Q2 2023 Clean Energy Fuels Corp Earnings Call

Great.

Welcome to clean energy fuels second quarter 'twenty to 'twenty three conference call.

At this time all participants are in a listen only mode.

A brief question answer session will follow the formal presentation, if anyone should require operator assistance during the call Chris.

This class as far as zero on your telephone keypad.

As a reminder, this conference call.

Got it.

It is now my pleasure to introduce Jeff.

Robert Vreeland, Chief Financial Officer. Please go ahead.

Thank you operator earlier this afternoon clean energy released financial results for the second quarter ending June 32023.

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.

The call is also being webcast there will be a replay available on our 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 such.

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 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 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.

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.

Has been furnished to the SEC on form 8-K today.

With that I will turn the call over to our president and Chief.

Bob Good afternoon, everyone and thank you for joining us if you haven't seen it yet I'll note that we changed the format of our earnings press release, a bit that will hopefully make it easier to quickly see important data and highlights for the quarter. We know that many of you on this call are juggling multiple companies earnings so we want to make.

It is easy as possible and in that vein I'm going to also make my opening remarks, a little more concise and allowing us to get to your questions quicker So let's jump in.

Fortunately the issue of historically high natural gas prices being charged by California utilities began to normalize in the second quarter, allowing our adjusted EBITDA to improve.

$12 $1 million not only was this a $16 million rebound from the first quarter. It was over 20% higher than Q2 of last year.

Thanks in part to the opening new stations anchored by our customer Amazon, our RMG fuel volumes climbed over 17% in the quarter compared to a year ago to over 58 million gallons. We expect nice growth to continue through this year with planned openings in the third quarter of additional key stations in southern Cal.

<unk>, Texas, Washington State, Michigan, Maryland, and as I've said before it's great to have a large anchor customer and Amazon, but these stations are strategically located in areas around distribution centers and can easily handle additional fleets.

Revenue for the second quarter was $90 million remember this was impacted by $14 million of noncash Amazon warrant charges.

It's also slightly down from a year ago due to lower environmental credit prices, but those began to increase in the quarter and that's held up nicely.

The alternative fuel tax credit reinstated for three years and the inflation of reduction act increased revenue by $5 million in the quarter.

The rebound in our adjusted EBITDA growth in the R&D business, including upward trends in environmental credit prices and $192 million in cash and investments has kept our balance sheet is strong and supports our positive outlook for the remainder of the year and into 2024 the.

The strong demand for Orangey continues not only through our newly built stations, but we're adding customers at our existing fueling infrastructure.

For instance, Liberty Coca Cola, which is one of the country's largest coke bottlers signed a deal to fueled trucks in several several of our stations in the northeast.

Electrical Lux large appliance company and channel Island dairy farms have begun operating R&D heavy duty trucks for the first time in our fueling at our California stations.

Campbell's trucking companies deploying heavy duty trucks that will fuel at a clean energy station in Washington State, which has its new low carbon fuel program in place.

I told you on the last call about our recently signed partnership with Tourmaline, one of Canada's leading energy companies over the last three months, we have hit the ground running on the plan to build a network of stations throughout Western Canada by importantly, partnering with such a recognized and respected Canadian company. We believe this could be the.

<unk> for a significant surge in natural gas fueling by the heavy duty trucking market and other Canadian fleets, we couldnt be more enthusiastic about this relationship.

Our core refuse and transit business saw additional growth with new and the extension of larger contracts apology.

Apology waste company expanded their relationship with us in multiple California stations, several big transit agencies, continuing to grow their R&D fueling with new deals in the second quarter, including Big Blue bus in Santa Monica and Gold Coast Transit in Oxnard, California.

Also during the second quarter U S. EPA provided a vote of confidence for RMG feeling when it announced the final renewable volume obligation or V O manned targets with an average 30% increase for the next three years.

Both R&D customers as well as investors and additional R&D supply should be heartened with this significant increase in targets.

Our own R&D production projects continue to move forward with the del Rio dairy in Texas now operational and we are in the final commissioning commissioning on three projects that we expect to have online in Q3 with two more by year end.

As I said I'm trying to tighten up my prepared remarks, so I'll just end by saying we believe there are many signs pointing in a positive direction you've heard me several times about our excitement for the new Cummins 15 liter natural gas engine that is currently being tested by important fleets. So I will only add that when it hits the broader mark.

It's sometime next year, the timing couldnt be better not only will we and the entire industry have a significantly greater volume of low Ci R&D available, but fleets will have a new choice and a tested larger engine produced by one of the most reliable manufacturers in the world.

This comes at a time of continued uncertainty and cost with other new technologies.

And there are lack of reliable feeling infrastructures, we are pleased with our progress and with that I'll turn the call over to Bob.

Thank you Andrew and good afternoon to everyone.

As Andrew mentioned, our second quarter financial results bounce back significantly from the first quarter.

Our second quarter results for 2023 were largely in line with our expectations with the only notable negative variance on the quarter being a GAAP operating loss of $1 $4 million or negative $1 million and EBITDA attributed to our Texas LNG plant that was and remains under.

Prepare for <unk>.

Really we could see $300000 or more per quarter of positive EBITDA from this plants and of course, we're working diligently to bring it back online due to long lead item parts needed for repairs, we may not get that back in operations in 2023.

But it did have did have an impact.

<unk> on the on the quarter for sure.

Our improved financial results for the second quarter of 2023 were principally driven by the three factors. We mentioned on our previous earnings call starting first with the ramping up of RG fuel volumes largely coming from our trucking sector.

Second we saw favorable retail fuel margins at the pump driven by low underlying natural gas commodity costs in relation to oil and really the price of retail diesel and then the third items, we saw increases in environmental credit prices.

We did not see the full effect of the run up in the RIN prices, which occurred in late June and to put that into perspective.

Our weighted average RIN price realized for the second quarter was $2 16 versus more recent pricing thats been around $3 five.

Now we're anticipating that these three factors continue to positively impact our results in 2023, so we're maintaining our 2023 annual financial guidance.

Now looking at our year over year results, our GAAP operating loss of $13 1 million for the second quarter of 2023.

<unk> operating loss of $11 9 million a year ago.

Second quarter.

On the downside compared to a year ago. The second quarter of 2023 includes $9 $1 million of incremental noncash Amazon warrant charges.

And $6 1 million in lower Rand and El CFS revenues due to the lower credit prices.

On the upside compared to a year ago. The second quarter of 2023 benefited by $4 7 million from the noncash change in fair value of our fuel hedge.

And.

By $5 1 million in additional revenue due to the reinstatement of the alternative fuel tax credits.

Our adjusted EBITDA of $12 1 million in the second quarter of 2023 compares to adjusted EBITDA of $10 million for the second quarter of 2022 or 21% improvement.

Meanwhile.

The lower 2023, Rand and <unk> prices negatively impacted the second quarter of 'twenty, three when compared to 22 and that was by the $6 $1 million I just mentioned.

Our underlying base fuel margins service margins and the alternative fuel tax credit in 2023 more than offset the effect of the lower credit prices as well as some higher operating and joint venture costs, that's associated with our growth plans around the R&D efforts.

So effectively we improved our adjusted EBITDA by 21% over last year, I think Thats, a testament to our diverse financial model, where we have multiple drivers of margin for one component can compensate for another.

Okay.

As we did last quarter and we will continue going forward, we have disclosed the EBITDA components of our R&D supply business, particularly as.

As dairy projects are being placed into service. So having said that our adjusted EBITDA of $12 $1 million for the second quarter of 2023 breaks down as $13 5 million coming from the distribution business and a negative $1 4 million coming from our R&D supply risk.

Yes.

I've included a consolidating table of adjusted EBITDA in our company presentation, that's posted on our website.

And then.

Lastly, I'll say.

We remain on plan with our capital spending which called for about $90 million.

The distribution business and $40 million in the R&D supply business for 2023.

Although I'll note that.

Have a little over $100 million that's related to the JV that's off our balance sheet. That's also available to us.

And that R&D supply business.

And with that operator, please open the call to questions.

Thank you well now be conducting a question and answer session I would like to ask a question. Please press star one on your telephone keypad congratulations.

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One moment, please while we pull for questions.

Okay.

Our first question comes from Eric Stine with Craig Hallum.

Ahead.

Hi, Andrew Hey, Bob.

Hey, Eric.

So we're hoping.

You can just give an update you did a little bit in the prepared remarks on the upstream RMG. So it sounds like you expect to have six operating by year end.

Just curious beyond that I think in the past you've given a number of under construction.

Engineering things and then also what your pipeline is looking like.

Right right.

Right, Eric So you'll have six that are in kind of in the final throes of construction.

Now and then.

And then kind of the next.

What's called level, two engineering and term sheets signed and kind of the phase one engineering there is another.

Seven.

That number that I've used before.

And so those will go into into construction in early 'twenty four and then we have about four more behind that that are in <unk>.

Level one do.

Due diligence and development engineering, and then of course, our pipeline continues to be robust I mean, everybody has a large pipeline there is just.

Upwards of another 15 projects that are in the pipeline that are earlier.

That we're continuing to work on and the team is trying to bring those forward. We continue to feel good about it some of these projects have taken a little bit longer than we thought.

689 months ago, but we're making very good progress on all of these projects.

Okay.

And just curious I mean is the thought still I think you've talked about 105 million gallons is kind of a.

Maybe an interim target and with the with the RVO and credit prices better.

I mean is there any.

Is there any expansion to that number.

No I think that's still that's still the working number that we're using Eric.

As we Bob and I have said often is that we also believe there'll be opportunities to acquire projects, bringing them in from from others and we continue to work on that in terms of M&A.

Perhaps bring.

Bringing forward some projects that are under either under development by other developers and so we like that number and we.

We feel confident that we can get there.

Got it.

Maybe last one for me just on the Amazon stations.

Good color on on the build out there and those are in places whether fleets certainly are using those I'm curious though.

How Amazon is positioning that with their suppliers. I mean is this are you seeing instances of them.

Either strongly urging or demanding that their suppliers use natural gas as well as part of their.

I guess, what is the scope scope to our scope three emissions right well I'm going to let Amazon really speak for any more advanced.

Discussions, they're having with their.

There are third party.

AFP haulers, but.

We have said in the past that.

They have had.

Very constructive.

Conferences, where they've introduced the RMG to there theyre different haulers and so we and we've worked with them on that so we feel optimistic that they'll continue to bring the R&D heavy duty trucks into.

Into their fleet with those that haul for them. So what kind of time will tell on how that exactly all plays out but I know, it's something that they continue to work with there.

Their haulers.

Okay. Thank you.

Okay.

Our next question comes from Rob Brown with Lake Street Capital. Please go ahead.

Good morning, Andrew and Bob Sorry, Good afternoon excuse me.

Rob.

I just wanted to get a little bit.

More detail on the Amazon rollout sort of how would you say thats, where does that in terms of your plan. How many stations are now fully running and how many are kind of get to go for the year and into next year.

Okay, Rob Let me, let me do a little thinking your volume.

Yes.

We have what we announced with Amazon almost a year ago was 19 stations and what Ive said this year. So far is that by the end of this year, we would have.

All of maybe less one.

Open so we're still on track for that this is very important time, we have a logistics stations that are opening right now and that will open the remainder of this year.

We feel a lot of trucks in the network right now and I've said that before is that we have.

85 different stations that are.

Dominating Amazon heavy duty trucks in.

In the network now and though we're very excited about these stations they come online because they get immediately really overnight loaded with trucks that it'll kind of redeploy from other parts of the network that we may or may not be feeling now that'll be base loaded at the station so.

The program is kind of working.

As Amazon and we wanted it to.

Uh huh.

I think Amazon has said that they've fielded as many as 2000 or more trucks.

You can tell by the volumes that we're seeing in our trucking.

Going up that those trucks are coming online so it's an exciting thing.

We're also very mindful of the fact that this is.

I'd like to think that the Amazon deployment is is one that will be used with other significant fleets as they begin to look at how they would deploy these.

The Cummins 15 leader, that's what I'm very excited about that's what our sales force is working hard on with these different fleets that are now in.

Customer introduction and testing this summer with the 15 liter it's too.

Develop some light.

<unk> programs for these other significant national fleets as they begin to bring the 15 liter into their fleet.

Okay. Thank you.

Thanks for the overview, there and then and then in the RVO.

Kind of kind of specifics being settled.

The impact on your business do you see sort of better kind of better in pricing or do you see more R&D volume kind of demand coming through.

Well I'll, let Bob help here, but obviously the first impact you saw us.

I saw the.

<unk>.

The initial program, you'll remember called for perhaps some regulation.

That might Incent RMG to go to electric vehicles.

As you know didn't make the final.

The final rules that went in went into place now that May the Iran thing may come back at some point, we will see.

However.

I see it as it was real strong endorsement for using renewable natural gas for heavy duty transportation I think there's no way around that that that there was a recognition that this is a.

Very powerful and something that can be have to happen.

We put into place right now the first thing we saw is.

<unk>.

Immediate overnight strengthening of the of the rent price right from something around $2 to something closer to $3.10 that settled back into around $3. Five so that was significant.

Terms of.

Strengthening and then when you look at the RVO. So that's the.

Legations, the increase of R&D that'll be required.

Going forward over the next three years that.

Often Rob you will remember that that they used to kind of grow those that obligation about 12% something in that neighborhood.

And because there's so many projects.

In the works they move that up to 30%, so theres kind of a 30% growth rate over the next three years. So.

To me you put all this together it's very strong.

For RMG.

In transportation and in.

Generation as well.

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

Our next question comes from Jack Waldo.

Jeffrey Please go ahead.

Hi, guys.

Thanks for taking my question I actually just have one question I wanted to stick with the RVO.

With the Oh.

Although the run up in pricing what do you think about the guidance.

Your full year guidance compared to what it initially given do you think that there's any potential upside if.

Or in pricing stay where they are.

Yeah.

Well certainly it's.

Sean it's very helpful.

I'm being a little cautious on that because we had some headwinds there with the California situation and I think that.

That was one reason why we were able to maintain our guidance because there were some question as to how we could weather a storm like that from in the first quarter, but.

This.

The room was factored in and and frankly.

The fact that it's maybe gone up more than what we would've factored in is within our range.

Got it thank you.

Our next question comes from Manav Gupta with UBS. Please go ahead.

Okay.

So first question on the card side.

There is growing chatter that they didnt next few weeks they would be meetings and then even if the final regulation doesn't come up there is a very strong possibility that carb is looking at.

Reset of the program I know higher reset, which helps everybody out so on.

On that front, you, obviously talk to Cobb.

Do we have any kind of insight from you on that front.

<unk> I think youre right.

The chatter is that.

The kind of the new program. If you will the new outlook. The new regulations are kind of in the works.

Not altogether cleared the timetable of that Vince.

Been suggested that could happen go forward be published here in the next two weeks or the end of the month. So I think it's.

So obviously, it's coming then then as you know probably then there has to be kind of a period.

For comment and then it'll go forward.

Late in the year.

Hopefully to the cardboard for approval.

That could that could even move into the early part of 2024 and then those rules will be in effect sometime I believe late in 2024.

Our view is in the a.

A lot of the commentary has been that this is a great opportunity.

I think there's a general understanding that the that the low carbon fuel standard in California has worked and has been very effective and so there has been.

You remember the choices, where would you increase the the obligation from a.

A reduction of carbon from 20% to 25%, 30% 35, there are studies and there's commentary from the industry that.

That theres enough R&D available.

Theres enough renewable fuels available lower carbon fuels that could actually make it so that the state could you actually go beyond 35%.

Speculating, whether or not they do that here, but I think.

It looks like carb is beginning to.

Tend to understand that this is a great opportunity to increase targets increase the obligation curve.

Lower the carbon thats being used in the state and then so I'm thinking that you could see something on the aggressive side.

Closer to the 35 now this would mean that you would it would be I think tremendous for all of above.

<unk>.

I think it'd be great for the state, but it'll be tremendous for those of us that are in the R&D business. The state will need all the R&D you can get that.

And that should be constructive to.

L CFS pricing going forward and I think you know likely once.

If it goes this way manav and it targets go to on the aggressive side I would guess you would see kind of a.

A market response early and then of course I think the L. CFS would you then strengthen out into next year as it becomes clear what this is going to mean.

To be able to.

For obligated parties.

So our fingers are crossed we're working hard our teams are working we're fully engaged with the <unk> staff Board members.

Those in government air regulators to make them understand that we have a fuel that's ready to go today and can help the state move toward its stated goals of being a 45% reduction by 2000.

Well I think Thats 2040, so.

It's necessary for them to be aggressive if theyre going to hit their own stated targets.

I agree with you I have.

One question that keeps popping up and we don't agree with it is that some of their somebody stands, but theres not going to be supportive of R&D.

R&D I know you have addressed this in the past, but have you heard anything on that side, because we firmly believe R&D should be part of the card program and should not be kicked out under any circumstances.

Well Manav you an ICI die on that there are some that believe that.

Methane that's captured a dairy you should somehow not be in the in the program and the low carbon fuel standard program and there's those that have suggested that it should be eliminated.

I think this would mean that you would have a renewable diesel program in the state of California, I'm not sure that Thats exactly what <unk> wants and then I'm not sure. It's altogether clear you can hit the targets that they want if you eliminate our fuel which is so low.

Our low carbon so.

I'm, not saying that there arent those that.

Would want that but I kind of believe we believe I think the industry's feeling better about the fact that.

<unk> is recognized and as said so at these different workshops that that.

Renewable natural gas is an important part of the low carbon fuel standard program.

So.

Youll see that and I don't believe Youll end up seeing that be the case.

I agree with you My last question here is.

When we sometimes people don't give you enough clarity for something which is the third party volume growth. So could you just remind everybody Oh, you're talking about.

The LNG volumes are growing in 'twenty three 'twenty four 'twenty five.

Is the pipeline looking on that front.

Yes.

Looking as we've planned it most.

Most of all all of our volume this year and.

Is third party, so we've kind of laid out that.

Growth rate on the third party.

And Thats looking good.

There is a lot of work that goes behind that securing we've got over 60 suppliers.

And.

We continue to tap into.

The R&D sources as they come online we have good partners.

That are in that space, particularly BP, where their recent acquisition so.

We're feeling good about Manav, it's a fair point, though I mean, we we bring in we still account for about 50 or 60% of all the R&D and transportation. So we source from all of US every RMG.

Provider that's out there. So we have a team that works really hard cultivating those relationships and bringing on those contracts and yes. We have good growth on that on that front and we're going to need it.

Even at the end of 2026, if you looked at our plan that we laid out that we that we're sticking with is it called for about 100, a little over as was mentioned earlier on the call of 105 million gallons of our own.

Equity.

Supply, but we still need and with the growth that we see in the trucking area we need another.

<unk> 400 million gallons of third party RMG. So it's an important part of our of our of our business going forward.

Thank you so much.

Our next question comes from Derrick Whitfield.

Please go ahead.

Good afternoon, Andrew and team and thanks for taking my question.

Sure you bet there.

With regard to your pipeline.

It's been kind of at that 15 to 20 level for a few quarters, what do you see as the greatest impediment to advancing those opportunities into the contractual and engineering phases.

Well I don't know if its an impediment derik I think Jesus they resist reality that these take some engineering right and Theres a lot of considerations in terms of the Interconnects and.

Each dairies all the different on what needs to be solved in terms of.

The cleanup and the composition of the newer and how it is handled and so there's just lots of things that go into I wish these projects and I happen to believe that over time, we'll be able to.

Make these a little bit less.

Custom if you will.

But theres just a lot that has to go into it and we're still learning as we go now we're gaining a lot of experience with our with our construction folks in our engineering teams and we build out a bigger team here now to be able to handle it.

I don't know that it's any particular impediment, it's not necessarily equipment.

We saw that a year ago, where we had some long lead time.

Situations with certain.

Cleanup.

Technologies, and some steel, but I think thats.

Generally resolved itself.

Now.

But but going forward, we will get better at it and bring these things on but they do take they take some time to get through the.

The engineering phase and and it's probably time well spent to make sure that you have a project that can.

Meat.

Bring on the fuel at the carbon intensity is designed in and meet the.

The returns that we've that we've figured out.

Great that makes sense and maybe shifting over to policy for my follow up now that we have full rulemaking in place.

Around the ITC.

How should we think about the capex implications for your upstream business over the next few years.

Alright.

But there are I would say we're motivated to.

Accelerate whatever capex in.

The ITC period.

So we're.

We are managing.

We're managing our projects to under kind of that.

Mandate.

Alright to take advantage of it first and foremost I mean, we were fortunate that we had a number of projects in place before the inflation reduction Act. So.

That was kind of gravy on top of the returns but.

Now as it is kind of and then were.

Definitely part of the conversation is timing on starting the construction by the end of 'twenty four.

On that.

So we're basically trying to take advantage of that.

As much as possible.

And maybe just a follow up to that do you see it more in the 30% to 40% range as the potential benefit for you.

Yes.

Yes.

Yes.

Yeah.

Going from the 30 to 40 can.

And there are some nuances there.

Domestic content in a number of things but.

But frankly.

They.

I think the projects are looking pretty good on that on that front.

And in that range.

That's great. Thanks for your time.

Uh-huh.

Our next question comes from Michael.

Please go ahead.

Hey, good afternoon, Andrew and Bob It looks like your R&D share of total volumes rose to a record.

81%. So congrats on that however, your capture of rings revenue. These past two quarters has been lower on a percentage basis than what we saw in 2022.

Is this just timing related or have there been any structural changes.

And how much.

Marine revenue Youre, receiving for these LNG volumes.

No nothing structural Matthew.

I think just kind of normal.

Normal market dynamics, but you know we have.

You have to also look at LCL fast I mean, we look at both.

Kind of together on that so.

But I think it's just.

The.

We look at it together with the Al CFS and.

You're seeing there.

Normal activity on our from our standpoint, there's no structural changes.

Changes going on there.

Still good money.

Comfortable with all of that yeah.

Sounds good and then Bob I think you mentioned that Texas LNG plant may stay down for the remainder of 2023.

If that happens what's the total EBITDA headwind approximately in 2023 from this outage.

Well.

I mean, this quarter I won't say they will necessarily sustain what happened this quarter I mean, we're going to.

Really try to have equipment going in to capitalize it but you know there's there's still work that at all.

Testing on some of that so.

We were what I said is that that plant could jen.

Generation.

300, K or more.

In that neighborhood and a quarter of EBITDA.

That depends on how you want to look at it if you if you can.

Come up with a negative then frankly, that's $1 $3 million.

Correct.

Really what it was to our second quarter in my view, because it was negative $1 million and we should have made about 300000. So.

The rest of the year could be a couple million bucks.

One more.

And we've factored that.

You know again I'm looking at our guidance and just all things considered.

That level that was enough of a headwind and it's kind of binary that plants, either operating or not so it was a home.

That doesn't just kind of get absorbed into the normal activity. So we called it out.

So we will get a repair and I get that.

And again, but that that'll have some impact.

Okay.

Great. Thank you.

Our next question comes from.

Havel motion with Raymond James Please go ahead.

Yes.

Thanks for taking the question.

We have a lot of questions on.

Carb.

Policy also literally today there was a statement by governor knew some about a new hydrogen strategy for California might be a little early for you guys to comment on specifically that that statement, but can you just talk more broadly.

About your approach to.

Kind of the green hydrogen economy.

Yes.

Thanks.

I don't have a comment on what the Governor may have announced today, though.

<unk>.

We actually.

Had a board member who has since rotated off our board who was kind of I would say on the cutting edge of.

Hydrogen policy in the state of California, So often our board meetings, we discuss this with our board of directors how we.

Would participate.

We've been kind of clear barbell, and I think you and I have talked a lot about this I mean.

We have a hydrogen fueling station and have had for almost 10 years, we actually got into the hydrogen and we called it at the time high teen.

Years ago in Canada, we build a station now twice at our La station. We recently brought on a new state of the art hydrogen fueling station for one of our customers.

We're out with Rfps for three or four of our transit properties right now, where we would build them stations and provide hydrogen.

We see that RMG could likely be one of the most elegant solutions for our low carbon feedstock for hydrogen in the future now having said that while we understand high pressure fuel. He believed that R&D running through the pipeline reformed infestation could be just a dynamite way to be able to.

Deliver hydrogen to fuel cell vehicles in the future, but theres more work there that needs to be done and don't count on us to go out and inspect hydrogen fueling locations, yet we need to see some we need to see the industry be able to come along with vehicles.

But we are working with some of the largest industrial hydrogen companies in the country.

And whether they have ongoing discussions with them, we happened to think that R&D will be a player in that.

We have a we have a 49% ownership in our compressor company, that's in Canada, and Italy, we have acquired a hydrogen.

Presser.

Company and bolt that on there thats doing very well right now so we're gaining lots of.

Understanding about how our network will be ready to go to deliver hydrogen in the future, but it's out there are always a little bit barbell, we are trying to learn about how our RMG might.

B.

Available if you will or.

We participate in the low carbon fuel standard program, because I think there will be money made there.

To provide a.

Super low carbon hydrogen so I think there'll be a play for us there as well, but we're kind of in early innings on how clean energy will participate in the hydrogen economy, though.

We're as well positioned as anybody because we have the infrastructure to be able to deliver it.

Yes.

And then maybe.

Shifting north a bit to your recent deal with tourmaline.

Still obviously early days in that but do you have a sense of how big that fuel station network in Western Canada can ultimately become.

Well.

Just a couple of things and Bob at our company is actually the chairman of that joint Development Committee for our company. So I'll, let him speak to a little bit but.

I've been involved in Canada, almost for 25 years I've got a couple of important things that worked well first off you've got a huge resource base of natural gas in Canada.

And you have pretty expensive diesel.

In Canada as compared to so you have very good economics, you have a very important largest gas producer in Canada as our partner.

And so the.

We have some stations on some of the highly <unk>.

Traveled corridor and Eastern Canada now this focus from formerly we're gonna start out in Western Canada, where they have long a lot of truck activity that goes from Calgary.

West.

And.

That joint venture.

The program right now contemplates building 15 stations to start.

We'll start let's be clear, we're going to start with four or five and then we will depending on demand we will move to 15 and then eventually I think.

Our friends at <unk> believe that you could need as many as 30 stations out there in Western Canada.

So it's exciting, but it's going to take a little bit of time, we will get those first four stations up we're working with the largest fleets now.

We're already fueling one of the largest trucking companies at our Edmonton and and we've.

Our purchased.

Land for our station in Calgary. So we're excited about the potential we will get those first four up and then we will begin to.

Gauge how quickly we need to bring more stations online.

The roadmap is the.

The roadmap is there.

Terminalling is.

It's nice working with them and seeing their motivation too.

Displace diesel as the fuel there and frankly can be with natural gas.

<unk>.

We start the initial.

Agreement was $70 million Canadian so $35 million each to kind of start this first wave.

<unk>.

The timing is good because the.

Synced up with a 15 liter engine, which is very important in Canada and so we are going about as fast as we can just to get these these stations for stage one is up and running and then the remaining three.

And I will coincide really with the with the 15 liter.

Truck coming in which look is going to be.

Kind of coming in mid to late 'twenty, four and not really necessarily big meaningful volumes, but so you're you're kind of looking into 'twenty five on <unk>.

Some of this but.

The progress that we will make from between now and then will be really important.

To talk about.

Last question. This is a little bit below the radar I think more recently for you two years ago, you started participating in this.

The Port project, I guess Im long beach, maybe somewhere else on kind of the marine space.

How is that going.

No. It's good thank you.

That just for those that may not be familiar this is where we are.

There's been a.

And year effort and we've been involved in it from the beginning to the dirtiest air quality in the air shed in Southern California is the port.

The ships.

Haulers in and around the port and so theres been effort.

Renditions of clean air trucking.

Programs at the Port and.

This program, what we call the adopt port with Chevron.

As where chevron has put up money, which we have largely spent now and it'll be we'll be it'll be topped off with a new.

New tranche.

Where we have working with chevron using their balance sheet, if you will.

We've made grants to.

Our trucking customers in the port that may have some public grants as well to purchase new natural gas trucks and then the deal here is is that we'll buy.

RMG from Chevron there are supplier at our stations and those trucking customers then are obligated to buy certain amounts of fuel from us at our stations as that's the Chevron. So it's kind of a win win win which brand new Super low carbon RMG trucks into the port.

I think we have almost 400 trucks that have participated in the program. We've got another couple of hundred that are kind of in the queue to get funded.

And kind of get through that.

I've talked to Chevron about topping off the money that's in there to add to it I think they are.

There have been very supportive of program will probably expand it.

It's not.

It takes a while because you have to buy a new truck and there's a lot of.

There's a lot of grant and public things you got to go through so it's not as fast as any of us would like it but it's been successful I mean at the same time barbell Theres, probably been 15 2030 electric trucks with all of those.

<unk> public statements about that we're going to zero trucks zero electric trucks and the poor I don't know Theres, probably 30 operating down there maybe 15 are parked we've got 480 500, R&D trucks operating everyday in the ports. So I think it's been a huge success.

Thanks very much.

Okay. Thanks.

Our next question comes from Ryan Todd with Piper Sandler. Please go ahead.

Good Thanks, maybe if I could just.

Follow up on a couple of comments from earlier.

There was a question earlier on the ITC as I know the IRS provided some guidance on transfer pricing for the ITC.

What are your.

What do you understand or like what's your expectation in terms of what the timing might look like for you to start monetizing some of those do you need to wait until is that clearly a 2024 event can you start monetizing some of the stuff earlier or what are the what are the bottlenecks too.

So you guys monetizing some of these some of the ITC is at this point as far as you understand it.

Not really bottlenecks.

Ryan I would say were.

We're going we're going through the process of qualifying all the expenditures that.

At the location. So we're kind of following the process I've got teams of folks that are.

Coming up with.

What are the qualified capex expenditures and then.

And then were.

You know frankly, we're kind of putting our feelers out on that.

On the market in terms of what the transfer market looks like.

I believe that it'll be more of a 'twenty four I'm not in a.

In a rush to need capital, but that doesn't mean, we're not we're taking our time on going through the process.

And making sure making sure that we understand at all on what kind of claw backs there are in.

Uh huh.

When you go through a transfer like that so we kind of want to have it all buttoned down.

Uh huh.

We're counting on the money in print.

Principally for this first wave of projects in 'twenty four.

Okay.

That with our partners, we get 50% of the value that we.

The capital that goes into the total project, but.

But we intend to likely transfer ours and monetize it.

Okay perfect that's helpful and then.

You mentioned earlier some of the early tests ongoing on the 15 liter engine.

Have you heard any early signs of feedback on anything there and any thoughts on.

Maybe how the timing or milestones might play out over the next year in terms of.

In terms of testing and feedback and when you might.

When you think you might see like the earliest signs of.

Around visibility around potential uptake of that engine.

Well you know.

I think it's important first.

Ryan to just kind of remind everybody well this is a new.

New engine is not exactly right I mean, we've had they've had great success with this natural gas heavy duty engine in China and.

I think last year, they sold 35000 of these.

So now this engine has improved on that engine, but it's essentially it's in many ways the same so.

I think it's important for those listening to understand that this isn't a test of a brand new.

Heretofore untested product right this isn't.

Also this is really a fleet introduction so.

Cummins is very careful about the way. They do these things that are either in a rush they want to make sure that everybody that they've got it right because that's their name after all in there.

They do this on diesel so.

I used to hear about the five testing dates of hail or whatever come just.

Can you talk about.

Uh huh.

It is important that they have lined up some of the largest fleets in America. So this is this is.

This is Amazon and UBS, and Fedex and Walmart, so they're not they're not planning on studying their total year because they've got to all the boys boys girls that can really buy big trucks are involved.

Knight Swift and Werner and.

And J B Hunt.

I feel that that's really important and I think theres 40, some odd that will be our in this introduction phase this summer and those are out there happening now now we've heard anecdotal stories and I don't want to get ahead of Cummins here, but we've heard good things.

The driver acceptance so far we know that some of those are being tested in sort of the toughest.

Hi.

<unk>.

The grapevine in California, and Rocky Mountains, So, yes, I think thats great.

Theres been an improvement in the fuel economy, which is would come in so it wouldn't be the case, so I think that's great.

I don't know that I have the latest other than we know that there's always takes a little longer than we think because the order book was supposed to be maybe open in Q3 Q4, I'm not sure how that's going I think it's safe to say, though that.

Would if youre looking for milestones it'll be you know how did it go what is the feedback and we will get that some point here for some of these big fleets.

It'll be late this year, though and then you'll begin to have serious order book open up I'm guessing either late in 2003 or early 'twenty four but don't look for those orders get built into sometime in Q.

Q2 of 'twenty four is my guess and.

But it'll be interesting to see what those initial orders look like.

I think.

I think we've moved past and I know that Cummins and I put words in your mouth here now.

Is anticipating as these will be more substantial orders I think we're past the days.

Years ago, when we did the first <unk>.

7.9, 12 leaders it was a fleet, saying that they would take too.

We're now dealing with fleets that can buy substantially more than that and so I think we're thinking it's going to be orders of hundreds and not and not.

Five.

So that's good news and finally, we've gotten to those that buy a lot of trucks every year.

Big turnover and that's what excites us that finally, we've got an engine. After all the 15 liter engine that accounts for something like 75% of the diesel engines that are sold and we haven't had it.

So I think this is an important for the industry.

Great. Thanks, that's great color.

Our next question comes from with Scotiabank. Please go ahead.

Great. Thank you, Hey, Andrew Hey, Bob.

Afternoon, Thanks for taking that.

So my first question is just on kind of trucking demand. So we've heard of.

Softer e-commerce, a weaker industrial production and so on having some.

Impact on shipping demand and other logistics. So I was just curious if that's had any impact on your volumes at all.

We really haven't we haven't really seen that.

I mean, it's.

Oftentimes the natural gas engines are the ones that get us. The most so if there is going to be a little.

Back down on some of that it's they're.

They're not going to pull our natural gas engines out of the mix I mean, our trucking volumes up.

Right.

I'm not doubting that thats been the case, we just haven't seen it in our <unk> and R&D.

Our limited you know.

Exposure to it not something we're managing around or through right now.

Okay great.

Great and then.

A question on kind of your full year guidance, you've kept that the same.

And you know.

We're going to need about $47 million in the back half of the year to reach the mid point there. So.

These $20 million a quarter.

Can you maybe give us a bit more color on.

What gives you the confidence to reach that and then I know you mentioned.

We're ramping R&D volumes favorable margins and a favorable credit pricing maybe can you talk about what you're assuming for kind of pricing specifically for the remainder of the year.

<unk>.

Yeah, well I'm kind of.

While I'm assuming.

That the RIN kind of stays maybe up around where it is right now it possibly could go higher but I'm not I'm not going narrow in on that.

So I think that RIN jump was good and that kind of keeps us there.

And we feel that the.

Now CFS could go higher than where it is right now too.

Now.

Quite a bit higher than what we had.

Additionally in our.

Forecast if you will for this year, which was around the low 60 like 62 63, so you're already we're already seeing some improvement from that.

The biggest driver on that is as we've talked about will be volume. So that all the factors are very important absolutely.

There are meaningful but I mean.

Ultimately as we open.

More stations.

And that's really where the that's really what drives the margin the most but all of those.

The rent credit are definitely meaningful I mean, you're talking about multiple millions of dollars that helps us get there I mean frankly that the.

The disappointment is we're trying to.

Recover from a bit of a ding are there in the first quarter, but we.

The external environment looks.

All around favorable in our view, so that with really the volume and it's a ramp up so.

You don't necessarily divide that.

For the year by two.

We'll continue we'll see.

A ramp but that's how we get there.

Great. Thank you.

Our next question will come from Jason that was along with calling.

I hope.

Hey, it's Jason gave him and good afternoon.

Hi, Jason.

I wanted to go back to the RMG upstream volumes as they're beginning to ramp up it sounds like limited earnings contribution this year, but can you just remind us.

The timing for the certification process on the <unk> on the Rins and when do you expect those gallons to start contributing positively to earnings.

And I.

I guess tied to that maybe frame the dollar per gallon.

Potential and given the current.

Credit prices that we see out there and then finally, if you could comment on potential uplift from the clean fuel producer tax credit and your outlook for when we should hear about that and I'll leave it there. Thank you.

Okay got those bath.

Yeah.

Yeah on the.

Well, you're right Jason on the contribution not really meaningful.

In fact, there's maybe a little bit of.

Net drag from that.

In 23 from the R&D supply because.

Of that certification process. So.

We're going to look into.

Later in 'twenty four and.

We're going to really be able to monetize that and thats been a little I mean thats, assuming we get these commissioned as we.

Our stadium here and then taking.

The time on the El CFS that can be.

12 months.

Alright, so thats kind of puts us towards the.

Latter half of 'twenty four so the contribution.

24 will be.

Minor I'll say there'll be contribution.

In 'twenty four from from them.

The projects that go into.

We commissioned this year.

I don't want to give 24 guidance right now.

On specifically, what the numbers are going to be but I mean, where things stand with our construction and whats injecting gas and then the certification process youre going to Youre going to go into 24 before year.

Monetizing that from a ran al CFS standpoint.

But we'll.

We're always evaluating opt.

Optimization of.

At what point is the best time and makes sense to monetize because theres different markets out there that can will take that so this is where I.

Get into.

Or it will be steady in 'twenty, four and what we want to do with the gas that we're producing.

Alright.

Maybe we don't store at all.

And then we don't then we don't have to wait for the certification process as long if.

If we get an appropriate price.

Yes.

Oh.

And then just thoughts on the clean fuel producer tax credit.

If you've if you've heard anything from inside the beltway.

<unk>.

If it comes in at the high end or low end in.

In terms of allowing negative carbon intense.

Intensity without a lower bound and timing on when we could hear an update.

Okay.

Haven't.

And we haven't heard anything on that front with that.

So.

What we can.

We're.

Listening to others that no.

No.

Negative $2 50 in <unk>.

Beyond.

<unk>.

That production tax credit gets.

Large per gallon.

And that $5 six dollar a gallon kind of category, we will see if that.

Let's see how that plays out but.

Well I don't have anything meaningful.

Yeah on that 45, we haven't heard anything on the timing of that or when that might be promulgated or when the secretary would deal with that now I haven't heard that yet Jason we're at we're listen.

<unk>.

We have our tentacles out, but we haven't gotten picked up anything on that yet.

Understood.

Thanks for the answers I appreciate it.

Great.

<unk>.

There are no further questions at this time I would like to turn the floor back over to and then later <unk>.

We will comment.

Thank you operator, thank you operator, and thank you everyone for.

Joining us today, and we look forward to filling you in on our progress next time.

Thank you good evening.

This concludes today's conference call.

Correct.

Thank you for FX all of them have a good day.

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