Q3 2020 Clean Energy Fuels Corp Earnings Call
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Ladies and gentlemen, please standby your conference will begin in a few moments. We thank you for your patience and ask that you. Please stay on the line.
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Greetings.
And welcome to the clean energy fuels third quarter Twentytwenty earnings conference call. During the presentation, all participants will be in a listen only mode.
Afterwards, we will conduct a question and answer session.
If you have a question at any time you can press the one followed by the four on your telephone.
If at any time during the conference you need to reach an operator. Please press the star followed by does Arrow.
As a reminder, today's call is being recorded.
Wednesday November 15 2020.
Your presenters today are Mr., Bob for you Lynn and Mr., Andrew Littlefair and.
I would now like to turn the conference over to Mr., Bob Freeman Chief Financial Officer. Please go ahead Sir.
Thank you operator.
Earlier this afternoon clean energy released financial results for the third quarter ending September 32020.
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 is also being webcast.
There will be a replay available on the website for 30 days.
Alright to our President and Chief Executive Officer, Andrew Little fear. Thank you Bob Good afternoon, and thank you for joining us as we close another quarter with the world still grappling with COVID-19 clean energy continues to successfully navigate through this period sustaining much of our business and expanding with new opportunities.
We believe that.
Disposition positions as well for the future once the world gets a handle on.
The personal and economic difficulties that this pandemic has bras to so many.
During these uncertain times, we continue to leverage our strong position as the leader an alternative fueling.
Working with our customer support their operations, which are vital in keeping the country running smoothly I want to thank the clean energy workforce for managing this demanding environment by focusing on keeping costs down and improving efficiencies, while continuing to meet customer needs.
We delivered almost 98 million gallons in the third quarter of this year versus 103 million in the same quarter of last year.
<unk> continues to perform well, but transit airport fleets remained challenge due to the economic slowdown in reduction in travel related to the virus.
While our trucking business was flat in the third quarter, we remain optimistic about this segment, which is up 18% for the year.
Our optimism stems from the progress we are seeing with our zero now program and Chevron adopt port program as well as the pressure. This industry is feeling to operate more sustainably.
Vehicle fleet from diesel whether as a shuttle van at an airport refuse trucks or city buses or heavy duty trucks.
Even if they already operate on a regular blue CNG or LNG, we can switch them to redeem without a blip in their operations, allowing them to reduce their carbon output.
More than what they were doing before.
Customers are responding.
With the emphasis on MSG investing and pressure from regulators politicians investors and their customers companies are looking at their entire supply chain to make reductions in their carbon footprints.
Fortunately clean energy can provide them, an easy and cost effective transportation fueling solution.
We were the first to introduce R&D is a vehicle fuel in 2013, and our volumes have rapidly grown every year.
Additionally, redeem makes up that increasingly large percent of our overall fuel mix growing to over 60%.
We are so bullish on this ultra clean fuel that one of our own company sustainability goals is to provide 100% redeem to our entire fueling infrastructure by 2025 inch.
In short R&D is the future of clean energy.
Others have seen the potential of R&D and jumped into the market with their own offerings, but no. Other company has that existing fueling infrastructure across the entire country to deliver the numbers that we do.
And importantly, no other company has secured the quantities of fuel from R&D producers like clean energy.
We recently signed additional supply deals with Chevron and DT biomass energy to provide us with millions of gallons of negative carbon RMG.
Some of this fuel is already flowing into our California stations and much more will be coming online in the months ahead.
The latest development of our transition to R&D is that more and more of it will be coming from dairies in agricultural facilities. We call. This negative carbon fuel because it is derived from methane, which is a potent greenhouse gas, but now it is displacing diesel and gasoline, allowing the California Air Resources Board.
To give it a negative carbon rating, sometimes over 300% minus.
To put this in perspective gasoline has a carbon intensity of 137 and diesel as a carbon intensity of 97 neven vehicles powered by electric batteries have a carbon intensity of 46. According to the California Air Resources Board. So you can see that a minus 300 carbon intensity rating is why.
Catches the attention of companies seeking to reduce their carbon footprints.
For instance, we are currently working with a brand new.
Named customer, which has begun to roll out a fleet of over 300 natural gas heavy duty trucks, which will fuel at over a dozen of our fueling stations around the country.
They've asked us to provide them with as much negative carbon redeem as possible because they want to apply those carbon reduction savings to their aggressive sustainability goals.
This could represent over 4 million gallons of negative carbon fuel and 2021 by just one customer.
This company joins others like S., Kroger Republic service waste management, and many transit authorities, which have expanded their use of RMG, realizing as a long term environmental benefit for the planet, while allowing them to meet their own goals having.
Having a long term certainty of RMG supplies critical which is why we have been so aggressive signing agreements with producers.
Other transportation technologies might be receiving an attention tension recently, but thats not all all are doing.
And that but thats about all are doing getting headline some of them are so good.
One you may have missed is about a large transit agency here in southern California, which several weeks ago quietly took all their electric buses out of service due to multiple fires on buses. This.
This agency follows the cities of Indianapolis, and Albuquerque, and decommissioning electric buses that turn out to be expensive and dangers disappointments.
Yet the use of R&D as a fuel is making substantial dense and reducing the amount of greenhouse gas emitted by transportation industry today.
Electric and fuel cell heavy duty vehicles are most likely many years away from doing this which is why the interest is growing NRG.
As you know we are now significant partners with three of the world's largest diverse energy companies in total BP and Chevron all of whom have made it known that they are investing more heavily in clean alternatives and that is why they want to work with clean energy to expand the market for RMG.
We continue to remotely, but aggressively make sales calls respond RFP isn't work with existing customers to expand their fleets with success.
We secured one of the largest orders through our zero now program with a 50 truck expansion by Estis Express lines for their California fleet, which now increases their natural gas truck fleet to 70 across multiple states. Other trucking companies that have recently deployed new natural gas trucks include Alpha line, you Usbs carrier food.
Express.
Denise.
AG agriculture, agile transportation among others, our extended zero now program.
With with Chevron, which targets trucking companies operating out of the ports of La in long Beach has begun to show results with from signing contracts purchase 46, new natural gas heavy duty trucks to fuel was chevron's RMG at clean energy stations and.
And almost twice that many trucks are in the final contracting stage.
We also signed deals with transit agencies like Jacksonville transportation well.
Our motto, which serves the Washington, DC area, Santa Clarita Transit in California, and others. In addition, we recently expanded our relationship with La County Metro by being awarded an agreement to supply redeem at three additional locations that represent approximately 9 million new R&D gallons a year for five years.
Our refuse business continues to grow despite the overall economic slowdown that the countries experiencing.
New deals were signed with Mesa public utilities, the cities of San Diego in Tucson, Athens services and others.
As I said at the beginning of my remarks, we feel like we met the immediate KOVA challenge that confronts all of us and we have the right priorities and strategies, which we are executing that will ensure our long term growth.
The country in the World remaining that we do all that we all do business in a more sustainable way that.
The transportation sector has been called out, particularly and clean energy has a sustainable clean fuel solutions. They are making an immediate and meaningful difference and with that I'll hand, the call over to Bob.
Thank you Andrew.
Our third quarter results were in line with our expectations, considering a more gradual recovery in our volumes due to the pandemic.
And we ended the third quarter was sufficient cash and investments on hand relative to our outstanding debt.
Andrew gave some highlights around our volume for the third quarter the decline in volume from a year ago, a 5% was principally in CNG in our transit and airport fleet services sectors, which experienced year over year declines between 16% and 37%.
Our revenue sector volumes were up 8% and trucking energy advantage in bulk delivery volumes were relatively flat for the third quarter compared to a year ago.
Redeem volumes of 40.1 million gallons were up 7% in the third quarter compared to 2019.
And while we have seen a gradual recovery in volumes and these past few months. We believe the effects of COVID-19 will continue into the beginning of 2021, which will prolong the recovery to normal volume levels.
Our revenue for the third quarter of 2020 was $70.9 million compared to $74.4 million a year ago.
Revenues were down by approximately $6.6 million due to a lower effective price per gallon.
Our effective price per gallon on volumes delivered was 59 cents in the third quarter of 2020 compared to 65 cents per gallon in the second quarter of 2019.
This six cents per gallon decline was primarily attributed to lower natural gas costs and the effect of the pandemic on our mix of gallons delivered revs.
Revenues declined an additional $3.1 million due to the lower volumes in the third quarter of 2020 compared to 2019, and we had a non cash negative effect on revenue of $1.2 million from a year over year change in fair value of the zero in our fuel hedge and related customer contracts.
We had increases in revenue from our alternative fuel tax credit of $5 million and incremental station construction sales of $2.4 million, which brought our station construction sales to $8.8 million for the third quarter of 2020.
Our overall gross profit margin in the third quarter of 2020 was $25.6 million compared to $24.5 million.
In 2019.
Gross margin associated with the alternative fuel tax credit and incremental Rins and LCFS revenues more than offset pressures on margin from lower fuel volumes associated with the pandemic.
The alternative fuel tax credit benefited the third quarter of 2020 gross margin by $5 million over last year and the incremental rans in L. CFS benefited the third quarter of 2020 gross margin by 3.7 million over last year.
Our effective margin per gallon was 21 cents per gallon in the third quarter of 2020 compared to 22 cents per gallon in 2019.
The decline in margin per gallon was primarily driven by fewer gallons in our airport fleet services sector offset partially by margin from our incremental brands in L. CFS.
The change in the fair value of the zero now fuel hedging related customer contracts was a drag of $1.2 million on year over year quarterly gross margin.
And lastly, our 2023rd quarter gross margin on station construction sales was higher by $500000 compared to last year largely due to the increase in station construction sales.
Our SGN and the third quarter of 2020 was $16.6 million, which was down $1 million or 6% from a year ago and consistent with the lower level of SDMA. We saw in the second quarter of this year.
It says.
Any thoughts on that.
Well you know I think here in California, The California Air Resources Board, and and and kind of the companion Environmental community you know there there.
Love is still you know often focused on technology mandates, specifically electric mandates, though having said that the.
You know Orange G. I mean, you know this this negative rating is is one that's embraced and governs and is governed by.
Maybe perhaps be more aggressive in certain areas I.
I think actually because.
Some of the focus on electric specific answers probably won't be able to be done and probably won't be able to be funded because you know they were going to have to be funded and won't get funded in the Senate. The way that they were thinking about I actually think it opens up a pathway and much more runway for RMG I think.
Dramatically cleaner so.
We are making deals now to add.
Millions of gallons going forward, and we're making deals where the the.
The dairy gas.
Negative carbon gases would be coming out of 21 22, 23, I think we've made deals where it'll come on for the next five years will bring on more next year.
But it's as if we're adding in terms of.
<unk>, it's like six or seven times up to 10 times kind of depending previously what we did in terms of the of the.
The generation of the credits so it's powerful for us and for our customers and for the environment.
Yep, absolutely. So I guess well that that is something to monitor going forward, how fast that comes up yeah. It get her to say you'd like they you know when you.
When you when you sort of put it on the <unk> on an Mcf basis. This is really dangerous for the crowd, but it's like $80 Mcf.
[laughter] alright.
<unk>, it's really it's really.
Strong now there's costs associated with it.
More than the other stuff, but but it's.
It's it's very.
Yeah. That's that's the thing that's why I had it in my remarks, I mean, when you compare that a 47 score of carbon for electricity versus minus 300.
For and it's cheaper to do and it's and it goes in a nationwide network that's already been built.
It makes you really begin to scratcher and the and the vehicles lot cheaper.
And it it actually does the duty cycle like like people want it's hard for the others to come around on that.
Right right, Okay, I'll leave it at that thanks for the color.
Okay.
Our next question comes from the line of Robert Brown with Lake Street Like Street Capital. Please go ahead.
Hi, Andrew how 'bout Rob.
I just wanted to talk a little bit I think you mentioned, a new orange, if we customer offer heavy duty trucking kind of elaborate where those or will that be filling it your existing stations and what what's the potential of that customer. Thank you said 300 trucks, but.
Cause that grow significantly or is that about the size of their fleet.
I'm going to be careful on this one all right.
But it's a very large customer.
There's great growth potential there.
We're working with them kind of in the next phase those trucks are being deployed as we speak.
And delivered as we speak.
Those stations that I've mentioned.
It was probably a few more than about the 12 or so I think I mentioned 12, it's about 12 right now that's that's infrastructure of some of our existing well, it's all existing minutes, but it's some of it or or or truck stops that we built several years ago on our nationwide American.
American Highway and what we should talk about so that's good news right because that's that's loading our existing capacity so it's great and.
That customer has the potential to add significantly beyond this so we're very excited about it.
And they're very focused reason I mentioned I'm here is because they are very focused on this net on the low they want the lowest negative carbon fuel they can get.
Okay. Okay, great. That's good good to hear and then and then in terms of.
Supply deals that you talked about does that enable you to commit to supply deals are those type of contracts to enable us to commit to supply deals or to those deals.
What are your commitment levels I guess to supply and will you have enough to fly I guess for some of your growth expectations here do you need to develop additional supply.
Oh, we have to continue to add supply and we've been very busy on that and.
So we're working with those those big energy companies that I talked about and others.
I've said this before but it bears repeating.
We're lucky because we have the downstream infrastructure, we get to look at almost every deal.
And and so there's a lot of money now.
I think that those on the call should begin to watch us there's a lot of money.
Chasing and interested in being deployed to develop RMG alright, so it's exciting it's a new new frontier.
And it's not just California.
It.
It generates some more credits when it's deployed in California, because of our dual low carbon fuels standard program here, but you know it could be generated all around the United States.
And a lot of money is going to be invested into these projects.
We get to look at a lot of these deals were bringing as I said in my remarks, we brought deals on this year. We just signed few just here this last a week.
They're multiyear contracts in terms of supply they tend to phase in some of them take awhile to come on.
But yeah, we like for instance, this one customer you and I just that we just talked about.
But we've got.
Up substantially over thousand 1500 trucks that are in very phases in various phases of pipeline in terms of proposals have been sent to them and some in contracting and so.
We like where that stands we need to have more pop out now.
But.
Where we see we're seeing steady progress on the zero now program now you know in addition, we added on to this kind of our zero now.
The one in the spring so if we're thinking about the last four to six weeks.
With locked down in parts of California, and New York, Illinois et cetera.
Can you just talk segment by segment, what you've noticed in kind of refuse airport, a and and transit.
Sure.
No.
Not substantially.
I think you're going to have to spell it take your right ear until you until you.
Get a vaccine or begin to loosen up.
Thank you you are not going to see much improvement at airports, even though you know we all know aircraft was up some but it's it's.
It's still.
It's still trying now on our other segments.
Yeah.
As I as I said year to date, our trucking up 18%.
And refuse is up about 8% eight 9%. So those markets are are up and we're seeing I'm seeing the pipeline for this one big customer I talked about here a minute ago was robbed 300 truck order of that all happened in the last.
Month or so.
It's kind of a tricky situation not only is they're going to be.
Transition of power by.
Covid and et cetera Congress as his hands full how do you envision in playing out will it.
Anticipating.
Something soon or is it good.
You know.
The show got think about this year with that.
So I think semi.
There, there's <unk> will be continued support to address the extender.
I I still will this bipartisan and probably all I will say that I think when they do it again and I've said this now for probably a year I believe they'll probably try to engineer a phasedown of at this time around to where you may have a five year phase out of of the extender of the.
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