Greetings, and welcome to Clean Energy Fuels' Second Quarter 2020 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Robert Vreeland, Chief Financial Officer. Thank you. You may begin.

Thank you, Operator. Earlier this afternoon, Clean Energy released financial results for the second quarter ending June 30, 2020. 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 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 excludes 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.

Thank you, Bob. Good afternoon and thank you for joining us. As the world continues to adjust to a pandemic that has stubbornly held on longer than we had hoped, Clean Energy's business of fueling thousands of buses, trucks and other fleet vehicles every day has remained healthy. Also, we have not slowed down our pursuit of new customers, adding additional gallons and expanding the use of our Redeem renewable natural gas during these uncertain times, which I'll expand on in a moment. But not unexpectedly, our volumes of approximately 90 million gallons in the second quarter of this year were 10% lower compared to the same quarter last year due to the overall economic slowdown caused by the pandemic. We are seeing lower volumes in primarily 2 sectors, public transit and especially airports, which have been significantly impacted by the lack of air traffic. The slowdown impacted our revenues in the quarter, which were approximately $60 million, down 17% from 2019. But we continue to retain a healthy balance sheet, with an adjusted EBITDA of $9.2 million for the quarter, an improvement over last year's second quarter, leaving us with $96 million in cash and investments and only $37 million of debt. For those of you who have been following us for a while, you know that we substantially lowered our overhead the last few years and we now have a disciplined, low-cost expense structure. Because of that, we are able to maintain healthy, positive adjusted EBITDA even with the drop in the transit and airport fleet businesses. And at some point, people will start flying again and public transit will resume to more normal levels, whether it be in a specific region of the country or nationwide. Until they do and while our nation recovers, we have a…

Thank you, Andrew. We ended the second quarter in solid financial shape, having generated $54 million in operating cash flow during the quarter, with only $2.7 million in capital expenditures. Our operating cash flow was helped by the receipt of the Alternative Fuel Tax Credit of approximately $47 million related to 2018 and 2019 as well as cash flow from ongoing operations. And we ended the quarter with $96 million in cash and debt of $37 million, excluding leases. As we addressed on our last call, we anticipated lower volumes and lower earnings as a result of the COVID-19 pandemic. We also anticipated some economic recovery exiting the second quarter, with a gradual ramp-up in the third and fourth quarters. Given the current prolonged nature of COVID-19 and slower economic recovery, we believe our volume growth going into the third and fourth quarter will be at a slower pace than we anticipated back in May. However, on the positive side, we have seen higher RIN pricing as well as lower operating expenses. We expect this trend of lower operating expenses to continue until there is a return to a normal business climate which, along with sustained RIN pricing, will help mitigate any reduction in gross profit margins associated with slower volume growth. As such, we are maintaining our 2020 annual guidance of a GAAP net loss of approximately $11 million and adjusted EBITDA of approximately $45 million, assuming no unrealized gains or losses on our Zero Now fuel hedge and related customer contracts. Our cash position is also expected to remain unchanged from our prior guidance, with operating cash flows exceeding capital expenditures by at least $40 million for 2020. Andrew gave some highlights around our volume for the second quarter. The overall decline in volume of 10% was principally…

[Operator Instructions]. Our first question comes from the line of Eric Stine, with Craig-Hallum.

Encouraged to see the growth in refuse and trucking year-over-year. And maybe just specific to trucking, I'd love your thoughts on kind of how it breaks down there between current fleets driving more miles related to the goods movement versus just more adoption from fleets. And then I would also love to hear your thoughts on just what you're seeing from the small to medium-sized fleets, because obviously the big guys are, they're continuing to do what they've done for many years.

Well, Eric, on kind of trying to break it down for you, obviously, UPS continues to be a very good customer, right? And so they've ramped up their usage. So we saw that in the quarter. We received an extra contract for 3 million more gallons for the year. So some of the trucking growth is obviously at UPS. Then in another segment we're seeing a pickup with Zero Now, not super large numbers yet, but an increasing breadth of those that are beginning to take trucks and order trucks and participating in the Zero Now program. That's mainly in the western United States and in California. And then the third segment would be we've seen kind of a nice pickup on new truck orders and trucks hitting the road and volume pickup in the, let's call it, the ports, right, southern Los Angeles and the Ports of L.A. So our target focuses continues. The pipeline and the trucking is -- frankly, I was a bit surprised. As I tried to mention in my remarks, we've seen kind of an increase. We've seen an increase in our backlog of stations. We've seen an increase in RFPs, which is the most we've seen. I think a quarter, or so, ago I talked about kind of a record RFP number. This is 50% larger than that. So that's people investing in new stations or in new gallons. And so that's a good sign. And we've seen more interest in the Chevron program in the port and also in Zero Now. So I don't know if it's because people are coming back or if it was this prolonged period of people reflecting on their business and trying to do things a little bit differently or whether or not looking at clean air began to get people thinking, but we're seeing the sustainability theme seems to be pretty powerful right now.

Got it. Whatever reason it is, you'll take it. Okay. Well, so just on Chevron, and I know it's still early days, and good to hear there's, obviously, there's interest at the ports. And maybe it's a little bit of time before that starts to have an impact. But just curious on the potential to expand that. Is this something that we should think about, say, if you've got a fleet, for instance, that says we're going to run the West Coast from the ports to Seattle, is this something where you think Chevron, given their interest and focus on this area, that this is something that could be expanded beyond the ports?

I don't want to say too much and get outside my kind of approved area here with Chevron, but Chevron has been very clear that they see this as an important new area for them. They're making a big investment in the biomethane space, especially low-carbon fuel, and it's serious. They're investing serious capital there, and they see it as an important part of their business in California. This makes economic sense for them, as well. And so they have -- this initial program that we announced was a little while in the making. It piggybacks upon the rules that we've seen in the port that's pushing for cleaner trucks. It is additive to grant programs. So when I talk about these hundreds of trucks in the port, this Chevron help could actually add and kind of juice these trucks that are awaiting to sign these. These applications that I talked about in my remarks are not theoretical, right? So you've got a trucking company that has asked for natural gas trucks, and they're waiting for the contract to come from the granting authority to get it signed, and they have to deploy these trucks this year. So those numbers are beginning. I've talked about them for a long time in various programs. Those numbers that I quoted earlier, this 550 applications, that's 550 natural gas trucks that will be required to use RNG in the port and take those vehicles this year. Those Chevron dollars can be additive to that. So it makes it very compelling for the fleet owner, and it makes it compelling for Chevron, and of course to us, because we share with Chevron in the benefits, the environmental attributes of benefits coming from the RNG dispensing from our stations. So it's kind of a win-win-win for everybody. It's a win for the ports, it's a win for the trucking fleets, it's a win for Chevron and us. And so we've already seen some fleets opt into the program. They don't have -- those trucks are not on the road yet, but we've already rolled this out because we know who those customers are. We already have one fleet that's already signed up for 39 trucks opting in. So this has been in literally a couple of weeks. So we like the aspect of that. Now growing it, we've been told by Chevron, let's start here, several hundred trucks. And we can -- they said there's a lot more room to grow this program because they have a lot more appetite to generate credits, which we're required to offset in California. So yes, I think the program can be substantially larger than as we originally envision it.

Okay. Good. And maybe last one for me, and this is very high level, but lately hydrogen is getting a lot of attention as a possible transportation fuel, despite that it's likely many, many years away. But if there does come a time where hydrogen has a place in the market, I'd just love your thoughts on whether it's natural gas or renewable natural gas, how that plays into it, and then also how you might play into it with your station network?

Sure. Well, Eric, look, I want everybody in the alternative fuel space to be successful. Because let's remember for a second, I don't know, 98.5% of the universe is being supplied by diesel today. So there's a lot of room. Our CFO, Bob, here reminds me and tries to remind people it's not all going to go to one fuel, right? So there's plenty of room here for all of us. All right? And let's also remember just for a second that this is at least, at a minimum, a 35 billion-gallon market. Okay? So there's room for a lot of us that have different technologies to be successful. We happen to have the natural gas and renewable natural gas, happens to be the one that's really on deck today, right? That's in the marketplace, that's available at a nationwide network today. Hydrogen, we know something about hydrogen. We've operated a hydrogen fueling station for probably the better part of 10 or 12 years. We built that station years ago in conjunction with General Motors. It operates today. It was about a $2.3 million station, and it produces 68 gallons of hydrogen a day. So hydrogen fueling is very expensive. It's under 10,000 psi. The reformation of hydrogen at the station is through electrolysis. Get a load of this, it requires about 20 gallons of water for every gallon of hydrogen you produce. So march that out on a nationwide scale. And the idea that we're going to do it with renewable sources at a station is going to be very daunting, okay? I think that as you look at commercial truck stops with hydrogen, you're probably looking at something on the order of $15 million to $20 million, or more, per station. So this is a very expensive proposition…

Our next question comes from the line of Rob Brown, with Lake Street Capital Markets.

I just wanted to follow-up on the New York MTA deal. You talked about it, about converting it to RNG. Is this existing CNG business you have that's going to be converted to RNG? I think that's right. And then is there an opportunity for some of the remaining diesel volume to go RNG in that market?

Rob, it's new gallons to us, right? So that's an 8.3 million to 10 million gallon pickup for us. So it's a good new announcement that I'm making this afternoon. So it's a good one for us. And by the way, it already started 4 or 5 years ago. Okay? So it's in process. But those CNG gallons that those buses were using were not our gallons, all right? But now they are with the RNG.

Okay. Okay. Good. Thanks for clarifying that. That's great news. And then kind of back to the Chevron deal, I know it's early yet, but how has the response been? How do you sort of see that growing and playing out? And do you -- are you in the middle of that financing flow? Or is that directly from Chevron to the truck owner?

And I'm glad you mentioned that. So the financing is different than the Total-sponsored program that we have with Zero Now. This finance is coming from Chevron, right? So it's not coming from us. Now we're in the middle of it, right? We're marketing it. We're delivering it to the customers. So we're the customer facing. But it's Chevron's money. It's Chevron's RNG through our infrastructure. And we've just wheeled it out in the last couple of weeks, but we've already brought it out. And I don't know if you heard me, but we've already signed one customer, to 39 trucks. So we're seeing some pickup because it makes a lot of sense to everybody, right? It's essentially, it's very advantageous capital to the customer, and it's kind of a no-brainer for them. So I think we should see very good pickup on it. And literally, it's 7 days of sales, and it's harder to sell right now because we can't go knock on somebody's door. We had -- we've already shown this now to 15 or 20 fleets, and we've had one pick up on it already for 39 trucks, which is pretty good. So it's showing real promise.

Our next question comes from the line of Pavel Molchanov, with Raymond James.

I remember when we did our webinar right after Memorial Day we talked about the kind of disconnect between recovery in municipal transit fleets versus private sector trucking and the impact of social distancing on the consumer. I'm curious if you're seeing any further recovery in transit in terms of customer kind of receptiveness to getting on a bus in the last 100 days or so?

Pavel, it's hard -- every area is a little different. And so we've seen some unique things happen. Just as we -- I think maybe it was after we had our call with you we did see about a 5% or 6% uptick in transit volume. And then we kind of locked down again, especially in Texas, where we have big transit property, and certainly in California. They're still running the routes. We're still -- I measure it, Pavel, by fuel, right? So we're still at about 75%. And they're still running the routes. It's just that there isn't -- and I don't know that I'm the expert to say that it's because people don't want to get on a bus; it's just you have less people going to work, right? So you just have less overall demand. But we've seen a little bit of a -- we saw an uptick, right, from the depths from when I was just a few weeks before we talked to you, and we saw about a 5% recovery in those markets. And then we kind of locked down again, but we haven't seen it tick back down. We've seen it kind of come off 5%. So we've seen some repair in that, but I'd say it's leveled off, probably still down about 20%.

And then in terms of aviation, I'm guessing that's the weakest part of the revenue right now.

It's the weakest for us. And if any of you have been traveling around, you know that it's just still brutally calm at these airports. And so picture, we have -- our base customers are the airport shuttles, the rental car shuttles, the employee airport shuttles. So those are down. Now they're running, but they're running off, right? So that's been down, as we said, almost 45%. We haven't seen much uptick there, just a little bit. And it will come back, but I think that one is slower. And that's difficult for us. Now it's interesting, Pavel, without getting into too much detail, so when we -- we operate at about 40, 35, we have about 40 airport stations at maybe 35 of the nation's kind of largest airports. Sort of think about it that the business, the base business is the airport. Now we still have about 50% of the business at those airports that's private sector, and that hasn't gone off by the same level as the base business. And yet, those locations are really important to us because they tend to be those with the higher fuel margin, right? And they tend to be ones that get Alternative Fuel Tax Credits. And so they're kind of our richest gowns. And so that's why we think that given that particular segment being down and yet that we came through to where we did for the quarter, we actually feel pretty good about it because that's been somewhat impactful to us.

Last thing I wanted to ask about is the Advanced Truck rule in California. Obviously, a big market for you. That doesn't take effect for, I guess, 4 years, or so. But your thoughts on that in terms of kind of electrification of truck fleets?

Right. Well, I've been a little outspoken on this. You know there's been an industry lawsuit now on that, Pavel. So the natural gas industry, the natural gas vehicle industry has sued the Air Resources Board on this very rule. They don't believe that the Air Resources Board has taken into account sort of the rules and the mission and the legislation that they live under to actually provide for mitigating the air quality benefits in the short and near term. If you really look out, what they're doing is they're turning a blind eye to air quality and to health and to the responsibilities that they have under the SIP for about a decade while they fool around with this. And then even when you get out a few years you still are allowing 85% of the trucking world to use diesel. So we think that they've overstepped here, and we think they also have not provided -- they basically provided an electric mandate, rather than setting an emission standard that would allow other, cleaner fuels to play ball. So I think it's somewhat misguided, but it sort of fits their, I think, somewhat myopic kind of political view that it's got to be electric and it's got to be solar and it's got to be wind, and if it's not that it doesn't fit. And so they're really kind of pushing this. I'm not sure that it will end up being –- it's going to go into effect quite the way they figure. Now what does it say? It says that an awful lot of other fuel is going to be used other than electric for a long time. And so we happen to think that as the rules shake out, that renewable natural gas, which is cleaner…

Ladies and gentlemen, we have reached the end of the question-and-answer session. I would like to turn this call back over to Mr. Littlefair for closing remarks.

Thank you, Operator. Well, we want to thank everyone for listening to the call this afternoon, and I look forward to updating you all on our progress next quarter. Stay safe.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a great day.