Q2 2022 Clean Energy Fuels Corp Earnings Call
Okay.
Yeah.
Yes.
Please standby.
Good day and welcome to the clean energy fuels second quarter 2022 earnings Conference call. Today's conference is being recorded at this time like to turn the conference over to Mr. Robert Vreeland, Chief Financial Officer. Please go ahead Sir.
Thank you operator earlier.
Earlier this afternoon clean energy released financial results for the second quarter ending June 32022.
If you did not receive the released it is available on the Investor Relations section of the company's website at Www Dot clean energy fuels Dot com for.
For the call is also being webcast.
There will be a replay available on the website for 30 days.
Before we begin we'd like to remind you that some of the information contained in the news release and on this conference call contains forward looking statements that involve risks uncertainties and assumptions that are difficult to predict.
Words of 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 forward looking statements are not a guarantee of performance and the company's actual results could differ materially from those contained in such statements.
Several factors that could cause or contribute to such differences are described in detail in the risk factors section of clean Energy's Form 10-Q filed today.
These forward looking statements speak only as the date of this release company undertakes no obligation to publicly update any forward looking statements or supply new information regarding the circumstances. After the date of this release.
Company's non-GAAP EPS and adjusted EBITDA will be reviewed on this call and exclude certain expenses that the company's management does not believe are indicative of the company's core business operating results.
non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP.
And should not be considered as a substitute for or superior to GAAP results.
The direct the directly comparable GAAP information reasons, why management uses non-GAAP information a definition of non-GAAP EPS and adjusted EBITDA and a reconciliation between those.
These non-GAAP and GAAP figures is provided in the company's press release, which has been furnished to the SEC on form 8-K today.
With that I will turn the call over to our President and Chief Executive Officer, Andrew Little Fair.
Thank you Bob Good afternoon, everyone and thank you for joining us.
We are very pleased with the results of the second quarter of this year, both by the numbers and by the trends that we see in our business with the strategies that we've put into place over a year ago.
These strategies are beginning to show real results.
Fuel volumes of 107 million gallons were up year over year more than 5% compared to the second quarter of 2021 and revenues came in at over $97 million.
Comparing the revenue number from the second quarter of 2021 is hard because we had a large initial noncash revenue charge related to the warrants we issued.
The Amazon last year.
Taking last year's initial charge out revenue in the second quarter of this year was up by 40%.
Despite the continued uncertainties of the economy supply chain, Covid and volatile energy prices.
As we told you on our last call our adjusted EBITDA should increase throughout the year, which it did.
Q1 was $3 3 million to $10 million in the second quarter.
And just as importantly, we saw the margin our fuel volume increased 12% from the first quarter of this year. The 48 cents a gallon that's despite lower prices on the credits from California's low carbon fuel standard and the federal wind program.
I believe this is a testament to the diverse and recurring revenue nature of our business model.
Fortunately, the Lcs as and when prices have stabilized and even arisen slightly over the last month.
In the second quarter of this year, we had positive cash flow from our operations and we ended the quarter with $187 million in cash and equivalents after making additional investments in our RMG joint ventures with total energies and BP.
This performance positions us with a strong balance sheet as we continue to expand our R&D production and supply offering.
Anyone who has followed clean energy for very long knows that high on the eternal optimist about the future of our proposition.
But I have to say I cannot remember a time.
That I have been more enthusiastic about what's going on in the alternative fuel market and specifically with renewable natural gas for heavy duty vehicles.
One of the reasons for the optimism was highlighted in an in depth article that appeared a few weeks ago and one of the leading trade publications heavy duty trucking about the new Cummins 15 liter natural gas engines.
Someone's officials quietly began to talk to about this new product last year to those of us in the industry.
But recently they have stepped up their public communications.
I have not really seen them do over the last two decades of our close Association.
Some of this is general manager for their natural gas business was quoted in the piece that customers have been asking for a 15 liter engine for over 10 years with Goldman's wanted to wait to bring a larger engine the market until the time was right and they were confident there would be demand for it.
Now is that time.
The article goes.
Detail about our gummies took the learnings of the previous generations of their 12 nine at six seven liter natural gas engines are confident that they are design larger engine that will be well received by the heavy duty truck market.
Not only will this engine to provide more power and torque, but it will do it weighing 500 pounds less than their current <unk> liter diesel engine.
Some of the enthusiasm for this new 15 liter natural gas engine as powerful to say at least.
The new 15 liter engine is already operational in China and is expected to be commercially available in the U S. In 2024, but some of the largest fleets in the country plan to test the new engine.
Early next year, including Walmart order and Tyson foods just to name a few in fact come in said it received a request for more than 400 different fleets to demonstrate the 15 liter natural gas engines.
These requests were from existing customers, which had been operating the 12 liter natural gas engines, but really for me more exciting. Many other fleets that have never looked at natural gas before wanted to be on the list.
We need you are the GM they've done it said in the article that one of the main reasons why now is the right time to bring a larger natural gas engine for heavy duty trucking to the market is the introduction and expanding availability of renewable natural gas.
According to G&A consulting RMG represented 98% of all the natural gas consumed in the California vehicle market in 2021 and over 60% nationally.
For clean energy those figures are 100% in California at over 75% nationally.
I've spent a lot of time on these calls regaling, the environmental benefits of R&D. So I won't repeat myself other than to say it is a greater beneficial effect on climate change and reduction of greenhouse gas and electric.
So why wouldn't a heavy duty truck fleet that is looking to reduce the submissions look at RFG.
We have been hearing for many years about the hundreds of quote unquote reservations for new heavy duty electric trucks from a handful of <unk>.
OEM with nothing but a few test trucks to show for it I'll remind you that Elon musk, who deserves a lot of credit.
For his success in the electric passenger car market rolled out with great fanfare. The Tesla semi in 2017 and said it would be commercially available in 2019.
Yet here, we are in the back half of 2022, and it's still out of <unk>.
And if Tesla is having difficulty with manufacturing a battery.
Large enough to power heavy duty truck or it has rethought the obstacles involved and I'm not sure who can anytime soon.
If I were making a bet I place a chip on a manufacturer of truck engines, that's been in the business for over a century and that one has been that has been also producing an improving natural gas engines for 20 years.
The offer of heavy duty fleets commercial alternatives to diesel that will provide them the sustainability benefits they're looking for.
Something else that would come and said in the article and I wholeheartedly agree with him is that he rejects the notion that RMG as a bridge fuel.
Now, let's let's pivot to our upstream RMG business.
There's been a little over six months since we rolled out our R&D plans on R&D day, and I am pleased to say we are not only executing on that plan. We are ahead of schedule in some key areas.
For instance, we set a goal of executing contract contracts, representing 25 million gallons of low carbon dairy RMG by the end of the year and it looks like we will be over 29 million gallons.
We wanted to add three dairy projects completed by the end of 2022 and it looks like we will have four completed three of which should be injecting orangey into the pipeline.
Right now we have seven projects under construction.
We intended to have eight projects under construction by the end of the year.
And we are on track to have nine by the end.
By the end of the year and another seven projects are in the final design and permitting permitting stages.
We know.
We've been bumping into representatives from other companies that have recently jumped into the RMG production business out in the farmland.
But what distinguishes clean energy from others with the with dairy owners is our ability to bring these savvy business owners, a large customer base of fleets Thursday.
RMG.
Demand.
Few if any other companies in the business can offer the assurance to have a steady monitor position of dairy owners RMG like weekend because of our downstream downstream fueling infrastructure.
No there will be a <unk>.
Seminal event that takes place on September 28 outside of Columbus, Ohio. The demonstrates exactly at this point as you know, we announced last year that Amazon contracted with us to build 19, new stations to fuel their rapidly growing fleet of R&D heavy duty trucks. It is deployed.
The Amazon fleet fuels with Us daily.
All over the country and is already fueled at over 85 of our existing clean energy stations, but next month, we will be cutting a ribbon on the first of these 19, new stations that we designed and constructed from the ground up specifically for Amazon.
We will also be available to other customers.
Besides the local officials and Amazon executives joining me on stage in Columbus will be have embarked owner of the South Fork vary a 3300 milking cow farm in Newark, Ohio.
We recently signed a contract with <unk> to develop a digester that should produce a half a million gallons of RMG a year when completed.
It will be a great demonstration of the beginning to end benefits of R&D with the dairy owner, who will be able to solve the issue of fugitive methane.
For Ms cows manure standing alongside a logistics, operator, who will be running a fleet of heavy duty trucks with a cleanest fuel in the world that originated from that theory.
The new station, Ohio looks awesome.
Multiple fast fill dispensers 50 time, Phil dispensers, and 110 parking spots for Amazon RMG trucks.
Amazon is up to I guess over 3000, RMG trucks purchased with more to come and there are fuel volume at our existing stations grew by over 40% from January to June of this year.
We expect that growth rate to only accelerate as these new stations come online the.
The station in Ohio is the first completed several more will be opening soon after that.
A few other recent wins that I would like to quickly mention are the signing of contracts with three large new transit agency in Fort Worth Texas.
In Virginia, and Sacramento, which represent over $5 8 million gallons a year.
We also are expanding with our longtime customer South Jersey gas by building a new station for a larger natural gas fleet.
Republic services is adding another 110 R&D trucks here in California that will fuel at a station in Carlsbad.
Yeah, Portland are good ready mix customer continue to expand its RMG truck fleet last quarter.
And the finance program, we have with Chevron to put new R&D heavy duty trucks into the ports of La long Beach continues to have success with over 730, new trucks, either already financed are working their way through the approval process.
Much of this success is being driven by our grants department, which has secured grants through multiple California programs for dozens and dozens of heavy duty trucks.
For our.
Customers in addition to the Chevron financing program.
I am pleased to report that fuel volumes in all of our segments refuse transit heavy duty trucking and fleet services and airports group in the second quarter.
I've gone on a little long and I know, you're anxious to hear from Bob.
Hope you can fully appreciate whereby optimism comes from that I mentioned at the top of my remarks.
The prospects of the opportunity offered by <unk> have literally changed our business and given us.
The ability to be a significant player in the world's effort to tackle climate change.
We are executing on all levels from the RMG production side down to the construction and first rate operations of fueling stations for new and expanding customers.
And with that I'll hand, the call back to Bob.
Thank you Andrew and good afternoon to everyone.
We had a good second quarter compared to year ago, as well as a nice rebound from our first quarter.
Higher volumes and higher margin per gallon drove better results.
I will jump into the overall results and then give some more color on some of the key metrics starting with our GAAP results, we reported a GAAP.
Loss of $13 2 million for the second quarter of 2022.
Compared to a GAAP loss of $79 $7 million last year.
Now last year's second quarter included contour, a contra revenue charges of $78 $1 million from the Amazon warrant.
But it also included $5 2 million in income related to the alternative fuel tax credit, which was not in our second quarter of 2022.
The contra revenue charge related to the Amazon warrants in the second quarter of 2022 was $4 8 million.
So last year's charge was much larger because it included an initial vesting charge that was within the $78 million of $76 6 million that was tied to the signing of the Amazon sales agreement.
On a non-GAAP basis, our loss for the second quarter.
Ending June 32022 was 848000.
Dollars versus a non-GAAP income of $1 8 million a year ago.
But last year included the $5 2 million of alternative fuel tax credit income.
Andrew had mentioned our adjusted EBITDA was $10 million for the second quarter of 2022 versus $14 million a year ago.
Again, the $14 million includes $5 2 million of alternative fuel tax credit income.
On the cash flows our cash flow from operations in the second quarter of 2022 was 27 4 million.
And our Capex spending was $10 million.
And a year ago, our cash flow from operations was $9 7 million.
Capex spending of $4 six.
The increase in the cash flows in 2020 to reflect both positive operating results and improved working capital.
As I mentioned the performance in the second quarter was driven by increased volumes and an increase in the margin per gallon and the volumes were up from a year ago and actually from the first quarter of 2022 across all the core sectors of refuse transit fleet services and airports and trucking.
Our R&D volumes were 50 million gallons in the second quarter of 2022.
Representing a 17% increase from a year ago and up 26% from the first quarter of 2022.
And on volumes that we've planned as we've mentioned we plan for our volumes to build during the year, we saw that in the second.
Quarter and it was nice to see the R&D volumes.
Building as well.
Our margin per gallon improved from 25 cents a gallon in the first quarter of 2022 to 28 cents a gallon in the second quarter of 2022.
And a year ago, our margin per gallon was 26.
The improvement that we're seeing in this second quarter was principally due to higher fueling gallons, coupled with higher retail prices along with the greater R&D gallons and this is ware.
The diversity in our margin buildup works in our favor.
I mean, we would prefer to have more stability across the commodity and the environmental credit pricing spectrum.
But the second quarter demonstrated that our margin per gallon can increase in a higher retail fuel price market.
Despite.
Some headwinds on the environmental credit pricing.
And we see this we see this dynamic.
Into the third and the fourth quarter so what.
What I mean, there is that yes, we have contemplated.
Lower RIN and al CFS pricing through the end of 2022.
But we also see.
Continued favorable margins at the retail level as we saw.
<unk> in the second quarter, so our fuel margins overall should come out as expected for 2022.
Briefly on revenue our effective revenue per gallon was <unk> 91 per gallon in the second quarter of 2022.
Reflecting the impact of the higher pump prices mixed in with our maintenance prices, which are not.
Very volatile at all now.
Now the 91 cents per gallon compares to an effective price of 67, a gallon a year ago.
And 88 in the first quarter of 2022.
Particularly compared to last year, our revenue per gallon was up 24 cents, a gallon and that contributed about $24 million to the year over year increase in revenue.
Now our commodity costs per gallon also rose, but that rose about 22 per gallon.
So between the rise in the revenue and cost per gallon we gained.
Two cents per gallon in our favor on the margins so two cents.
100 million gallons is meaningful.
Number to the quarter.
On the Opex or SG&A and <unk> and also other cost in the R&D joint ventures for the quarter for the second quarter of 'twenty two were in line with our expectations. So nothing significant too.
Really call out in that area.
Then from a balance sheet standpoint, we.
We did contribute $51 6 million into the separate BP joint venture to meet some capital calls.
Relative to the dairy projects in that joint venture, we did that during the second quarter, but at the end of the quarter, we had $187 million of cash and investments on our balance sheet.
And we've as we've noted that we're in the process of securing a modest level of debt at the corporate level.
With the idea that as our R&D projects come online at the towards the end of this year, we will put more financing will be supported at the project level going forward.
All of that is still in play as we've discussed.
And with that operator, we will open the call to questions.
Thank you if you'd like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to Larry No Tree chart equipment again press star one to ask a question.
And we'll take our first question today from Eric Stine with Craig Hallum.
How are you there.
Eric I didn't hear anything but I hear you now go ahead, Okay. Alright, you hear me now good.
Well first maybe on the supply side I know coming into the year, obviously expecting significant demand for RMG.
But knew that that at least in 2022, it would be a challenge to keep up with that so I mean, obviously $50 million in the quarter. That's a that's a strong number but maybe.
Maybe where do you stand in supplying that our LNG from third parties, while you're while you're working towards bringing on your own volumes.
No.
Go ahead go ahead go ahead Bob.
Yes, Eric I'll say.
Yeah.
Yes, no. We're we are in good shape on that on that front. So we're still looking at the total that we had put out there I think of 100 around 194 million gallons and so all of that supported with appropriate supply and in fact to that point during the second quarter that was that was it.
<unk>.
Part of of going up to $50 million from the first quarter, we earned about.
I think $39 7 million. So there was a nice jump in.
A lot of that was with new producers in new supply new supply coming on and when we look we look good going out the rest of the year.
Got it and then I would assume that you feel you still feel very good about your goal by 2025 and 100% of your volumes will be R&D.
Eric what I then.
We've been doing above and I've been doing different investor calls and I think we've probably talked to you about this too I mean that R&D day.
I would I would encourage people to.
Looking to the extent they have some extra time to look at it because we really are.
Lisa.
At present and six months in we're really using that as a good template as a as a good plan and we're ahead of that plan and so you know as you know in that plan, we talk about needing a 105 million gallons of our own equity dairy gas and then <unk>.
Finding that with third party landfill.
Land fill in dairy gas going forward.
300 million gallons or more of it.
We still like that plan and we are working for that and we're ahead of it right now so okay.
We're kind of on on point.
I hope, we'll have to do more right.
To meet demand, but right now we have some of that built in and it's.
We're on it.
Got it and.
Maybe just turning to Amazon just to clarify did you say up 40% year to date on volumes and then curious just what are you seeing in terms of their suppliers I know obviously, they're planning to use this in their own heavy duty fleet, but their intention is also to push it down to others that they do business with.
Right and yes, 40% when you look at January to current volumes.
June so theyre up right. So that just means they're fielding more trucks are putting more drivers and trucks more drugs now I'll get into soft land here on what I'm allowed to be talking about four for Amazon. They want to control that I did look at their sustainability report was just released a few days ago, that's where I got the 3000 trucks that I felt.
<unk> mentioning the market that's a 2021 number.
Okay.
So.
I didn't I didn't that's what they've purchased said they purchase.
So, let's just say Eric that we continue to see more trucks being delivered on a weekly basis.
I'll, let them speak to the numbers.
Like everybody else.
Notice in the some of the reports on truck builds here in this last quarter way off I mean, there is there is a choke point on delivery.
Supply chain of people getting trucks.
And I am sure Thats affected Amazon as well accept.
They've ordered a lot of trucks and we're seeing those begin to marshal at these new locations for us and Thats very exciting.
And you can see some of that online without me.
No.
Speaking on their behalf you can see some pictures that have been released from them about trucks that have gathered at different locations that either our existing stations or some of our new one so I'll just leave it at that but we're excited about their deployment.
Yes, no fair enough and then lastly, just.
The FTC I mean, what are your thoughts.
How are you feeling about the.
Inflation reduction act and if not in that Bill I mean, do you see other paths by the end of the year.
Look we'd.
We'd all.
Eric We'd all go broke trying to necessarily a guess on exactly.
Washington is going to work right, but.
As we all watch now this the news slimmed down.
Definitely this deficit reduction act as the if the season that as you know.
So for those on the call that may not be familiar with that the FTC has in that bill for a three year extension. So it would be retroactive for this year and then goes goes forward and so.
Yeah.
I think that that underscores sorted the bi partisan nature, I don't know whether or not that that bill is going to pass.
I mean, I think we have to see how.
They need to 50 votes on the Democrat side.
I tend to think of it.
Will.
There's a lot in that bill.
Everyone in the Green space Green transition spaces, all trying to get up to speed on exactly how all of these different provisions work.
Because there's a lot of new language in that Bill. So I think it's very supportive and supportive of the alternative fuel tax credit supportive of.
<unk> fuels supportive of R&D.
So theres a lot more to learn there but.
To speculate on whether or not I think thats going to pass or not I'm not sure.
Like the fact that the alternative fuel tax credit keeps showing up is bipartisan.
In these bills and and if the.
Reduction Act goes down the deficit reduction Act goes down for whatever reason I feel very confident we continue to that the AFDC youll find its way into the extender package or an omnibus bill and it'll be enacted later later in this Congress.
Okay. Thanks.
You bet.
Next we'll hear from Rob Brown with Lake Street capital.
Okay.
Good afternoon, Andrew Good afternoon, Bob.
Our first question is on.
I'm kind of the demand environment. What are you seeing in terms of incremental interest with fuel prices here is it a is it driving incremental demand or is it really around the <unk>.
Situations.
So I think it's both Rob I think it's a good question I mean, there's certainly has given impetus for discussions with our sales force and.
And these large fleets.
<unk> and.
I would imagine.
When if you've done a rollback in.
That whole point I was talking about with Cummins and 400 fleet that really surprised me.
I knew that I knew that there was 30 or 40 fleets that at some of the largest fleets had indicated to cummins that they wanted to be involved in the testing of that new engine.
400 was strong.
And I think that's surprised everybody.
And I'm sure that that has.
That then that all happened as this fly up in oil prices happened in diesel prices went up substantially.
And also the availability of R&D, so I kind of think it's a twofer.
Certainly our sales force is add more discussions about fuel pricing.
We can offer a very.
Compelling fuel price right now big discounts at the current diesel and I'll look at it.
There has been a a.
A reduction in the price of diesel is kind of generally.
West Coast more expensive, we're still see pet pricing for diesel out here in California.
And now it's come off.
And in the nation is still above $5.
It is still very significant and we still can offer very compelling price for R&D for our customers and so we're having those discussions and I think thats important and not only is do we have a fuel price advantage compared to diesel I mean, we have the cleanest fuel on the planet.
So it's a.
It's a compelling market.
Being able to go to market with those two things is really strong.
Okay.
Okay, Great and then and then on the sports for the LNG market, how do you see that kind of coming through and what's sort of the impact to you is it really on the production.
Supporting the production side or do you see sort of help on the call.
Downstream as well.
Rob I am sorry, I sort of missed the first part of your question.
Yes, it really how do you see additional R&D.
R&D, our dairy R&D support and the.
This tax bill and how does that impact you.
Well, if theres a bunch of different placeholders in there I mean, I say placeholders I mean, I think we're all trying to get our arms around it.
There is there is different things on kind of an investment tax credit kind of things.
There is.
Which is.
Steve.
Yes.
Can you hear me Rob.
Yes, I can hear you.
Okay. Good because I've just told that we dropped some of the others here drop their call. So.
There are some things on the investment tax credit side, which we're trying to get our arms around and see exactly how that would play that would be compelling there's grant programs for equipment.
And there is there are some.
Credits it looks like.
Almost akin to the alternative fuel tax credit that looks like.
Ending on the carbon nature of fuel that's for transportation that would be involved.
I don't want to go too far here and get too speculative, but it looks like you cobble together a lot of support in there.
A little bit more than I thought at first blush, and then of course, there is the alternative fuel tax credit so I think.
I guess, Rob the way I look at it as I've never been.
Of course, we appreciate the fact that we have support and that we have bipartisan support for some of these things I've never felt like you've heard me say over the years I've never felt like we had to add any of this.
Right now R&D is compelling.
With the credits as it is and these things just sweeten it.
It does cost more to bring R&D either.
Sure.
The capture methane and put it in our pipeline and delivered it does cost more than fossil natural gas.
It's a lot cleaner to and it's a lot less carbon.
We certainly appreciate it we appreciate that there is a bunch of things like that in this bill.
I'm sure it'll it'll help drive on the demand on the supply side.
And.
And I think.
The R&D.
Credits that Mike.
Let's call it incentives that might be in this bill will help on the demand side as well so it's probably.
That's pretty good for us.
Okay.
Yeah.
Thank you and I'll turn it over.
Okay. Thanks, Rob.
Thank you next we'll hear from Manav Gupta with credit Suisse.
Tom.
Last question I had was more on the cob side looks like things are moving in the positive direction Gavin Newsome actually sent a letter detailing carved the needs to raise the targets for carbon reduction and there are others out there who are basically saying look at the cob, thus follow through with some of that there could be some support for CFS price.
So that's part one and then for some reason I don't know why the debate keeps coming back with people say well R&D will not be part of the CFS. Scott. That's still caught up has been very supportive of the entire LNG proposal and even data pharma and G. So if you could talk a little bit about what's going on at garden. How you strongly feel that Danny if online LNG will remain.
A part of CFS credits.
Yes.
Thanks for bringing that up I mean this is one of these things, it's just a very difficult depth.
I feel that.
There's an echo chamber going on here.
Based on the environmental Justice communities.
XI or that it's that RMG dairy R&D not being.
In the deal I think we've had now several public workshops that a scoping plan I don't know how much more clear.
B, the California Air Resource Board can be about the fact that they see that.
Dairy RMG.
Yes.
As an important component to the plan so.
No.
Keep addressing it.
There is some some in the analyst community that wanted to keep talking about it I don't know, where it's coming from but it looks to me like and as you mentioned the governor just as Wade in again and I think that when you look at the.
The all of the information Thats recent on this.
Dress scoping the recent comments from the governor the workshops.
<unk> recognized that it's working.
And that the.
It's likely that theyre going to increase the compliance curve and I think all of this is going to end up being.
And I think most understand that it is going to end up being supportive and constructive.
Low carbon fuel pricing in the future.
But.
There is the 30% investment tax credit in there.
This is quickly which could help you. This was not a it earlier available for biogas engie like if this does go through it means you can achieve a lot more with the same amount of capital because essentially you will be getting paid back 30% of the money you spend through peso can you talk a little bit about how if this does go through.
That helps <unk> do more with the same amount of money.
Okay, So youre manav.
Manav, you're exactly right. So I've been trying to be careful on it.
Counting the chickens before they're ACH.
That is a very compelling in this in this bill right.
There is a tax credit that's a refundable tax credit and.
And yes, it would be significant for us.
Because if you look at the years that we're that ITC would be in <unk>.
Bob It matches up perfectly where were spending several hundred millions of dollars right.
So you got it would reduce the capital and affect the capital that would be spending.
And it would it will allow us to do more for less amount of money.
So thank you so much.
Thank you so much for taking my questions.
You bet.
Yes.
Operator are there other questions.
Oh, Yes, we do have a question from Matthew Blair with Tpa itch.
Hey, good afternoon.
Hoping to understand a little bit more on the.
The margin increase to 28 cents per gallon this quarter from 25.
Last quarter it looks like your R&D share moved up to 47% versus 41, but then it also looks like your.
Cogs per gallon was actually exactly flat quarter over quarter, even though natural gas prices moved up quite a bit. So I was hoping you could just kind of help us understand the dynamics. There are there any hedges in place how protected you from rising natural gas prices in Q2.
Yes, Matthew no. This is Bob.
No theres no hedging in there but.
And I'm not I don't know exactly what you're.
Looking at with the flat.
Cost because our cost.
And you're referring to the first quarter.
Right Yep.
Okay.
Okay, Yes, and so they were up a little bit from that but.
Because we saw a fairly high commodity costs.
In the first quarter two right I mean, so there was that was already a little bit baked into the first quarter.
So we didn't see a big and so.
But what we did see was kind of retail prices, even moving further north so that's where we are.
We're just the economics of the underlying commodity kind of where we shine when thats going on.
There was not a big movement.
And when you say cost.
Okay are you referring.
Benchmarking.
Benchmarking US yes, yes, I mean, just to the environment out there.
I mean, that's our main.
That's kind of the main competition and Thats just the dynamics of.
How how pricing moves.
Natural gas versus say oil.
Right I mean, I don't have a huge refined product going on and so theres a bit of leverage there on my commodity versus when pricing moves.
Yeah.
And so as as that oil has.
Been expensive and therefore diesel than your <unk>.
Youre just at an overall higher price.
Environment, but my commodity doesn't necessarily have to move.
In parallel to that.
Okay and.
If I'm looking at this correctly it looks like your overall station count actually went down by about 20 stations and <unk>.
Q2 versus Q1 was that a result of high grading or.
No.
No that was that's.
Thats a result of how those.
How they got reported I think that the one that you're looking that you are referring to has Canada.
One of them has candidate and the other one doesn't have it in it.
So like the recent one we.
We made a clearer indication of.
Kind of U S and Canada in the prior one is combined.
Okay. Thank you very much.
Yeah.
Youre welcome.
Well now hear from Craig Shere with Tuohy brothers.
Hi.
Afternoon, and congratulations on a good quarter.
Thank you thanks, Chris.
So.
I guess, what I wanted to get at because a lot of questions about all CFS and everything but.
And tell me if I'm thinking about this all wrong or not but it seems.
Ultra low Ci fuel.
And quantity helps drive down LC LC FFS.
Displace thing.
The landfill slightly positive.
Yes.
With the ultra low there their events from third parties.
As to your margin.
So for whatever I mean, who knows.
Another year, and a half or whatever until new carb targets kick in.
If we see a broader market.
Kris and the ultra low.
Dairy.
Perhaps at a level or rate that was quicker than you thought.
That could be margin positive to you.
As Lcs.
<unk>, a little challenge for year or two MSA that right.
Yeah, I mean on the same on the same volume count.
If it's a different if it's dairy versus.
Landfill.
Correct.
We still see a margin impact positive margin.
That is correct.
I'm not sure you want to speak specifically to this but maybe general color.
Thoughts on.
As you had 50 million LNG gallons in the quarter on.
On the comparative mix of dairy and that and weather.
Pace of what is flowing through your nozzles.
<unk>.
The aggregate Ci score is getting lower quicker than perhaps you thought.
Okay.
Yes, I would say.
On that.
Craig that.
Where.
Yeah, I mean, it's we're kind of on plan with that I mean, we were.
With the Ci and the.
And then the amount of low Ci it is certainly increasing.
As a percentage of our.
The L CFS volumes going up but we were planning that to go up but I can tell you that.
Then.
Within the portfolio.
Of the R&D that we do.
We deliver.
That.
That Ci score.
Is.
Getting lower.
And it's it's sub zero.
So observed euro on average or just.
Just for California or nationwide.
For the for all the R&D.
Just the RMG volumes, if you threw in all volumes then you would start to go.
Probably be a little bit north.
It would be closer to zero or something so but.
I'm being very focused on.
The portfolio of R&D gallons and which.
As we've said is.
At this moment.
But it's moving.
But yes, its moves low Scott Craig your kind of your instinct Craig's right. It moves fast down right because it's so low.
Okay.
Yes.
Yes, it does.
Does it move fast.
Thank you.
We're seeing.
Smoothed fast even from Q1 to Q2 within our portfolio.
Okay, that's what I was.
Trying to get at a little bit so again.
Yes.
What's driving the soft LCL is also driving or youre downstream higher margin.
It's a natural hedge.
Craig.
Exactly.
Craig if I understand I kind of understand what youre, saying is youre.
Sure.
Youre kind of cautionary, saying well you know.
You ended up being.
In effect, you have a little bit higher margin, but could you, but but because youre going to be generating more dairy in California could you in effect be creating so many.
Putting a damper on the on the price and.
And I think in general that's right I think and I'm not smart enough, yet and there's probably people on the call that model it quickly quicker but.
The difference of going from 20%.
Compliance curve to 30.
Kind of where I think youre going to be significant so youre going to need a lot.
Of ours, so I don't know that youre going to.
That it's going to the speed is going to pick up the reduction here. The compliance curve is steepening right over a shorter period of time and it's going to really I think it's going to end up putting great deal of pressure on the pricing.
And I don't know, how it offset I hear where you're coming from but you'll see what I mean.
That's a big difference between 20, and 30 and a five year period.
I agree okay.
Yes.
Yes.
Next we have we have a question from Pavel <unk> with Raymond James.
Yeah.
Thanks for taking the question.
One of the other interesting provisions of the inflation reduction Act.
Our first ever.
Tax credit for Green hydrogen.
And you.
<unk> taken.
Kind of a mixed perspective on on hydrogen and transport historically.
This thing were to pass would you.
Be open to perhaps introducing hydrogen fueling.
<unk> our existing stations.
Well.
<unk> as you know.
We happen to think that that.
RMG as maybe the best feedstock for that in the first place right and so we've long supported that and as you know.
Yes.
We have.
Hydrogen fueling station and we're building, we're finishing one right now we just bid on two more.
But I really see this as it's on the demand side right you got to have vehicles.
You got to have better technology in terms of I think this will all help on the hydrogen.
But.
The last thing that anybody wants us to do is to start building speculative.
$25 million of hydrogen fueling stations for no demand.
And.
I'm sure. This is going to help in the market, we've got lean level quite a ways to go on the commercial.
Viability of this.
Green hydrogen.
And so yes, we're open we do it right now.
We're probably a leader in it in many ways for transportation as it relates to our customers who are using all federal dollars by the way there is or there isn't.
Any private.
Fleets that I know of in the heavy duty and are sectors that are.
And afford to do it.
But where it makes sense and where folks are using federally funded projects were in the mix.
And to the extent that there's becomes the demand or theres vehicles and maybe this legislation will help push that forward, which I think goes out quite a few years brings it forward we will be ready.
We have the customers.
Our stations can make themselves available.
The hydrogen will do we need a little help from the industry in terms of the Reformation and cost cost is still super high on hydrogen.
Let me ask a housekeeping question.
Depreciation expense on the income statement was.
Less than $11 million.
The last two quarters.
But you are guiding to.
$55 million for the year so.
It looks like it's going to step up to.
16 or $17 million per quarter is first of all is that math accurate and if it is what's the reason why.
Yes, Thanks <unk>.
We are going to.
I'm anticipating that will accelerate.
The depreciation on.
On a certain number of sites.
That we will be relocating.
Now some of those are tied into the pilot locations where.
Where they have some remodeling.
Our repurposing needs and so we've.
And we've kind of looked at that together to say well. Okay. If this then opened.
Or volumes.
There.
Then too.
Together, Okay, we'll move that equipment, so I've put in.
I've put in an estimate of about 8 million bucks or so for that kind of one off event. If you will.
That's not reflective of.
Of a new run rate.
Okay.
So for next year, we should not assume.
These X ray opinion.
Yes.
Correct.
Should still.
I mean.
There'll be a little bit as we bring on the Amazon stations right. So we're going to kind of get a globally there will be some of that.
To go the other way so it will take it up so I don't know that I would say.
We're going to be at this.
$11 million, a quarter, which would put us at 44.
But I think.
As the stations come on.
You could get.
Another $4 million or $5 million of yourself.
I think you'd be in that $50 million.
Range for depreciation on kind of a normalized rate.
Okay very helpful. Thank you for that.
Yes.
Our final question today will come from Greg Watson Koski with Weber research.
Yeah, Hey, good afternoon, guys How're you doing.
Good good.
Hey, Thanks for squeezing me in here.
Good ones are gone so I'll, just I'll keep it to one.
On the 15 liter engine when when talking to customers about that you get a sense that there is a portion of fleet owners, who may be in the absence of the 15 liter engine, maybe would have already made the transition over to natural gas or would be making it imminently, but since the <unk>.
15 leaders kind of on the horizon in the next couple of years or just kind of hanging on and waiting for that.
Oh.
Greg It's a good question and we always and I've been through this a long time with different versions and Youre always a little worried about a chilling effect right or why would you buy something.
And I'm sure, there's a little bit of that.
A lot of fleets.
In order to have sort of the universality and be able to move.
These these big national fleets that want to have the flexibility to put.
Trucks kind of anywhere in different.
No.
Hill in different trains operating characteristics.
<unk>.
They really want is a lot of them wanted the 15 liter.
And.
Years ago, I mean, I'll just use.
Picking on them I, just know and they were very candid about it.
J B Hunt long thought that the 11 nine just wasn't exactly what they wanted.
And.
They felt like it really needed to be 15 later and frankly, you know when you look at the market share of I don't know, 75% or 80% of the big over the road guys.
<unk> 15 liters thats, what they want and Thats, what Cummins understands and so could there be a little bit of people the debt.
<unk> well they didn't want to be there.
I want to go in and they're going to wait a year I'm sure there'll be some of that on the other hand. The 11 nine is very well suited for day cab use.
A lot of the regional what we see in natural gas RMG alive. It is all of these Amazon drill in <unk>.
And because it's a day cab application and they don't load out all of those trucks, even though the over the road trucks. So it's plenty for them. So.
I think youll still see a pretty good demand on the $11 nine as you wait for the.
Yeah, that's a good point on the Amazon trucks, alright, Thanks, Andrew I'll leave it there.
Okay. Thanks, Greg.
That will conclude today's question and answer session I will now turn the conference over to Mr. Andrew Little fair for any additional closing remarks.
Operator. Thank you. Thank you everyone for joining us today, we look forward to updating you on our next quarter.
Have a good day.
Thank you. This concludes today's call. Thank you for your participation you may now disconnect.
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