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spk01: Good afternoon, ladies and gentlemen, and welcome to the Clean Energy Fuels first quarter 2023 earnings conference call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Tuesday, May 9th, 2023. I would now like to turn the conference over to Robert Relin, Chief Financial Officer of Clean Energy Fuels. Please go ahead.
spk09: Operator, earlier this afternoon, Clean Energy released financial results for the first quarter ending March 31st, 2023. If you did not receive the release, it is available on the investor relations section of the company's website at www.cleanenergyfuels.com. 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 factor section of Clean Energy's Form 10-Q filed today. These forward-looking statements speak only as of the date of this release. The company undertakes no obligation to publicly update any forward-looking statements or supply new information regarding the circumstances after the date of this release. 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.
spk11: Thank you, Bob. Good afternoon, everyone, and thank you for joining us. Well, for the first quarter, the good news is that our underlying growth and fundamentals were strong. Bad news is our first quarter results were impacted by an anomaly and hopefully a one-time occurrence, which was a historic spike in natural gas prices in California, resulting in a $10 million compression in our profits. A confluence of events, including unusually cold weather in California, the lack of natural gas storage capacity by the gas utilities, and the El Paso pipeline that supplies 20% of the natural gas to California being out of commission, all contributed to cause the price of natural gas to spike as high as $50 in MMBTU here in California in January. The move from $7 in MMBTU in November to January was a 600% increase, translating into an increase in our costs at the pump from approximately $1 a diesel equivalent to $7.50. We did everything we could to mitigate this unprecedented chain of events that impacted the cost of our commodity. But California continues to be our biggest market by far, with the largest transit agencies in the state, dozens of refuse truck fleets, airport vehicles, and a growing number of heavy-duty trucks all fueling at our network of 150 stations across the state. He passed along some of the increase in fuel costs to these customers, but we felt we could only do so much. Good news is that they understood, in large part because every household and business in California was also seeing their gas bills at least triple, if not quadruple, during January. The other important point of this historic increase is that the price began to moderate in February, although there were still some balancing effects that we were feeling. The old El Paso pipeline is back online and gas utilities have filed plans for additional storage. And as of March, the price of natural gas at the SoCal city gate was back closer to $7 in an MVTU. Something else that has been impacting our bottom line and that we discussed the last quarter's call is the price of the environmental credits. I know these are followed closely by many on this call. And as you know, There has been a nice turnaround in the California low carbon fuel credit price recently, about a 35% increase. But for the majority of Q1, prices were on the low end and had an impact on our adjusted EBITDA when compared to a year ago. By March, credit prices were in line with our plan, if not exceeding it. In the first quarter, we sold over 53 million gallons of renewable natural gas, We won several large transit contracts, converted existing customers from traditional CNG to more profitable RNG, and opened additional RNG stations where Amazon heavy-duty trucks are the anchor customer. Our revenue for the quarter was $132 million, $48 million more than Q1 2022, but this was heavily impacted on the plus side by the commodity price in California that I just spoke about. By the time we got to March, we saw our overall business begin to right itself and track the plan that we had at the beginning of the year. Our balance sheet remains in very good shape with $220 million in cash and investments, in addition to $132 million cash off balance sheet at our RNG Supply Joint Ventures. As I spoke about last quarter, our first RNG supply project, Del Rio Dairy in Texas, is now online. We now have three dairies in commissioning and two others in final construction. By summertime, we should have six projects producing RNG. Many of you have read about the tragic fire in South Fork Dairy in Texas, where we had plans to build an RNG digester. While we have funded some design, engineering, and early equipment purchases for that project, we had not started onsite construction. And we are now working with the dairy owner as he plans to rebuild the barn and repopulate the herd. We will keep you updated on its progress. We've added expertise in construction, project management, and origination to our RNG team that are keeping our projects moving along at a good pace. Not only clean energy and our customers who remain bullish on this ultra clean fuel, Washington knows the benefits of RNG as well. I hope you saw the announcement that a bill was introduced last month in the U.S. House of Representatives to provide a dollar per gallon tax credit for vehicles that use RNG. It's interesting to note that the bipartisan bill is being co-sponsored by a Republican member from a rural district, Congressman Brian Fitzpatrick, and a Democrat from an urban Southern California district, Congresswoman Linda Sanchez. Members understand both the environmental benefits of RNG which reduces air pollution and carbon emissions, and that the investment of tens of millions of dollars per new RNG digester benefits their agricultural communities. We believe a companion bill will soon be introduced in the Senate by another bipartisan coalition. You know, 70% of all on-road fuel used in natural gas vehicles in 2022 in the U.S. was R&G, which is a great testament to its acceptance and the ease to transition it to existing fueling infrastructure and fleets. I think a tax credit will be a big boost to the adoption of R&G if it passes. We're also very excited about the rollout of the new Cummins 15-liter natural gas engine. It seems like a week doesn't go by that we don't hear some of the country's largest fleets like Walmart, Werner, Nightswift, taking delivery of these pre-production 15-liter engines. I've spoken multiple times on these calls about the importance of this 15-liter engine to the heavy-duty truck market because it delivers the power, torque, and economics the industry needs. And it's incredibly gratifying to see the early response. A few weeks ago, I was with the CEO of the largest trucking company in Canada and a customer of ours, Murray Mullet. And he is anxiously awaiting the delivery of two test 15-liter engines in a few months. I've gone on a little long, and my goal is to keep my remarks shorter, giving us more time to get to your questions. But I do want to end by highlighting why I was in Canada, which was for a significant announcement with the largest natural gas company in Canada and one of the most successful energy companies in North America over the last couple of decades, Tourmaline. Mike Rose, Tourmaline's founder and CEO, and I announced that the two companies are partnering to build a network of natural gas stations across Western Canada, primarily targeting the heavy-duty truck market. We've identified locations for the first four with one already operating in Edmonton and have plans to eventually add 15 or so stations that will be co-owned by the two companies. Clean Energy will build and operate the stations. We are very bullish about this new partnership with Tourmaline as well as our overall business. As I detailed at the top of my remarks, we experienced some headwinds at the beginning of the year, but the momentum has already shifted back. R&G continues to be a breakthrough fueling solution, allowing fleets to decarbonize quickly and affordably. No other company is better positioned for the R&G future with our expanding low-carbon supply and our growing fueling infrastructure. Thank you for your time today, and now I'll hand the call over to Bob. Thank you, Andrew.
spk09: Good afternoon, everyone. Let me start with giving a little color, a little more color around the $10 million drag on earnings in the first quarter from the high California natural gas prices. The quick math on that is that we have about 2 million gallons per month with exposure to natural gas price movement in the California market. And we saw an incremental price increase of around $6.50 a gallon. That's an increase in our cost. We were able to increase our retail prices by $2 a gallon, so taking our price at the pump to $7.99 a gallon versus diesel at the time was $5.99. So that left us about $4.50 a gallon that we absorbed, plus we experienced some elevated gas utilities at our California LNG plant for about another million-dollar impact. So disappointing when we really were having a nice quarter, but that is past. And frankly, without that anomaly, the quarter was really more in line with what we were expecting. Recent trends in the natural gas prices relative to oil remains healthy, meaning we have a strong economics at our retail pricing. LCFS credit pricing has increased into the mid-80s from the low 60s, which is where it was at on our last call. And even more recently, there's been a nice rise in RIN pricing. So the current economic landscape is good for us. And we think that we can recover much of the $10 million anomaly by the end of this year. Moving on and looking at volumes, we saw increases in volume across all of our core sectors with the largest gains coming from transit and trucking when compared to a year ago. The transit sector has seen more recovery this year, and we've also had some nice customer gains. And then our volumes with Amazon continued to increase, which is helping to drive the trucking sector growth. Both of these sectors, the transit and trucking, contributed to the growth in fuel gallons, which was up 18% year over year. And then transit also contributed to service gallon growth, which was 7% compared to the first quarter of 2022. We reported a gap operating loss of $35.4 million for the first quarter of 2023 on revenues of $132 million, compared to a gap operating loss of $20 million on $83 million in revenue a year ago first quarter. On the downside for the first quarter results of 2023 compared to the same period in 2022, we have the $10 million drag from the California gas spike in 2023. Our increased volume with Amazon resulted in incremental Amazon warrant charges of $10 million in 2023. And our RIN and LCFS revenues combined were down $4.5 million from a year ago due to the lower credit prices. On the upside in 2023, we have $4.3 million of incremental alternative fuel tax credit revenue compared to a year ago as the alternative fuel tax credit was not in effect in the first quarter of 2022. Our adjusted EBITDA was negative $4 million for the first quarter of 2023, which includes the $10 million negative impact from the California gas prices. We've also In our table in our press release, we've disclosed the EBITDA components of our RNG supply JVs since we are operating one project and we'll be operating more this year. Having said that, our adjusted EBITDA of the negative 4 million breaks down as a negative 2.9 million coming from the distribution business and negative 1.1 million coming from our RNG supply business. And you can calculate these figures utilizing the press release and our 10Q. But we intend to update our company presentation on this adjusted EBITDA to show you the two different contributors to the adjusted EBITDA. We're going to update our company presentation that we'll put onto our website soon. And with that, operator, please open the call to questions.
spk01: Thank you. Ladies and gentlemen, we will now conduct the question and answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a three-tone prompt acknowledging your request. If you would like to withdraw your request, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. Your first question comes from Eric Steiner with Craig Hallam. Please go ahead.
spk05: Hey, Andrew. Hi, Bob.
spk11: Hey, Eric. Hey, Eric.
spk05: Hey, so thanks for the details on the RNG pipeline. Maybe if you could go beyond that a little bit. I know in the past you've talked about kind of the next level, which is the number of plants that you've got in in engineering phase. And, you know, I'd also love to hear just kind of the size of the pipeline as it stands now, you know, maybe versus six months ago, 12 months ago.
spk11: Right, right. So, you know, we slice, Eric, thanks. We slice these things differently. So, you know, when you kind of, when you sort of boil it all down, we have nine under construction. Now, one of those is South Fork. And I can go in a little more detail on that in a minute. But you have nine under construction, you have four under engineering. You know, and engineering in these projects is pretty detailed, right? So you're spending some money at that point, and you're getting up to about 30% drawing. So they're well underway, and you have MOUs and everything. And then we have two kind of the early stages of development so they're about to enter engineering so those are the projects let's just call them active where you're really moving forward then the pipeline uh can kind of ebbs and flows uh eric there are uh 18 to 20 active in the pipeline or you know we're we're dealing with the farmers and passing paper back and forth and uh you know so Now, you know, just to be clear, that number could probably even swell. I mean, you know, our guys are in touch with more than that. But that's the number that I asked for this morning as we're kind of looking at, you know, those that we really are starting to get a real nice line of sight on. There are more. But, you know, time will tell over here over the next few months of kind of which ones then move into the, you know, real active pursuit. But the pipeline's robust. And our guys have really done, I think, a nice job on not only on the pipeline for development, but also on the R&D supply side, which, you know, is very active for us as well.
spk05: Got it. And just curious, I guess, first of all, I mean, I think in the past you talked about an ultimate goal. I mean, obviously you could expand beyond this with BP and Total. At some point, but I think targeting like 105 million gallons, is that still a number we should think about?
spk11: Yeah, still. I'm glad you bring that up because it's still... You know, because we've kind of talked about it. We did acknowledge on the last call, you know, that some of these projects were taking a little bit longer. And so there's a little slippage, if you will, to the right. But the main goal is still in place. What we laid out a little over a year ago of the 105, you know, 100 million gallons of our own equity account with our partners on the supply side, that's still, we're still on track for that. Now, You know, we've always been very clear that some of that will be Greenfield that will develop some of it could be an M&A. And so we'll still work on that. But we still like that number. Frankly, I'd like to see that go up. But our partners are still hooked with this on that. And then at the same time, that's, you know, in development 2026, you know, we have to then bring a lot more third party, you know, low CI gas and landfill gas to the equation as well. So we're very busy on that front, but we really haven't changed the size of what we're trying to achieve or the money that we're going to need to spend with our partners on it.
spk05: Yep. Okay. Thanks for that. And then I guess maybe last one for me, just I think last quarter with the Amazon stations, not through anything that you were doing, it was more permitting delays, those sorts of things. Curious where that stands. Has that loosened up a little bit in when you might get back to what you would view more of a normal rollout if you're not right here?
spk11: It has. We've worked really hard. We have a very large team. on the site acquisition, entitlement, permitting side of the equation, and then of course construction, right? And we've worked hand in glove with our friends at Amazon as well, our construction party and all of that team, starting late last year to see what we could do to streamline the process and working together, utilizing all the levers that we have. I'm happy to note that we have seven stations that are under construction right now and that'll come on in the next five months. And I reviewed that with Amazon the other day. And the entire, maybe less one of the original stations that we signed on to Amazon that we've disclosed should be completed by the end of the year. So, you know, there's a lot more to be done there. It has sped up some. You know, we get a little break with the weather, right? I mean, we've made tremendous progress in a couple of the stations out here in California here in the last six weeks. after the rain stopped, and that's also the case in other parts of the country. So I'm feeling good. You know, we have cameras on all those locations, and we have a standing meeting with a big team every Friday morning at 8.30, and a lot of activity as we're bringing those projects along. So I'm feeling much better about that. And, you know, those are like magic, Eric. You open one of those stations and – Literally within a few days, even before we were in final commissioning and ready to get the occupancy permit from a city, there was 158 trucks sitting there. And so it's a beautiful thing when you see it. And so we're very excited about it.
spk05: All right. Thanks, Andrew. Okay. Thank you.
spk01: Your next question comes from Rob Brown with Lake Street Capital Markets. Please go ahead.
spk07: Good afternoon. Hey, Rob. Hey, Rob. Just following on with Amazon, how many stations are now open, and do you have a sense of how much the truckload you're feeling at the moment?
spk11: Well, you know, now you remember, I always give this little warning that I get in trouble, but I do know this, that we, you know, there's a couple pieces to that, right? So we, early on, going back, I guess, what, 18 months ago, you know, we, as they began to take trucks, we opened up our nationwide network of stations. And as of last week, in my meeting with folks who are executives at Amazon, I reported that we've actually fueled heavy-duty trucks, Amazon trucks, and mediums at 101 of our different stations. And that's a daily occurrence. And as of today, you know, last week, it appears to us, because it changes from time to time, you know, you're approaching 1,500 trucks that are fueling on a daily basis. Now, as those stations that I just discussed with Eric come online, you'll see that number, I hope, go up, you know, and I know that through the public information that Amazon's disclosed, I think they've admitted to 2,000 or 2,500 trucks that they've disclosed. And so our numbers should continue to go up as these stations come online.
spk07: Okay. Thank you. And then on the 15-liter rollout that they're testing right now, how does that ramp roll out? How do you sort of see that flowing into the fleet over the next two or three years?
spk11: It was really pleasing to see, you know, I would like to say that Cummins has really gotten into this in a big way. And you may see it, Rob, but gosh, in the last six weeks, almost every week, there's another announcement coming out about different parts of the business. And, you know, last week at the ACT Expo in Stanton, huge presence by Cummins. One of my salesmen reported that he thought there was as many as 20 Cummins individuals there. Now, they had a couple of other fuels, but about fully half of that divot was natural gas portion of a lot of customer interest there. In fact, Rob, one of the only, the ride and drive, you know, big, you know, fuel cells and electric vehicles and all the showbiz, of advanced technology innovation there. The only vehicle that made it there under its own power to be in the ride and drive, the heavy duty, was the Cummins National Gas product that was driven in. It was actually being operated at the time by Walmart. Those vehicles, the way I understand it, and you may get better information from Cummins, but the way I understand it, there's about 40 of, you know, some of the nation's largest fleets that are in line now. to, you know, are kind of in sequence to take delivery of those vehicles. Those are new engines that are being placed into existing diesel OEMs, right, into trucks. So they have to go to the shop from the fleet and put in the new engine. And, you know, those are on the road now, some of them, some of those fleets I mentioned in my remarks. And I haven't seen anything official from Cummins, but, you know, the early reports are uh the the lady that drove the truck from walmart had just you know a very good report that she imparted there to the people at expo so i have my fingers crossed that the customer experience is going to be good the torque and horsepower is good i saw is i think today cummins made another announcement on their upfitting program on their new design back of cab uh And I really like this because you're beginning to see sort of the OEM nature that Cummins can bring now with their upfitting capability to bring the fuel system and everything together as a factory product. They've improved that. They have a 170-gallon option and I think 130-gallon options that really look slick, so.
spk09: It's like lighter, 400 pounds lighter.
spk11: Yeah, that tank package, thank you, Bob, is 400 pounds lighter. So it seems like things are going well, and I'm hoping, you know, and I can never, you know, I always get out there a little bit ahead of myself. But, you know, the story is later this year the kind of order book will open at some point, and I'm hoping that, you know, we begin to see those orders taken for that engine.
spk07: Okay, great. Thank you. I'll turn it over. Okay.
spk01: Your next question comes from Manav Gupta with UBS. Please go ahead.
spk12: Hey, guys. I actually quickly wanted to touch a little bit on the third-party volumes. Some of your upstream projects are delayed. Some of your competitor up scheme projects are also slightly delayed. But in your guidance, you had indicated that you're still seeing very strong contractual volumes from third parties for both landfill and dairy RNG. Can you talk a little bit about your third party volume contracts as they relate to RNG and the volumes you actually distribute through your outlets?
spk11: Sure, Bob. You might have those. I think it's handy here. But, you know, we... The third party, I'll start, Manav. Good to hear your voice. The third party is a very important piece to our story until we begin to, well, it always will be, right? I think the count is we have 63 different R&G suppliers. So, you know, we work with almost everybody in the business, landfill and dairy. Our dairy is increasing dramatically this year that we're bringing in from third party. I think it's going from roughly in California from 20 million gallons of dairy RNG last year to something closer to 60 million for 2023. So a big, nice increase. And we had, what, about a 20% increase in third-party supply for 2023. That's right now on budget. we'll end up with about 234, I think, million gallons for the year. And it's going well, Manav.
spk09: Yeah, Andrew, I agree. And I think, I mean, it ebbs and flows as we have always seen it, but it's not really being impacted by us seeing that projects are delayed kind of thing. Because all of our third-party supply is pretty much operating units. And so anything that we come across there might be, you know, from an operational matter where a yield is a little different, but because we're kind of spread out with a number of the suppliers, then all that is anticipated. And, you know, we're planning on our 234 million gallons from third-party suppliers.
spk11: Yeah, so I think we're on track on that. So, no, it's a good question. Are we seeing a slowdown? No, I think we'll be able to meet our demand, which is in large part due to our third-party supply.
spk12: Congrats on that. And a quick follow-up, and then I'll turn it over. You mentioned in your opening comments you are seeing some improvement in LCFS prices. There were meetings at help at CARB. They are looking to make some changes over there to support higher carbon prices. You guys obviously talk to them a lot more than we can, so help us understand a little better what's going on with CARB, and are they actually serious about making some changes which will help support higher carbon prices in the future? And I'll turn it over after that. Thank you.
spk11: Okay. Well, I would say, first off, we're in – weekly, daily contact with different groups at them as they look at adjustments to the low-carbon fuel standard program, which kind of the way it works, Manav, is there will be one more kind of community workshop at the end of this month, end of May, first of June, then you should see sometime you know these things things aren't set in stone right now but you know it looks to us pretty closely that in june july you'll begin to you'll then sometime in mid june june you'll have a uh proposed rule out on adjustments to the low carbon fuel standard and uh you know, the board will then begin to hear that some 30 days or so after. So sometime in late July, August, that'll kind of move along. And of course, there'll be lots of input on that. I wouldn't say that the ARB is looking to make adjustments to raise the price. I don't know that they would agree with that. I think they're looking to make some adjustments in the program To increase the compliance curves, that is require more obligation by the obligated or compliance by the obligated parties to use more renewable fuel, low-carbon fuels in the state. You know that we're at about 20%, and so there's a couple of choices that are sitting before ARB, all of which are constructed for our business, we believe, biomethane business. is 30% increasing from 20% to 30% or 35%. And an awful lot of the industry and others have weighed in that we think the time is right to move to 35%. And we believe that the industry is willing to spend the money, the private sector willing to bring, spend the money to be able to get to the 35% over time. So that's exciting. We think that'll shake out. There are some other things that are, you know, kind of, I would consider sort of, you know, some hurdles about where the supply could come from and how long you could go into certain, you know, how long could RNG go into certain markets. And we're making our views known on that. If the ARB finally on this point, if the ARB moves to a 35% compliance level, you're going to need all the RNG you can get from all over the United States. And I hope that's where they'll land. And if so, that will, I think, possibly impact prices. And I think, frankly, you're seeing the market begin to bet a little bit that there is going to be a higher obligation threshold. And I think that's why the prices move from 60 to 85. 62 to 85, and it likely could move a little bit higher, even though it doesn't take effect for another year, right?
spk12: Thank you so much, guys.
spk01: Thank you.
spk10: Thank you, guys.
spk01: Our next question comes from Dushyant Elani with Jefferies.
spk02: Hi, Andrew. Hi, Bob. Thank you for taking my questions. My first one is on the tourmaline contract. Could you kind of share some more color on the economics of it, the cadence of R&D stations coming online over the next couple of years? Yeah, just maybe some more color on that.
spk09: Yeah, well, we have line of sight on four. One is actually operating, and And we'll get those, we should get those constructed for the most part this year, maybe going into the first quarter of 24 on the other three. And then, but we've already identified probably 10 others in that market. And those will come on. So, you know, like our old model is we got to, you have to go through a period to build them. It doesn't take that long. Um, what we're most excited about there is the, um, is our partner, their tourmaline they're in this to drive adoption of natural gas, heavy duty trucks. They want natural gas, heavy duty trucks on the road up there in Canada. And as Andrew and I have been up there, the view is very bullish on that type of vehicle. They do need the 15 liters. So that also plays in, but the timing. The timing is good because, you know, if we had all the stations right now, we wouldn't probably have the vehicles, so we don't. So we need to hurry up and get those built, and then we're working. The thing is with Tourmaline, they have so many operations, they see all of the various geographic areas where there's thousands of trucks going by locations each day. So we'll get about four in this year. early part of next year and just keep on going from there.
spk11: You know, the nice thing in Canada is you have a huge, vast resource of natural gas and you have very expensive diesel. So you really have economics. This thing sits on its own bottom up there. And over time, you will, you know, parse in some R&G. But and everybody's open to that. And as you know, may know, there is a federal RNG, low carbon fuel program in Canada. It kind of kicks in, you know, phases in over time. It's it's I think it's already in D.C. But so, you know, everybody understands that you'll begin to blend in RNG later, but it'll start out compressed natural gas. And and the economics of it look good as compared to diesel.
spk02: Understood. And then just a quick follow-up on that. In terms of permitting, how is that coming along? Are there any issues around that, or is it relatively easier to get it versus what you've seen versus Amazon?
spk09: I wouldn't say easy, but on the first four, we're pretty well into those. You always have it, but I do believe that the areas are kind of heavy industrial, and so I don't know that the permitting is going to be as prevalent as it is when we want to put something into San Bernardino.
spk02: Understood. My final question, and then I'll turn it over, is just on Del Rio in terms of pathway approvals. How is that coming along, and then any kind of thoughts on on the other facilities that are going to come on this summer. I think you talked about six, you know, flowing by summer. So just if you could share some color on the pathways approval for these.
spk11: Yeah, well, you know, pathways take longer. So you will begin to operate these, you know, these things will come on production and then you'll put into storage, right? The pathways can take, we got to work on this. The industry, everybody's aware of it. Pathways, in my humble opinion, take way too long right now, right? Pathways can be anywhere from 12 months to longer. You don't have to wait for the pathway, but you, you can't operate to your full potential and you have to store some gas. And that's, it's under that pathway, you know, is underway, but that takes a while. Yeah.
spk09: Cause you have to, you have to run the dairy to get, you have to get, you know, a number of months of operation data that they collect and then establish the CI scores. All that is, you know, in the works, if you will, but that'll take some time.
spk02: Understood. Thank you. I'll turn it over. Okay. Thank you.
spk01: Your next question comes from Matthew Blair with TPH. Please go ahead.
spk06: Hey, good afternoon, Andrew and Bob. Could you talk about how the economics for dairy RNG will change in 2025 and when the benefits of the IRA flow through. Should we expect that you would receive a PTC of approximately $80 per MMBTU in addition to the existing support from D2 RINs and LCFS programs?
spk09: Well, we'll get PTC at whatever, you know, we hope it's $80. But It would be in addition, Matt, I mean, to your point, it's kind of on top of, you know, on top of the economics that we've already, that we'd built in to justify the investment. You know, it's additive for sure. And, you know, the big question is on how much. But we continue to hear that it could be substantial.
spk11: Yeah, you know, Matthew, it's graded on the carbon intensity of the fuel, and that rule has to be promulgated by the Treasury Secretary, so that hasn't happened yet. So we don't want to count our chickens before the hatch, but we think it could be substantial as Bob said.
spk09: Yeah, and it's relevant in the marketplace. You know, so there's – it's in the narrative for sure.
spk06: Sounds good. And then could you talk about what gives you confidence to keep the full year guide of 50 to 60 million EBITDA? Are there any parts that are coming in better than expected that would offset the 10 million loss from high California natural gas prices in Q1?
spk09: Yeah, I mean, we've since, now some of this has to stay, but look, when we set our plan and talked about our guidance, we said we're kind of going low on LCFS in the low sixties and that's that, you know, right now 85 and you know, if there's more encouraging news that could go even more. So I think the LCFS is cooperating nicely. The, the Wren is cooperating nicely. And then just in general, kind of the underlying commodity economics at our stations before the credits, You know, we're at like a 30-plus spread between WTI crude and NYMEX. Okay, so you're at, you know, 70-something and $2.26. And when we see that, that just means that we're very competitive. We have a low-cost delivered product that's against a relatively high-priced competitor in diesel. So that's good for us. So I like all that. moving forward and when we know we have enough of the year, you have about nine months. So, you know, we feel like, um, you could erase kind of our $10 million hickey, if you will. Um, and stay with it.
spk06: Sounds good. And then last question. Um, I think you have stations in Seattle and Tacoma and Washington state, um, unveiled their LCFS program. Could you talk about how that's going and whether you're starting to receive, like, any sort of LCFS contribution from Washington so far?
spk11: You know, we do. We participate in the program in Oregon and Washington. I don't believe we collect anything yet in British Columbia. But I can't give you any more specifics on that. It's not material yet. We'll try to get back to you on that, but I just don't know. It's not a lot. We have a few stations up there.
spk09: It'll grow. It'll be meaningful. It doesn't really make the radar at the moment, but we see volume up there. We'll get it. Oregon, a little less, but... Higher pricing. They have great prices. So, I mean, it's more about the, you know, the truck traffic and that sort of thing. It's not anything that, you know, anything that we're doing to not be there. Sounds good.
spk11: I'll try to get that number, Matthew. I'll try to get a number.
spk10: Okay, great. Thanks. Okay.
spk01: Your next question comes from Paula Chang with Scotiabank. Please go ahead.
spk03: Hey, guys. Good afternoon. Hi. Andrew and Bob, just two questions. One, in Amazon, can you talk about the path to profitability on that joint venture? I don't think they are profitable yet. And what is the economy of scale that you need in order for you to really be profitable on there? And also that if we're looking at there's a multiple avenue, I suppose, that you can get to total population profitable over the next, say, by 2025, if the plan goes through. What is the most critical path or the most important driver, in your opinion, for you to get to Okay.
spk09: Paul, on your first question on Amazon, let me see if I get this right, on kind of Amazon profitability, if you will. Okay. So I don't know that we've, and we haven't, I know. I won't say I don't know. I'll say we have not. uh, discussed, uh, the economics on Amazon. So I'm curious, I'd be curious as to maybe what you're looking at to say, um, you know, when would Amazon be profitable or not? Um, I think that, um, certainly what we, certainly one of the things we see in our numbers is the Amazon warrant charge. Okay. Um, that is, you know, that's not a, an item that affects the kind of cash collected at the station in terms of, you know, when we transact on price per gallon and just what all is entailed relative to that. So, there is that aspect to it. The, so, and the Amazon warrant charge will be here for a while as they consume the amount of spend that was targeted for them to earn the warrant.
spk03: Let me rephrase it. If I exclude the warrant charges, is your joint venture with Amazon today, you don't have to tell me the exact number, but can you share whether they are profitable?
spk09: Well, I'll say this. We are investing in building stations and we have a model that would suggest that we need a fair return on investments. And so, you know, and it's fair. Look, all, you know, all that's kind of negotiated, but understood that the commitment that the commitment that we have at Amazon is good for both parties. OK, so we make we should be able to make money. And they should be able to get one of the best fuels at the lowest cost around with the RNG and all of that. And then the more they, you know, the more they spend is based on volume that, you know, so that benefits us. So that whole program is good. And I'll say that it's beneficial. Yeah.
spk11: I would add, I mean, you know, you know, it's not spec, right? we're not specking stations hoping that an Amazon truck's going to show up, right? So there's a, you know, we are working hand in glove with Amazon, and we have a relationship to volume commitments for developing these stations, and that's beneficial for both companies.
spk09: Okay. And on your other question in terms of overall corporate benefits, you know, profitability, what, you know, what's needed there, you know, to really kind of get over the line of, you know, let's call it, you know, positive net income, if you will. And, you know, ultimately, ultimately it's about volume and the, and the adoption of heavy duty fleets of natural gas vehicles. You know, I mean, that drives, that drives everything all really does. I mean, You know, all the projects of R&G supply. And look, we, you know, so we're, but we're bullish on that because, well, I mean, because it's kind of the epitome of renewable energy that's running our transportation fleet. So, you know, of course, we're, but the, and part of that, the big part of that, Paul, is because for a while, we're already kind of built out to take on much more volume. And so that would really kind of pop with us because we could already take on a lot of capacity without really expending much more significant capex. And so that's really the play on it. And the big market that it's just untapped literally is the class eight heavy duty truck market. That's 40 billion plus gallons a year that predominantly uses the 15 liter engine.
spk03: So, and so that, uh, Bob or Andrew, that do you think, uh, that, that path to profitability, the critical mass is like what, uh, uh, 80 or a hundred million gallon cells or that, uh, what, what is that number in your opinion when you're looking at your internal model?
spk09: Um, well, good question. And there's a lot, there's a, there's a little bit, a lot under that. I mean, cause as we go through, as we just talked about, uh, with our, you know, Amazon warrant charge and that sort of thing. But, um, I'll just say this. It's not a tremendous lift because you can start to do the math and say if you added 100 million more gallons at 45, 50 cents a gallon on a margin without expending a whole lot of other OPEX, you're dropping in another $50 million that puts us on the positive side. kind of thing. All right. We do.
spk12: Thank you.
spk01: Your next question comes from Craig Shear with Chewy Brothers. Please go ahead.
spk08: Good afternoon. Thanks for getting me in. I wanted to just dig a little bit into the EVA.RAM. First, for this year in terms of making up for the $10 million drag and mostly January, it sounds like pricing power on low gas prices that all things are many equal, you know, from here forward with, you know, LCFS and RENs, you know, who knows, uh, that, that that's just kind of a static situation where you have an opportunity. So if, if, if everything remained the same as it is today, Should we assume that making up that $10 million would be kind of ratably equal over the next three quarters if it happened versus rising over time? Or how do you see that progression?
spk09: Well, yeah, it rises. I mean, you know, the progression – our progression has – I said it would be – you know, our progression would be somewhat similar to last year, which was – It rises, but the reason it rises is because of volume. It's not rising because we're, you know, saying that LCFS is going to go 85, 90, 110. We're not kind of playing that math.
spk11: It's volume ramp. And it's Amazon station volume ramp. Other stations have come on. It's volume ramp. And it's always, and I know it frustrates some of you that want, you know, we should maybe, and we're working on, you know, maybe a little more clarity if you quarter over quarter, but, you know, we've always had, those of you that have followed us for a while, we've always had a ramp that starts a little bit low in the first quarter and then ramps as they take trash trucks and we finish stations, and it's always the case, and it'll be the case again this year.
spk08: I hear you. I'm sorry. Maybe I didn't ask clearly. The ramp in terms of volumes was always a part of the plans. but the January dislocation was not, and the very wide spread that you're enjoying between gas and diesel today is not. And so to the degree upside versus plan for the remainder of the year can make up for January, I guess what I'm trying to ask is, assuming, you know, I have no idea what the future is, but assuming all things remain equal, is there... there's no special reason to think that you're going to have a stronger upside versus plan in the fourth quarter than in the second. Is that a fair statement?
spk09: Well, I think we already answered and you said that wasn't the answer. It would be stronger because of the volume, but, um, but on a, you know, relative basis, uh, You get there – I mean, you're going to see the ramp, and you're going to see kind of the – well, we didn't see really any benefit, much of a benefit other than kind of in March in Q1, but certainly not at these kind of current prices. So all I can say is that you have the same ramp, but you have better economics than what we planned. Look, right? I mean, so.
spk11: So therefore, as the volume goes up, that's quite impactful.
spk09: Yeah, it does. As you get more volume at better economics, but those, the volumes, to your point, you know, that's in the plan, that's fine. But what's not in the plan is kind of the LCFS and the RIN and as well as the spread that we're seeing on oil to nat gas. I mean, those have profound effects. So if you just say, look, all else equal and lay in this new pricing, that's how you get there.
spk10: Fair enough.
spk09: You don't have to go through any other big hoops.
spk08: Let me pivot to the upstream. You announced a breakout, which was nice, of the two business lines in terms of the adjusted EBITDA. Assume that the RNG supply is merely an issue of fixed overhead on a burgeoning business that obviously is moving towards breakeven and positive EBITDA, but you've got these delays that you alluded to on these pathway issues. Could we reasonably expect your upstream business to be breakeven to positive by the first half of 24? Sure.
spk10: Yeah.
spk09: Yeah. I mean, yeah. I mean, there's ways that you, yeah, there's ways that you get there, which is by producing the gas and then there's economics on the gas and that's what gets you a breakeven.
spk11: Yep.
spk09: Yes.
spk08: Great. Thank you.
spk11: By the way, Matthew Blair may be gone, but the answer was in Washington in Q1, we did a couple million gallons and 50% of it was RNG.
spk01: Thank you. Your next question comes from Chris Sung with Weber Research. Please go ahead.
spk04: Hey, good afternoon, Andrew and Bob. Hopping on for great. Thanks for taking my question.
spk02: Hi, Chris.
spk04: Sorry, I just wanted to just dig in on the previous question, even on perhaps asking in a slightly different way. How did Q1 and Q2 so far compare to your internal expectations for last quarter? With negative margins, with the historic ramp in natural gas prices, higher volumes kind of hurt your full year EBITDA guidance. So I'm just wondering, was most of it Most of the $10 million hit, was it just on pricing or higher than expected volume for the quarter? And how does that fit in for the rest of your four-year guidance, considering that you guys are keeping it unchanged?
spk09: Yeah, the $10 million was really on the cost of gas. So you take that out, and then our quarter was within our plan. you know, all things considered. So there's kind of, there's volume and other margins and, you know, just all throughout. So, um, so we were kind of, we met our expectation other than, um, $50 gas other than the $54, uh, California gas. So, so, uh, right. So we feel, you know, we feel like, okay, well that was there, but you have a $10 million hole that you've dug. What does the environment look like today? Look, if nothing had changed, I'd probably have to say there, I would say there's, there's be hard pressed to say you're going to make up a $10 million hole, but things have gotten, you know, more positive than, than what we kind of laid out a couple of months ago in terms of what our, our assumptions were. So that's good for us. I mean, the environments, that's a good environment. We're, you know, just disappointed that we had to absorb, uh, what went on, which was, I mean, it, it, frankly, it was horrific. The checks that I was writing for gas bills was out of, it was just unbelievable. And, and our customers too, we had a whole campaign to, uh, to contact our customers because we have a lot of, uh, kind of pass through, uh, gas costs as part of the, uh, arrangement and, uh, And so we had customers that, you know, was going to get a bill from us that was seven times what they've seen in the past. And, you know, that adds, you know, ramifications all throughout. Are they going to be able to pay? I mean, you know, it was devastating to a lot of industry here in California.
spk11: Yeah, restaurants went out of business. I mean, there's a lot of impact.
spk09: I mean, we've seen some of the other groups in the alternative energy, the energy transition that, you know, kind of were fairly well, you know, kind of blown away. You know, a big part of their quarter was also this topic. So I feel like we financially, yet again, have weathered a significant storm. That's not just a little talking point and, okay, it cost us $10 million. It was that's a lot of money and it was huge. And, um, you know, and that's after we took prices up to nearly $8 a gallon compared to diesel at 599. Yeah.
spk04: Yeah, no. Right. And I, I kind of see it, you know, um, silver lining, right. It's, it's like the pricing with, um, sorry.
spk09: Yeah. Yeah. We, we, we, the silver lining, you know, I mean, I speak too highly of it because we've had a fair, we've had a fair, fair number of events, uh, you know, that we've had to weather, uh, in the first quarter. But, uh, right now the economics are, are, are good for us. And it, it looks good. I mean, that the 15 liter, the excitement about that Canada, um, uh, it, it looks good, uh, looking forward.
spk04: Great. And I'm trying to squeeze one more question. And I know we've asked about this in the past and it's always good to kind of check in. Is there any updates on the, rail or marine markets with respect to commercialization or timelines to commercialization for RNG and or hydrogen via RNG?
spk11: On the marine market? Well, the only update I would say is our second ship is being cooled down. It's not our ship. The second patient ship is being cooled down in Brownsville at the end of this week. And we'll then complete a sea trial and begin to move to the port of Los Angeles. So that's nice. Every time those ships, there'll be two in service later here in the next month or so. And they use a quarter of a million gallons of LNG on a round trip. So we like that. And the third ship should be here late 2023. No real, Chris, Now, I may be behind here. No real hydrogen or RNG going into shipping yet. Not as far as we know, but we are putting LNG in a few ships, and there are some other very large shipping lines that are out talking to us and others about more ships to be brought into the port.
spk04: All right. No, I appreciate the call. Thank you for that, and I'll turn it over. Okay.
spk01: Your next question comes from Nathan Gablein with Cohen. Please go ahead.
spk10: Yeah, hey, it's Jason Gablein from Talon, but all my questions have actually been answered, so thanks for the time, guys. Okay, Jason. Thank you.
spk01: There are no further questions at this time. I turn the call over to Andrew Littlefair for closing remarks.
spk11: Operator, thank you. Thank you, everyone, for joining us today, and we look forward to updating you on our progress next quarter. Good afternoon.
spk01: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
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