Q4 2021 Clean Energy Fuels Corp Earnings Call

Hello amongst of the clean energy fourth quarter 'twenty to 'twenty one earnings call.

All participants will be in listen only mode.

Should you need assistance, please see though a conference specialist by pressing the star can you followed by zero.

After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone.

Withdraw your question. Please press Star then two please note today's event is being recorded and I will let teleconference over Robert Vreeland CFO . Please go ahead Sir.

Thank you operator earlier.

Earlier this afternoon clean energy released financial results for the quarter and year ending December 31 2021.

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.

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 risk uncertainties and assumptions that are difficult to predict words of expressions, 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.

Such forward looking statements are not a guarantee of performance and the Companys actual results could differ materially from those contained in such statements seven.

Several factors that could cause or contribute to such differences are described in detail in the risk factors section of clean Energy's. Most recently filed Form 10-Q filed in November of 2021 or in our Form 10-K that will be filed later today.

These forward looking statements speak only as the date of this release the company undertakes no obligation to publicly update any forward looking statements or supply new information regarding the circumstances. After the date of this release the company's non-GAAP EPS and adjusted EBITDA will be reviewed on this call and exclude certain expenses that the company's <unk>.

Management does not believe are indicative of the company's core business operating results.

non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP and should not be considered as a substitute for or superior to GAAP results. The directly comparable GAAP information reasons why management uses non-GAAP information a definition of non-GAAP EPS and adjusted EBITDA.

And a reconciliation between these non-GAAP and GAAP figures is provided in the company's press release, which has been furnished to the SEC on form 8-K today with.

With that I will turn the call over to our President and Chief Executive Officer, Andrew Little Fair.

Thank you Bob Good afternoon, everyone and thank you for joining US I think my remarks, it could be a little shorter today, because hopefully you were able to watch our R&D day presentation last month.

We went into some detail about our strategy to expand our business by investing in the production of RMG, which allows us to deliver this incredibly clean fuel to a growing customer base. If you haven't been able to watch the presentation I highly encourage you to do so.

A recording of the presentation can be found on the investor page on clean Energy's website.

Despite the country in the world, having to grapple with the Covid Pandemics ups and downs throughout 2021.

<unk> ended up being one of the most strategically important since Boone Pickens and I founded clean energy 25 years ago.

Early in the year, we established joint ventures, with BP and total energies to work together and build a steady supply of low carbon R&D for the future.

Soon after we signed the Companys largest fuel deal ever with Amazon.

And our transformation into the leading provider of a negative carbon intensity.

Fuel continued through the remainder of 2021 with the signing of partnerships with some of the country's largest dairies.

In the fourth quarter of the year. The company delivered 105 million gallons, which was a 9% increase over the fourth quarter of 2020 and the most gallons we've ever delivered in a quarter in the company's history.

We continue to see solid gains in refuse and transit while the deployment of Amazon's New fleet began to provide a lift to our heavy duty truck sector.

Our revenue for the quarter was $92 million, an increase of 23% compared to the same quarter in the previous year deducting a few noncash charges, including the Amazon warrant the increase in revenue would have been close to 26%.

Adjusted EBITDA for the quarter rose to $18 million from $13 million in Q4 of 2020, and after making contributions to the BP and total energy Jv's, we ended the quarter with $229 million in cash and investments with only $39 million in debt, allowing us to end 2020.

2021, and a very good financial position.

As I mentioned, our fueling agreement with Amazon is beginning to show results.

Amazon heavy duty trucks of fuel that over 85 different existing clean energy stations around the country through the end of the fourth quarter.

We also made good progress on the 19, new stations that we are building based on the Amazon demand with construction underway at multiple locations in the engineering and permitting underway at many more.

As a reminder, while Amazon will be a large anchor customer all of these new stations will be publicly accessible and located in high traffic distribution center areas and other busy corridors.

This will allow other customers of fuel at these stations, adding volume without deploying additional additional capital.

To that point, our current customer.

S. This express lines recently added another 100 heavy duty natural gas trucks to their fleet, which will fuel at our stations in California and Texas.

Valley Express services is adding 30 heavy duty trucks in Pacific Green trucking is increasing their natural gas fleet with 23 trucks.

Valley Express and Pacific Green Finance their new trucks through our program with Chevron and will fuel with R&D at our stations near the port of La Long Beach.

I believe the momentum and recognition of R&D is building in the heavy duty truck market.

What I referred to as the Amazon effect is beginning to be felt across the industry.

I'm sure. It did not go unnoticed by most every company involved in logistics in the movement of goods when Amazon celebrated the delivery of their 1000 heavy duty R&D truck in the fourth quarter of last year.

As I've said before it's easy to place a reservation for a handful of trucks to be delivered in many months if not years.

That will operate on an electric technology with significant uncertainty and cost surrounding the charging infrastructure.

But if companies really want to attain their carbon reduction goals in a cost effective and immediate timeframe RMG as the alternative more companies are taking seriously.

When you add Amazon to the other large trucking and logistics companies like UBS.

<unk> and Matheson mail transportation to the largest refuse companies in the U S like waste management Republic services, and waste connections and transit agencies from La to Dallas, and New York All operating their fleets on R&D, it's easy to understand my optimism.

The increased commitment to R&D is being demonstrated all the way through the supply chain from the significant investment in R&D supply of dairies by venture capital firms and large energy companies.

Through the other end with new natural gas projects.

Since our R&D day in January Warner Enterprises, one of the country's top trucking companies announced that it will be working with Cummins to validate the new 15 liter natural gas engine.

I had a lengthy conversation a few weeks ago with the president of Cummins engine business Shrikant bottom on a bond and he re reiterated their enthusiasm about the highly anticipated 15 liter engine that is expected to be available in 2024 as well as the newly available six seven liter.

Natural gas engine that is very popular in the straight truck sector.

Cummins commitment to their natural gas engine program is a strong endorsement of the lowest carbon transportation fuel solutions.

Our transit business had big wins recently with the extension of our agreements with the large agencies in Los Angeles, and Washington, D C, which represent over 800 buses between the two.

We also added a new transit customer with Golden Empire, which is expected to use 1 million gallons of R&D a year to operate 100 buses in Bakersfield, California.

Refuse companies continue to expand with RMG highlighted by our good customer Republic services upgrading fueling stations.

In Huntington Beach in Anaheim, California to accommodate additional trucks. We also signed recent fueling agreements with suburban disposal in New York waste connections in Illinois, and we extended our relationship with Valley Vista services in Southern California, with an R&D supply agreement of an expected 14.

Gallons over 10 years.

In addition, we were awarded a 10 year extension from our longtime customer EJ Harrison in Ventura, California to provide an estimated 8 million gallons of RMG for their fleet of refuse trucks.

This is a sampling of fleets, which are easily and affordably meeting their goals to reduce carbon emissions and address climate change today.

But we also realize the future will include other technologies and clean energy has plans to participate in those as well.

As we've previously mentioned we have already expanded into hydrogen fueling highlighted by the award from Foothill Transit in October for Us to build a station for the agency's fuel cell buses to be powered by hydrogen made with R&D.

So I mentioned during the R&D day presentation, we've joined BP and others and investing in a company BTR energy.

That has developed a software that will allow electric vehicles to track the electric molecules produced from R&D.

It's interesting to note that the lowest carbon intensity score that in EV can obtain with electricity produced by solar or wind is zero.

But with electricity produced from R&D, depending on the source of the R&D. It is possible for an electric vehicle to have a much lower carbon intensity score and the negative hundreds.

BTR energy software will also allow the OEM of the EV to participate in low carbon fuels programs.

To wrap it up I hope you can understand why we are so pleased with our performance last quarter and last year.

And because of our recent expansion into R&D supply, which will allow us to leverage our large LNG fueling distribution network. We believe clean energy is well positioned to continue to lead the transportation industry into a cleaner low carbon future.

And with that I'll hand, the call back to Bob.

Thank you Andrew.

I'll recap 2021, and then move into our guidance for 2022.

We had we had a good fourth quarter, particularly with good volumes and volumes as we all know are very important but we did see approximately about a two and a half million dollars negative impact from sustained lower <unk> pricing during the quarter.

Our GAAP net loss for the fourth quarter was $2 $4 million or a penny a share while on a non-GAAP basis. We had net income for the fourth quarter of $6 4 million or <unk> <unk> a share.

Our GAAP net loss for the year was $93 million, which was higher than our guidance of $86 million due to.

Noncash unrealized losses on our zero now fuel hedge some additional stock comp related to stock awards occurring in December .

The lower <unk>.

The pricing that I mentioned.

Adjusted EBITDA for the fourth quarter of 2021 was $18 million versus $13 6 million a year ago.

And for the year adjusted EBITDA was $57 million.

Now we had we maintained and kept our guidance of 60 to 62 on the adjusted EBITDA, which we absolutely felt that.

At least at a minimum the lower end of that range of <unk> 60 was achievable had we seen.

Better al CFS pricing.

During the fourth quarter.

But 57 million is a good number and we're excited about that and certainly an improvement over last year, which was $45 million.

Revenues of $92 million for the fourth quarter of 2021 were in line with expectations and reflected higher effective prices caused by higher fuel pump prices and continued higher RIN prices.

Our effective margin per gallon for the fourth quarter was 27, a gallon and for the year. It ended at 26 cents per gallon, which was at the high end of our range at the beginning of the year that we sided of 'twenty two to 'twenty six.

We saw a nice progression upward in our margin per gallon during the year, reflecting more trucking and fleet fuel gallons, including the effect of more R&D and higher RIN pricing during 2021.

As Andrew pointed out we ended with the ended the year with $229 million of cash and investments and <unk>.

<unk> $39 million of debt, we generated $41 million in cash flow from operations and spent $23 million on property and equipment.

But we continue to be in good financial shape as we look forward.

Looking forward to 2022 as I as I mentioned on our R&D day presentation I will go into a little more detail on the 2022 guidance.

So first off there is no change to the financial metrics that we presented on January 26th at the R&D day, we're estimating $454 million.

<unk> for volume GAAP revenue of $400 million.

Dollars, which that includes an estimated $44 million of contra revenue related to the Amazon warrants, a GAAP net loss of $57 million and adjusted EBITDA of $65 million.

One of the.

Largest assumptions to be clear on is we have included approximately $21 million of alternative fuel tax credit in our forecast for 2022.

And we are.

Bullish on that becoming law during the year. It was addressed they in fact, even change that two to five year.

Run out on that so we've included we've added almost we've had literally every year timing question.

So we're assuming that comes in the law in the third quarter of 2022. The important point here is that we're not anticipating any FTC Rev.

Revenues, we wouldn't be recording any for the first two quarters.

Which is about $5 million a quarter and then.

And then we would have a retroactive pickup in the third quarter. If that is when in fact this.

His passing goes into law, and we'll we'll kind of.

Keep an eye on that.

We have refined our rent now CFS price assumptions.

Back January 26, we were assuming for 2022 to $2 85, RIN and $165.

CFS and.

We've changed that to to be rent is really closer to say $3 and the <unk> around $1 55.

There is no change in the combined total of <unk> revenue as a result of these.

Slight adjustments, if you will but we did want to.

I think those up the rent and the <unk> pricing a little more with our current views.

Our volume margin per gallon for 2022 averages out to about 28, a gallon. So thats up two cents a gallon from 2021.

On on 454 million gallons thats around $9 million of increment to our gross margin.

And this is really coming from added truck and fleet fuel gallons as well as the R&D helps drive that margin per gallon.

And then of course, just an overall increase in gallons over last year will drive added margin dollars.

Our SG&A is forecasted to be $101 million, which includes approximately $20 million of stock compensation.

Excluding the stock compensation, our SG&A is up from 2021 by about 8% the rise in the cash portion of SG&A is principally in personnel related to the growth in R&D activities, including supporting the supply side and the addition of Amazon and other new and expanding customers in our distribution network.

Now staying with the operating expenses as Andrew mentioned, we're also looking ahead at various alternative fuel technologies.

Have included approximately $4 million to $5 million of I'll call. It development Skunk works operating expenses not SG&A. This is $4 million to $5 million of that.

We anticipate incurring in 2022 and depending on how that <unk>.

Research and the development goes on those.

Alternative fuel technologies.

We'll see how that goes beyond 2022 at the moment.

Not included any of these types of costs beyond 2022.

And then looking at adjusted at the adjusted EBITDA of $65 million.

Versus 2021 of $57 million.

Really 2022 is a year of putting it.

More pieces together to facilitate the implementation of our R&D strategy.

We're able to do this.

And still improve financially.

No.

Remember as.

Some examples are our 2021 included our last year of the earn out from our sale of our upstream to BP that was $3 9 million. That's in the 2021 number $3 $9 million. That's in 2021 that is not in 'twenty to <unk>.

We're absorbing an incremental $2 million of cost as our share of the startup cost at the R&D joint ventures, and we're also adding about $6 million in SG&A cash expenses, which I alluded to.

Primarily in personnel and support but yet our adjusted EBITDA is going to improve from 'twenty, one which is why the margin per gallon additional volume in the <unk> per gallon as is very important to help support that.

On the R&D, Dave metrics, we did give.

Indication of cash flow and capital expenditures, so were planning still $57 million in operating cash flow.

$71 million of Capex.

Capex supporting the distribution side of the business with maybe $40 million to $50 million of that representing expanding our network to accommodate Amazon volumes and then we plan to spend up to $195 million as contributions into the R&D joint ventures.

We will also.

In the process of raising a modest amount of debt at the corporate level, but we have flexibility of course with that because we have a fair amount of cash on the balance sheet and.

And we do have some discretion on the speed at which we make these investments.

And with that operator, I'll open the call to questions.

Yes. Thank you at this time, we will begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the case.

Your question. Please press Star then two.

At this time, we will pause momentarily to assemble the roster.

And the first question comes from Eric Stine with Craig Hallum.

Andrew Hi, Bob.

<unk> Air.

Hey, So you mentioned the Amazon effect, just curious if you could go into that a little bit more in detail.

Weather.

Assume that's more in conversations.

You would anticipate that that might flow through to actual truck orders and then I mean, obviously there'd be a little bit of a lag, but when you might see volumes as a result, and then curious your thoughts on whether Amazon or is having some success or is pushing this into their supply chain.

Right, So Eric and I think we're seeing that now.

We're having conversation with and we know that Cummins is having and the Oems are having discussions with.

Large fleets.

Now and so I think youll begin to see we're already seeing.

Some uptake in.

And the adoption of natural gas right now where some of these large fleets and I think the.

The.

The announcements by some of these fleets for instance, the Warner one working with Cummins, we haven't seen these kind of announcements really before so I think they're there.

Important.

Also I think it's important to note that as Amazon has fielded now.

Well that that announcement or at least that.

Tweet or text that got out.

<unk>.

Late last year of one thousands so theres more more than that many trucks now those trucks are operating extremely well and theyre getting great visibility and theyre moving about the essentially in.

30 states across the country at our stations and they are getting a lot of use in a lot of visibility and.

I think all of that bodes very well.

So.

Think the Amazon effect is happening as we speak.

<unk>.

The interest in the RMG is.

Never seen it really higher all of our.

<unk> right now what.

That and that is part and parcel as we talk about natural gas engines or adoption of new trucks and all its always hand in glove with the R&D.

And so I think all of this is because of the success of the Amazon program, we're seeing it right now.

Okay got it.

Maybe just one other one for you I think on your R&D day, one of the areas that was a key part of your five year plan was the.

Switching out.

O&M customers over.

Over to RMG.

And.

Maybe just what Youre seeing early success there how do you anticipate that playing out but then taking it another step.

What are the economics look like because I would assume that because it's for someone else who owns the station.

They would share in those in those economics as well. So there actually is an economic benefit for you to make this switch.

I think it was something like $90 million of your five year plan.

Right So erika.

Bob joined me here as well, but there's a couple of parts to that so for those that didn't see the R&D day. You know there is one concept which was moving.

<unk> negative fuel in California to our existing infrastructure that is already providing RMG, but it might be landfill gas and so there is a pickup certainly when we own the supplies dramatic pickup okay.

Now your question, though started with and that number got to be around 70 million to over time $70 million to $90 million tightened up. So I think I was describing in the Wall Street Journal did some very articulate so it looks like magic, but but.

We're already providing that fuel and so it's really a switching and the other feedstock and we have it's better for the bottom line, okay, but the way. Your question started out was the.

Our O&M customers.

So now this is transit customers and refuse customers, where we may be providing operations of the station and we get paid for that on the on a gallon, but those are good margins for gallons as we've said many many times, but low low low cents per gallon, let's put it that way good margins low.

<unk>.

Revenue per gallon for us so when we switch in RMG become a fuel supplier to those customers, which we've always wanted to be able to do.

Yes, we do split that with the customer.

And if they do own a station in these cases, they do most often.

Yes, they'll get they'll get a larger share than we will but it's a big upgrade on our margin per gallon.

Going from a fuel provider.

With our downstream share.

In addition to our operation and maintenance so it's a big pickup for US. It's also a pick up for the country.

Yes.

Is getting at.

That answered it but I was just getting at the fact that I mean.

That's a big part of your EBIT pickup, but I mean, there are certainly incentive for the customer to do that because the economics better for them as well okay.

Got it mentioned model it helps them Andy in the area, where they operate right. They go they go to a sustainable fleet right. So that wasn't that's not lost on any of these operators. They are all under pressure. So that's exactly what happened.

Like to think that New York City Transit was progressive when they put the natural gas buses in versus diesel buses. Many years ago, and we are doing operation and maintenance, but when they asked us to provide the fuel there.

Got to pick up.

They've got to share in that and agile as we did it once we began providing the fuel other than just operations and maintenance and they are now a.

Envied sustainability climate change.

Contributor.

There in New York City.

That's just a drop in alright, so thats alright.

Our own rendition of a drop in fuel as the existing natural gas transits than now get to drop in a renewable Eric because like I said, it's like magic.

Alright, Thanks, a lot.

You bet.

Alright, Thank you and the next question comes from Rob Brown with Lake Street capital markets.

Good afternoon.

Hey, Rob Hey, Rob.

I wanted to get an update on the number of R&D projects you have underway I think months ago, you had about five how is that changing and where you're at in terms of signing up new LNG projects.

No. It's a good question, we have about seven farms under construction, we have 10 signed LOI. So those are in.

In the process they are not under construction yet, but they are headed that way then we have 15 to 20 projects I sort of say are behind those in the pipeline.

We've had substantial we're doing substantial due diligence and discussions with the developers and the farmers.

Those 15% to 20 projects will involve 50 dairies.

So there's a lot happening right now and that's a little bit of an increase from 30 days ago.

In line with what we talked about on January 26, more projects under construction now than what I talked about in January .

Sure.

Okay, great great great progress.

On the CFS pricing that you talked about Bob how is that changing and whats sort of the market dynamics. There do you have a sense of it's hard to predict of course, but.

Maybe how that how that changes over the year.

Yes.

We kind of have it on.

On average around 155, and it's a little bit lower than that so we were anticipating that there is room to move up there but.

We felt like it was.

Probably at 165 might be a little bit aggressive and so I think I.

I don't know that we see radical change there I mean it can.

Again, we thought in the fourth quarter there could be.

<unk>.

A move a move upward if there was.

Some action by carbon.

And they're kind of scoping.

Workshops, and whatnot, but I think we're.

Kind of fairly steady at about where we think.

It is that the 155 on average.

Rob we tend to be long longer term kind of constructive and bullish on the pricing of the low carbon fuel standard.

Not to say, we see some.

Dramatic fly up here, but we think as the scoping.

And they look at the success of the program and they look at the increased obligations in the outer years, we think that the price of the <unk>.

Could likely move up a bit so.

We thought it was prudent to price it in here sort of it.

Where we see it today, rather than speculate but I would think our team believes in the.

Of course have some experts to help us on this we think sort of over the middle term that we're constructive on the pricing and think that it could move up a little bit too.

Okay, great. Thank you for the color I'll turn it over.

Thank you and the next question comes from Rajat Gupta with credit Suisse.

He he bhavan.

Just quick question wasn't going back to the analyst day on N E D and.

And I think you had indicated an entity you would like to be about 105 million gallon range by 2026.

I'm just doing some rough math would it be fair to say you would probably need somewhere.

55 <unk>.

Some of it to get to that 105 number.

<unk> got a number.

We're crunching here around there I mean, youre at $2 million of dairy so it depends so.

With me on the in terms of the clusters okay.

So you'll have a dairy, but you'll bring in satellite dairies. So.

It could actually be higher than that right because youll be drawing on smaller local.

Smaller dairies, but.

Sure.

As I said these 15 20 projects right now contemplate 50 dairies.

So.

So it could be the higher fiber to the home for the 105 million it could be similar in terms of dairies it could be higher than that.

Okay.

Hi.

Taking a quick follow up here is.

When we go to the cash statements that you provided on the <unk>.

At some point not only does do.

<unk> stock being down.

Yes, it can be stopped being just some distribution. So can you confirm that.

0.2, the JV can you start making enough cash so they actually start being you guys some form of distribution.

Yes.

That is.

I want to say, it's like 25 26 so.

Yes, where youre seeing the debt reduction is because we're seeing distributions come in from.

From the JV from the JV because.

The.

And it's principally 25 and 26, there could be a little bit in 'twenty four.

The more meaningful.

Perfect and then the last quick question here.

You were doing about 13 14 million EBITDA now yes.

<unk> next year's guidance is doing more like 16, and I think you mentioned a few factors why it's going to be moving down a little from 18% to 16, but if you could just help US bridge the gap why moving down from $11 million a quarter now EBITDA grew about 16 number.

Yes so.

In the fourth quarter that 18, we had we.

We had about $4 million of earn out.

In 2018.

In the fourth quarter from.

Our sale of upstream supply to BP and we've had that for five years and which was.

A question that we had about actually how are we going to get to.

We are anticipating we could get to 20 and the <unk>.

In the fourth quarter, and we got to we got to 18.

<unk>.

And then I mean, so we should not see that kind of radical bump in the fourth quarter.

For something like that.

Our our volume tends to.

Grow during the year because.

I mean because of fleet.

Rollouts and adoption it just doesn't all happen.

January one.

And then.

I think the other thing that I was just being careful with on the $16 million.

Is that has the alternative fuel tax credit.

In there.

And.

But you don't want to put that evenly in Q1 and Q2.

For the alternatives.

End up having to.

You would end up taking the alternative fuel tax credit.

So, let's say out of the 65, so you would get to kind of 40.

What is that $44 million.

Which is kind of 11 ish.

Q1, Q2, but then Q3 youre going to see about 11, plus maybe even $15 million of FTC.

And then 11 plus 5% in Q4, so I don't give guidance on the quarters, though.

No that was not getting super helpful. Thank you.

Maybe I just did.

What I considered manav as I was doing math.

Thank you.

As important thanks for the question because.

The FTC in a quarter is significant if you just do the math here.

Youre not going to be happy.

So.

I'll turn it over thank you guys.

Yeah and okay.

It's an app.

Okay. Thank you and the next question comes from Pavel <unk> with Raymond James.

Thanks for taking the question.

You guys mentioned.

Few moments ago.

<unk>.

We need to kind of back out the IP or the ACC.

First couple of quarters of the year going back to what we talked about during the webinar one month ago.

Any incremental thoughts on whether the tax credit will be.

<unk> in some form in this congressional session.

So I think.

Just for the group I think Youre, saying did what would they say.

Change it to add in some sort of renewable natural gas credit.

I just maybe more broadly is there any in the last six weeks since you did.

The last Investor call is there any movement in D. C. On the reinstatement of the tax credit I don't think theres been any movement in D. C. On any piece of legislation in the last six weeks.

Do.

So no I don't think so I really think I mean other than the Supreme Court Justice nominee or something I don't think theres been any.

I think that the.

House is trying to figure out just what pieces of a bill that they can assemble they haven't they.

They haven't decided on that yet and just what style that'll take but I don't think so yet now that doesn't that doesn't lead me to believe that it's not going to happen.

I still feel like as I mentioned before that.

That our particular.

The alternative fuel tax credit.

Amongst many other things okay, because it's not the only thing will end up being in some sort of tax title at some point when they begin to fashion different pieces of legislation in that.

That remains to be seen how that all comes together.

But it will it should.

The reason I feel pretty confident on it is we've had that tax credit for the last I don't know 10, or 12 years I can't remember, which.

And it was identified during the.

With the two chairman from the tax committees in the Senate.

The ranking in the minority as one of the noncontroversial titles.

So it doesn't appear to be in kind of the lightning rod bucket and so I think that when when they figure out kind of how this whole thing is going to come together.

Guessing later in the year.

Youll see that as part of some sort of some sort of tax title some point.

Okay.

Let me follow up with kind of a macro question. So we're almost exactly two years from the.

The start of the pandemic and you guys have very good insight into what's happening.

Fleet based transport.

The market segments that you sell into so.

Refuse truck urban transient airports.

Maybe a few other markets.

Is everything back to pre Covid levels.

Not quite.

Yes, I would say, we it's interesting as you and I've talked about this before we did see a little bit of.

Late December .

Hard to tell because of those holiday has put a little our transit.

Customers, especially.

Holidays impacts it.

A little more significantly than those that week or so then you would think but I think we detect in late December and early January we saw a little bit of the AUM to coma chron.

<unk> was there was a there was a five week four week blip.

But having said that I would say that airports in general in the us.

It came up into December just about right back that and transit as well.

We may have seen three or four weeks there at the end of the last couple of December and early January .

January where it came off just a tad.

I think to answer your question is yes. It looks to me like we are back to pre COVID-19 levels all of our sectors came back.

Okay <unk>.

<unk> airports.

Yes.

<unk>.

They could still be off a tad.

Pretty close okay.

Great insight. Thank you, yes, you bet.

Thank you and our next question comes from Greg Watson Calfskin with Weber research.

Hey, good afternoon, guys how are you doing.

Good how are you Greg.

Doing great. Thanks couple couple of higher level questions on fleet transition activity and then one on hydrogen.

I'll start with the fleet transition just curious outside of regions with the CFS credit programs and what states or specific regions or municipalities are you seeing the most fleet transition activity from diesel to gas.

And then similar question, but along the lines of the application.

Whether it be transit bus refuse truck or specific heavy duty class a truck.

Well.

Okay. So.

Generally I would say the fleet fleet transition at all of the fleets.

We always see quite a bit of interest in <unk>.

In Texas.

In.

The southeastern United States is where you see a lot of trucking and then in the northeastern United States.

We particularly see a lot of interest on the refuse side.

And so it kind of.

Kind of almost named all the parts of the country, but Texas.

The southeastern United States northeast a lot of activity.

On refuse.

<unk>.

Trailing that a little bit as the Midwest and then of course, the west the West is always strong southwestern United States.

The strongest but.

That was covered in your low carbon fuel now now we are seeing uptake on <unk> and 30, some odd states right now so it's not just the California thing and it's not just us.

Just regional it's beginning to be piece together all across the country.

Yes, Okay no I appreciate that and then maybe similar but asking it a different way.

Whats the again in the non <unk> states and regions.

What's the main catalyst for.

And users fleet owners in the decision transitioning from diesel to gas.

Primary focus on and the price of diesel or is it <unk> accessibility.

Internal de carbonization goals public pressure like what are you what are you seeing the most outside of that L. CFS.

States and regions.

Well you've identified I mean, I think it's always been it's been similar this sustainability and low carbon pieces, obviously is a bigger driver today than before.

But underlying it I think you're right Greg underlying it though as always a sense of economics you don't.

Often see you.

You certainly don't see private.

Fleets just step into to step into something knowingly, it's a lot more expensive.

Now they are beginning to get more.

Support from their either their customers or their public on.

On their sustainability goals and so they are willing to I think they are willing to take.

Take let's call it more risk and more cost.

Now public transit public transit and public agencies are certainly.

Being furnaces DFW right, it's very important for them to try to mitigate.

And have what they consider to be one of the cleanest low carbon airports in the world right and the transportation piece of this is very important to them, there's not a lot. They can do about airplanes.

So the transportation part of it was very important and that's why they really pushed hard on R&D and I think our friends in Dallas area Rapid transit link the sustainability part was really important for them to go to natural gas and now R&D. So.

It's incremental a little bit cost is always important.

But this environmental piece is getting to be a bigger bigger driver. So I don't know if that helps you at all but we're seeing a lot of that.

I understand I mean the.

The rent is out there it's a federal program.

Yes.

Right. Okay. That's helpful. And then one more on hydrogen if I could Andrew you've spoken about hydrogen and fuel cells and transportation in the past.

But I was I was wondering if you could compare and contrast hydrogen fuel cells versus hydrogen combustion.

<unk> spoke about it during their analyst day hydrogen ice.

And some other players have talked about it for certain applications.

Does that come up in your conversations with customers and end users at all.

And then from <unk> perspective.

You have any preference one way or the other if it's a fuel cell electric vehicles or <unk>.

Burning hydrogen directly.

Or is it really all the same to you.

First it never comes up with a customer.

So I don't know who is interested in it but it's we don't ever hear that much from a customer occasionally youll hear it from a transit customer.

And I always want to remind you why that is.

I think they feel it's a part of their duty because they are funded by a 100% from the federal government on these kinds of projects is that there are testbed.

And so you see transit agencies do this we've got five new we've got five more rfps coming down the track right now, it's usually about 15% to 20 vehicles out of a fleet of several hundred.

Super expensive.

Tests these are hydrogen fuel cell buses.

So youll see the transit agencies do it because they think that's part of the.

They're social compact with getting free money from the Feds is to be able to do this kind of thing private sector is not serious about it.

Yes, so we don't really hear that now in terms of the look.

I'm not an expert on all this but.

I have said and I do think we will end up being somewhat right on the fact that we think that R&D will be a very viable green renewable feedstock and it will be available using the nations pipeline system. This idea that you are somehow going to put in a new hydrogen delivery.

System I, just don't think that's the best <unk>.

That could be that could be 50 years in the making.

By the time, you build plants and you start hauling hydrogen around pipelines of hydrogen that is a really a tall task. So I think the way that it will happen in the bridging to it for hydrogen will be through <unk>.

Fuel's transfer.

Fuel that will be transported using the <unk> delivery system, that's already put in place.

In the United States and I happen to think in the early next.

<unk> 10, 15 years that'll be RMG that will be reformed at the stations and I am not sure Greg if it'll end up being somehow put in a combusted.

As a.

No.

Hi, <unk> a blend of hydrogen.

Or if it ends up being put into a fuel cell.

The other.

I think the R&D will be.

The feedstock.

For the foreseeable future somehow maybe it gets blended with.

Some hydrogen perhaps.

This this hydrogen thing is very expensive.

Yes.

Yes.

People, who are casual about it but.

It's very expensive.

So I look at the we have 50 sales when they talk to fleet operators every day that are very interested in the bottom line and I don't see a hydrogen fits into that.

At all.

Alright, I always appreciate your color on and Andrew. Thank you. Thank you guys very much I'll turn it over thanks.

Okay.

Thank you and the next question comes from Craig Shere with Tuohy Brothers.

Hi, I just wanted to clarify on this.

JV distributions, so upstream to the partners by decade, 'twenty five 'twenty six maybe starting at the end of 'twenty four.

How should we think about this in terms of.

Self funding.

No.

<unk>.

The decline rate.

Equity contributions partners left to make over the next couple of years.

Well Craig.

I think we kind of.

I will say, we laid that out somewhat.

On the R&D day.

Okay.

So.

At some point there.

We probably will get to a self funding.

And.

At the portfolio project level.

Alright.

I think our model or at least what we laid out for the five year plan as we were being fairly simplistic and not getting.

We were not going down a variety of kind of capital structure.

Avenues, and so we kept it fairly simple.

Cash needed cash and cash comes out we could pay it but.

Frankly.

Yes.

We can we'll be able to lever projects and so there is not.

Not not anticipation on our part of.

Yeah.

Kind of blowing up the case with.

Added equity in.

That sort of analysis cell, but we werent going to.

Lay out our five year capital structure plan on that.

So we're just kind of took their EBITDA and it's.

Distribution available to the corporate.

The case will pay down some will.

We will start paying down corporate debt, we have kind of funded it through.

Clean energy corporate level would really be kind of how we would lever those deals.

That could be at the project.

Okay.

Gotcha.

Yes.

This raise.

The ratio I don't know if this is what you had in mind originally but.

Sounds like it could be.

Three or four to one.

Jackson number there is feeding into the projects.

Are you finding as you get deeper and deeper than most with your JV partners.

Or you are finding more and more ways to lower the all in unit cost delivered.

Just get more operating leverage than originally thought.

We are looking okay, I don't know Thats a little early on I think it's a little early Craig I mean, we our view is there'll be some synergies and some efficiencies.

I think I think the some of these early projects.

Been right in the middle of supply chain and steel.

Steel.

Some some increased costs, our hunches and our view is that some of those.

Costs will come in.

And I feel fairly certain of that but I would say through the the projects have been underway in the last three or four months that we've come up with a dramatic cost reductions yes.

Yes.

We're certainly we're on that path of that kind of mindset and thinking and hiring the right people.

Very mindful of this this should be kind of repetitive I mean, all farms and families around.

Around those are different of course, but.

The basic.

Basic setups.

I think have room for.

Thank you Andrew the industry the industry is trying to standardize tanks and.

The membrane technologies and the cleanup technologies all of that's come into play we did that we've done this on the station side years ago. It used to be that every station was built.

Sure.

It wasn't until that we understood the inlet pressure at a given location that we then went and designed to compressor totally unique.

Of art each one.

We stopped that 15 years ago.

20 years ago.

The same thing will happen here as we get better at it and do more of these.

Fair enough I appreciate it thank you.

Yes.

Thank you and the next question comes from Matthew Blair with Tudor Pickering Holt.

Hey, good morning, Andrew and Bob Bob I was hoping you could share a clean revenue.

From from L CFS, either in the fourth quarter.

I don't know you might have a full year number I think that was it was $5 7 million in Q3 do you have the Q4 number.

There was $3 eight.

Great. Thank you and then.

Unfortunately, it looks like the new Mexico.

Bill failed and and this.

<unk> been at this week after passing the state house earlier in the week.

I know, it's hard to predict politics, but are you expecting any other states pass.

And they'll CFS program this year and if so which ones are on your radar.

Well I was so I'm still hopeful that New York They are wrestling with it now this is not easy there either.

Sure.

They are in the throes of it looks to me like we have a fairly nice set up.

In terms of co sponsors in both the house and the Senate there the assembly and the Senate.

But we have more work to do there.

With the governor and with the particular.

Governing chairman there so.

More there.

I would say it was new Mexico in New York that we're the closest in terms of.

Ready to pass type legislation and then there's six or eight I don't have it right here in front of me.

Matthew but there is.

We've had discussions.

Our industry associations and players have had discussions in Illinois and Michigan.

Other states, New Jersey, and others, but I'd say, they're all year behind this I think the way we should all think about it is that these are likely.

These are likely kind of two year type bills.

Yes look you are putting in a whole new regime of regulation and obligations for industry and also this this isn't like passing a seatbelt band aid or.

<unk> helmet band data I mean, there is a little more too to it than that on this end.

Lots of interest.

Jake.

And so it's.

Reasonable to think these are.

We will take some fulsome.

Discussion and often in state legislatures that takes two years.

Got it thank you very much.

There has been.

Maybe this is a good place to put it in the.

Starting to read for the first time, a carbon like at RFS.

Carbon fuel.

Sure.

Okay.

Credit system National that is starting to percolate up from the industry associations.

Two.

Different groups in Congress and I imagine next stop administration there'll be a lot of work to be done there too, but that's the first I've always wondered why you would have sort of a national federal carbon fuel.

Program.

Like the RIN.

That sort of makes sense to me.

And.

Just this week I'm starting to read about some of the industry Association, making those pitches to members of Congress.

And the administration, so stay tuned on that too.

Great. Thank you.

Yes.

Thank you.

Jason <unk> with Cowen.

Yeah, Hey, thanks for taking my questions.

First of all wanted to ask about the <unk>.

RMG production ramp up that you provided during the R&D day there was.

Dark Green bar showing.

The R&D that under LOI can you just discuss what kind of rate of conversion you have from LOI.

Getting these projects.

<unk> executed it into the construction phase.

Well you know early in this we've had a very high hit rate.

90%.

Got it is there I mean would you say that a lot of the farms that youre cutting too you see a lot of competition on them or are you mostly the only.

No.

Okay.

We're seeing competition.

I wouldn't say it's.

It's not quite like.

And the RFP.

But no we are.

These farmers have heard from land, let's call them land men and women.

And developers.

I think that Wall Street Journal story, the other day talked about somebody saying that the particular farmer had 10 different.

People and so we're seeing some of that but.

No.

What I said on R&D day, I think is true.

And.

Humbly, we like our go to market sort of face here.

We're in the business, we've been in the R&D business, one way or another not necessarily at the dairy level, but for a long time for 14 years.

We've worked with our partners total and BP in this business for a long time, our partners have deep pockets.

And we have financial capability as well, we have a long term offtake.

Interest.

A lot of these farmers have heard about us for a long time. So we have a reputation and they know we have a national distribution system.

So we like.

Not really afraid of competing because we think we have a lot to offer and we as you could tell by the pipeline and all that we've been in the business now nine months.

And our hit rate.

We were able to move nimbly and so we like our or we won't get every deal of course, not but we like our our conversion rate and we like our chances.

Got it.

I also wanted to ask about California is all CFS program.

I know we've previously discussed.

The petition to remove.

<unk> from the Lcs program was denied but I believe it's still being discussed within the scoping plan. That's ongoing this year can you just talk about what youre hearing coming out of car right now and the appetite to.

And if at all.

The Harvey.

Carbon intensity or carbon.

Credits that are generated from R&D.

The last I think the most current thing that I've seen from they are b and we have people to work this real closely but the most current thing is to public statements from our B one in.

The net papers and the other in the Wall Street Journal, saying they like the program.

Is working and it's working.

Now they didn't have to say that and they get those things cleared and so I think thats fairly strong public statement that happened in the last couple of days.

Now.

Look.

<unk>.

The petition Youre talking about is a letter from the environmental Justice Fannie and that that's not going to go away that youre going to see that.

Continually.

But what I think has happened on that particular.

Interest, which is moving dairy farms out of the state of California, If you really want to understand what that really means.

As no dairy cows in California, that's what really what we're trying to get at here right.

And so that was referred to the scoping, which is let's.

No we deny your request here and let's talk about this later.

And another.

And another.

Yes.

Discussions format in another.

Period, So I think.

This probably is not the last we've ever heard of that but I think the fact is that.

The program is working.

The situation is you're capturing a lot of methane that you otherwise warrant capturing.

And so.

Nothing like success here.

Okay.

Got it and if I could squeeze just one more in.

Just wanted to ask if do you see any benefit in your business from California cap and trade program are you able to capture any value.

Even that those credits are moving higher.

I don't know.

Not really.

<unk>.

We're probably.

We're probably a little more on that.

On the receiving end of the cost if you will right because.

We have we are we have a little bit of some of our stuff like say, our LNG plant and things like that that come under cap and trade and so.

So.

But it's a hard one to.

Necessarily complain about because.

Frankly.

I'm also.

Quite happy when the CFS is at 200 itself right.

Yes, so we're not no we're not benefiting from it than it is.

<unk> has been a little bit of a cost to us but.

Relatively speaking we have a very small footprint when it comes to that so we're not talking about really even really big box, but no.

We've noticed that.

Alright Super Thanks for all the all the answers.

Okay. Thank you. Thank you.

Okay.

Thank you and this concludes our question and answer session.

Florida, Andrew Liberal fare for any closing comments.

Operator, Thank you and thank you all for joining US today, we look forward to updating you on our next quarter.

Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.

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