Good day and welcome to the Clean Energy Fuels Second Quarter 2022 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Robert Vreeland, Chief Financial Officer. Please go ahead, sir.

Thank you, operator. Earlier this afternoon, Clean Energy released financial results for the second quarter ending June 30, 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 Factor section of the Clean Energy's Form 10-Q filed today. These forward-looking statements speak only as of the date of this release. The company undertakes no obligation to publicly update any forward-looking statements or supply new information regarding the circumstances after the date of this release. The company's non-GAAP EPS and adjusted EBITDA will be reviewed on this call and exclude certain expenses that the company's management does not believe are indicative of the company's core business operating results. Non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP and should not be considered as a substitute for or superior to GAAP results. The directly comparable GAAP information, reasons why management uses non-GAAP information, a definition of non-GAAP EPS and adjusted EBITDA and a reconciliation between these non-GAAP and GAAP figures is provided in the company’s press release which has been furnished to the SEC on Form 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, everyone and thank you for joining us. We are very pleased with the results of the second quarter of this year, both by the numbers and by the trends that we see in our business with the strategies that we've put into place over a year ago. These strategies are beginning to show real results. Fuel volumes of 107 million gallons were up year-over-year, more than 5% compared to the second quarter of 2021 and revenues came in at over $97 million. Comparing the revenue number from the second quarter of 2021 is hard because we had a large initial noncash revenue charge related to the warrants we issued to Amazon last year. But taking last year's initial charge out, revenue in the second quarter of this year was up by 20% despite the continued uncertainties of the economy, supply chain, COVID and volatile energy prices. As we told you on our last call, our adjusted EBITDA should increase throughout the year which it did from Q1's $3.3 million to $10 million in the second quarter. And just as importantly, we saw the margin on our fuel volume increase 12% from the first quarter of this year to $0.28 a gallon. That's despite lower prices on the credits from California's Low Carbon Fuel Standard and the federal RIN program. I believe this is a testament to the diverse and recurring revenue nature of our business model. Fortunately, the LCFS and RIN prices have stabilized and even risen slightly over the last month. In the second quarter of this year, we had positive cash flow from our operations and we ended the quarter with $187 million in cash and equivalents after making additional investments in our RNG joint ventures with TotalEnergies and BP. This performance positions…

Thank you, Andrew and good afternoon to everyone. We had a good second quarter compared to a year ago as well as a nice rebound from our first quarter. Higher volumes and higher margin per gallon drove the better results. And I'll jump into the overall results and then give some more color on some of the key metrics. Starting with our GAAP results. We reported a GAAP loss of $13.2 million for the second quarter of 2022 compared to a GAAP loss of $79.7 million last year. Now last year's second quarter included contra-revenue charges of $78.1 million from the Amazon warrant but it also included $5.2 million in income related to the alternative fuel tax credit which was not in our second quarter of 2022. The contra-revenue charge related to the Amazon warrants in the second quarter of 2022 was $4.8 million. So last year's charge was much larger because it included an initial vesting charge that was within the $78 million of $76.6 million that was tied to the signing of the Amazon sales agreement. On a non-GAAP basis, our loss for the second quarter ending June 30, 2022, was $848,000 versus a non-GAAP income of $1.8 million a year ago but last year included the $5.2 million of alternative fuel tax credit income. Andrew had mentioned our adjusted EBITDA was $10 million for the second quarter of 2022 versus $14 million a year ago. Again, the $14 million includes $5.2 million of alternative fuel tax credit income. On cash flows. Our cash flow from operations in the second quarter of 2022 was $27.4 million and our CapEx spending was $10 million. A year ago, our cash flow from operations was $9.7 million with CapEx spending of $4.6 million. The increase in the cash flows in 2022…

And we'll take our first question today from Eric Stine with Craig-Hallum.

Are you there?

Eric, I didn't hear anything. But I hear you now. Go ahead.

Okay. All right. You hear me now. Good. Well, first, maybe on the supply side. I know coming into the year, obviously, expecting significant demand for RNG but knew that at least in 2022, it would be a challenge to keep up with that. So I mean, obviously, 50 million in the quarter, that’s a strong number. But maybe where do you stand in supplying that RNG from third parties while you’re working towards bringing on your own volumes?

Go ahead, Bob. No, you have that...

Yes. Eric, I'll say -- yes. No, we are in good shape on that front. So we're still looking at the total that we had put out there, I think, of around 194 million gallons. And so all that's supported with appropriate supply. And in fact, to that point, during the second quarter, that was a big part of going up to 50 million from -- the first quarter, we were at about, I think, 39.7 million. So it was a nice jump. And a lot of that was with new producers and new supply coming on. And we look good going out the rest of the year.

Got it. And then I would assume that, I mean, you feel -- you still feel very good about your goal by 2025 that 100% of your volumes will be RNG.

Eric, what I've been -- we've been doing -- Bob and I've been doing different investor calls and I think we probably talked to you about this, too. I mean, that RNG Day, I would encourage people to look at -- to the extent they have some extra time, look at it. Because we really are, at present, six months in. We're really using that as a good template, as a good plan. And we're ahead of that plan. And so, as you know, in that plan, we talk about needing 105 million gallons of our own equity, dairy gas and then combining that with third-party landfill and dairy gas going forward, 300 million gallons or more of it. We still like that plan and we're working for that and we're ahead of it right now. So we're kind of on point and I hope we'll have to do more, right, to meet demand. But right now, we have some of that built in and it's -- we're on it.

Got it. And maybe just turning to Amazon just to clarify. Did you say up 40% year-to-date on volumes? And then curious. Just what are you seeing in terms of their suppliers? I know, obviously, they’re planning to use this in their own heavy-duty fleet. But their intention is also to push it down to others that they do business with.

Right. And yes, 40% when you look at January to the current volumes as of June. So they're up, right? So that just means they're fielding more trucks. They're putting more drivers in trucks, more trucks. Now, I get into soft land here on what I'm allowed to be talking about for Amazon. They want to control that. I did look at their sustainability report that was just released a few days ago. And that's where I got the 3,000 trucks that I felt comfortable mentioning to the market. Now that's a 2021 number, okay? And so I didn't -- that's what they've purchased -- said they purchased. So let's just say, Eric, that we continue to see more trucks being delivered on a weekly basis. I'll let them speak to the numbers. I know -- like everybody else, I noticed in the -- some of the reports on truck builds here in this last quarter, way off. I mean, there's a choke point on delivery, supply chain of people getting trucks. And I'm sure that's affected Amazon as well. Except they've ordered a lot of trucks and we're seeing those begin to marshal at these new locations for us and that's very exciting. And you can see some of that online without me speaking on their behalf. You can see some pictures that have been released from them about trucks that have gathered at different locations that either are our existing stations or some of our new ones. So I'll just leave it at that. But we're excited about their deployment.

No, fair enough. And then lastly, just AFTC. I mean, what are your thoughts -- how are you feeling about the Inflation Reduction Act? And if not in that bill, I mean do you see other paths by the end of the year if that gets...

Yes. I mean, look, we'd all -- Eric, we'd all go broke trying to necessarily guess on exactly how Washington is going to work, right? But as we all watch now, this -- the news of the slimmed down Deficit Reduction Act is -- the AFTC in that, as you know. So for those on the call that may not be familiar with that, the AFTC is in that bill for a three year extension. So it would be retroactive for this year and then goes forward. And so I just think that, that underscores sort of the bipartisan nature. Now I don’t know whether or not that bill is going to pass. I mean, I think we have to see how the -- they need the 50 votes on the Democrat side. I tend to think it will. There’s a lot in that bill. And everyone in the green space, green transition space is all trying to get up to speed on exactly how all of these different provisions work, because there’s a lot of new language in that bill. So I think it’s very supportive. It’s supportive of the alternative fuel tax credit. It’s supportive of biofuels. It’s supportive of RNG. So there’s a lot more to learn there. But to speculate on whether or not I think that’s going to pass or not, I’m not sure. I like the fact that the alternative fuel tax credit keeps showing up in bipartisan -- in these bills. And if the Reduction Act goes down -- the Deficit Reduction Act goes down for whatever reason, I feel very confident we continue to -- that the AFTC will find its way into an extended package on to this bill and it will be enacted later in this Congress.

Next, we'll hear from Rob Brown with Lake Street Capital.

First question on kind of the demand environment. What are you seeing in terms of incremental interest with fuel prices here? Is it driving incremental demand? Or is the demand really around the RNG situation?

No, I think it's both, Rob. I think it's a good question. I mean it certainly has given impetus for discussions with our sales force and these large fleets. And I would imagine when -- if you kind of roll back -- and that whole point I was talking about with Cummins and 400 fleet, that really surprised me. I knew that there was 30 or 40 fleets that had -- some of the largest fleets had indicated to Cummins that they wanted to be involved in the testing of that new engine. 400 was strong. And I think that surprised everybody. And I'm sure that, that has -- that, that -- and that all happened as this fly up in oil prices happened and diesel prices went up substantially and also the availability of RNG. So I kind of think it's a -- certainly, our sales force has had more discussions about fuel pricing. We can offer a very compelling fuel price right now, big discount to the current diesel. Look, there has been a reduction in the price of diesel kind of generally. The West Coast more expensive. We still see fat pricing for diesel out here in California at $6.50. And now it's come off. And in the nation, it's still above $5. So it's still very significant. And we still can offer a very compelling price for RNG for our customers. And so we're having those discussions. And I think that's important. And not only do we have a fuel price advantage compared to diesel, I mean, we have the cleanest fuel in the planet. So it's a compelling market. Being able to go to market with those two things is really strong.

Okay. Okay, great. And then on the supports for the RNG market, how do you see that kind of coming through? And what's sort of the impact to you? Is it really on the production -- supporting the production side? Or do you see sort of help on the full downstream as well?

Rob, I'm sorry. I sort of missed the first part of your question.

Yes. Really, do you see additional R&D -- or dairy RNG support in this tax bill? And how does that impact you?

Well, look, there's a bunch of different placeholders in there. I mean, I say placeholders. I mean, I think we're all trying to get our arms around. There's different things on kind of -- investment tax credit kind of things. There's -- can you hear me, Rob?

Yes. Yes, I can hear you.

Okay, good. Because I just told that we dropped the -- some of the others here dropped their call. So there are some things on the investment tax credit side which we're trying to get our arms around and see exactly how that would play. That would be compelling. There's grant programs for equipment and there are some credits, it looks like, almost akin to the alternative fuel tax credit that looks like depending on the carbon nature of the fuel that's for transportation that would be involved. So, I don’t want to go too far here and get too speculative. But it looks like you cobble some of that together, there’s a lot of support in there. A little bit more than I thought at first blush. And then of course, there’s the alternative fuel tax credit. So I think -- I guess, Rob, the way I look at it is I’ve never been -- of course, we appreciate the fact that we have support and that we have bipartisan support for some of these things. I’ve never felt -- you’ve heard me say it over the years. I’ve never felt like we had to have any of this. Right now, RNG is compelling with the credits as it is and these things just sweeten it. It does cost more to bring RNG to -- to capture methane and put it in a pipeline and deliver it to our -- it does cost more than fossil natural gas. And it’s a lot cleaner too and it’s a lot less carbon. So we certainly appreciate it. We appreciate that there’s a bunch of things like that in this bill. I’m sure it will help drive on the demand -- on the supply side. And I think the RNG credits that might -- let’s call it incentives that might be in this bill will help on the demand side as well. So it's probably pretty good for us.

Next, we'll hear from Manav Gupta with Credit Suisse.

The first question I had was more on the CARB side. It looks like things are moving in the positive direction. Gavin Newsom actually sent a letter telling CARB they need to raise the targets for carbon reduction. And there are others out there who are basically saying, look, if CARB does follow through with some of that, there could be some support for LCFS prices. So that's part one. And then for some reason, I don’t know why this debate keeps coming back, where the people say, “Well, RNG will not be part of the LCFS credits,” though CARB has been very supportive of the entire RNG proposal and even dairy farm RNG. So if you could talk a little bit about what’s going on at CARB and how you strongly feel that dairy farm RNG will remain a part of LCFS credits?

Yes. Manav, thanks for bringing that up. I mean this is one of these things that just dies a very difficult death. I feel that there's an echo chamber going on here based on the environmental justice communities' desire that RNG -- dairy RNG not be in the deal. I think we've had now several public workshops. We've had a scoping plan. I don't know how much more clear ARB, the California Resources Board, can be about the fact that they see that dairy RNG is an important component to the plan. So I keep addressing it. There's some in the analyst community that want to keep talking about it. I don't know where it's coming from. But I -- it looks to me like -- as you mentioned, the governor just weighed in again. And I think that when you look at the -- all of the information that's recent on this, the draft scoping, this recent comments from the governor, the workshops -- CARB has recognized that it's working and that the -- it's likely that they're going to increase the compliance curves. And I think all of this is going to end up being -- and I think most understand that it's going to end up being supportive and constructive to low-carbon fuel pricing in the future.

Perfect. My second and quick follow-up is, I know you don’t want to speculate on the bill. But there is a 30% investment tax credit in there, specifically which could help you. This was not earlier available for biogas or RNG. Like if this does go through, it means you can achieve a lot more with the same amount of capital because essentially you’ll be getting paid back 30% of the money you spend through direct pay. So can you talk a little bit about how, if this does go through, that helps CLNE do more with the same amount of money?

Okay. So you're -- Manav, you're exactly right. So I've been trying to be careful on it. Not count the chickens before they're hatched. That is very compelling in this bill, right? There's a tax credit that's a refundable tax credit. And yes, it would be significant for us. Because if you look at the years that -- where that IPC would be involved, it matches up perfectly where we're spending several hundred millions of dollars, right? So you got it. It would reduce the capital. It will affect the capital that we’d be spending. And it will allow us to do more for a less amount of money. So it’s . Operator, are there other questions?

Yes, we do have a question from Matthew Blair with TPH.

I was hoping to understand a little bit more on the margin increased to $0.28 per gallon this quarter from $0.25 last quarter. It looks like your RNG share moved up to 47% versus 41%. But then it also looks like your COGS per gallon was actually exactly flat quarter-over-quarter even though natural gas prices moved up quite a bit. So I was hoping you could just kind of help us understand the dynamics there. Are there any hedges in place that help protected you from rising natural gas prices in Q2?

Yes. Matthew, no -- this is Bob. We -- no, there's no hedging in there but -- and I'm not -- I don't know exactly what you're looking at with the flat cost because our cost -- and you're referring to the first quarter?

Right.

Yes. Right. Yes. Okay. Yes. And so they were up a little bit from that. But -- because we saw a fairly high commodity cost in the first quarter, too, right? I mean -- so there was -- that was already a little bit baked into the first quarter. So we didn't see a big -- and so what we -- but what we did see was kind of retail prices even moving further north. So that's where we -- where just the -- the economics of the underlying commodity kind of where we shine. I mean, that's going on. Because there was not a big movement.

And when you say retail cost, is there…

In the cost item...

Okay. Are you referring to…

Well, I'm kind of benchmarking us -- I'm benchmarking us -- yes. Yes. I mean, just to the environment out there. I mean, that's our main -- that's kind of the main competition. And that's just the dynamics of how pricing moves, natural gas versus, say, oil, right? I mean, I don't have a huge refined product going on. And so there's a bit of leverage there on my commodity versus when pricing moves. And so as the oil has been expensive and therefore, diesel, then you're just at an overall higher price environment. But my commodity doesn't necessarily have to move in parallel to that.

Okay. And if I’m looking at this correctly, it looks like your overall station count actually went down by about 20 stations in Q2 versus Q1. Was that a result of high grading or…?

No. No, that's a result of how they got reported. I think the one that you're referring to has Canada in it -- one of them has Canada in it and the other one doesn't have it in it. So like the recent one, we made a clearer indication of kind of U.S. and Canada. And the prior one is combined.

We'll now hear from Craig Shere with Tuohy Brothers.

Congratulations on a good quarter. So I guess what I want to get at -- there's a lot of questions about LCFS and everything but -- and tell me if I'm thinking about this all wrong or not but it seems ultra-low CI CO in quantity helps drive down LCFS. But displacing the landfill gas that's slightly positive CI with the ultra-low dairy even from third parties adds to your margin. So, for whatever -- I mean, who knows? -- like another 1.5 years or whatever until new carb targets kick in, if we see a broader market increase in the ultra-low dairy perhaps at a level or a rate that was quicker than you thought, that could be margin positive to you even as LCFS remains a little challenged for a year or two. Am I saying that right?

Yes. I mean, on the same volume count, if it's a different -- if it's dairy versus landfill, correct, we would still see a margin impact, a positive margin -- that is correct.

I’m not sure you want to speak specifically to this but maybe a general color. Stocks on -- as you had 50 million RNG gallons in the quarter on the comparative mix of dairy in that. And whether the pace of what is flowing through your nozzles is -- the aggregate CI score is getting lower quicker than perhaps you thought?

Yes, I would say on that, Craig, that we're -- yes, I mean it's -- we're kind of on plan with that. I mean we were -- with the CI and then the amount of low CI, it is certainly increasing. So as a percentage of our -- as a percentage of the kind of the LCFS volumes, it's going up. But we were planning that to go up. But I can tell you that within the portfolio of the RNG that we deliver, that CI score is getting lower. And it's sub-0...

Sub-zero on average or just -- just for California or nationwide?

For all the RNG. Just the RNG volumes. If you threw in all volumes, then you would start to go -- you’d probably be a little bit north -- or maybe you’d be closer to 0 or something. So -- but I’m being very focused on the portfolio of RNG gallons and -- which, as we’ve said, is predominantly landfill at this moment. But it’s moving to…

But yes, it moves -- but Craig, you're kind of -- your instinct, Craig, is right. It moves fast down, right, because it's so low.

Yes, it does. It moved fast. I mean, we're seeing it's moved fast even from Q1 to Q2 within our portfolio. Okay.

Okay. That’s what I was trying to get at a little bit. So again -- so what’s driving the soft LCFS is also driving for your downstream higher margin. It’s a natural hedge.

Craig, I think -- well, I think, Craig, if I understand -- I kind of understand what you're saying, is you're kind of cautionary saying, "Well, could you end up being" -- "in effect, you have a little bit higher margin but could you" -- "but because you're going to be generating more dairy in California, could you, in effect, be creating so many" -- "putting a damper on the price?" And I think in general, that's right. I think -- and I’m not smart enough yet and there’s probably people on the call that can model it quicker. But the difference of going from 20% compliance curve to 30% is kind of where I think you’re going to be headed. That’s significant. So you’re going to need a lot of RNG. And I don’t know that you’re going to -- you’re -- it’s going to -- the speed is going to pick up. The reduction here -- the compliance curve is steepening, right, over a shorter period of time. And it’s going to really -- I think it’s going to end up putting a great deal of pressure on the pricing. And I don’t know how it offset -- I hear where you’re coming from but you see what I mean? I think it -- that’s a big difference between 20 and 30 in a five year period.

Next, we have a question from Pavel Molchanov with Raymond James.

One of the other interesting provisions of the Inflation Reduction Act is a first-ever tax credit for green hydrogen. And you’ve taken kind of a mixed perspective on hydrogen and transport historically. And if this thing were to pass, would you be open to perhaps introducing hydrogen fueling into your existing stations?

Pavel, as you know, we happen to think that RNG is maybe the best feedstock for that in the first place, right? And so we've long supported that. And as you know, we have a hydrogen fueling station and we're building -- we're finishing one right now and we just bid on two more. But I really see this as -- it's on the demand side, right? You got to have vehicles. You got to have better technology in terms -- so I think this will all help on the hydrogen. But the last thing that anybody wants us to do is to start building speculative $25 million hydrogen fueling stations for no demand. And I'm sure this is going to help in the market. But we've got -- we have quite a ways to go on the commercial viability of this, of green hydrogen. And so, yes, we're open. We'd do it right now. We're probably a leader in it in many ways for transportation as it relates to our customers who are using all federal dollars, by the way. There aren't any private fleets that I know of in the heavy duty in our sectors that are -- can afford to do it. But where it makes sense and where folks are using federally funded projects, we're in the mix. And to the extent that there becomes the demand or there's vehicles and maybe this legislation will help push that forward which I think was out quite a few years, brings it forward, we'll be ready. We have the customers. We have the locations. Our stations can make themselves available to hydrogen. We need a little help from the industry in terms of the reformation and cost. Cost is still super high on the hydrogen.

Yes. Let me ask a housekeeping question. Depreciation expense on the income statement was less than $11 million the last two quarters. But you’re guiding to $55 million for the year. So it looks like it’s going to step up to like $16 million or $17 million per quarter. First of all, is that math accurate? And if it is, what’s the reason and why?

We are going to -- I'm anticipating that we'll accelerate the depreciation on a certain number of sites that we will be relocating. Some of those are tied into the pilot locations where they have some remodeling, repurposing needs. And so we've -- and we've kind of looked at that together to say, "Well, okay, if this isn't opened or volumes there, then together" -- "okay, we'll move that equipment." So I've put in -- I've put in an estimate of about $8 million or so for that kind of one-off event, if you will. That's not reflective of a new run rate.

Okay. Understood. So for next year, we should not assume these extra expenses to continue?

Correct. We should still -- I mean, there'll be a little bit as we bring on the Amazon stations, right? So we're going to kind of get a little -- there will be some of that to go the other way. So it will take it up. So I don't know that I would say we're going to be at this $11 million a quarter which would put us at $44 million. But I think as the stations come on, you could get another $4 million or $5 million a year. So I think you'd be in that $50 million range for depreciation on kind of a normalized rate.

Our final question today will come from Greg Wasikowski with Webber Research.

The good ones are gone, so I’ll just -- I’ll keep it to one. On the 15-liter engine, when talking to customers about that, do you get a sense that there’s a portion of fleet owners who maybe in the absence of the 15-liter engine maybe would have already made the transition over to natural gas or would be making it imminently? But since the 15-liter is kind of on the horizon in the next couple of years, they’re just kind of hanging on and waiting for that?

Greg, it's a good question. And we always -- I've been doing this a long time with different versions and you're always a little worried about a chilling effect, right? "Well, why would you buy some" -- and I'm sure there's a little bit of that. I also, though, know that a lot of fleets -- in order to have sort of the universality and be able to move these big national fleets that want to have the flexibility to put trucks kind of anywhere, in a different -- hill, in different terrains, operating characteristics, they really wanted the -- a lot of them wanted the 15-liter. And years ago -- I mean, I'll just use -- I'm not picking on them. I just know and they were very candid about it. J.B. Hunt long thought that the 11.9 just wasn't exactly what they wanted. And they felt like it really needed to be a 15 liter. And frankly, when you look at the market share of -- I don't know, 75% or 80% of the big over-the-road guys purchased 15 liters. That's what they want. And that's what Cummins understands. And so could there be a little bit of people that decided, well, they didn't want to -- they don't want to go in and they're going to have to wait a year. I'm sure there will be some of that. On the other hand, the 11.9 is very well suited for day cab use. And a lot of the regional -- what we see in natural gas, RNG, a lot of it is -- all of these Amazons are 11.9s, because it's a day cab application. And they don't load out all those trucks, even the over-the-road trucks. So it's plenty for them. So I think you'll still see a pretty good demand on the 11.9 as you wait for the 15 liter.

Yes, it’s a good point on the Amazon trucks.

That will conclude today's question-and-answer session. I'll now turn the conference over to Mr. Andrew Littlefair for any additional or closing remarks.

Operator, thank you. Thank you, everyone, for joining us today. We look forward to updating you on our next quarter. Have a good day.

Thank you. This concludes today's call. Thank you for your participation. You may now disconnect.