Greetings, welcome to Clean Energy Fuels Third Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now like to turn the conference over to your host, Robert Vreeland, Chief Financial Officer. Please go ahead.

Thank you, operator. Earlier this morning, Clean Energy released financial results for the third quarter ending September 30, 2019. 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-Q filed today. These forward-looking statements speak only as the date of this release. The company undertakes no obligation to publicly update any forward-looking statements or supply new information regarding the circumstances after the date of this release. The company’s non-GAAP EPS and adjusted EBITDA will be reviewed on this call and exclude certain expenses that 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.

Thank you, Bob. Good morning, everyone, and thank you for joining us. The adoption of natural gas is a clean transportation fuel continued into the third quarter of this year. Our volume grew a healthy 11% year-over-year to 102.7 million gallons for the quarter, the first quarter in the company’s history that we provided over 100 million gallons of natural gas to our customers around the U.S. and Canada. We saw increases on the core markets of refuse and transit as well as a very healthy bump in the trucking sector, driven by the Redeem renewable natural gas fueling deal we signed with UPS earlier this year. Our financial operating performance continued to improve in the third quarter as we were – we are delivering more gallons at less cost. Revenues of $74.4 million were slightly down from the same quarter of 2018 primarily due to lower revenues from our station construction business, which is very seasonal. Our third quarter adjusted EBITDA was up to $8.55 million with close to $100 million in cash. We believe our overall financial position is strong and it continues to improve. As I mentioned, much of our growth continues to be driven by the demand for our renewable natural gas product, Redeem. In addition to the UPS agreement to purchase the equivalent of 170 million gallons or Redeem over a seven-year period for their stations across the country. We have added additional customers seeking the superior performance in environmental qualities of a renewable non-fossil fuel at a competitive price. The city of Ontario, California signed a five-year Redeem supply contract for approximately three million gallons to help meet their sustainability goals. Ontario operates a fleet of 88 CNG vehicles, including their first powered asphalt patched truck. One of the largest street sweeping companies in…

Thank you, Andrew. It was another good quarter with improvements in our operating margins and net results on a year-over-year basis due to continued volume growth on lower spending, which has also allowed us to keep a good cash position and we remain on track to achieve low double-digit volume growth for the full year 2019. I’ll also point out our results improved despite low RIN prices throughout the third quarter. On our last earnings call, I noted there was a significant decline in RIN prices that began in June, which did not materially impact our second quarter results, but without any meaningful recovery and RIN prices during the third quarter; our product gross margins were lower by approximately $2 million. On the other hand, LCFS prices have remained at higher prices thus far in 2019 and we expect that to be the case going into the foreseeable future and the higher LCFS pricing is also beneficial to our BP earn-out that is determine to year-end. While we believe RIN prices will increase in due course, it’s likely RIN prices will remain low in the near-term, which will negatively affect our fourth quarter operating results by an amount similar to the third quarter. What helped offset the impact of the lower RIN pricing is our volume growth, our volume growth of 11% in the third quarter compared to last year came principally from CNG, while LNG volumes were slightly less than a year ago. We continue to benefit from our growth in the delivery of Redeem, even in a low RIN price market, particularly under our new UPS contract, as well as many other customers that are creating incremental demand for our renewable transportation fuel. redeem volume grew 32% in the third quarter to 37.4 million gallons versus 28.3 million…

Thank you. [Operator Instructions] The first question is from Eric Stine of Craig-Hallum. Please go ahead.

Yes. Hi. Good morning. It’s Aaron Spychalla on for Eric. thanks for taking the questions.

Hello, Aaron.

Maybe, first for us, you gave some good details, Andrew, on kind of testing and some of the funding in the ports. Can you just maybe, give us a little more detail there and maybe, size the opportunity for us over the next couple of years as we hit critical mass there?

Right. As I’ve discussed before, the port has, oh gosh, it’s somewhere between 12,000 and 15,000 trucks. And this Clean Air Action Plan is beginning to get phased in. They’re going through the sort of the final throes of the policy to decide on what the container fee will be, which goes into effect next year. And they’re doing those studies now. They’ve done some feasibility studies in terms of natural gas and electric, and as you could imagine, both natural gas and electric have kind of qualified. They’re trying to determine right now, they’re working – both ports are working with staff to try to figure out, just what is the container fee. This would be a fee, if you continue to operate a diesel truck rather than a natural gas or an electric truck that would be assessed on each container and it can range anywhere from $30, $35 per container, most trucks haul two containers. So it’s $70 a move. It’s important to note that these – that this fee is often is Walmart for instance, picking on them. They don’t want to pay that fee. They want the – they assume the trucker’s going to take care of that. So, we saw 10 years ago in the first rendition of this Clean Air Action Plan that the older, in that time much older, a diesel fleet was replaced. The fee necessitated that these truckers really had to get rid of the dirty diesel trucks and either add in that in those days, natural gas or a newer diesel. And at that time about 1,500 natural gas trucks, this is almost 10 or 11 years ago came into the port as did about, oh gosh, 8,000 to 10,000 new diesel trucks. And so we think that there’ll…

Good. Good. Thanks for the color there. We’ll stay tuned. Second from me, can you just kind of talk about, as we start to see more kind of clean fuel programs and LCFS programs outside of California, can you just kind of talk about the outlook to expand redeem into other markets?

Well, we’re in other markets and I’d look here to Bob if he knows off the top of my head. I’m a little – I’m thinking I’m right. I think we’re actually moving redeem right now in the 20 states.

Yes.

And so we have moved it. Look, we’re a little constrained still by supply. There’s a lot of supply coming on. now, this lowering of the RIN price hasn’t helped some of the new projects that we’ve seen, but there is, I believe that the industry had thought that there was about $2 billion worth of renewable natural gas projects across the country that were kind of getting ready to start this RIN pricing coming down from, gosh in the high, mid $1.50 down to $0.70 is made some of those go on hold. We think that those RIN prices, which has had an impact on us a little bit, I mean, not devastating, but it has made an impact. We’ll, as the RVO, the Renewable Fuel Standard volume commitments come into get finally set and maybe, some adjustments will be made. We think that the RIN pricing will move up again. And a lot of these projects will kind of go from all yellow light and begin. But there’s a lot of projects around the country and so there’s more supply coming. And importantly, there’s – we’re starting to see the first, and there’s a lot of talk about dairy farms. Everybody’s talking about renewable natural gas coming from dairy farms. And that’s really important, because it’s so powerful, because it’s so clean. It’s so low on carbon. today, we’re at 70% less carbon, gosh, when you get to using dairy fuel, dairy farm fuel, gosh, it’s like 200%, 250% less. So, it’s very – it’s very powerful. We’re just seeing those dairy projects coming online and it’s really going to be the future and it’s very exciting, because it really makes our fuel very clean. I mean, dramatically cleaner than electric. And when you couple that with the low NOx on the 12-liter engine, which is 90% less NOx, and then you put it with dairy fuel or renewable fuels is not possible, I mean, it’s strong. And so we’re seeing a lot of that. Eventually, you’ll have another couple of billion gallons of RNG move into the market and then the 20 states will grow. I mean, we’re already moving RNG to Republic and lots of different parts of the country of Republic industries, the number two refuse company in the United States and in many states. So, we think it’s the future. We’re well positioned on it. It gives natural gas a leg up, because it makes it a renewable fuel and you can blend it or use it all together. All of our stations in California are using renewable natural gas.

Right, right. Okay, good. Thanks for the color and I’ll hop back in the queue. Congrats on the quarter.

Okay, thanks.

The next question is from Rob Brown of Lake Street Capital Markets. Please go ahead.

Good morning.

Good morning, Rob.

Good morning.

On the redeem ramp with UPS, could you remind us again, where that’s at? how much further to go there?

Well, it started up pretty strong and I think we are at 18 million gallons or so for this year run rate, but then it picks up from there. Am I right?

Yes, yes. So, it was – we started – the ramp – the ramp in this quarter was close to a full ramp.

Yes. Yes.

On that, so we kind of started in, I believe it was April.

Yes.

And so this third quarter, we’re kind of fully there, a little bit of ebb and flow, but frankly, it’s flowing.

Okay, great. And in the Zero Now program, you listed a number of trucks I think or 300 that are sort of being ordered. What’s the latest in getting those orders in place and heading into 2020?

Well, those orders, I mean, you knock on wood as unless something happens here. Those orders are in, I mean, are going in right now. So, I think you can put those in the bank, Rob. So, we’re seeing a pickup. So, those are – in addition, those are new since we talked about it and we haven’t announced those. We’ll give more color. Some of our fleets don’t allow – don’t like us to announce these things until they’re good and ready. And I understand that they see as a competitive advantage, but we’re beginning to see pickup. I would say that, what’s important and the way I looked at this, this – the whole Zero Now took a little bit longer than I would have liked. There was a little bit more education, when we kind of roll back a couple of years ago, when we had the decline in oil price, people stopped looking in natural gas for a little while, because the economics got a little bit more challenging. We had to then come back and make sure they understood now this new engine. This new engine has performed really well. It’s lower NOx and we had some work to do to make sure everybody understood that it was the second generation engine and that it had increased testing and that it was very reliable and we feel good about that, Rob, what I think is important for the people on the call to understand is, we kind of went from a period of getting people to try five trucks. Now, this 200 truck order, that’s a big order. And as I mentioned in my remarks, the UPS announcement didn’t participate in our financing of the Zero Now, but we are of course, selling them, an…

Okay. Okay, great. And then how do you see volume growth shaping up into 2020, I think you said double digit this year. How is next year kind of looking?

Well, I’m not going to say that right now, Rob, but I would like to think that the benefit that we’re seeing now from Zero Now would grow in 2020. I mean, we’d like to think that this market is often running. and so I would hope that we’re going to see an improvement next year on the trucking side. I mean a lot of our business is growing well, right? Our refuse and our transit, but there’s sort of limitations in that business, but it has been growing at about the double digits. Trucking has an ability if we get the acceptance and the adoption like we’d hope, and we think we’re seeing, it can come up way above that and get into more significant volume growth and that’s what we’re hoping for. And we – at some point in the next quarter or so, we’ll give some a little bit more color about what we see. I would think though it should be stronger unless something happens to the economy or something else, it should be stronger than it is this year.

Okay, great. Thank you. I’ll turn it over.

Okay.

The next question is from Pavel Molchanov of Raymond James. Raymond James, pardon me. Please go ahead.

Hey guys, good morning. This is Muhammed Ghulam on behalf of Pavel Molchanov. Thanks for taking the questions.

Hi, Muhammed.

So, let me start by asking a thematic question about Canada, now that Trudeau has been reelected. We know that the carbon tax is going to remain in place. I’m curious, in that context, do you guys see any upside for demand from the Canadian market?

We do. We finished a few stations up there on that important corridor that one of those stations outside Ontario is loading now. They have a couple of programs that are beginning to be put in place that are grant programs that I think move to some – moves significant volume. And so we’re feeling good about Canada. Canada took an early lead in the natural gas vehicle program years ago, and then it kind of went into about a 10-year sort of hiatus and it’s back, and we’ve added some stations along that corridor. And so, yes, we’re feeling pretty good about what’s going on in Canada.

Okay. A similar question about Oregon and the Low Carbon Fuel Standard, obviously much linear program than California, I’m curious, do you see any demand based on that?

It’s starting and it’s smaller. We are selling some fuel up there. I don’t know off the top of my head exactly, what percentage of it is, but it’s small. I think Washington’s coming on board as well. So, there’s been talk about this in New York State. I don’t know exactly, where that stands right now. We’re a little limited on some RNG supply right now and a lot of it wants to find its way to California, because of the advantageous Low Carbon Fuel Standard. The Low Carbon Fuel Standard has worked and it’s created a lot of supply that’s looking – that’s moving to do right now to California. But I think these other states, as you mentioned, Oregon and others will the state’s not as big and the fleets aren’t – there’s not as much up there, but that it has a way of stimulating the growth of RNG. No doubt.

Okay. That’s all for me. Thank you.

Thank you, Muhammed.

We have reached the end of the question-and-answer session. And I will now turn the call back over to Mr. Littlefair, President and Chief Executive Officer for closing remarks.

Thank you, operator. We’ll – we want to thank everyone for listening in the call this morning and look forward to updating you on our progress next quarter. Have a good day.

This concludes today’s conference and you may disconnect your lines at this time. Thank you for your participation.