Clean Energy Fuels Corp. (CLNE) on Q3 2021 Results - Earnings Call Transcript
Operator: Good afternoon, and welcome to the Clean Energy Third Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. . After today’s presentation, there will be an opportunity to ask questions. . Please note this event is being recorded. I would now like to turn the conference over to Robert Vreeland, CFO. Please go ahead. Robert Vreeland: Thank you, operator. Earlier this afternoon, Clean Energy released financial results for the third quarter ending September 30, 2021. If you did not receive the release, it is available on the Investor Relations section of the company’s Web site at www.cleanenergyfuels.com where the call is also being webcast. There will be a replay available on the Web site 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 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 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 those 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: Thank you, Bob. Good afternoon everyone and thank you for joining us. The country continued to climb out of the pandemic-induced economic slowdown this last quarter, which helped the ongoing recovery of the transportation sector and our fuel volumes. We also added new customers to our roster of those fueling with our ultra-clean renewable natural gas, or RNG. And we made significant advancements in securing future supplies of RNG. All-in-all, a very good quarter. Our fuel volumes exceeded 100 million gallons for a second straight quarter coming in at over 104 million gallons, an increase of about 7% from the third quarter of last year. Our revenue was up very healthy 21% to $86 million for the third quarter, even after the non-cash charge for the Amazon warrant. Without that charge, revenue would have been $88 million, a 24% increase over the third quarter of last year. Our R&D volumes of 42 million gallons grew 5% from a year ago, demonstrating the increasing demand for the negative carbon intensity fuel and Clean Energy's ability to deliver large volumes of RNG. Adjusted EBITDA for the quarter was $13.4 million, a 22% increase over the same quarter a year ago. We ended the quarter with $260 million in cash and investments, leaving us in a strong financial position as we continue to invest in future RNG, supply and further expand our fueling infrastructure for our large new customer, Amazon and other fleets. We communicated to you earlier in the year that we pivoted our business to focus on the expansion of our RNG offering and to begin to control more of our own destiny by investing in the production of new RNG supply. All fleets are looking to decarbonize, which is why a fuel that can be rated negative carbon intensity is so appealing. Fleets, including some of our longtime customers like the transit agencies in LA, Dallas and New York, easily and quickly switched to RNG because their buses were already equipped with natural gas engines, and the existing fueling infrastructure could immediately deliver our organic renewable fuel. Other customers like Amazon are deploying their first alternative fleets and they are choosing RNG. The risk for them is negligible, because the heavy duty trucks are equipped with a proven Cummins engine and immediately have access to a national existing fueling infrastructure. Amazon began rolling out their fleet of heavy duty RNG trucks less than a year ago and Amazon trucks have already fueled at over 85 Clean Energy network stations in 21 states around the country. That number does not include the additional stations we announced we would be building to accommodate the deployment of the Amazon fleet as the new anchor customer. We expect those new stations to begin coming online starting in early 2022, as Amazon continues to expand its fleet. RNG is a drop-in fuel and can be directed to any of our stations for any customer that has contracted for the ultra-clean fuel. Speaking of Cummins engines, I hope you saw the very important announcement that was made last month about a new 15-liter natural gas engine for heavy duty trucks. As the President of Cummins engine business said at the announcement, “This natural gas option is a game changer as a cost competitive power option to existing diesel power trains and heavy duty trucking, making it a great complement to reduce CO2 emissions.” This new engine should make the switch by heavy duty trucking companies to RNG all that more compelling because many of their trucks need the extra power. Cummins has communicated recently that they've never been more bullish on the adoption of RNG. Besides the announcement of the new 15-liter engine, Cummins also recently acquired a 50% stake in Momentum Fuel Technologies, which manufactures CNG fuel delivery systems. Cummins also announced that their entire RNG product line of engines has received 2022 certifications from the California Air Resources Board, rating them 90% cleaner than a new diesel engine. It's great to have one of the most respected and trusted manufacturers of engines and power trains continuing to make investments in advancements in the future of RNG. The growth of RNG continues to come from a variety of customers. For example, our longtime customer Republic Services recently awarded us a contract to build new stations in Boise, Idaho and Fremont, California that will flow RNG provided by us. The transit agency Santa Monica Big Blue Bus re-upped its contract and we added new customers, Sacramento Regional Transit and Gold Coast Transit in Ventura, California, all representing about 5 million gallons of fuel a year. Big Blue Bus was one of our first agencies to see the long-term greenhouse gas reduction benefits of operating their bus fleet on RNG and has been a loyal customer for many years. Another longtime customer Foothill Transit, which serves a large portion of the LA basin, expressed their loyalty in a different way, by awarding Clean Energy a contract to build Foothill's first hydrogen fueling station. The station design, construction and maintenance agreement as well as the hydrogen fuel supply is a tremendous confirmation of our strategy to give customers what they want, as they explore ways to decarbonize their fleets. Not only did we have the best overall proposal in the competitive solicitation process, but Foothill also recognized Clean Energy's past performance over the last two decades of providing exceptional service keeping their large fleet of buses operating on CNG initially, and RNG more recently. The CEO of the agency that provides an average of 14 million rides a year cited our long successful track record of building alternative fuel stations, and said Foothill looks forward to continuing to work with Clean Energy as they expand into hydrogen fuel cell technology. This won't be the first hydrogen station that Clean Energy has built, but it is the first since OEMs of large vehicles have recently agreed to test their new fuel cell technologies. Foothill Transit has placed an initial order of 30 fuel cell buses that will operate on hydrogen. And I'd like to note that a third of the feedstock to create the hydrogen will be low carbon RNG. As I mentioned, following customers to where their alternative fuel plants take them is a long-term strategy for us. We acknowledge that there will be multiple alternatives going forward. Fortunately, by being the pioneer in building alternative fueling stations and our 25 plus years of maintaining those stations, combined with our access to the cleanest fuel in the world that can be used directly as a fuel or as a feedstock, we believe we are in the best position in this evolving market. But for any alternative to get a low carbon intensity rating, the fuel must either be low CI itself or its feedstock must be low CI. As everyone knows, it makes no sense to power a vehicle with electricity that was produced from a coal power plant. Most hydrogen produced today is not green. That is the beauty of RNG and why we are making significant investments in its production. Fortunately, we have two partners, TotalEnergies and BP, that not only bring financial resources, but have centuries of experience in the energy business as well. I know there has been a lot of interest by many of you to hear more details about our progress in RNG production, and let me assure you it's going very well. For instance, I'm traveling to the Texas Panhandle in a few weeks to participate in a groundbreaking of a new RNG facility at a large dairy. The project is one of the first that will be financed through our joint venture with TotalEnergies. That same week, we will be breaking ground at our fourth dairy in the Upper Midwest, all of which are funded through our BP joint venture. And just last week, we signed a contract with one of the country's largest dairies, which is in Idaho to develop a new RNG production facility, which when operational will produce millions of gallons of negative carbon RNG per year. Details of these deals will be forthcoming. But please understand the RNG produced at these dairies I just mentioned will be coming online in 2023, after the facilities are built, CARB certifies the carbon intensity of the RNG and the pathways of the fuel are locked in. But in the meantime, we continue to secure additional RNG from dozens of third party suppliers to meet growing demand in our downstream station network. Some of that demand is coming from our Adopt-a-Port finance program with Chevron that you've heard me speak about. Over 680 RNG heavy duty trucks have either received grants, been purchased or in the process of being financed through the program. Trucks will operate in the very busy ports of LA and Long Beach, and most are owned by small companies or owner operated, and benefitted from grants administered by California state agencies that Clean Energy helped secure. In fact, I'm proud to say that our hard working grants division recently surpassed the $0.5 billion mark in securing grants to purchase new RNG trucks for our customers. I must brag about our entire Clean Energy team. They have continued to perform above and beyond expectations under difficult circumstances during these past 18 months, while at the same time taking the company to a new level. The sales team brought in our biggest customer in the company's history, Amazon, which was sold on the idea of fueling their new fleet of heavy duty trucks with our RNG. The team also signed our first LNG bunkering contract with World Fuel Services for two cargo ships operated by Pasha out of the Port of Long Beach. When the ships begin their regular routes back and forth from Hawaii, they're expected to operate on LNG that reduces nitrous oxide emissions by 90% and carbon dioxide by 25% compared to the incumbent shipping fuel. The contract is for five years and we anticipate volumes to be at least 78 million LNG gallons. Our engineering and construction group continues to expand our fueling footprint around the continent, with 66 different station projects in progress. And our superior maintenance team of men and women, which keep our customers happy and asking for more. Since the beginning of the year, we've made some significant pivots with our focus on offering of renewable fuel that can make a huge difference in the effort to combat climate change, and I'm pleased to say the Clean Energy team has risen to the occasion. And with that, I'll hand the call over to Bob. Robert Vreeland: Thank you, Andrew, and good afternoon, everyone. Our third quarter financial results were highlighted by continued volume growth, increased natural gas pricing helping drive revenues higher and year-over-year improvements in our effective margin per gallon. We also improved our cash and investment position to $260 million at the end of the third quarter compared to $254 million at the end of the second quarter. We're maintaining our guidance for 2021 of a GAAP net loss of $86 million and adjusted EBITDA in the range of $60 million to $62 million, as we described in more detail in our press release. Continuing with my third quarter comments, our volume increases compared to a year ago third quarter largely came from across all sectors with some variability around where our RNG flowed, and if those volumes were incremental or already counted alongside maintenance gallons. Our RNG volume grew 5% to 42.2 million gallons in the quarter, up from 40.1 million RNG gallons in the third quarter last year. We're looking forward to continued RNG growth as supply continues to grow. Our effective price per gallon in the third quarter of 2021 was $0.77 per gallon compared to $0.59 a gallon a year ago, or an $0.18 per gallon increase. This increase reflects higher prices at the pump, principally from higher underlying natural gas costs as well as higher rent and LCFS revenue. Our alternative fuel tax credit revenues of 5.3 million for the third quarter were in line with trends. While our station construction sales of 2.6 million were less than a year ago and lower than more recent trends, the construction revenues can be a bit lumpy due to the timing of the underlying construction processes, particularly in today's environment. We're anticipating fourth quarter construction revenues to be more in line with recent construction sale trends in the $5 million to $6 million range. Our overall gross profit margin improved in the third quarter of 2021 compared to 2020, exclusive of a non-cash contra-revenue charge of 2.2 million related to the Amazon warrants and a non-cash fair value gain in our zero now fuel hedge of $300,000. Exclusive of these non-cash items, our gross margin was $32.2 million in the third quarter of 2021 compared to $25.7 million in the third quarter of 2020, or 25% improvement. Increased volumes together with a rise in our margin per gallon from a year ago were the primary drivers of this year-over-year improvement in gross profit margin. Our effective margin per gallon for the third quarter of 2021 was $0.26 per gallon compared to $0.21 a year ago. This $0.05 per gallon improvement reflects the difference between a rise in our effective price per gallon of $0.18 and an increase in our effective cost per gallon of only $0.13. With the cost of natural gas being at some of the highest levels we've seen exceeding $5 in MMbtu, I thought I would take a moment to make the point that this significant rise in the cost of natural gas did not translate to a degradation in our margin. As you've seen in this third quarter, our effective cost per gallon was up $0.13 per gallon from year ago, but we managed an increase in revenue per gallon of $0.18, helping to drive higher overall revenues. This dynamic of the change in natural gas cost is key to understanding that a rise in the cost of natural gas is not automatically a bad scenario for us as we are generally able to increase our pump prices and we have contracts that call for commodity costs to be passed through to our customers. Our SG&A was $22.3 million in the third quarter of 2021 compared to $16.6 million a year ago, an increase of $5.7 million, of which $2.7 million or 48% of the increase relates to an increase in stock compensation, as expected. We have seen some cost increases in connection with our rebranding and RNG activities, which could take us to around $86 million in SG&A for 2021, including about $13 million of stock compensation. Our GAAP net loss for the third quarter of 2021 was $3.9 million, which includes the effects of the non-cash warrant contra-revenue charges and the zero now hedge gain. Our non-GAAP net income for the third quarter was $1.6 million, or $0.01 per share, which we believe is more indicative of our operating results. Our adjusted EBITDA of 13.4 million for the third quarter of 2021 compares to 11 million a year ago, which again highlighted the benefit of increased volumes and improved margins, principally associated with our RNG deliveries. Our cash flow provided from operations amounted to $19.9 million for the third quarter of 2021 compared to $3.4 million in the third quarter of 2020. Exclusive of changes in operating assets and liabilities, cash flow from operations was $15.3 million in the third quarter of 2021 versus $10.2 million in the third quarter of 2020. CapEx spending for Clean Energy downstream business was 7.6 million for the third quarter of 2021, which is up from 4.6 million last quarter and likely will increase again in the fourth quarter, as our station building continues to ramp up. Our debt was $42 million at the end of September 2021. On the RNG upstream supply business, we've begun spending in each of the joint ventures on equipment purchases and development expenses as we get projects moving. In the joint venture with BP, approximately $22.3 million has been spent on dairy project CapEx as of September. In the joint venture arrangement with TotalEnergies, approximately 4.7 million has been spent on dairy project CapEx through September. The 4.7 million was reflected in our consolidated statement of cash flow as purchases of equipment in the third quarter as the dairy project JV with TotalEnergies was not formed until October, at which time those assets were moved into the 50-50 joint venture with TotalEnergies. And we will continue to report on the capital spend and other progress on our dairy projects as we move forward. With that, operator, we can open the call to questions. Operator: We will now begin the question-and-answer session. . The first question comes from Mr. Rob Brown with Lake Street Capital Markets. Rob Brown: Good afternoon. Andrew Littlefair: Hi, Rob. Robert Vreeland: Hi, Rob. Rob Brown: Just wanted to follow up on the JV and sort of the upstream activity that you're doing. How is that sort of supply situation right now and how much sort of supply you expect to come online over the next couple of years? I’m sorry, your own supply over the next couple of years. Andrew Littlefair: Right. Well, one way to look at is a lot of ways to slice all that. But our own supply, let me speak to it in a second. This year, we brought on about 50 million gallons of third party, right, supply coming from other suppliers. So that's an important component to this. And as I look out over the next couple years too, I think it's really important for everyone to understand these projects take 18 months to two years to come online and begin to really monetize the credits and contribute. We've got about 80 million gallons of projects in the pipeline at present, but these things are coming on all the time. So that number likely will go up over time. But since we've been at this in earnest this year, I think that's pretty good progress. Rob Brown: Okay, great. And then maybe on the Cummins 15-liter engine that you talked about, how do you sort of see the market expanding with that engine coming in? What kind of customer growth do you think that can help drive? And how do you view that engine? Andrew Littlefair: Rob, you've looked at this a long time and the current 11.9-liter engine is really very adequate for the day cabs, right. And so a lot -- so much of our customers at this point are regional day cabs, and the 12-liter is good for them. However, I think it's important to recognize that 75% probably, somebody could correct me on this, but it's in that neighborhood of 75% of diesels that are being purchased are more like our 15-liter diesels. So in order to give -- to have the flexibility to run the routes, terrain and sleeper cabs, and kind of be able to take care of the full breadth of what you would like to have that over the road truck do and to give the driver that torque and horsepower, that 11.9 is in around 14.50 in terms of torque, and this engine will be rated -- it will be variable, but it can go up to 16.50. So you're going to have more horsepower and more torque. It's going to be able to hand the heaviest loads, it's going to be able to give that driver the power that they really like. And look, one of the things that these trucking companies are needing to do is make sure they have happy drivers, right. Keeping drivers is really key. And so I think this 15-liter is going to be a ground-up engine. Now it's coming with -- it's been on the road now in China. It's going to be actually manufactured and assembled with American parts, with American labor here hoping that's going to get it to the market a little bit faster. It's going to have increased fuel efficiency as well. So we've always had a little bit of a efficiency penalty, sometimes ranging between 8% slightly more I think this engine should be able to try to cut that in half. And so increased fuel efficiency, increased torque and horsepower, it will really be able to do everything that you would want an over the road truck to do. So we're very excited about it. I think it really fits out the entire offering that Cummins now will have, the 6.7, the 9, the 12-liter and now the 15. I imagine over time, the 15 will end up being the workhorse and replace the 12. Rob Brown: Okay, great. Thank you for the overview. I'll turn it over. Operator: Your next question comes from Eric Stine with Craig-Hallum. Eric Stine: Hi, Andrew. Hi, Bob. Andrew Littlefair: Hi. Robert Vreeland: Hi. Eric Stine: So obviously volume recovery underway. I'd love it if you could maybe just drill down in your various end markets. And then curious whether you're willing to give kind of an early view of what you think volumes might be in light of this recovery in 2022? Andrew Littlefair: Yes. Bob's got some of the numbers there. We've seen a participation in all of our segments. We're bringing on -- let me just -- and Bob will speak to that. The airports are not back fully. We all have been in airports, so you know that they're not quite firing all cylinders but we've seen tremendous recovery there. Our refuse is ahead of plan as is our transit. So we like where we stand on that now. Trucking, because of in '20 -- looking forward, the trucking because of Amazon, we're bringing on a lot of new trucks. And so we are very excited about the growth rates that we'll see in the trucking business. But we're making our job difficult, right, because we want to ship more and more of it to RNG. That's what our customers want. And we obviously want that. But at the same time, we're really putting pressure on -- a pedal on the adoption, which is what we've always tried to do. So it just puts more strain on us to bring more RNG on faster certainly as we bring on Amazon and some of the other big customers like them that want this RNG. Bob, you may be able to get into some specifics there. Robert Vreeland: Yes. We continue to see kind of year-over-year growth in refuse. Transit was in double digit. The airports were actually -- kind of the fleet area was certainly positive growth there, which that has taken a while to really start to come out of the recovery, but we're actually now seeing kind of year-over-year growth there. And then as well as kind of the trucking, considering the RNG optimization and that sort of thing. So it's kind of across the board. And as we look at next year, I think we've at least preliminarily said, we're looking at it kind of 10%-ish type number on the volume, but more to come on that I guess. Eric Stine: Got it. Fair enough on that. Maybe just would the RNG -- Andrew, I know you mentioned that you got the pedal down and you need to keep up with that. And I know these projects don't come on overnight. Do you feel like what you see in the market, given the investment for the whole market, that you will be able to satisfy that demand? I know you will, once you have all of your projects up and running. But in the interim, while those are in development, do you think you're able to kind of keep up with the volume growth you may see from Amazon and others? Andrew Littlefair: Well, I think realistically, Eric, there's going to be challenging quarters in this next year or so until we get some of our on that look . The projects I've talked about, the 80 million gallons of RNG projects, I've talked in the pipeline, it needs to be significantly larger than that. I would like to think there's time with one of the fleets that we've talked about today could take that much RNG -- twice that much RNG, just one fleet. So we're just in the very early innings of the RNG supply game, right. And just to review, the supply resource when you look at landfill, wastewater and manure from livestock is on the order of somewhere between 25 billion and 30 billion gallons annually. Now that's many years from now, but that's a long bridge that could take 10, 15, 20 years to develop. So there's a lot of room here. I think the lowest hanging fruit is in the dairy space. There's still plenty of large dairies to come and medium-sized dairies. That's on the order of 3 billion to 4 billion gallons. But remember, the industry is at 400 million gallons. So we're just getting started as an industry. And let me tell you there's a lot of money pouring in. We're well positioned because it won't all be our own supply, but we are able to avail ourselves to this third party supply because we have the network. So yes, I like the position where we are, but there will be quarters next year, especially if we do a good job on the demand side with some of these large fleets where it will be nip and tuck in terms of whether or not we have exactly all the RNG we'd like to have, and the commitments that we made. All of our customers want the lowest RNG they can have. And I think over time, that's going to be -- we're going to be able to supply that. But I think 2022, I could see periods where it could be -- it will be a challenge to get all that we'd like to have. Does that make sense, Eric? Eric Stine: Yes, it does. I guess it’s a good problem to have. But it's something -- Andrew Littlefair: Well, that's right. It is sort of a good problem to have. It's not a long-term problem. But it's one that I think we just have to recognize that it's -- you bring on like this Amazon and their sustainability report talked about 2,700 trucks. So if you just kind of use that as a placeholder and multiply that to kind of an average number, you can see that -- annual number that you could see that that alone would require 40 million gallons, right. So as these other big fleets pay attention to that and want the RNG. And frankly, as we've discussed in this call before, when they look at their other alternatives and availability of those alternatives, I'm talking about electric and fuel cell, RGN is what's here today and it's what's near term, and it's what's cost effective and efficient and available. And so these other fleets are looking at what Amazon's doing, and there is a little bit of an Amazon effect going on right now. Eric Stine: Okay. Thanks for the color. Andrew Littlefair: You bet. Operator: The next question comes from Manav Gupta with Credit Suisse. Manav Gupta: Hi, guys. Just one big -- I have some clarification questions, and bear with me a little here. You said 80 million gallons of projects are kind of in the development. So could you confirm all of them are in the dairy farm RNG or there are some landfills? Because in the past I think, Bob, you have indicated that for dairy farm RNG, it's about $15 million to $20 million per gallon. So to hit that 80 million gallon number, we are looking at a capital deployment of $1.6 billion to $1.2 billion between you and your partner. So is that math right, or if it's wrong, can you help me out? Robert Vreeland: Okay. No, it's not wrong. But that reference is really more toward offtake other partners, not ours. Okay. So there's two pieces to our supply. It's what we get as an offtake partner, just taking gas, not producing it. And that's what Andrew was really referring to there that we've already signed up 50 million gallons of supply contracts from others, and we've got another 80 there, because we need that gas, right, because our gas is not going to fulfill our needs for a few years. Okay. Manav Gupta: So 50 is the partner, then 30 is yours? Robert Vreeland: What’s that? Manav Gupta: So 50 is the other, then 30 is your -- just trying to understand between you and to your two JVs, what's the pipeline in million gallons? What's that number looking at right now? Robert Vreeland: Okay. The 50 that we've secured and the other 80 has nothing to do with our JVs. Manav Gupta: Okay. Robert Vreeland: That's coming from other supply sources that's offtake. We kind of refer to that as other offtake that we will secure. Then our JVs, Andrew spoke to that some with Rob's question in terms of like, well, what's our volume going to be in '23, '24 and beyond? And I'll say that we're still tallying that number, if you will. When we start to really get into -- our hope is that we'll even provide more color on that in February when we do our year end, because while you've maybe heard us say this, and there's not a lot of quantification around it, there's a lot going on where we've just checking out a lot of deals. So we want to get those a little bit more tied up, if you will, and then we can start to say exactly what some of the numbers will be. But you're looking at double digit volumes from our JVs in '23. And I'm thinking certainly more than 10, right, and more on the way to 25 -- above somewhere in that 20 and above, somewhere in there. And that's just even a little starting point right now from what I know and it's still moving. Manav Gupta: Perfect. I won't press you on number of dairies or anything. My just quick follow up here is, as -- Robert Vreeland: The dairies -- Manav, obviously on that. I thought maybe you would press us on the number of cows, because they have to -- really you do have to define what you mean by a big dairy or a small dairy or a medium dairy, so then you get down to the cows. But it's not like 150 dairies that we have to deal with in terms of where -- as we're looking at our number, I can tell you that right now. The number of dairies is smaller than that, because these dairies have some substantial cow heads. Manav Gupta: Perfect. My quick follow up here is, as you come across all these customers who want your RNG, are the customers pressing you specifically and saying, I want zero or below zero carbon RNG, or they are more or less agnostic and saying fine, deliver even landfill RNG? Are the customers starting to make a distinction as to the carbon intensity of the RNG as you are interacting with them? Andrew Littlefair: It kind of depends -- Manav, they are. They're becoming more educated. And it depends where they're located. It kind of depends what cycle they're in, in terms of their sophistication. Imagine if you sat with a customer and walked them to that they could have the lowest CI fuel available, they'd want it, right, but not all customers need that right now. And I think that most customers understand that. As you bring on the lower CI, that number comes down. For instance, our number on our portfolio is coming down, right, from 30 or 40 positive, or even higher than that, as you looked at it, it used to be almost all landfill. And in this quarter and the next quarter, it’s going to be very close to negative. And we'll begin to share that with you over time. I'm not really prepared to do that in this time. So it's because we're able to blend our portfolio and bring down the landfill with that super negative CI gas. So it will continue to go lower over time, and we'll be able to serve our customers more and more negative fuel over time. Manav Gupta: Okay. Andrew Littlefair: It's not that a landfill gas isn't good, right? I mean, it's already 50% less than what the existing diesel fuel is in terms of carbon. So you're headed in a good direction at the get go. But it can be -- as we all know, it can be lower than that, and it will be lower than that as we go. Manav Gupta: Perfect. My last question is, we saw a deal where you're looking to supply some LNG to ships and I'm trying to understand again, you're out there talking to everybody. Do you feel there is a possibility that going ahead, more ships globally could be looking to switch to something cleaner than running something like a bunker fuel, which is extremely unclean fuel to run? Andrew Littlefair: Right. It's like burning asphalt, right, Manav, as you know. I think there's a -- I’m a little rusty. There is an international compact that was sanctioned out of the UN where this bunker fuel is being moved out, right, and local jurisdictions, be it in Singapore or Hong Kong or certainly here at the Port of LA Long Beach, they've already put in rules where you have to switch over to reformulated diesel, which was a big change from bunker. And now they're requiring a lowering. So yes, it's happening all around the world. I think the U.S. is behind on that. But you see shipping -- there's a lot of LNG at the ports -- at these worldwide ports, so in Rotterdam and in these other places, you're seeing more and more LNG shipping. It's kind of sort of surprising. I also think that our friends at Carnival Cruises ordered LNG ships and maybe as many as 11 of them was in my mind, 9 to 11. So yes, this is a long-term trend. These are long life assets. And you'll see it happening more and more all around the world. It takes a while to build a new kit, to repower a ship and so this isn't like buying a new truck. Manav Gupta: Thank you for taking my questions. Andrew Littlefair: You’re welcome. Operator: The next question comes from Craig Shere with Tuohy Brothers. Craig Shere: Good afternoon. Andrew Littlefair: Hi, Craig. Good afternoon. Robert Vreeland: Hi, Craig. Craig Shere: So the Idaho dairy project that you mentioned, that sounded really big. I was a little unclear if you were talking about something in the JVs, or if you're looking at anything outside of that? Andrew Littlefair: It's in one of the JVs. Craig Shere: Okay. Andrew Littlefair: So that's our production, our upstream for our account with our partner. Craig Shere: Got you. Andrew Littlefair: And it's a really big dairy. Craig Shere: But that still can come online in 2023? Andrew Littlefair: Yes, latter part. Probably not January. Craig Shere: Okay. And when something is that big, can it be ramping for a year or more after you start delivery when you have your line of improving your theoretical transportation to California and CARB certified. Does it take a while to get to full capacity? Andrew Littlefair: Well, what happens originally, just to kind of take you through, so when you start on production, it doesn't take the full -- I've always talked about 18 months to two years. You're on commercial production and you're producing RNG. And, of course, there's a little ramp up shakeout period and all that. But it comes on fairly in a robust way. It's not a long -- I'm going to speak to how you increase it. But it comes on at the expected volumes pretty quickly. But you're producing it while you're waiting for some of the certificates on the CI. You're storing it. So you're not -- so you're in production, but you're storing the RNG and then you're turning it loose after you get the CI. So that's sort of good news of what otherwise seems like an interminable startup phase is that you're actually on production. Now, like at this dairy, and I’m just trying to be a little careful on it, because we're going to do a little bit something more with it here later. But there is our design to literally add tens of thousands of more cows to it over time. So that's how you're going to get more volume out of it as well. So it's already about the second largest area. It's going to grow dramatically. So it's a big one. And we're really excited about it. Then what you're going to also see, Craig, just as these things go, there's been a lot of consolidation in dairies already. And I'm sure there are a lot of good parts and probably not so good parts as these things consolidate. But one of them from our point of view is it does make them -- as they get larger, as they get folded together, it brings them into the scale that we need. So that's a good thing. And then what you'll see is there's kind of this infill clustering of nearby farms, not unlike what we see in the oil patch, right, gas patch, where you got gathering systems from several dairies and you wheel it into a central digester. And that's starting to -- that's just getting underway, but there's going to be great potential for that as well. This is a new industry with lots of new parts to it. None of it is super -- it doesn't have a lot of technology risks, but just a lot of things happening on it as people get more sophisticated. Craig Shere: And maybe I missed it, I apologize. It looked like there's a lot in the pipeline, I understand. Third quarter RNG was lower than second quarter. Did I see that correctly? Robert Vreeland: Let’s see. At 42 I think it was, yes, it may have been down a little from second quarter. Craig Shere: Is there anything specific around that, or there should -- over time, will there be hiccups to this or will we get to a point where it is consistent, every quarter should be higher as all these investments start kicking in? Andrew Littlefair: Like anything else, sometimes you're going to -- certain supply sources have a hiccup. Occasionally, one doesn't get -- we don't get re-upped on it. Over time, as the volume grows, you won't notice it. Robert Vreeland: Right. Yes, I think it's the latter. Right now, you're a little bit susceptible to seeing that, a real live operational matter. I will say, though, that we still are pretty diverse and spread out on all of our supply sources. So we're, frankly, in a much better position than maybe others where they kind of tie their supply into one or two projects. Andrew Littlefair: We did have -- some of that change was because of weather event and hurricane. So those kinds of things will happen. But as we grow these different projects I talked about earlier, that should be going north all the time. Craig Shere: Right. And my last question, just want to pick up on Manav’s question about fleet customers’ CI demand. If I understood it correctly, it all comes down to geography and function. And correct me if I'm wrong, but right now all the low CI nationwide, if it has a path is going to California, because of LCFS. There's a little in Oregon, I think, but pretty much going to California, which over time, as it starts to grow quicker than the California LNG market or the California CNG market, that they'll start to push landfill gas out of California to start filling tanks nationwide, because Amazon and other fleet operators all across the country want to have some of that in their tanks outside of California. And then over time, the other CNG, just whatever you want to call it, brown or whatever that they’re using, over time that moves out of your filling stations and eventually is going to be more for, say, the maritime bunkering market, get into other areas where they're not going to be as focused as early, maybe not for a decade on the RNG. Am I saying that right? Andrew Littlefair: I think you are. I think that's right. We already have the fuel we sell. We're already at 70% some odd of its RNG, right. But you're right. So fossil fuel will be replaced by RNG over time. However, I don't know, maybe the railroads will use it as LNG. It would be a significant improvement over what they've got going on. And they use a lot of fuel. So yes, I think you're exactly right. There will be other markets where you are competing. It’s very dirty, unregulated sources and possible, we'll go there. And then one other thing, Craig, that we didn't touch on and it's important I think, because this isn't just going to be a -- it’s not just a California story, right. So I like to think that in 2022, New York will adopt a low carbon fuel standard. And typically when New York does that, and it's got good support in both houses right now than state house, then normally the North East compact 13 states looks at it too. And then there are other study legislators are studying RNG in several states; Illinois, Pennsylvania, Michigan. So it's not inconceivable that -- and this doesn't usually happen all in one year. It takes sometimes the legislator a couple of years. But it's not inconceivable that by 2024, you could have 10 or more low carbon fuel states. So you've just increased the demand and the markets for the low carbon fuel standard. That's next. That would be a lag, which is a big deal. Craig Shere: I appreciate that. Thank you very much. Andrew Littlefair: You bet. Operator: The next question comes from Pavel Molchanov with Raymond James. Pavel Molchanov: Thanks for taking the question. All right, I'm going to ask about our friends in Washington again. So obviously, we got the Build Back Better, at least the current version published last week. There is an interesting low carbon fuel credit, which has never existed before at the federal level. Do you know how that is going to work for your product in terms of will you be collecting the low carbon fuel credit or the natural gas fuel credit or both? Andrew Littlefair: Pavel, I think, and I have that bill, like you have, and it's a burn burner , 2,200 pages. By the way it’s changing as you go here. I think the LNG credit that you're speaking of, I believe, and I was looking at it this morning, I think that's on the producer side. It’s a producer tax credit I believe. I've been working on a different one and that's not in this bill. So I just have to say that's all I know about it is I believe is for the production. So it's a tax credit for the production I think. I do know that the current Build Back Better thing you and I always talk about has five-year extension of the alternative fuel tax. Our fuel tax that we've had for all these years is extended for five years. But there isn't a new RNG fuel tax credit collected at the pump. I wish there was in there, but I don't believe there is. I think it's something that's out -- theoretically out of the farm, almost like a production tax credit. And I don't know how it works. Pavel Molchanov: Okay, understood. And same thing, except I suppose as a potential competitor to you guys, you've talked about green hydrogen being scarce and being expensive, completely true at the moment. If that ends up being subsidized to the tune of I think up to $3 a kilo is what the reconciliation package contains. Do you envision that scaling up from kind of a de minimis level of today? In other words, how much would that help for the hydrogen food chain? Andrew Littlefair: It will help. Of course, it would help. It's got some more ways -- it's got a ways to go, right, because we've just priced some of the most cost effective, third of it being green hydrogen and it’s more like $11 a kilogram, which is $11 a gallon. So $3 would help. The infrastructure is really difficult. That gas get factored into the fuel price, right? It's the infrastructure for hydrogen today is very, very expensive. So, of course, those kinds of things will help and of course vehicles are super expensive. So I think it would help. It doesn't make it a no-brainer by any stretch. Pavel Molchanov: Right. Well, last question kind of more big picture. We have not seen $80 oil for seven years, but we have also not seen $5 natural gas for probably about that long, maybe even longer. How do you kind of reconcile those two things pushing and pulling in opposite directions? Andrew Littlefair: Yes, and the refined product, right, we're seeing the price of diesel at the pump in the Port of LA at $4.76. And so that's about as high as it's been. I think we saw $5 when we had $100 oil, so it's not far off of there. I always have to bring people back to the end, so I used to talk about this and probably confuse everybody. But you remember years ago, Pavel, that we always used to talk about the oil versus natural gas BTU equivalents, right. And it was sort of 6 to 1 on the BTU equivalents, but it always traded more like it's 7 to 1. So at this $5.25, $5.50, wherever it is, versus the $84, it was at 16 to 1. So it's 15 to 1, 16 to 1, so it's still sort of on the upper part of the range. Now, if you roll back a year or two ago at $2 gas and whatever it was, we were at 23 to 1. But then I have to remind you as well, I didn't believe you would see $5 gas like this, and I still believe it will come down at some point here. But recall you get 7 gallons, 7.2 gallons of diesel per MCF of gas. So let's just say the price of natural gas, which it did essentially went from 3 to 5, that sounds like just a hell of an increase. Well, it's $2 divided by 7, so it's about $0.30 a gallon, my feedstock went up. And as Bob covered, we were able to pass that through either because that's the way our contracts are or of the 20% or 30% that we control, that's that spot we're able to pass that through because we're competing with diesel that went up on average over this last six months, $0.60. And so we were still able to give our customer which is unique to us $0.60 and $0.70 or more discount per gallon relative to diesel, and we absorbed that increase in natural gas price. So I just do not have all that, but the truth is we're been able to move through it fine. We increased our margin. Our customers still have a nice discount and we absorbed it. Pavel Molchanov: All right. Thank you very much, guys. Andrew Littlefair: Okay. Thanks. Operator: The next question comes from Jason Gabelman with Cowen. Jason Gabelman: Hi, guys. Good afternoon. Andrew Littlefair: Hi, Jason. Robert Vreeland: Hi, Jason. Jason Gabelman: Hi. Thanks for providing the detail on the spend on these upstream joint ventures. That's helpful. Can you just clarify, is that your share of equity spend or should I be thinking about that spend differently? Andrew Littlefair: Okay. On that, that is the total spend at the JV. Jason Gabelman: Just acquisitions , excluding debt? Andrew Littlefair: Exactly. Jason Gabelman: Okay. Andrew Littlefair: Well, it's either -- I didn’t clarify whether it's debt or equity. It's the CapEx spend at the JV is the number I gave as of the end of September. Jason Gabelman: Okay. Andrew Littlefair: Technically, we're in for half of that. But just a reminder, the BP -- the JV that we have with BP, we already have our money in there. That's off my balance sheet. So I'm just giving you what that JV has spent. And then, as well on the TotalEnergies, it’s a little different because that's on a project by project basis. Jason Gabelman: And has that spend been kind of ratable over the last six months, or is it really just ramping up and do you expect it to continue to ramp up? Andrew Littlefair: It’s ramping. Robert Vreeland: Yes, it’s going quick. Jason Gabelman: And then my other question just on the downstream business, 4Q EBITDA guidance is implied to be pretty strong relative to where it's been the rest of the year. I was hoping you could just provide some context about that. And then as your RNG volumes ramp up and that carbon intensity score goes down, do you expect your gross margin per gallon to improve from that $0.22 to $0.26 per gallon range that you've been discussing? Thanks. Andrew Littlefair: Okay. So on Q4, you kind of have to look historically a little bit. Q4 over the past four years, we've -- in addition to our normal business size, we've had some other income in there, which principally was related to our earn-out. So there's a little bit of help in there. I'm not saying it's the bulk or anything, but that's a new onset. Those that are new to this story would look back and say, okay, yes, they've got a little bit of annual earn-out from a deal we did in 2017, where we had sold some upstream assets and contracts to BP. And so we are still taking that in. So that helps that number some. So you're correct in kind of looking at the implied '21, and that's not all coming from margin, but it is absolutely EBITDA, because it is core earnings and we collect that cash in the earn-out and we collect that cash in Q1. And then the second part of the question was on the margin. So we'll see that -- so without giving all my '22 guidance, yes, but that range should move up, okay. I'm expecting that range to move up as I look forward. And part of that is bringing in more dairy as well as continuing to grow higher margin fuel gallons. So there's a couple impacts that you can have there on that margin. Jason Gabelman: Great. Thanks. I appreciate that. Andrew Littlefair: Yes. Thank you. Operator: The next question comes from Greg Wasikowski with Webber Research. Greg Wasikowski: Hi. Good afternoon, Andrew and Bob. How are you doing? Andrew Littlefair: Good. Hi, Greg. Robert Vreeland: Hi, Greg. Greg Wasikowski: It's nice to officially be on the call. Andrew Littlefair: You’re welcome. Greg Wasikowski: Thank you. I wanted to go back to one of your previous answers talking about additional LCFS programs in other states. And I'm just curious, could you speak to how that factors into the economics and your decision making when it comes time to sourcing dairy farms? Are you currently or will you soon be considering locations on the East Coast or in the North East region based on that assumption? Andrew Littlefair: Well, we do that already, right. So we're taking them where they come. And we have in Wisconsin, upstate New York, North Carolina. So I guess in a perfect world, you will move that fuel to the closer LCFS state rather than dragging it all the way to California, because you do end up having some pathway cost in terms of hit on the CI, and therefore less value. So you'll move it -- you'll begin to move it to the closest, best you can, to work your portfolio, you'll move it to the closest LCFS state. But I wouldn't say that we're going to start cherry picking locations. We’re trying to bring it on anywhere we can get it. Greg Wasikowski: Got it. Okay. Thank you. And you also mentioned the Amazon effect in an earlier answer and it's something you guys have talked about quite a bit on the past calls. But any update there on what you're seeing in terms of vendors or suppliers making the switch in response to Amazon or Amazon's direction? Andrew Littlefair: I can't really talk about the last part of it is, but let's just say that it looks to me like Amazon's fully engaged. The deployments are ongoing. We're providing them good feeling experience in 21 states. And there's many more trucks to come online. They have and I know that they do, do things to look at their scope 3 emissions. And as we've discussed before, they have a very big vendor pool and supplier pool. And we hope that we'll design a program with them sometime to address that. But it was nothing specific I can get to on this call. Greg Wasikowski: Okay, fair enough. That's it for me. Thanks, guys. Andrew Littlefair: All right. Thank you, Jason. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Andrew Littlefair for any closing remarks. Andrew Littlefair: Thank you, operator, and thank you everyone for joining us today. And we look forward to updating you on our progress next quarter. Have a good day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.CLNE Ratings Summary
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Related Analysis
Clean Energy Fuels Corp. (NASDAQ: CLNE) Financial Performance Review
- Clean Energy Fuels Corp. (NASDAQ:CLNE) reported a revenue of $104.9 million, surpassing estimates and indicating growth from the previous year.
- The company recorded an EPS of -$0.08135, missing the estimated EPS, but showed improvement in net loss and adjusted EBITDA year-over-year.
- Despite a negative P/E ratio, CLNE's price-to-sales ratio and strong liquidity suggest investor confidence and a solid financial foundation for future operations.
Clean Energy Fuels Corp. (NASDAQ:CLNE) is a key player in the natural gas industry, focusing on providing clean fuel solutions. The company operates within the Zacks Utility - Gas Distribution industry, offering renewable natural gas (RNG) and conventional natural gas for vehicle fleets. Despite facing competition from other clean energy providers, CLNE continues to make strides in its financial performance.
On November 6, 2024, CLNE reported an earnings per share (EPS) of -$0.08135, which fell short of the estimated EPS of -$0.02. This indicates a larger-than-expected loss for the quarter. However, the company generated a revenue of approximately $104.9 million, surpassing the estimated revenue of $100.6 million. This revenue growth is a positive sign, reflecting an increase from the $95.6 million reported in the same quarter of 2023.
Despite the negative EPS, CLNE's financial performance shows improvement. The company recorded a net loss of $18.2 million, or $0.08 per share, which is better than the $25.8 million, or $0.12 per share, loss in the third quarter of the previous year. Additionally, the adjusted EBITDA grew to $21.3 million from $14.2 million in Q3 2023, indicating enhanced operational efficiency.
CLNE's financial ratios provide further insights into its current standing. The negative price-to-earnings (P/E) ratio of approximately -10.14 highlights ongoing losses. However, the price-to-sales ratio of about 1.76 suggests that investors are willing to pay $1.76 for every dollar of sales, indicating some confidence in the company's revenue potential. The debt-to-equity ratio of about 0.51 suggests a moderate level of debt relative to equity, while a current ratio of approximately 3.06 indicates strong liquidity.
Looking ahead, CLNE maintains its outlook for a GAAP net loss ranging from $91 million to $81 million and an adjusted EBITDA between $62 million and $72 million for the year 2024. As of September 30, 2024, the company holds cash, cash equivalents, and short-term investments totaling $243.5 million, providing a solid financial cushion for future operations.
