Q1 2020 Earnings Call

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And then answer session will follow the formal presentation.

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I would now like to turn the conference over to your host Robert Grayling. Thank you you may begin.

Thank you operator.

Earlier this afternoon clean energy released financial results for the first quarter ended March 31st 2020.

If you did not receive the release it is available on the Investor Relations section of the company's website at Www Dot clean energy fuels Dot com, where the call. This also be webcast.

There will be a replay available on the website for 30 days.

Before we begin we'd like to remind you that somebody information contained in the news release that on this conference call contains forward looking statements that involve risks uncertainties assumptions that are difficult to predict words or expressions, reflecting optimism Saturday satisfaction with current prospects as well as words, such as believe intend X.

Act plan should anticipate and similar variations identify forward looking statements, but they're absence does not mean that the statement as not forward looking.

Such forward looking statements are not a guarantee a 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 clean Energys form 10-Q filed today.

These forward looking statements speak only as the date of this release.

Company undertakes no obligation to publicly update any forward looking statements or supply new information regarding 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 generally accepted accounting principles 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 the definition of non-GAAP EPS and adjusted EBITDA and a reconciliation between these non-GAAP GAAP figures is provided in the company's press release, which has been furnished to the S. You see 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.

No it would be an understatement to say this is a unique quarter for all companies reporting their results. During this unprecedented in challenging times presented by the covert 19 condemning.

And clean energy would be no exception <unk>, let me take a few minutes to report how we've been operating over this period.

Like most companies during this crisis, we haven't continue acted aggressively.

Protect our employees and allow them to support their families.

But as a recognized at Central company. We have also kept our operations running serving our customers and particularly those sectors that are critically important in keeping.

The country operational during the locked down.

The majority of our employees began working from home in mid March.

Our operations group, which includes our service technicians were provided additional measures to ensure their safety.

And continue to work in the field.

I'm proud to say that this dedicated group of men and women have from the beginning of the lock down kept all our 550 stations around North America open.

This has allowed the trucking industry to deliver a central products to grocery stores pharmacies health care facilities and other key businesses, which have remained open.

We have continued to fuel tens of thousands refuse trucks everyday that had to deal with a shift to more residential waste collections without skipping a beat.

Yeah, we have fields city buses around the country that are transporting its central workers, who continue to need public transportation.

I wanted to express my deep appreciation all of our employees who have faced these challenges we are watching.

And the special Shout out to our customers who are performing some of the most ROIC tasks under the most difficult circumstances.

We began to successfully bring back our employees last week to our headquarters here in Orange County in keeping with state and federal guidelines with all the new workplace procedures that masks gloves.

Temperature checks cleaning and social distancing in place and thankfully as of today, We've had no reported cases of the virus at the company.

Fortunately, we went into this crisis in the best financial position since the company went public in 2007.

After making significant investments for future.

Gross five eight years ago, we began to curtail our expenses in capital spending over the last two or three years.

Well, we paid down most of our debt in fact, we paid $35 million a convertible notes earlier this week and will pay off the last 15 million on may 14th.

Leaving us with no debt other than equipment financing and we still have a comfortable cash cushion in the event of an extended coded 19 downturn.

Our cash flow is also markedly and consistently improved.

We are fortunate to have a good base recurring revenue customers, but should be no surprise that our volume or revenue were impacted in the first quarter due to the crisis that has shut down most of the economy.

Our volume for the first quarter was 99 million gallons sold which is 4% more to the first quarter of last year.

Volumes are tracking well at the beginning of the corridor, but we did see a decline towards the end as lockdowns began to take effect.

As I mentioned, all the transportation sectors that we support are still active but somebody have reduced their operations like transit agencies, which have cut back the roots and a number of buses running.

We have seen at approximately 30% decline in our transit volumes Our airport fleet services business has been the hardest hit due to the significant reduction in flights, but a few sectors such as refugees and trucking have seen relatively modest declines. These trends have continued into April with fleet services, therefore airports being off substantially.

Transit off 30% in refuse and trucking holding up well.

Overall for April our volumes were roughly 80% of what we expected before the coated 19 impact.

We foresee volumes increase in going forward and all market sectors is the country's economy begins to open state by state.

Our revenues for the first quarter over the year were 86 million an increase of 11% from 2019.

Which were 30 or which were 77.7 million in the first quarter of that year.

Bob will take us through some of the more details on our year over year comparison.

Adjusted EBITDA was 11.2 million, which was unchanged from a year ago, although there were different year over year drivers behind those figures, we feel very good about 11 million an adjusted EBITDA given the circumstances and ended the quarter with 99 million in cash.

Since the end of the corridor, we received an additional 47 million in alternative fuel tax credit funds and as I mentioned, we paid off the last of our convertible notes.

We will pay off the last word convertible notes next week.

That's one of our business continued to the first quarter. Despite the challenges presented by Cobot 19, we sign new deals and extensions of current business and every sector. These include building afforestation for USA hauling and Waterbury, Connecticut that as expected. This expense an estimated 1.8 million gallons over the five year contract.

We completed our pit station for South Jersey gas gas in Cape May that will fuel utility vehicles transfer trucks in Jitney shuttle buses.

Recall that she can counting in Seattle signed a 10 year operations and maintenance agreement for it stations that is expected to fuel their fleet of 100 refuse trucks with 10 million gallons over the life of the contract.

We increased our business longtime customer Republic services with station expansions of facilities, Las Vegas, San Diego and Chula Vista, California.

Garden Grove Unified School District in California signed a five year supply agreement for over half a million gallons of redeem the fuel 67 vehicles.

FCC environmental services in Florida signed a multiyear deal that one include an expected 300000 gallons of CNG to feel their fleet of waste recycling trucks.

And the heavy duty trucking space can I services purchased seven new trucks. During zero now program that will fuel with redeem and our network or stations in California, and the U.S. Postal service carrier Matheson postal services side of the extension with us to appeal 80 of their CNG tractors.

Those were highlights of some but not all the agreement signed during the quarter, which gives you a sense that our business has continued through this unprecedented time with more fleets realizing the benefits of fueling with an easy to adopt clean fuel.

I'd also like to point out that a number of these deals like USA hauling South Jersey gas and Republic services were fleets that continue to expand.

With natural gas demonstrating their satisfaction with both the performance of the fuel and their relationship with clean energy.

Let me end my remarks with addressing the other unprecedented story during this time and that's the wild fluctuate fluctuation.

And oil prices.

We are impacted by extremely low oil prices, which eventually see their way to the price of diesel at the pump, albeit not at the same ratio, but as I've explained before the price of a refined product like diesel wont necessarily decline at the same rate as its feedstock, but when you think about it we have seen extremely volatile.

Oil prices over the last eight years when I stopped at over $100 per barrel and then went down to the mid twentys backup to the mid Sixtys not long ago in during this time clean Energys business has continued to expand.

The reason it hasn't I strongly believe will continues because we offer superior product to the very competitive price and let me emphasize a very stable competitive price businesses and operators of fleets appreciate that they can depend on the budget.

For a price stability with natural gas fuel versus the wild swings of oil and diesel.

Another reason more operators are looking to natural gas and increasingly to renewable natural gas is because of its superior quality with its environmental benefits.

As I went into the date detail in the last quarter's call. The renewed focus on E.S.G. is putting pressure on fleet operators to find cleaner transportation alternatives and that pressures coming from all directions regulators investors communities in the general public this will not start stop despite the pandemic and in fact.

Some experts believe the desire for cleaner environment will only increase as we come out of the shutdown and begin to open the economy again.

[noise], our redeem orangeade provides those fleets with an easy way to provide ultra clean zero carbon transportation for their heavy duty and midsize trucks buses refuse trucks shows other vehicles.

With vastly improved natural gas engine technology grants from states municipalities and other incentives like our zero now program, we're confident that transition the natural gas will continue.

I hope everyone stay safe and continues to practice the measures to keep is healthy and allow us to get through these challenging times.

That I'll turn the call over to Bob.

Thank you Andrew.

My thoughts go out as well to everyone. During this pandemic.

Unfortunate we are an essential business and while not immune to this economic slowdown we are fully operational and have not had any need for layoffs or work reductions.

We are taking a cautious and I believe prudent view on keeping cash top of mind and protecting our healthy balance sheet in the event of a prolonged endemic.

As Andrew mentioned, we started seeing the effects of a slowdown in and transportation in certain market segments in the second half of March and have continued to see lower volumes in April.

We have planned for lower volumes to continue through June before there is any rebound we estimate March was reduced by 3 million gallons due to the pandemic.

As you will recall, we gave an initial caution on our volume growth for 2020 back on March 10th.

In our yearend earnings call when the news at this pandemic was just beginning to take hold and oil had dropped to $30 barrel.

As the impact of the pandemic has worsened since March 10, with the country going into locked down we're revising our estimate of volume growth to be essentially flat year over year with a significant decline in the second quarter and a small rebound to year over year volume growth beginning in the third quarter and improving further into the fourth quarter.

What this means financially is an approximate $11 million reduction in our adjusted EBITDA from our prior outlook of approximately 56 million to approximately 45 million.

We do not.

We expect to see much change in our estimated excess cash flow from operations over purchases of property and equipment as we anticipate lowering our purchase of property and equipment down to 16 million from 30 million as or precaution.

Regarding our first quarter, we had a good quarter. Despite the decline in volumes in the last half of March with volume growth of 4% GAAP net income of 1.7 million and adjusted EBITDA of 11.2 million.

We ended the quarter with 99.3 million in cash and investments and we received our alternative fuel tax credit related to 2018 and 19 in April which is 47 million to $47 million to us.

Alternative fuel tax credit for 2020 will be received throughout this year and should range from 16 to 20 million.

I have lowered expectations on the 2020 alternative fuel tax credit considering we will see some reduction in alternative fuel tax credit eligible gallons with lower overall volumes from the pandemic.

Our CNG volume increased 5.6 million gallons or 7% over a year ago due to increases in our FQ sector and trucking sector. The trucking sector benefiting from our you P.S. redeem contract that went into effect April of last year.

These increases were offset partially by a 720000 gallon decline in airport fleet services, where we saw more of the impact of Cobot 19.

LNG decreased 1.5 million gallons or 9% principally from 1.2 million gallons from third party redeem customers due to supplies being delayed to later in the year.

And 400000 gallons from our transit sector, primarily due to the covert 19.

Overall, our redeem volumes increased 4% or 1.4 million gallons to 36 million gallons for the first quarter 2020, despite the delay of 1.2 million gallons.

Our revenue for the first quarter of 2020 was 86 million compared to 77.7 million a year ago, a few items driving the increase one being the alternative fuel tax credit revenue of 5.4 million in 2020 that didnt exist in 2019 and increase.

Piece of 2.3 million in station construction sales in 2020.

Higher volumes added approximately $3 million and the effects of our zeroed out fuel hedge was positive 5.6 million in 2020 versus the hedge loss of 5 million last year.

Our effective price per gallon on volumes delivered was 70 cents per gallon in first quarter 2020, compared to 84 cents per gallon in the first quarter of 2019. The 14 cents per gallon decrease was principally driven by lower cost of natural gas of about 10 cents a gallon.

And four cents per gallon.

Act of lower Ren and LCFS revenues, which is primarily related to lower RIN values in the first quarter or 2020 versus.

2019.

Our overall gross profit margin in first quarter, 2020 was $33.1 million compared to 18.9 million in 2019.

The first quarter of 2020 benefited from the alternative fuel tax credit better station construction margin and the change in the fair value of the zero now fuel hedge.

Our effective margin per gallon was 22 cents per gallon for the first quarter of 2020 compared to 26 cents per gallon in 2019 with the difference, mostly reflecting lower RIN prices in 2020.

Our effective margin apart from the effect of the rens remain steady year over year.

Our SGN a in the first quarter 2020 was 18.3 million, which was flat compared to last year.

We should see some declines in as gene as a result of reduced travel and less activity, resulting from the cobot 19 stay at home orders as well as some pullback on discretionary spending in the near term as we evaluate the duration of this pandemic.

Our GAAP net income of 1.7 million also been it further benefited from the alternative fuel tax credit improve construction margin and the positive change in our zero now fuel hedge which helped offset some of the impact of the lower effective margin on volumes delivered when compared to last year.

Our adjusted net loss of 2.6 million for the first quarter.

2020 was the same as 2019, albeit the components within the adjusted net loss for very different in each period.

And with that operator, we will now open the call the questions.

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Our first question comes from Eric Stine with Craig Hallum. Please proceed with your question.

Hi, Andrew.

Hi, there.

So just wondering on the on the volume side, and certainly understand bringing down the the volume expectations and maybe doesn't really difficult, but just thoughts on maybe breaking that down between low oil and coal that 19, I guess from your commentary and also from the release it would seem to end.

Indicate that it really is.

Good and that if that were just this low oil environment, you would still be expecting gross.

Year over year.

Right, Eric I think the most of the adjustment down as scolded related right now.

Future adoption rate, we still are seeing new business coming along right.

But I think it's safe to say the low oil will affect adoption rate and it doesn't eliminate it just slows down.

And we've seen that before and as people begin to look at the price of oil and the price of diesel to pump.

It tends to slow down adoption and so I think you see some of that in our expectation in the slower.

Im forecast, but principally due to the coke.

Yes, Okay and then.

And just in terms of the <unk>.

Being I'd like to thank you sit here with Bob and so he looks at me but.

I'd like to think we're being conservative here I mean right. We this is.

As we are preparing for a board meeting and this cold it came upon the world and all of this fairly fast and so we're still trying to get our arms around what it's Matt how long, it's going to stay into effect how deep the.

How quickly does the country come back and so.

It's a bit fluid here and we're trying to be very forthcoming on what we see and we think we're being prudent.

But it's it's a little it's a little hard to tell but we know for instance, we are we are seeing new business. I mean are and will continue I mean look just last in the last four weeks right smack Dab in the middle locked down.

We signed a contract and delivered 1.6 million new gallons.

To a stationary customer.

You know, which was new business never we never had them before and so we continue to see adoption of customers and we'll continue to see our pipeline.

Flow in adoption increase.

But yes, so hard it's hard to tell when the you know transit snaps back altogether and those kinds of that.

Right right, well I mean I.

I guess for all of US, let's hope that till albeit it's something that's temporary.

No that's great color I guess, you mentioned, it a little bit, but I mean up until.

Within the last month and a half.

I think you'd agree that smaller fleets were starting to come back to the table I mean, I would assume as you mentioned that maybe there is a little bit of a slowdown on the adoption side there.

But fair to say that the big players.

The world that there's no change there that this is.

Mrs. Their plan and that's that's not going to change that's right I mean, as I mentioned in my remarks Republic and waste in some of these large go and frankly some of them that into our pipeline.

That I think I would have been announcing today you know they slowed some of the announcements, but we haven't seen in Asia dropout.

Yep.

Okay and trying to get ahead on they're trying to get a handle on their businesses right and so I can understand why they're not marching up on announcing new projects in the middle of.

Trying to.

Some of them are very busy in some art.

Hey, environmental piece remains strong Eric you know even in all of this and in fact as Andrew mentioned.

You know as we're seeing kind of cleaner skies and that sort of thing right I mean frankly.

The message is not lost that that's what it could look like if there was a lot of near zero trucks running around as well.

Yes, I mean, that's actually what I was just going to ask you I mean, given the unforeseen benefit here of reduced emissions.

Especially for you out in California, I know, it's been a challenge overtime to get it always is for for natural gas and R&D versus some of the other technologies that might be.

Years out I mean is there any potential that this.

An added benefit that some just something that can be deployed right.

Right now.

Well you know we've said it overtime and you know.

Over the last several quarters, we've talked about the Port for instance, now Here's an example of where you can make impact today using a renewable fuel.

And over time I've talked about the first trucks. The first 20 in the test in the oil you you've been on the call remember that well today, we have 186 of the new.

11.9 natural gas trucks operating support we have 40 more that are taking delivery right now.

We have 450 185 of which have been funded with applications a grant applications and then another the remainder of that Fourfifty almost a like amount.

200 that are awaiting the funding. So you know I think by the end of the year if people can get all the trucks in the end to end the delivery of the trucks resumes.

The next couple of months.

Youre going to see that that you'll have four or 500 trucks 600 trucks in the port versus maybe one electric truck right. So I think you're beginning to see.

So that people are are a big.

Recognize whats economic and whats available today versus whats sounds good.

Now, we're seeing a right here in the in support of L.A.

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And you know it's interesting as to be as Los Angeles is beginning to loosen up a little bit we've seen and we have the heat coming back I guess, what yesterday, we had ozone problem.

And.

People recognize that.

In California, and these other not attainment cities that knox's the problem and we have that answer.

So I don't think you know I don't think though is the world comes back and when it gets to operate the this doesn't go away.

This is this is understood. It we have the I think.

On the carbon answers with the long discussed and also on the on the knock side, we have it answer today, that's economic and it's available.

Yeah.

Okay, Great update thanks, a lot.

You bet. Thanks there.

Our next question comes from Rob Brown with Lake Street Capital Markets. Please proceed with your question.

Good afternoon.

Hey, Rob Rob.

Just wanted to clarify on your on your kind of outlook on the volume you're sort of assuming normalization. In Q3 are you assuming a normalization in the in the airport business as well or just the transit side.

Well, we see it come back what we see a come and we see that segment come back a little slower we see it in the we're kind of assuming the fourth quarter. It comes back closer to where it was.

Views on the other hand.

Most of our wrapped in you know we feel about 13000 trash trucks 14000 trash Crooks every day.

Oh Gosh, I don't know 130, some odd feeling locations.

[noise] transit are I mean refuse has really shifted.

For most companies have seen a big declined larger decline, 20% ish, 25% in their industrial commercial waste well it turns out that that's not the major portion of our business right. Yeah, the that that dumps that truck going to pick up a dumpster at a restaurant.

You, we can see why that's down substantially it's residentials, but most of of our business turns out and that isn't down a 20%. So we've seen something closer to 10% decline in or refuse.

And and then Truckings been a little less than that most of our trucking companies have been stayed pretty active and two there's been a decline but it's it's.

It's something closer to 5% to 7%.

Does that <unk> touch on what you were looking for.

Yeah, that's all for me thank you.

You know mom at at Martin, Let me to say you know it's interesting to see how this comes back and I'll. Just use. One example of that was telling and talking about the characteristics translate well L.A. metro as a new policy that's going forward. So we're.

I guess here in the next week or so we'll begin to see will begin to C.L.A. Metro and it's you know it's large strangest fleet in the country. We few all those buses about 2400, I think transit buses, they're off in terms of.

Volume dusted about 30% ish.

They're new policy is that they'll have 15 people on board a 40 foot transit bus.

So it it appears to US if that holds in if that's the case that it may you may see a.

Even while the the the locked down comes off maybe slowly in may require a disproportionate amount of buses to go back in service to haul.

The political perfume fewer people per bus yeah. So we may see a a snail, hate hate that for everybody, but we may see A.A. quicker return to sort of our trances volume. So you know these kinds of things will.

<unk> interesting to see they they develop.

Any other questions operator.

Okay, We very channel to question answer session. At this time I like it turned to call back over to Andrew Little Fair for closing comments.

Good well. Thank you operator, and thank you everybody for joining us and we want to hope that all of you remain safe and and are able to return to your your business is a safe manner and look forward to talking to you on our next call. Thank you.

<unk> offense, you may just connecting lines at this time, let me. Thank you for your participation.

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