Greetings, and welcome to the Clean Energy Fuels Third Quarter 2020 Earnings Conference Call. [Operator Instructions] As a reminder, today's call is being recorded, Wednesday, November 5, 2020. Your presenters today are Mr. Bob Vreeland and Mr. Andrew Littlefair. And I would now like to turn the conference over to Mr. Bob Vreeland, Chief Financial Officer. Please go ahead, sir.

Thank you, operator. Earlier this afternoon, Clean Energy released financial results for the third quarter ending September 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 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 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 we close another quarter with the world still grappling with COVID-19, Clean Energy continues to successfully navigate through this period, sustaining much of our business and expanding with new opportunities. We believe that this positions us well for the future once the world gets a handle on the personal and economic difficulties that this pandemic has brought to so many. During these uncertain times, we continue to leverage our strong position as the leader in alternative fueling, working with our customers to support their operations, which are vital in keeping the country running smoothly. I want to thank the Clean Energy workforce for managing this demanding environment by focusing on keeping costs down and improving efficiencies while continuing to meet customer needs. We delivered almost 98 million gallons in the third quarter of this year versus 103 million in the same quarter of last year. Refuse continues to perform well, but transit and airport fleets remain challenged due to the economic slowdown and reduction in travel related to the virus. While our trucking business was flat in the third quarter, we remain optimistic about this segment, which is up 18% for the year. Our optimism stems from the progress we are seeing with our Zero Now program and Chevron Adopt-a-Port program as well as the pressure this industry is feeling to operate more sustainably. I'll expand on both in a moment. Overall, volumes declined 5% in the quarter, but by comparison, they were down 10% in the second quarter of this year, so we are seeing an improvement. Our revenue for the quarter was down a little less than 5% to just under $71 million compared to $74 million a year ago. In the second quarter of this…

Thank you, Andrew. Our third quarter results were in line with our expectations, considering a more gradual recovery in our volumes due to the pandemic. And we ended the third quarter with sufficient cash and investments on hand relative to our outstanding debt. Andrew gave some highlights around our volume for the third quarter. The decline in volume from a year ago of 5% was principally in CNG in our transit and airport fleet services sectors, which experienced year-over-year declines between 16% and 37%, while our refuse sector volumes were up 8% and trucking, NG Advantage and bulk delivery volumes were relatively flat for the third quarter compared to a year ago. Redeem volumes of 40.1 million gallons were up 7% in the third quarter compared to 2019. And while we have seen a gradual recovery in volumes in these past few months, we believe the effects of COVID-19 will continue into the beginning of 2021, which will prolong the recovery to normal volume levels. Our revenue for the third quarter of 2020 was $70.9 million compared to $74.4 million a year ago. Revenues were down by approximately $6.6 million due to a lower effective price per gallon. Our effective price per gallon on volumes delivered was $0.59 in the third quarter of 2020 compared to $0.65 per gallon in the second quarter of 2019. This $0.06 per gallon decline was primarily attributed to lower natural gas costs and the effect of the pandemic on our mix of gallons delivered. Revenues declined an additional $3.1 million due to the lower volumes in the third quarter of 2020 compared to 2019. And we had a noncash negative effect on revenue of $1.2 million from the year-over-year change in fair value of the Zero Now fuel hedge and related customer contracts. We…

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

So it sounds like, obviously, fleets are realizing the benefits of RNG, and I've seen some recent studies, I think, specifically in refuse that point to -- that it is a superior fuel. But just curious, I mean, what kind of luck are you having with regulators? And I'm thinking specifically in California, who typically seem to fall in love with technologies that may be years away and more expensive. Any thoughts on that?

Well, I think here in California, the California Air Resources Board and kind of the companion environmental community, their love is still often focused on technology mandates and specifically, electric mandates. Though having said that, the RNG, I mean, this negative rating is one that's embraced and governs and is governed by ARB. So they fully recognize that it is a participant in the low carbon fuel standard. And so we don't have any problem there. They recognize that it's a very clean fuel. And we're seeing RNG being required in the ports of LA, Los Angeles, for instance, and some other places. So I don't think, Eric, in California, it's not the darling of the environmental community, and it doesn't -- it didn't really sometimes fit the narrative of the ARB but it hasn't been de-positioned as a clean alternative. In fact, if I may, Eric, I'd just kind of extrapolate a little bit. This -- the election, and I know we're still all grappling with exactly who's going to become the President here as we count more ballots. But I've reflected on it, and let's just say if former Vice President Biden is -- actually wins the election, I think what we're going to see is maybe some of what was the agenda, the Green New Deal, and a lot of -- as you know, there's a lot of things in the Green New Deal, but a lot of it was kind of a technology-forcing mandates, most of it centered around electricity. And I don't think you're going to see that, of course, going forward, the way that the election is breaking down with the Senate likely staying in Republican hands. And so I think -- I actually think while you might have a more environmental -- you…

All right. No, I mean, you actually read my mind and what my second question is going to be. So I guess I'll just go with 1 more and that is you talked about RNG. And I mean, this is the first call that I've heard you talk as much about dairy-derived RNG and that low carbon score, low CI score. I mean, any thoughts -- I mean, first of all, I would assume today, it's a very small percentage of the Redeem that you sell. But what is the impact to your LCFS credits or the magnitude of that impact as that becomes a bigger part of the mix?

I mean, it's -- I don't want to confuse everybody on the call, but Eric, it's so low, right? It's so much lower. It's almost like times 10 in terms of credit generation. So it's powerful. I mean, right? It's really powerful. So it's dramatically cleaner. So we are making deals now to add millions of gallons going forward, and we're making deals where the dairy gas, the negative carbon gas was going to be coming on in '21, '22 and '23. I think we've even made deals where we'll come on for the next 5 years, we'll bring on more next year. But it's as if we're adding, in terms of gallons, like 6 or 7x, up to 10x kind of depending previously what we did in terms of the generation of the credits. So it's powerful for us and for our customers and for the environment.

Yes, absolutely. So I guess we'll -- that is something to monitor going forward, how fast that comes on clearly and I prefer to say you like that.

Yes. It gets the -- when you sort of put it on the old -- on an MCF basis, this is really dangerous for the crop, but it's like $80 an MCF. So it's strong. It's really strong. Now there's costs associated with it, a little more than the other stuff. But it's very -- that's the thing. That's what I added in my remarks. I mean, when you compare that, a 47 score of carbon for electricity versus minus 300 for -- and it's cheaper to do, and it goes into a nationwide network that's already been built, it makes you really begin to scratch your head. And the vehicle's a lot cheaper. And it actually does the duty cycle like people want. It's hard for the others to come around on that.

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

Just wanted to follow up a little bit. I think you mentioned a new RNG fleet customer for heavy-duty trucking. Could you kind of elaborate where those are -- will that be filling at your existing stations and what's the potential of that customer? I think you 300 said trucks but could that grow significantly or is that about the size of their fleet?

I'm going to be careful on this one, all right? But it's a very large customer. There's great growth potential there. We're working with them kind of on the next phase. Those trucks are being deployed as we speak, being delivered as we speak. Those stations that I've mentioned, there's probably a few more than about the 12 or so. I think I mentioned 12, it's about 12 right now. That's infrastructure. Some of our existing -- well, it's all existing. I mean, it's -- but some of it are truck stops that we built several years ago in our nationwide American highway, what we talk about. So that's good news, right? Because that's loading our existing capacity, so it's great. And that customer has the potential to add significantly beyond this. So we're very excited about it. And they're very focused -- reason I mention them here is because they're very focused on this -- on the low -- they want the lowest negative carbon fuel they can get.

Okay. Okay, great. That's good to hear. And then in terms of supply deals that you talked about, does that enable you to commit the supply deals? Or do those type of contracts enable you to commit to supply deals or do those deals -- what are your commitment levels, I guess, to supply? And will you have enough supply, I guess, for some of your growth expectations here or do you need to develop additional supply?

No, we have to continue to add supply and we've been very busy on that. And so we're working with those big energy companies I talked about and others. I've said this before but it bears repeating. We're lucky. Because we have the downstream infrastructure, we get to look at almost every deal. And so there's a lot of money now. And I think that those on the call should begin to watch this. There's a lot of money chasing and interested in being deployed to develop RNG, right? So it's exciting. It's a new frontier. And it's not just California. It generates some more credits when it's deployed in California because of our dual low carbon fuel standard program here, but it could be generated all around the United States. And a lot of money is going to be invested into these projects. We get to look at a lot of these deals. We're bringing -- as I said in my remarks, we brought deals on this year. We just signed a few just here this last week. They're multiyear contracts. In terms of supply, they tend to phase in. Some of them take a while to come on. But yes, we -- like, for instance, this 1 customer you and I just -- that we just talked about, they could use -- I mean, that fleet, if things went well, they could double our requirement, right? So yes, we have a need to continue to add a lot of RNG supply, which is a great thing.

Okay. Okay, great. And then last question just on the Zero Now program. I think you talked about some progress there. What does the pipeline look like there? And are there customers -- has that slowed down because of COVID or are there customers sort of getting near the end of the...

It did. It slowed down with COVID. And I think I even said this in the last quarter. I mean, we saw a general slowdown back in the April, May, June, things started to loosen up as people began to figure out more about this virus, but there was a slowdown, certainly. I mean, I think everybody in America saw that in terms of capital deployment and people buying trucks, at least the way we look at our business. And that loosened up again starting in about August. And so we did see some move through. The -- but I would say this, Rob, we've seen just a substantial growth in the pipeline. We've got about -- I want to be a little careful here, but we've got substantially over 1,000, 1,500 trucks that are in various phases of pipeline and in terms of proposals have been sent to them and some in contracting. And so we like where that stands. We need to have more pop out now. But we are seeing steady progress on the Zero Now program. Now in addition, we added on to this kind of our Zero Now port program with Chevron. That program alone now, we've signed 40 -- and that's been in process 60 days or so. We've contracted 46 trucks already in that program, and we have about 300 more trucks in various stages of that program just in the port of LA and Long Beach. So we're working hard on all these different ways to get people into these trucks and using natural gas fuel. And I kind of feel good about how our sales program is working right now.

[Operator Instructions] Our next question comes from the line of Pavel Molchanov with Raymond James.

You referenced the revival in miles traveled, transport activity after the first wave of COVID. Now of course, the United States is into its, I suppose, third wave and by some metrics, worse than the one in the spring. So if we're thinking about the last 4 to 6 weeks with lockdowns in parts of California, New York, Illinois, et cetera, can you just talk segment by segment, which you've noticed in kind of refuse, airports and transit?

Sure, Pavel. We haven't seen -- we've actually seen an improvement even going back to a week or 2 -- 2, 3 weeks ago, a slight improvement in all of our markets. And the ones that have been the most hard-hit by COVID is, as I said, transit and airports. Airports had been down somewhat more than 40-some-odd percent at the worst part of the pandemic. And they've come up some but they're still down 35%, 37%. Transit had been down. Some of them had been even below 30%. They've come back being down around between 25%. We've seen them though come up every week, just a little bit, I mean, not substantially, but we've seen them come up. We have not seen any backsliding in this third -- I guess, you're telling me it's now the third wave. In the third wave, we hadn't seen any backsliding. We haven't seen -- and yet, we've seen it improve a little bit at airports but not substantially. I think you're going to have to -- I think you're right. Until you get a vaccine or begin to loosen up, I think you're not going to see much improvement in airports, even though we all know air travel is up some but it's still trying. Now on our other segments, as I said, year-to-date, our trucking is up 18% and refuse is up about 8%, 8% to 9%. So those markets are up. And we're seeing -- I'm seeing the pipeline for -- I mean, this 1 big customer I talked about here a minute ago with Rob, the 300-truck order. That all happened in the last month or so, right, a couple of months so during the pandemic. And all of the Chevron port action has happened during the pandemic in the last couple of months. So those are good examples of what's happening in trucking. Our pipeline for refuse is as strong as we've seen it. Our station pipeline is standing at about 15 stations already contracted for -- that will be 2021, which is probably, at this point in time, as robust as we've had in several years. So -- and then we have other projects that haven't been contracted yet to build stations for 2021, we call it the bullpen. We have that number at about 7. So as we sit here in November, that's a good number for us, right, because we're going to build somewhere more like 24 or so this year. But I think we're going to need substantial progress, Pavel, on the kind of -- on the vaccine and such before we see this air travel thing turn around in -- and that's going to take us well next year, I think.

Right, for sure. A follow-up about the tax credit. So year flown by. It's getting ready to expire yet again. And I'm curious, this year, of course, it's kind of a tricky situation. Not only is there going to be a transitional power, but COVID and et cetera, Congress at its handful. How do you envision it playing out? Will it -- are you guys anticipating something soon? Or is it going to...

Think about this year we've had. So I think what I said in my remarks, if we have a transition in the administration and because the Congress is where it's going to be, I think that probably, in many ways, bodes well for more business as usual and doing some catch-up in terms of funding programs like the extenders. And now whether or not that happens in the lame duck -- I think had there been a wholesale change of Congress and the Senate and administration, we might have been looking at a substantial COVID response and maybe the beginnings of a tax program and tax increase. And it may have really pushed things way out. I think since I don't believe that kind of thing is going to happen, I think you're going to then kind of fall back to funding bills that are more traditional. And so there is a school of thought that thinks in this -- in a lame duck session that you might have them tackle the alternative fuel tax and the extenders. And I wouldn't say that -- with the incentive funding that's coming because of the pandemic, that makes it more complicated. And so it could be that it slips into the new Congress. But I haven't picked up, and I think we believe that there will be continued support to address the extenders. I still will -- is bipartisan. And Pavel, I will say that I think when they do it again, and I've said this now for probably a year, I believe they'll probably try to engineer a phase-down of it this time around to where you may have a 5-year phase-out of the extender of the alternative fuel tax. So I don't know, I can't really -- with everything changing, it's hard to tell. There is going to be a lame duck session, we know that. And so -- I don't know, is it 50% chance that they tackle the extenders? But I think they will just depending kind of the timing.

And Mr. Vreeland, this is the operator. There are no further questions at this time. I'll turn the call back over to you for closing remarks.

Okay. Andrew?

Well, operator, thank you, and thank you, everyone, for being on the line today. We appreciate your attention, and we look forward to updating you on our progress in the next quarter. Stay safe. Thank you.

Go ahead. I'm sorry, Mr. Vreeland.

No. I didn't -- okay.

And that does conclude the call for today. We thank you for your participation, and ask that you please disconnect your lines.