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Presentation

Operator: Greetings and welcome to the Clean Energy Fuels Fourth Quarter 2022 Earnings Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Robert Vreeland. Thank yoi, you may begin.

Robert Vreeland: 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 risks, uncertainties and assumptions that are difficult to predict. Words of expression reflecting optimism, satisfaction with current prospects as well as words such as believe, intend, expect, plan, should, anticipate and similar variations identify forward-looking statements but their absence does not mean that the statement is not forward-looking.

Such forward-looking statements are not a guarantee of performance and the Company’s actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in the Risk Factors section of the Clean Energy’s Form 10-K 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 8-K today. With that, I will turn the call over to our President and Chief Executive Officer, Andrew Littlefair.

Andrew Littlefair: Well thank you Bob. Good afternoon everyone and thank you for joining us. We are continuing to make excellent progress on the execution of our RNG business strategy over the last quarter. With our investments and renewable natural gas facilities and new stations we expanded our leadership position. Clean Energy remains the largest supplier of RNG uses of transportation fuel in North America. In the important California market more than half the RNG use of natural gas vehicle 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 investment 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 a 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 EBTIDA 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 environmental credits of California’s low carbon fuel standard program or LCFS federal wins program. The LCFS credit prices decline almost 60% over the course of the year and it was just too much to overcome in the fourth quarter. Also, the worldwide of 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 the approvals with several stations behind our initial timeline for completion. We believe we 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’re 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, the 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 places. And another step to position us for future growth we secured $150 million sustainability link 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, TotalEnergies 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 ground breaking in 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 8000 dairy cows is now being injected as renewable natural gas into the pipeline.

That capacity will flow at a rate of 140,000 MMbtus, 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 viewing solution comes close to the negative CI scores that RNG produced at agricultural facilities we see.

And the beauty is that RNG 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 have 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 bi-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 fleets 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 as 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 will be supplying them 20 million gallons of RNG annually for the bus fleet.

Our relationships with refuse customers continues to expand during the quarter with new contracts with Athens Services, Burrtec 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 calm, one of the largest developers and owners of dairy, RNG production, and our growing our leadership position in the distribution of RNG. Thank you for your time today. And now I’ll turn hand the call over to Bob.

Robert Vreeland: 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 gap loss of $93 million. Our adjusted EBITA for 2022 was $50 million versus $57 million in adjusted last year, which last year included $4 million of earnouts 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. 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 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. LCFS prices have gone up recently, so a little later than, 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 $1 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, knowing 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-10K that we filed today. We made this change in the third quarter on our in our 10-Q filing, where we separated fuel volume volumes and the O&M service volumes. And we enhanced our revenue disclosures around our volume related product and service revenues.

So 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 there. 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. 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 the those revenue increases.

We reported a GAAP net loss of $12.3 million in the fourth quarter of 2022 compared to a GAAP net loss of $2.4 million in 2021. On a non-GAAP basis, adjusted EBITA for the fourth quarter of 2022 was $12.6 and adjusted non-GAAP net income was $2 million that’s for the fourth quarter of 2022. This compares to adjust the dividend of $18 million and adjusted non-GAAP net income of $6.4 million 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, however, our spending on growing our RNG business was higher in 2022. As expected and planned and as well, as I mentioned, 2021 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 31, 2022 we had contributed — we have contributed $178 million into our RNG supply joint ventures with our partners TotalEnergies 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 GAAP 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 GAAP revenue. That’s net of around $66 million and these incentive charges. Our 2023 outlook reflects continued double digit fuel volume growth in the range of 15% to 20%. And 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 2022 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 our 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.

And that’s at the core business of Clean Energy. We may also contribute up to $40 million more into our RNG 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 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 tailwind from the inflation Reduction Act, and the end of the forthcoming launch of the Cummins 15 litre engine and just frankly the continued demand for this very low carbon fuel of RNG.

With that operator, please open the call to questions.

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Operator: Thank you. At this time, we’ll be conducting a question-and-answer session. Our first question comes from Manav Gupta with UBS. Please proceed with your question.

Manav Gupta: Good afternoon, guys. I first want to 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? In 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.

Robert Vreeland: Correct. Okay, I’ll address that. You’re correct. And I’ve actually, we’ve, even a year ago, we kind of we contemplated 2023 would be minimal, minimal contribution. So we will be flowing gas in a number of projects. But there’s time between flowing gas and, and revenue recognition, which has to do with the whole, 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 2023. And then we’ll see how 2024 kind of shakes out and just, for sure, as we go into 2025, and 2026. And, there you start to get into the inflation Reduction Act and contributions that could happen there. So that’s why, but then I’ve also say, a big part of, of the, the forecast being kind of flat, as well, as is the credit price deal.

We going into the fourth quarter, we felt that there would be more information about, kind of a pathway forward, if you will, particularly in California, but we also knew the rim, 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, try to predict exactly when that will turn around. We’re more bullish on it and know that we believe that it will. But, we’re, that’s just a big part of the flatness because we’re kind of assuming, fairly recent credit prices stick around. On the dairies, yes. On the dairies, look there, probably nine of those are our wells, 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 maybe four or five in 2023. But again, you’re not really seeing EBITDA. But which is okay, it’s, that’s a long time, and we’ve recognized that, but, we’re also very mindful of the execution on, operational execution on these, which is going 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 finally start injecting gas into the commercial pipeline at one of our dairies. So that’s one of the keys as well as getting those things running

Manav Gupta: Bob my quick follow up here is, if I remember correctly, and let me know if I’m wrong. But last year at the RND 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 into develop this RNG 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?

Robert Vreeland: Well, I think Manav, of course, the ITC will, will apply, they will reduce our capital by 30%. Now, that tends to flow in a year after but I mean, no, that’s real. And so it will lighten the capital load by 30%, our projects will qualify. And you’re right. That is the scope of when we looked at, well, we talked about a year ago, to get to the roughly 100 million gallons of our own equity, projects, equity, RNG projects, 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, there are a lot of opportunities, a lot of projects still to come. We feel good about the projects 13 that we have underway, which, if you look back 18 months ago, we’ve we move quickly.

There’s, we have a robust pipeline of more projects, we haven’t lost any, through all of it, even with the reduction of the of the credit price, we haven’t lost any enthusiasm. We what, what we try to stay focused on here. We have the lowest carbon fuel that’s commercially available today in the world. And there’s a lot of, there are a lot of regulatory policy, folks speaking and 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 what we know is we have a really low carbon fuel that can be used today that can be disseminated in a nation’s pipelines now. And when we look at that fuel, and we compare it to the other technologies that are available, that 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, continue to do things to move along that pathway that we all talked about a year ago, because we haven’t lost any interest in that.

Manav Gupta: Thank you so much for that.

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

Rob Brown: Hi, Andrew and Bob. Just wanted to double check, did you say 350 million of revenue next year, was that the fuel volume revenue or the total?

Robert Vreeland: That was total. That’s net of just, put it out there. That’s net of about $66 million in, non-cash incentives.

Rob Brown: Yes. Kind of just say, yes. Thank you. And then I know, you get some color on the Amazon station activity. How many stations do you sort of plan this year? And I guess, maybe, where’s the uncertainty on getting some of those things open? Are you still seeing the permitting delays? Or is that sort of started to be worked through?

Robert Vreeland: Rob, we — what we’ve announced — I have to be careful with my friends there. They don’t want me talking too much about what we’ve previously announced. So we made an announcement that we would develop 19 stations for them. So we’ve — maybe you can slice and dice this number all out. We build — we built and opened 4 of those. So you can assume that the remainder of that, for the most part, will come on in production in 2023. So we’ve got a lot underway and in various stages right now some of those will be finished right toward the end of the year, October, November time line. But there will 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.

We’ve built — building stations is not new for us, right. In our history, we’ve built close to 750 station projects. We actually — we — one year, you 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 to us. What has been a little challenging is Greenfield locations, right? So you’re building took 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, entitlement is 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 6 months to a year. So we have a lot of these projects we’ve been working on now for quite a while.

And then the permitting the construction part of it is not anything that’s much different than what we’ve always seen, which is 5 to 6 — 5 months. So a lot more to be done this year, and we hope we’ll just continue on that next year as well.

Rob Brown: Okay, thank you. I’ll turn it over.

Operator: Our next question is from Eric Stine with Craig-Hallum. Please proceed with your question.

Eric Stine: Hi Andrew, hi Bob.

Andrew Littlefair: Hey, Eric.

Eric Stine: 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 down a little bit, 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. 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, how do you expect to start the year? And then maybe for it, how it plays out for the remainder of the year?

Andrew Littlefair: Rob, when you were we’re assigning all about getting on here in a second. But when you’re assigning the, the, the EBITDA and what, why that why that is, where we’re guiding to. Look and it may kill me here. But if you went back to credit prices of last year, you have 90 you that 44.5 million of EBITDA. So we’re trying to be responsible by not trying to project, get over our skis on projecting what’s going to happen in the LCFS. 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, the LCFS price is up.

So we actually thought that was supposed to happen, was supposed to happen back in November last year. So it happened now. So, we’re, we’re mildly bullish on what’s going to happen with the LCFS. And we certainly are in the medium term, that probably the more 24, 25, but it’s not the fact that the RNG projects, are not on production yet, because we always, we always knew that those would come on and really contribute in 24 as most to do with the credit prices. Bob, now you might pick me up here on that.

Robert Vreeland: No, I agree there. Eric you asked about the linearity versus. Yes, I mean, it’s versus giving guidance.

Eric Stine: It’s Q1.

Andrew Littlefair: Yes, exactly. Look, here’s — well, last year didn’t bode too well without a little bit of linearity. But I would say that we’re talking about it. So I’m going to say that there’s a little bit of similarity between the years where historically, Q1, we’ve — just a little bit of a slower quarter. And then as we talk about completing stations, they’re not all going to get done here in March, kind of thing. So that plays into increasing volumes throughout the year. And you are correct Eric, it is interesting. I’ll put the little caveat out there. California did have a huge issue with natural gas prices in January. Like more, I noted that natural gas prices doubled in December. So they went from like $7 and end to $15 and that’s about $1.

And then they went from 15 and end to $50. So 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 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 was — that’s something that — 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 — those are the types of things that we had some headwinds 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 have 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, all of that is temporary volatility. So I mean, our view is long on this solution and the fuel. And we’ve got projects being built out and so we’re in this for the long haul.

Eric Stine: Got it, that’s helpful. And maybe just turning to 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.

Andrew Littlefair: 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 1.5 million to 2 million gallons 2.5%. Now we have one underway in Idaho right now. It’s really big projects, $5 million. But let’s just say $2 million is a good number. So you could see that we’ve got many more projects 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. And 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 — we’re talking to and treating paper with. So I think we’ve always sort of said that you’d be in the 35 to 40 projects before this is — before we realized what we laid out for you last year.

Eric Stine: Okay, thank you.

Operator: Our next question is from Matthew Blair with Tudor Pickering Holt. Please proceed with your question.

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

Robert Vreeland: Matt, I would say there’s, yes, a little bit of that. I mean we’re in a little bit of a different world than we were at the beginning. Look back to January 2022, credit prices were extremely high and we just — the world was in a little different place. And so I think that — I mean, for sure, the lion’s share of it is just simply an assumption on credit prices, that’s huge. The other gap there is what I’m going to say, nothing notable other than a little here and a little there, and kind of as your environment changes, you give plans change. For us, as usual, I really feel that it’s kind of timing related of when the volumes come on is the biggest piece. It really is. And so it’s not if, it’s when and just how — we’re always constantly trying to get engaged when will the trucks show up at the fueling station, going through the buying cycle and the adoption and all of that and getting it there.

And as things move and look, moving out stations, these varies. When we open up stations because we’re — they’re 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 — 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

Andrew Littlefair: I think, Matthew, probably, if you were to go back and look at look at try to piece it together, and of course, obviously it was just giving you kind of back a lot more of that gets you to close to 95 or 100. It’s timing, it’s timing on the projects, right. We probably realized today these projects take a little bit longer to come on production, then, we thought year ago.

Matthew Blair: Okay.

Andrew Littlefair: The other thing, and I don’t want — let’s not go down this too long, but there’s sort of — there is some good news in here, right? I mean when we were laying that out for a year ago, we didn’t have the IRA. We didn’t have an ITC and we didn’t insure didn’t have a producer…

Robert Vreeland: Production tax credit.

Andrew Littlefair: Production tax credit. You lay that in and put any kind of number on it that has been banned about in ’25, ’26, those are really big numbers. So it also are going to work out — it’s all going to work out here in the wash. I mean, in those numbers, when you put play $4, $5 or $6 or 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.

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

Robert Vreeland: Correct? Well, yes, and it wouldn’t necessarily mean ITC is more of an investment tax credit, but yes, there’s no there’s no IRA number in the $50 million to $60 million.

Matthew Blair: Great, thank you very much.

Robert Vreeland: Okay, you bet. Thank you.

Operator: Our next question comes from Greg Wasikowski with Webber Research. Please proceed with your question.

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

Andrew Littlefair: Well, let me hit some of the broad strokes is we still see the need almost exactly the same as we did. So the 2026 number of four — I don’t have firmly 459 whatever the total was, we still see that. We still see the third party 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 the RNG dairy in our account and our partners account, we haven’t come off of that. Now, I think it may be that, 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, is the credit prices that we use back then are different. So we all have to employ our best thinking on those credit prices, we have to believe that, that by the time you get to 24 and 25, the credit prices will strengthen substantially.

And then, of course, we like some of the some of the benefits that we received from the IRA, certainly, the production tax credit, is very meaningful out there as well. So we haven’t really, pivoted in terms of saying, oh, what, let’s not, 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 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, in the scheme of things, when you start when you have 30, 35 projects, underway, the it’s, I don’t know how meaningful that is. And then if there’s an impact, it could be late, late 23, 24, early 24, but I think it’s generally going to hold in pretty well.

Greg Wasikowski: Okay. Yes. Go ahead Bob.

Robert Vreeland: Oh, well, yes, I look, I mean, may have said the same thing. But so it gets tempered a little bit. But then frankly, we have, we have tailwinds from the IRA that come in there. And, and really help that, and really help that out. Because you can, you can look at a model like that, and simply change a credit price, and the numbers would go down. I mean, I can tell you the math on that, if you, if you take the if you take the if you take the LCFS from, from 185 to 100, 62, it’s going to go down. Now, we don’t believe that for that five year period, although our partners, by the way, yes, so maybe there’s a little temperament there. But then we also didn’t plan in 2025, for production tax credit to come in, as well. So, we’re always kind of back in. So I think that, in general, the shape of the curves and potential out there is still there.

Greg Wasikowski: Okay. I’m not going to ask you for exact numbers. But is it fair to say then that when we look out into 2025 and 2026, the delta between your revised estimates for those years is smaller than, looking at 2023. Kind of rate front of us right now. Is that fair to say?

Robert Vreeland: Yes, that’s fair to say.

Greg Wasikowski: Okay, that’s helpful. And then one more if I could just, I think it was mentioned in your prepared remarks about competition for the Amazon sites. Can you maybe elaborate on that a little bit more things, things outside of just permitting. What competitive forces for MLA and whether that is decided?

Andrew Littlefair: Greg again, if what I competition maybe you thought of competition to build natural gas and RNG fueling, that’s not the kind of competition. This is just pressure on real estate competition.

Greg Wasikowski: What kind of scarcity as to the type of property.

Andrew Littlefair: And what kind of properties cities want in their city?

Greg Wasikowski: Okay, okay. So, though it’s not, it’s not others kind of doing this. Not others to do the same thing that you’re doing. It’s just, different uses for the land in general.

Andrew Littlefair: Exactly, exactly.

Greg Wasikowski: Got you. Okay, cool that’s helpful. Thanks a lot guys. I’ll pass it on.

Andrew Littlefair: Yes, you bet. Thank you.

Operator: Our next question comes from Pavel Molchanov with Raymond James. Please proceed with your question.

Pavel Molchanov: Thanks for taking the question. I know you are 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?

Andrew Littlefair: Yes Pavel, what gives us the confidence on it is that the low carbon fuel standard 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, 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 can ratchet down the supply the compliance curve. So you could kind of theoretically go from 30 to 32. So I think all of that is you’re going to need all the RNG you can get. So I think you’re going to be back in a much more supportive environment for increased price.

Pavel Molchanov: Okay, let me ask a similar question about RIN, 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?

Andrew Littlefair: Yes, I, Pavel I actually think that 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 so largest organizations that the EPA listens to, the renewable fuel Association, the AFPM and API and the NG €“ 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, specifically as we look at it Pavel, the way they kind of engineered the equivalency of how they would have credits, what kind of level of credit you would get, depending on where you put your fuel and where, frankly, VP, one fuel?

I don’t, I don’t think that’s probably going to end up being the way it’s going to gain enacted. The idea that they kind of jury rigged the math, to create RINs 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 I don’t — I don’t think that that’s going to end up being the case. And I think was almost just too much, it’s just going to fall Pavel under its own weight. It’s too obvious. And the move in the origination from the producer at the — that the other day Pavel, I was with the chairman of the Agriculture Committee and a member of Congress who have his own dairy farm and happens to have RNG digester out his dairy farm in Central Valley, California, we’re standing on the bladder, on top of the on top of it, and 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 to the Congressman whose dairy farm it was and I say, can you imagine that the EPA has proposed that the generators no longer Congressman valid Dale, and it’s no longer they’re not the generator here at the dairy farm. They’re going to pass that on to the to Ford or to someone making electric vehicles in Detroit, or Elon Musk. And he said well you got to be kidding me. I was asking how can that possibly be. So that’s just another example of, of what was going on in this deal. And I just don’t think that’s going to all is going to end up being enacted that way at all.

Pavel Molchanov: Appreciate the color on that.

Andrew Littlefair: I think what’s going to happen Pavel is you’ll see, perhaps they’re under obligation to enact the RVO 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. The eRIN to be able to make that day. And so, wouldn’t surprise me that the eRIN maybe gets delayed some and re-styled some and that they go with some other kind of RVO in June. So we’ll have to see.

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

Andrew Littlefair: We do. But a little bit. We have several customers. I’m looking at one of my guys, Oregon, Oregon, for sure. Not quite yet, but we will there but Oregon program. better prices are working are nice, but we don’t we don’t do a lot of people up there yet about I think we have four or five customers right now.

Pavel Molchanov: Okay. Thank you guys.

Andrew Littlefair: Okay.

Operator: Our next question is from Craig Shere with Tuohy Brothers. Please proceed with your question.

Craig Shere: Good afternoon, thanks for taking the questions. So I obviously, neither carb nor the EPA wants these programs to implode. So I just 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 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, the carbon reduction, track versus tweaking the market? In other ways?

Andrew Littlefair: Yes. Well, Craig, look, I think, I hope, what I’ve been trying to say on this call was that I’m actually somewhat optimistic of the way both these programs are going to end up. And it hasn’t helped. As the markets watch this kind of making a sausage and regulatory proclamations and staff workshops, and all, that’s kind of can be a little bit of a unnerving. And frankly, he’s done that to the credit prices in the latter part of the year. But I’m kind of, I think, on 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 and governments do from time to time.

And not always, well, well guidance, certainly often not, market. I think it’s beginning to but having said that, if you if I if I look at California, but what overpowers some of these micromanaging of West lines in the sand and the West and pathways and look 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 that they know the program works, they know that half the dairies 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’s — it works other states it works. The governor of the state no, Governor Newsom, he knows it works. So the last thing you want to do is kills a golden cow if you will.

So I think what you’ll see is what kind of overpowers all of those, 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 suggests that there’s no better time to do it, you’re going to need all the RNG and a lot of these, 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, I’m an optimist, but I feel actually that that is headed 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. For the federal government to decide that they, they want to decide where this fuel should go and jury rigged the math on generating returns 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, because interesting, we should tune in tomorrow. There’s confirmation hearing by the cell in charge of this program. At the EPA, who’s in charge of the Office of Air Radiation, he’s trying to get confirmed tomorrow. And I’m sure these kinds of 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 it’s 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.

Craig Shere: That’s helpful. And you’re talking about finishing up the 19 stations for Amazon. I guess, do you require similar massive, fueling, fleet fueling agreements? Or, 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 litre engine, and so you’re, you’re just going to get going to have more open access and just keep going.

Andrew Littlefair: Well you just keep going. And look 19, I hope there’s more beyond that with Amazon, right? There can be many more just with Amazon alone. But like we’ve once said, Look, we’re not just a one trick pony, in terms of just Amazon I mean I’ll go work at the bulk largest trucking fleets. And we have a I, we are really focused on the these 40 sort of household name largest fleets that are working right now with Cummins, as they introduced the test vehicles for these next four or five, six months. And then we hope as they order the order book sometime in 2023 on the 15th later. 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 — 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 we would be thrilled to work with the some of these very large fleets to do what we’re doing with Amazon. And I’m sure that’ll be the case. Now for instance, for instance, Craig, I don’t know how it all pan out. So I’m just giving us just, I’m speculating, just kind of, for fun. I mean, look, we know Walmart’s testing the new Cummins 15 one. We know Werner, I would love to be the fuel partner when using RNG for those kinds of fleets. And there’s a bunch of them.

Craig Shere: And last one for me, to the degree there’s widespread adoption, and these these fleets want to drive, lower carbon fuel and others geographies nationwide, not just California or Oregon or what have you. Do you think that there’s increasing multifocal pressure on two or three or four more states to come up with these types of programs next two, three years.

Andrew Littlefair: Yes, I — that was part of your question. I wrote them down here. I wrote down in New York, Illinois, New Mexico. So there will be other states. I think New York’s pretty close. And Illinois has, I think, introduced it. We’ve got some work to do in North Carolina, you’ll have other states. There will be some that won’t go. But you’ll have you’ll have other states do it. And I think New Jersey wants to New York goes you probably get New Jersey and the other, the others in the area. So yes, they should. And Craig, if California does something to louse up their program, they will.

Craig Shere: Got you. Okay. Thank you for those insights.

Andrew Littlefair: Okay, thank you.

Operator: Our next question is from Paul Cheng with Scotia Bank. Please proceed with your question.

Paul Cheng: Hey, guys, good afternoon. It’s pretty late. So real quick. There’s some discussion, I think California may want to change the way no longer keep LCFS credit to LNG and net it prove 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 yet if it does get passed how does that impact your credit, your operation? I mean, what percent of your projects that currently under construction will list realistically that you will have the pipeline connection all the way to California? And also, how much is your LNG sales that currently from the third party, you will be able to do that? Thank you.

Robert Vreeland: Yes. Hey, Paul. Yes, I mean, I think that’s, I mean, it’s kind of around the book or claim book and claim and where the — where they’re going to require us to physically move gas in to do that. And, I mean, first we don’t, we think that’s yet to be determined. So we’re not really moving around to try to accommodate that now. In some sense, I think there’d be some cost. There’d be some cost added, but it’s not, one of the beauties is we’ve got pipelines, and we already have. We have certified pathways. So we actually, we do have to be able to get gas from the, from the farm to the dispenser in San Diego. I mean, it has to be able to go there, what we talked about, and I mean, but it’s a little tricky, right?

Because once it goes once methane goes into the pipeline, it’s methane is kind of indistinguishable. It’s like putting $1 in the ATM. I mean, you go take it out. It’s not the same dollar, but it’s the dollar. So that’s, but look, however, we would have to track molecules. I think you’d add a little cost, but it would be done on either way on and above. I mean, just I mean, that, that there’s discussion and they wouldn’t allow you to do use the current book and claim that you have to pay for the essentially the transportation. Right. And that’s not, that’s not a deal killer, Paul. I mean, 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 faceless 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 it just, I just think that when cooler has looked at something, I don’t see that. And, but if it were to happen, as they discussed in some of these workshops, there would be an extra cost to it, but it’s

Andrew Littlefair: We can accommodate. Because I mean, we certainly are pathways. We have now the connectivity all of it. It’s the — all that work. And that’s a lot of work. And it’s time consuming.

Robert Vreeland: But don’t, that’s not in for.

Unidentified Analyst: Sure. Just trying to understand that what is the kind of impact, any rough estimate and what’s the incremental costs for you guys?

Robert Vreeland: I don’t know. I don’t know. No, but I mean, if you’re getting into kind of transportation costs, you’re kind of dollars on the MMBtu kind of thing. So our guys know it. See if we can get it for you, but I don’t know.

Andrew Littlefair: Yes, that that would be great. We’ve been asked by someone telling you.

Robert Vreeland: I’m busy fighting it, so I’m not worried about, I’m not worried about paying it. So don’t put me down to the fight.

Paul Cheng: Sure. Then my final question is that just a simple accounting question. On the €“ we are talking about that credit reduction, the capital reduction, say 30% or so, accounting wise how does it work? That I will imagine in your cash flow statement, your CapEx numbers still remain the same. You are just receiving the tax credit and or check from the government and showing up way?

Robert Vreeland: Yes, well, it’ll reduce the basis in our €“ it will reduce the basis in our asset. So it will, it will lower, it will basically lower the value of what we have capitalized. So if you’re going to 100 million and you get your 30, then you’re going to kind of end up net with a $70 million asset there.

Paul Cheng: No. But I guess my question is that from an accounting standpoint, when we’re looking at your 10-K on your cash flow statement, let’s say, if you suppose to have $200 million on the CapEx in 2026, and let’s assume that in 2025, you spent $100 million, 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 so 170.

Robert Vreeland: It’s going to show gross.

Paul Cheng: Okay. And then just $30 million, and that way, it’s going to show up in the cash flow statement.

Robert Vreeland: It’s going to show up in the investing section.

Paul Cheng: Okay. Thank you. You’re proud of yourself, aren’t you Bob with the accounting?

Robert Vreeland: Yes. I’m doing what I think is conservative or what the FASB would want me to say. Thanks, Paul.

Operator: Our next question is from Jason Gabelman with Cowen. Please proceed with your question.

Jason Gabelman: 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, your RNG production could be pretty high. If it’s not, if the credit isn’t kept, can 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 dollar per margin excluding any of the credits? Thanks.

Robert Vreeland: Okay. Andrew, do you want to talk about the PTC.

Andrew Littlefair: Jason, it’s a good question. That as you point out, that — the production tax credit has not been promulgated. It hasn’t been adopted by the treasury department by the Treasury Secretary. And I’ve been told our folks here, let’s be careful. We don’t know how that’s going to come out. And we don’t know — it appears on its face as the law has suggested that it would — it could be a rather big credit based on the carbon intensity. And I’ve seen estimates between $5 to $6. But I also know that’s a big number. And Jason is the first time we really heard anybody ask us maybe because you and I talked about it before something, but whether that it could be capped. But 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 want to be careful how much you cap it because then it works against what it was designed to do. But could it be? Do I think it will? I don’t know that. I’m not sure it would be, but it could be. Have you heard something, Jason?

Jason Gabelman: No, no. I was saying if you did. I have not heard anything

Andrew Littlefair: I also know politicians, someone says, oh, that’s pretty big that. 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. And because it’s so low carbon, so. So we’ll see how that goes.

Jason Gabelman: Yes.

Robert Vreeland: Jason, on your second question, by the, 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 you just 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, figuring out the product cost of sales and coming out to your $0.04. 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 Amazon incentive number is. Right, because that that nets that it nets down the revenue, and then your cost is kind of the same. And so, your margin gets a little skinnier as a result of the value of that.

And if and whether you want to have that in there or not, is up to you. But I can say that, the value of that charge was 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. But then I will say, yes, there, Q4 was impacted, certainly by the doubling of natural gas costs in California. And 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 say that dissipated, we’ve kind of righted itself. But I already know in January that cost went from $15 and then to $50. I don’t know if any of you 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 and how we’re managing 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 at the pump, totally to accommodate that. We don’t always do that because we’re mindful of our customers wanting that, to enjoy the spread in the pricing. And so we don’t always jump out there and do that. Right away. We did. So anyway, I think your $0.04 is influenced. 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.

Jason Gabelman: Thanks.

Operator: 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.

Andrew Littlefair: Great. Thank you. Thank you, everyone for joining us today and we look forward to updating you on our progress next quarter.

Operator: This concludes today’s conference. You may disconnect your lines at this time. And we thank you for your participation.