this kind of making a sausage and regulatory proclamations and staff workshops and all that, you know, that's kind of can be a little bit of a unnerving. And it, frankly, has done that to the credit prices in the latter part of the year. But I'm kind of, I think I'm picking up where you are. I don't believe that either California or the EPA wants to dismantle these programs, okay? I think, unfortunately, there was a tendency to want to micromanage and steer and pick winners and losers and maybe some things that we see governments do from time to time and certainly staff in governments do from time to time. And not always well-guided and certainly often not market. I think it's beginning to... But having said that, if I look at California, you know what overpowers some of the micromanaging of lines in the sand in the West and pathways and book and claim and some of these different things and length of service and all that, some of that stuff that had been kind of proposed, is that when They know the program works. They know that half the dairies of the state of California, for instance, have voluntarily gone into capturing methane. They know they need RNG in order to lower the carbon in the state. It works. Other states know it works. The governor of the state, Governor Newsom, he knows it works. So the last thing you want to do is kill the golden cow, if you will. So I think what you'll see is what... what kind of overpowers all of those tendencies to want to micromanage the program is the fact that they're going to increase the obligation curve from 20% to 30%. That's big. And if they go to 35%, which many have suggested that there's no better time to do it, you're going to need all the R&G and a lot of these little programs, little things that they were kind of wanting to test I think will go away because you're going to need it all. So I feel actually kind of you know I'm an optimist but I feel actually that that is heading in a in a better direction. And then as we relate to the to the to the EPA I feel similar in a similar way. You know for for the federal government to decide that they they want to decide where this fuel should go and jury rigged the math on generating RINs to force it to go to make electricity for their electric vehicle program. I just don't think that is the way it's going to go. And I know that there's a, you know, it would be kind of interesting, we should tune in tomorrow, there's confirmation hearing by the fellow in charge of this program. at the EPA, the charge of the Office of Air and Radiation. He's trying to get confirmed tomorrow. And I'm sure the questions that we've talked about just now about what they were trying to do with the program probably brought up tomorrow. And so I kind of feel like I don't have anything against ERIN, but I think the way that it was being done was probably not the right way to do it. Not even sure the EPA has authority to do it, but we'll see. But I think in particular, some of the things they were doing, you know, is probably not the right way to go about it. And I think I'm not the only one with that, just about everybody. You should read those comments. I mean, I think there was general agreement in that.

That's helpful. And you're talking about finishing up the 19 stations for Amazon. I guess, you know, do you require similar massive, you know, fueling, you know, fleet fueling agreements? Or, you know, so what's next after that? Do you have to have other Amazon-type agreements in order to roll out the next 10 or 20 new stations? Or do you just see increasing widespread adoption with the new Cummins 15 liter engine? And so you're just going to have more open access and just keep going.

Well, no, you just keep going. And look, 19, I hope there's more on that with Amazon, right? There could be many more just with Amazon alone. But like we've long said, look, we're not just a one-trick pony in terms of just Amazon. I mean, look, we're working with all the large trucking fleets. And we have a – I – you know, we are really focused on these 40 – sort of household name largest fleets that are working right now with Cummins as they introduce the test vehicles for these next four, five, six months. And then we hope as they order the order book sometime in 2023 on the 15 later, you know, we're all over those fleets to work with them, to build and develop stations for them in the future as they, we hope begin to order vehicles. So there'll be, You know, we have a very large network that can take a lot of fuel now. And many of these fleets will use our nationwide network. And then, you know, we would be thrilled to work with some of these very large fleets to do what we're doing with Amazon. And I'm sure that'll be the case. You know, for instance, Craig, You know, I don't know how it will pan out, so I'm just giving as just, you know, I'm just speculating just kind of for fun. I mean, look, we know Walmart's testing the new Cummins 15 liter. We know Werner. I would love to be the fuel partner using RNG for those kinds of fleets. And there's a bunch of them.

And last one for me. To the degree there's wider spread adoption and, you know, you know, these fleets want, you know, to drive lower carbon fuel in other geographies nationwide, not just California or Oregon or what have you. Do you think that there's increasing multifold pressure, you know, on, you know, two or three or four more states to come up with these types of LCF programs in the next two or three years?

Yeah, that was part of your question. I wrote them down here. I wrote down New York, Illinois, and New Mexico. So there will be other states. I think New York's pretty close. And Illinois is, I think, introduced it. We've got some work to do in North Carolina. You'll have other states. There'll be some that won't go, but you'll have other states to do it. And I think New Jersey. Once New York goes, you'll probably get New Jersey and the others in the area. So yeah, they should. And, you know, Craig, if California does something to louse up their program, they will.

Gotcha. Okay, thank you for those insights.

Okay.

Thank you.

Our next question is from Paul Chen with Scotiabank. Please proceed with your question.

Hey, guys. Good afternoon. Hey. It's pretty late, so real quick. That's some discussion. I think California may want to change the way. No longer give the LCFS credit to RNG unless it proves the gas is physically in the state. I want to see if you guys have any read or have you talked to the government official there to see where that stands. And if it does get paused, how does that impact your operation? what percent of your projects that currently under construction realistically that you will have the pipeline connection all the way to California and also how much is your RNG sales that currently from the third party you will be able to do that? Thank you.

Yeah, Paul, yeah, I mean, I think that's, I mean, it's kind of around the booker claim, the booker claim and whether you, you know, where they're going to require us to physically move gas in to do that. And, you know, I mean, first, we don't, you know, we think that's yet to be determined. So we're not really moving around to try to accommodate that. Now, you know, in some sense, I think there'd be some cost. There'd be some cost added, but It's not a, you know, one of the beauties is we've got pipelines and we already have, you know, we have certified pathways. So we, we actually, we do have to be able to get gas from, from the farm to the dispenser in San Diego. I mean, it has to be able to go there. What we talk about and, you know, I mean, but it's a little tricky, right? Because once it goes, once methane goes into the pipeline, it's methane. It's kind of indistinguishable. Um, you know, it's like putting a dollar in the ATM, you know, you don't, I mean, you go take it out. It's not the same dollar, but it's a dollar. So that's, but I, you know, look, however, we would have to track molecules. I think you'd add a little cost, but it would be done.

I don't think Bob, I mean, just, I mean that, that there's discussion of that. They wouldn't allow you to do use the current booking claim, but you have to pay for the, essentially the transportation. Right. And that's not a, that's not a deal killer, Paul. I mean, it's, you know, it's not fair and it's not the way it should work. And frankly, this is the kind of crazy stuff that's going on. But again, I'm going to, I'm going to kind of assign it to facials bureaucrats, right? I mean, it, by the way, that's not the case if you use it for hydrogen, even while they would want to do it for us. I mean, that's the kind of thing that is just, I just think that when cooler heads look at something, I don't see that. And, uh, But if it were to happen, as they've discussed in some of these workshops, there would be an extra cost to it. We can accommodate.

Because, I mean, we certify our pathways today.

Yeah, we have to do that now. The connectivity, all of that. It's all that work, and that's a lot of work, and it's time-consuming.

But don't, you know, that's not in stone yet, Paul.

Sure. Yeah. Just trying to understand that what is the kind of impact. Any rough estimate of what's the incremental cost for you guys?

I don't know.

No, but I mean if you're getting into kind of transportation costs, you know, you're kind of dollars on the MMB to you kind of thing.

Our guys know it. I'll see if we can't get it for you, Paul. I don't know it. Yeah, that would be great. We're being asked by some clients. I'm busy fighting it, so I'm not worried about paying it. So don't put me down in the fight column.

Sure. My final question is that just a simple accounting question. We're talking about the credit reduction, the capital reduction, say 30% or so. Accounting-wise, Bob, how does it work? I would imagine in your cash flow statement, your capex number is still remain the same you're just receiving the that tax credit or check from the government and showing up where yeah well it'll reduce the basis in our um it'll reduce the basis in our asset so it will it will lower it'll basically lower the value of

of what we have capitalized. So if you're going to, you know, 100 million and you get your 30, then you're going to kind of end up net with a $70 million asset there.

No, but I guess my question is that from an accounting standpoint, when we're looking at your 10K on your cash flow statement, let's say if you're supposed to have 200 million on the CapEx in 2026, and let's assume that in 2025 you spend 100 so you end up at 30 million so yes the cash flow statement is still showing up in your capital spending line at 200 or you show 170 it's going to show gross okay and then there's 30 million that way it's going to show up in the cash flow statement it's going to show up in the investing section

Okay, we do. Thank you. You're proud of yourself, aren't you, Bob, with the accounting?

Yeah. I'm doing what I think is conservative and what the FASB would want me to say.

Thanks, Paul.

Our next question is from Jason Gableman with Callen. Please proceed with your question.

Hey, guys. Thanks for taking my questions. Two, if I may. The first, on the clean fuel production credit, which I think starts 2025, it seems like the benefit to your RNG production could be pretty high if the credit isn't capped. It could be as high as $6 a gallon. Is that your interpretation, and do you expect that credit value to be capped And then my second question is just on the near-term numbers. It looked like 4Q, the fuel margin, excluding all the credits, was just $0.04 per gallon, which was down quarter over quarter, I think, by $0.06. Was that just due to the higher natural gas prices? And do you expect that to rebound back to, I guess, the $0.10 where it was in 3Q? And that's, once again, just the fuel margin. dollar per margin, excluding any of the credits. Thanks.

Okay. Andrew, I don't know if you want to talk about the PTC.

You know, Jason, it's a good question. As you point out, the production tax credit has not been promulgated. It hasn't been adopted by the Treasury Department, by the Treasury Secretary. And I've you know, then I've told our folks here, you know, let's be careful. We don't know how that's going to come out. We don't know. It appears on its face as, you know, as the law has suggested that it would, it could be a rather big credit based on the carbon intensity. And, you know, I've seen estimates between $5 and $6. But I also know that's a big number and, you know, Jason, it's the first time I've really heard anybody ask this. Maybe it's because you and I have talked about it before or something, but whether, you know, that it could be capped. But, you know, stranger things have happened. So I don't know how to handicap that yet. I know that this incentive was designed to get really low carbon fuels produced. And so, you know, you want to be careful how much you cap it. because then it works against what it was designed to do. But, you know, could it be? Sure. Do I think it will? I don't know. I'm not sure it would be.

But, you know, it could be. Have you heard something, Jason?

No, no, not yet. I was seeing if you did. I have not heard anything one way or the other.

I also know politicians and, you know, someone said, whoa, that's pretty big. But there are a lot of big numbers associated with all this stuff. So I'm not so sure that it would be. And I don't know how fair that would be just to cap it because it's so low carbon, you know. So we'll see how that goes.

Yeah. Jason, on your second question, By the numbers that you're giving to me, I can tell that, and I'm not saying right or wrong at all, but I think you're taking like the fuel sales value that we report that has the Amazon non-cash incentive netted down in there. And then you're kind of, you know, doing the math, figuring out the product cost of sales and coming out to your four cents. I will say that there's a couple, probably a couple of things. I mean, one, the number can be influenced by how, what the value of the, um, Amazon incentive number is, right. Because that, that nets that, um, it nets down the revenue and then your cost is kind of the same. And so, you know, your margin gets a little skinnier as a result of the value of that. And whether you want to have that in there or not is up to you. But I can say that, you know, the value of that charge was, you know, the largest it's been in any quarter. And it was larger than Q3. So it was like $7 million in Q3 and $8.8 million. So that's netted in your revenue number. then I will say yes, you know, Q4 was impacted certainly by the doubling of natural gas costs in California because it's such a big market. And we're going to see a little pressure on that in the first quarter. I would like to have said, you know, that dissipated, that kind of righted itself, but I already know in January that, you know, Cost went from $15 an M to $50. I don't know if any of you have heard on the news about, I mean, it's all the way down into residence. And, I mean, it's a complete debacle in my opinion, my own humble opinion there. It's a bit of a debacle on how we're managing the natural gas here in the state. But now, having said all that, that's in January. We'll work our way out of that. In January, we did, by the way – have to we were forced to our own selves no one no one externally but raise our prices um at the pump totally to accommodate that we don't always do that because we're mindful of our customers wanting that uh you know to enjoy the spread in the pricing and so we don't always jump out there and do that um right away uh we did so um anyway i think your your four cents is influencing see how it's influenced by the non-cash incentive charge. And then, yes, you do have a little bit of pressure on the COGS.

Thanks.

Okay. We have reached the end of the question and answer session. I would now like to turn the call back over to Andrew Littlefair for closing comments.

Thank you. Thank you, everyone, for joining us today. And we look forward to updating you on our progress next quarter.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.