Q3 2024 Clean Energy Fuels Corp Earnings Call
Andrew. Thanks for the music.
Please stand by. Your program is about to begin.
Speaker Change: If you need assistance during your conference today, please press star zero.
Speaker Change: Good day everyone, and welcome to today's Clean Energy Fuels 3rd Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing Star 1 on your telephone keypad. You may withdraw yourself from the queue by pressing Star 2.
Speaker Change: Please note this call may be recorded and I will be standing by if you should need any assistance.
Speaker Change: It is now my pleasure to turn the conference over to Mr. Robert Vreeland, Chief Financial Officer. Please go ahead, sir. Thank you.
Robert Vreeland: Thank you, Operator. Earlier this afternoon, Clean Energy released financial results for the third quarter ending September 30, 2024.
Speaker Change: If you did not receive the release, it is available on the investor relations section of the company's website at www.cleanenergyfuels.com, where the call is also being webcast. There will be a replay available on the website for 30 days.
Speaker Change: Before we begin, we'd like to remind you that some of the information contained in the news release and on this conference call contains forward-looking statements that involve risk, uncertainties, and assumptions that are difficult to predict.
Speaker Change: 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.
Speaker Change: Several factors that could cause or contribute to such differences are described in detail in the risk factor section of Clean Energy's Form 10-Q filed today.
Speaker Change: 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.
Speaker Change: Company's non-GAAP EPS and adjusted EBITDA will be reviewed on this call and exclude certain expenses that company's management does not believe are indicative of the company's core business operating results.
Speaker Change: non-GAAP financial measures to 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.
Speaker Change: The directly comparable GAAP information, reasons why management uses non-GAAP information, the definition of non-GAAP EPS and adjusted EBITDA, and a reconciliation between these non-GAAP and GAAP figures is provided in the company's press release.
Speaker Change: which has been furnished to the SEC on Form 8K today. With that, I will turn the call over to our President and Chief Executive Officer, Andrew Littlefair.
Andrew Littlefair: Thank you, Bob. I'm pleased to report that our strong performance in the first half of the year continued through the third quarter.
Speaker Change: reported $21.3 million in adjusted EBITDA for the quarter versus $14.2 million in the third quarter of last year.
Speaker Change: Sold 60 million gallons of R&G during the quarter and brought in $105 million of revenue versus $96 million for the same quarter in 2023.
Speaker Change: And we ended the quarter with a little over $243 million in cash and investments. All in all, a very solid quarter.
Speaker Change: Specific Operations.
Speaker Change: As an example, during the third quarter, we opened another state-of-the-art station through our contract with Amazon in Bordertown, New Jersey.
Speaker Change: We are already seeing steady fuel volume from Amazon trucks utilizing both time-fill posts specifically built for them, as well as the publicly accessible fast-fill dispensers.
Speaker Change: Horton Town Station is strategically located along one of the busiest trucking corridors in the country, right off the New Jersey Turnpike in Interstate 295, halfway between New York City and Philadelphia.
Speaker Change: The other 17 that we've built under that contract.
Speaker Change: But an additional benefit is that these stations have allowed us to expand our fueling network by almost 15% this past year for other heavy-duty truck fleets.
Speaker Change: These stations are in key locations in preparation for the future adoption of renewable natural gas fueling associated with Cummins X-15N.
Speaker Change: Peterbilt and Kenworth trucks that are equipped with the X-15N continue to be tested by the most important fleets around the country and are receiving extremely good reviews.
Speaker Change: The likes of Warner, Walmart, UPS, and Nightswift are running these trucks non-stop.
Speaker Change: over the toughest of terrains.
Speaker Change: We are particularly excited about launching our own X15N demo truck program last quarter.
Speaker Change: Clean Energy's new Peterbilt 579 day cab tractor equipped with an X15N was delivered to the first customer, J.B. Hunt, in September.
Speaker Change: Amy Hunt tested it for several weeks in and around Southern California and Nevada. It was then handed off to Juan in his book
Speaker Change: through next year, working its way across the country. In fact, J.B. Hunt has asked to get back in the queue to operate the truck again along different routes.
Speaker Change: Police are gathering important data and experience from testing the X-15M. For instance, during their experience operating our demo truck, J.B. Hunt found that the truck got significantly better fuel mileage than the 12-liter, while the drivers noticed the additional power and torque.
Speaker Change: Juan ran the truck from Fontana, California down to the Mexican border and over different terrains, highways, and urban routes.
Speaker Change: We believe truck orders and deployments will increase next year, which we would expect to drive additional fuel volumes at our stations in the second half of the year.
Speaker Change: Our friends to the north are also giving us reason for optimism about the X-15N's impact on the heavy-duty market.
Speaker Change: Bob and I were in Calgary, Canada a few weeks ago to celebrate the opening of a station that we constructed under our partnership with Tormalee, one of the largest natural gas E&P companies in Canada.
Speaker Change: I stood with Mike Rose, Termline CEO, in front of multiple Mullen and Martin Brower natural gas heavy-duty trucks to cut the ribbon at the Calgary station.
Speaker Change: Murray Mullen, the CEO of one of Canada's largest third-party carriers, explained very nicely at the event.
Speaker Change: that with the long-distance routes, cold weather, and extreme terrain in Western Canada, natural gas is really the only alternative fuel solution that works.
Speaker Change: Canada is serious, if not more so than the U.S., about reducing emissions, which is why they are embracing and promoting natural gas heavy-duty trucking.
Speaker Change: Another clean energy tourmaline station in Grand Prairie, Alberta opened at the same time as the Calgary station and with an existing station in Edmonton, we now have the first link to a new natural gas fueling corridor for heavy-duty trucks in Western Canada.
Speaker Change: We recently broke ground on the fourth additional station and identified locations for three others which is perfect timing for the arrival of the Cummins X-15N in Canada.
Speaker Change: We offer the transit market different fueling solutions and it continues to remain strong. As an example, we announced last quarter that one of our largest agencies in the country, Harris County MTA in Houston, awarded Clean Energy a contract to build a private fueling station, which is one of the largest transit stations ever awarded to us.
Speaker Change: The station is expected to use about 2 million gallons a year to fuel Houston buses.
Speaker Change: We currently provide 60 different transit sites for 32 customers around the country with R&G. In fact, just last week we moved NICE
Speaker Change: the largest transit agency in Long Island, New York from C&G to R&G benefiting the bus system both sustainably and financially.
Speaker Change: Another solution that we offer transit agencies is the construction and maintenance of hydrogen stations as agencies begin to explore that alternative.
Speaker Change: As you know, we were awarded the contract to build a hydrogen station for Foothill Transit and completed it earlier this year. Foothill is already expanding the number of fuel cell buses that will be utilizing the station.
Speaker Change: And hot off the presses late last week, we were awarded a contract by Riverside Transit Agency here in Southern California to build a new state-of-the-art hydrogen station.
Speaker Change: As we said, after 27 years of being the leading alternative fuel company, we will go where our customers go and have the capability to provide them with a superior experience with multiple solutions.
Speaker Change: The beauty of R&G is that it can be used as the fuel itself or as the cleanest feedstock for other alternatives.
Speaker Change: Turning to our R&G production business, we continue to make good progress on our projects of dairy farms across the U.S.
Speaker Change: We currently have six operating projects, two projects under construction that are expected to come online in the second half of 2025, and other R&G projects in advanced development through our new partnership with MOS Energy.
Speaker Change: I spoke about the new relationship with Daryl Moss on our last call, as the ink was barely dry on the contract.
Speaker Change: We've identified locations in Georgia, Florida, New Mexico, Nebraska, and South Dakota to construct RNG projects utilizing the covered lagoon method that Moss has perfected.
Speaker Change: Let me end my remarks by addressing what is top of mind for all of us. Here we are, a day after an election, with the unknowns of a new administration in Congress.
Speaker Change: And to heighten the regulatory drama even more, the California Air Resources Board is meeting tomorrow to address the future of the state's low-carbon fuel standard program.
Speaker Change: On the latter, we have worked with a broad coalition of partners supporting the LCFS and feel relatively optimistic that the members of CARB will vote to approve supportive adjustments to the LCFS.
Speaker Change: The R&D production and transportation industries work with CARB to improve certain aspects of the program and we should be pleased with the final product.
Speaker Change: California will continue to be a leader in supporting low-carbon transportation which should result in stronger credit prices.
Speaker Change: Now on the federal side, I have a level of comfort that R&G will continue to be seen as a rational alternative with the new administration in Congress.
Speaker Change: All the criticism of environmental policies from President Trump, as well as important members of Congress who will be in the leadership, have been aimed at those that only support a single technology, electric vehicles.
Speaker Change: We believe that there will be strong support for emissions reductions, but that needs to be accomplished by market forces rather than government picking a technology.
Speaker Change: As an example, as you know, the current alternative fuel tax credit is set to expire at the end of this year. Expirations of the AFTC have come in presidential election years as well as off years of Republican administration.
Speaker Change: Administrations and Democratic.
Speaker Change: Tax Policy Vehicle
Speaker Change: and it receives bipartisan support when it is extended. However, for now, its status for 2025 is uncertain.
Speaker Change: In addition to the AFTC, we are hopeful that the R&G tax credit will be taken up next year by Congress.
Speaker Change: Very strong bipartisan members in both the U.S. Senate and the House are sponsoring the legislation with a combination of urban congressional members seeking cleaner air and rural members that like the economic development in their states and districts.
Speaker Change: The R&G industry continues to await final guidance on Section 45Z production tax credit.
Speaker Change: Either the current administration will issue the guidance before leaving, or the next administration will release the final guidance soon after settling in.
Speaker Change: Fortunately, we have never been totally reliant on grants or direct subsidies. We continue to operate our business with a realization that different outcomes could happen.
Speaker Change: As I've given you a few examples, we have an underlying business that remains strong based on the integrated platform, a full suite of services to offer customers to decarbonize their operations with R&G and a recurring financial model.
Speaker Change: And with the introduction of an exciting new engine for the heavy-duty market, we believe R&G will continue to gain acceptance when other technologies continue to struggle. And with that, I'll hand the call back to Bob, who will give more detail about a strong core.
Bob: Thank you, Andrew, and good afternoon to everyone. The third quarter of 2024 was another good quarter of financial results.
Bob: Our revenues, gap net loss, and adjusted EBITDA for the third quarter 2024 were all much improved over last year.
Bob: Revenues were higher than last year principally from a higher mix of station fueling gallons, higher RIN credits, higher alternative fuel tax credit revenues, and service revenues.
Bob: LCFS revenues were less than a year ago, mainly due to the lower credit prices in 2024 versus 2023.
Bob: We continue to see good margins from our fueling gallons, like we have seen in the first two quarters, where there has been a favorable commodity spread between the price of oil and natural gas, giving support to a higher base commodity margin.
Bob: and coupled with the higher RIN credit revenue from pricing and from receiving greater share of the RIN on higher RNG volumes.
Bob: Considering our net results for the year through September 2024, this puts us in a good position relative to our 2024 outlook for our net GAAP earnings and adjusted EBITDA, so our 2024 outlook remains unchanged.
Speaker Change: Our R&G volumes of 59.6 million gallons for the third quarter of 2024 grew at 5.1 percent compared to the third quarter of last year where the volume R&G volume was 56.7 million gallons.
Speaker Change: But I will point out that last year's R&G gallons included about 4 million gallons of R&G that were kind of one-off deliveries that did not repeat in 2024.
Speaker Change: The average credit prices for the third quarter of 2024 averaged $3.35 for the RINs and $55.67 for the LCFS.
Speaker Change: That compares to last year where the average RIN was $3.01 and the LCFS was $74.20.
Speaker Change: quite a difference.
Speaker Change: For our R&G production upstream operations, we reported a lower gap net loss and lower negative adjusted EBITDA in the third quarter versus the first two quarters of this year as we began to produce R&G and monetize the credits being generated.
Speaker Change: and almost half of the net loss for this third quarter was actually attributed to our operations around our project in Idaho.
Speaker Change: which is not expected to begin producing R&G until the fourth quarter of 2025.
Speaker Change: Our cash flow from operations for the third quarter, $24,000.
Speaker Change: was $21.4 million versus $7.7 million a year ago.
Speaker Change: I think my last last comments here I'd like to just take a moment to look at 2025
Speaker Change: As we normally do, we will provide our annual guidance on our next call in February.
Speaker Change: So I won't go into great details here, but I did want to give some insight and emphasize some areas to help set expectations for 2025.
Speaker Change: There are three areas I wanted to touch on, the first being to reiterate Andrew's point on the alternative fuel tax credit that expires at the end of 2024.
Speaker Change: and of course it is not known whether that would be reinstated so that AFTC revenue and earnings
Speaker Change: could be about 22 million dollars to us in 2024 that may not now repeat in 2025. So that's particularly important if you're trending off of 24.
Speaker Change: second, and to also highlight Andrew's point on the X
Speaker Change: came in.
Speaker Change: is it's important to note that we see those volumes happening at our stations in the second half of 2025. And that, as we all know, the volume is very important but that timing is important as well to our results.
Speaker Change: and third on our R&G production from our equity investment joint ventures.
Speaker Change: We are looking at a volume put in the range of 4 to 6 million gallons for 2024. That's 4 to 6 million gallons for 2025. Sorry, I think I said 24.
Speaker Change: economics generated from those gallons is something that is still being evaluated.
Speaker Change: mainly because there's no guidance yet on the production tax credit, which could have a significant favorable impact and we are really still in kind of ramp-up mode on those projects.
Speaker Change: Importantly, I think the gallon estimate should help, and hopefully these three points here is helpful as you start to shape your models for 2025. And with that, operator, we can open the call for questions.
Speaker Change: Thank you. At this time, if you would like to ask a question, please press star 1 on your telephone keypad. You may remove yourself from the queue by pressing star 2. Once again, that is star 1 to ask your question.
Speaker Change: Hey, Rob. Good afternoon. Hi. Good afternoon.
Speaker Change: These are the first four of six that we kind of anticipate doing. Now we're working with Daryl all the time on different projects and offtakes and so we've got a lot of things going on.
Speaker Change: and so we have kind of a fluid series discussion with him. We like Daryl very much. So this will be the first four. It involves more than four dairies, you know, so we've talked about that on the other calls. We have a few different dairies.
Speaker Change: , , , , , , , , , , , , , ,
Speaker Change: And I would say, Rob, while Darrell has a very good operating history, construction history, he's been a pioneer in the Covered Lagoon model, these projects still take the better part of over a year to bring online.
Speaker Change: It's my hope that we'll see some that will be kind of in the commissioning toward the end of 2025, but they're really late 25, early 26 kind of projects. So that's kind of the way these things go.
Speaker Change: as many of those frankly under construction.
Speaker Change: this year. Because that's key for the... That's key to the ITC. Yeah. So they'll be, you know, they're all gonna be underway to qualify for the ITC, but the immediate ones, we kinda have that line of sight and we're gonna get those going.
Speaker Change: How do you sort of foresee that going into fleets? Are these sort of the traditional model where there's groupings and they ramp over time, or do you see some people thinking about bigger rollouts at this point given?
Speaker Change: and the X-15.
Speaker Change: It is, as we've discussed, I think it's important to remind everybody, it's a really big piece of the over-the-road engine market. I mean, you know, 70% of all the trucks that are purchased are a 15 liter. We haven't had that, so it's key, but this is a new introduction.
Speaker Change: I kind of tuned in the other day to Cummins.
Speaker Change: conference call and the comments made by the the CEO where she, and look I'm out of the business projecting numbers all the time right, I've gotten in trouble with that many years ago, but I did pay close attention to her mentioning 250 that were ordered by UPS.
Speaker Change: What I like about where we are today in this period after being in this business a long time is we're now dealing with some of the largest fleets.
Speaker Change: Vreeland, Andrew Littlefair
Speaker Change: So you're finally getting with the really the very significant fleets that have some real purchasing power.
Speaker Change: Thank you.
Speaker Change: would suggest, but this is a new project, a product, so you're still going to have folks wanting to get comfortable with 25 and 50 type orders. I think that would be kind of the expectation.
Speaker Change: In conversation with one of the senior marketing officers at Cummins, he said what we're really focused on as we approach the market with the 15N is the breadth of fleets that we can bring into this. He said, you know, it's hard to build.
Speaker Change: exciting volume if you're only relying on four really large fleets. So you want to see as you introduce this significantly, and as the as the CEO of Cummins talked about, 8% penetration over time, which would be significant.
Speaker Change: You need breadth of the market to be able to have lots of different fleets of ordering these vehicles.
Speaker Change: So, I like where we are.
Speaker Change: I'm, I'm, you know.
Speaker Change: It could happen faster for me, but we see an orderly transition, we see the customers beginning to order, we know that there's negotiations on pricing, that's the way these things work, and it looks like it's going well.
Speaker Change: Okay, great. Thank you. I'll turn it over.
Speaker Change: We'll move next to Samia Jain with UBS.
Samia Jain: Hey, yeah so we had read that Commons had confirmed that UPS purchased 250 natural gas powered x-15 engines and part of their decarbonizing efforts. Do you guys have any insight or outlook on that and how that will play a role with clean CL&E in general?
Speaker Change: Well, they're a leader. I mean, UPS is kind of a leader. The fact they've jumped out there, right, Andrew? Well, I mean, they've always been, right? I mean, I made my first natural gas deal with UPS.
Speaker Change: Back when I worked at Mesa with Boone Pickens almost 30 years ago. So, I mean, UPS has always been a pioneer at this, and it's always been involved. So, you know, this doesn't surprise me.
Speaker Change: Look, I'm taking the word of...
Speaker Change: from Cummins Agency, you'll mention it. I don't have any independent cooperation. You know, we provide a lot of
Speaker Change: R&G to UPS. So I guess by virtue of that...
Speaker Change: than UPS. I think UPS is somewhere around a billion, correct me if I'm wrong on this Bob, I think they're approaching a billion miles on natural gas. Absolutely. So they've been at this a long time.
Speaker Change: That's a good sign. We see that as a very good sign.
Speaker Change: Got it. Great. Thanks.
Speaker Change: Once again, ladies and gentlemen, it is Star 1 if you have a question, Star 2 if you find that your question has been answered. We'll move next to Matthew Blair with TPH.
Matthew Blair: Thank you and good morning, Andrew and Bob. Bob, I wanted to ask a couple of questions on that R&G production guidance, the four to six million for 2025. Is that a gross number or is that net, including your partners, and then two... No, that's what would be produced at the projects.
Speaker Change: and then, you know, and then we split the economics that comes off of that, but...
Bob: When I'm speaking of, you know, what the projects will produce, I'm going to always try to do that at, you know, what that, what the dairies will produce, and then when we get into some economics we might talk about, hey, we get 50% of that dollar value.
Speaker Change: Got it. So it's a gross number.
Speaker Change: The economics on that, you know, we'll see on the 45Z. But what about the California LCFS credit for that production? Where do you stand on...
Speaker Change: Would it be your expectation that you would be receiving California LCFS credits for that production or is that something that could get pushed into 2026?
Speaker Change: No, we would perceive that we would see LCFS credits from that production.
Speaker Change: while we're in that process and then we'll see how CARB comes out.
Speaker Change: are anticipating that they'll allow a kind of a look back true up to when we talk about the temporary CI versus a provisional CI.
Speaker Change: We'll see you at 9.5.
Speaker Change: Okay. Sounds good. And then lastly,
Speaker Change: with the X15-N. I was hoping you could help us think about
Speaker Change: The payback period that some of the customers might enjoy on the engine.
Speaker Change: You know, some of our rough numbers, we've heard that the premium for trucks with the engine is around $40,000 to $50,000. We're assuming about 120,000 miles per year.
Speaker Change: about a six MPG. And so if you assume about a dollar spread between diesel and natural gas, that would be a payback of either two or two and a half.
Speaker Change: years on on the trucks. Does that does that match up with what you're thinking or are there any of those numbers?
Speaker Change: No, Matt, I think that's kind of close. I mean, actually the incremental could be a little bit more than that.
Speaker Change: You've got to remember there's a fuel package in there right now as these are being introduced that you could have an engine premium somewhere in that neighborhood.
Speaker Change: Frankly, look at something that's closer to 75,000 and then use
Speaker Change: diesel gallons and then figure that the customer might might be able to enjoy more of a
Speaker Change: savings per gallon, maybe closer to a dollar and a half.
Speaker Change: So, we're kind of getting to where you are, but what we've always strived to do and what we know gets us into serious negotiations, and I think it's a good point, Matt. You know what?
Speaker Change: All fleets want to try to be sustainable today, but you know what? It has to be economic.
Speaker Change: and that's just the fact of life and so we try to engineer it so that we get and we know that we can have a fruitful discussion and negotiation with our customers when we get inside a two-year payback.
Speaker Change: Great, thank you.
Speaker Change: Yeah, you bet.
Speaker Change: We'll go next to Craig Scheer with Tewi Brothers.
Craig Scheer: Hi, congratulations on a strong quarter. Thanks for taking questions.
Speaker Change: Let's see, it was about...
Speaker Change: I'm going to say 87,000 M's.
Speaker Change: So that would be.
Speaker Change: About 2.8 million gallons annually.
Speaker Change: So, we're so good question, Craig, but I mean.
Speaker Change: So four to six is, you know, coming off of where we're at right now of 2.8, but keep in mind that
Speaker Change: These literally kind of went into operations in the third quarter. Okay, so you're, you're, um...
Speaker Change: you know we're we're we know it takes it takes a little bit of time to really get the thing ramped up I mean
Speaker Change: Andrew Littlefair, The Economist, www.theeconomist.com
Speaker Change: Thank you.
Speaker Change: you know they you can
Speaker Change: So the ramp can happen, it just takes time.
Speaker Change: Right. Apart from the ramp, you would have had limited LCFS monetization, right? So that as these things ramp and... Okay.
Speaker Change: Okay, and so I guess as they ramp and you get the LCFS monetization, the upstream drag kind of...
Speaker Change: really notice notably narrowed in the third quarter. Could this zero out and start turning positive over the next quarter or two?
Speaker Change: I'd be careful there. I'm going to probably just say no.
Speaker Change: Okay, look, here's the thing. We have a couple of dynamics there. They'll get better. The operating ones will get better. And maybe they could get closer to...
Speaker Change: Maybe they could get kind of closer to breakeven.
Speaker Change: We end up with some operating costs going on while we're constructing that.
Speaker Change: And so those will continue.
Speaker Change: And so if the operating projects, you know, don't produce enough
Speaker Change: Earnings, then you could still see something negative. But frankly, if the PTC comes in and starts in 25, that kind of, that potentially changes that whole dynamic right there. I'm just, we're being cautious on the PTC, but...
Speaker Change: We'll see on that.
Speaker Change: That's kind of how that comes together.
Speaker Change: Okay, and the nearly 60 million RNG sales in the quarter, so there's no one-time stuff, it's all through your downstream network, and is that a quarterly record?
Speaker Change: No, it's very close. It could be.
Speaker Change: Thank you, Craig, and I should have, you know what, I should have said that. We're very proud of that record. So we are, and right, but you don't want to say it and then say that we had some of the out-of-the-network stuff. But no, this was...
Speaker Change: Yeah, this was kind of straight up.
Speaker Change: Andrew Littlefair, the founder and CEO of Vreeland, Andrew Littlefair.
Speaker Change: Yeah, okay, yeah, yeah, yeah.
Speaker Change: And there's no reason to think that, because you had a good, I think it was 4% plus sequentially, you're talking about year-over-year. Is there any reason to think that this trend isn't going to continue in the next year on a quarterly basis or should we think about that?
Speaker Change: Well, I...
Speaker Change: There's no real, you know, look, I think the trend can continue. I don't know if y'all can be a little lumpy with, as we've seen in the past with, you know, sometimes supply and that, but
Speaker Change: You know, it's all kind of tied into general volume and adoption and, you know, the growth and...
Speaker Change: So that has to happen. It's not, you know, just R&G. It's also predicated on, and you know, we see that happening So I think, you know, kind of a gradual increase is what we expect
Speaker Change: Gotcha. And last one for me. I want to try to better understand...
Speaker Change: fueling stations, and to the degree you can set up, you know, a fuel supply, you know, sourcing H2 from RNG that you procure, I mean, do your margins increase that much more?
Speaker Change: We're building these stations. We have a construction and management fee built into those projects. Usually the fuel supply arrangement is separate.
Speaker Change: And, you know, as you well know, the, you know, hydrogen and often these projects call for a one-third green hydrogen, that's not the easiest thing to come by. And so these are really, usually their structure is pass-throughs.
Speaker Change: We're providing a service to our customers. We're making money on these things as we build them, but it's more of a construction service arrangement.
Speaker Change: Not a lot of risk on the fuel supply at this point. Yeah, you've got multiple stakeholders, partners, you know, supplying this hydrogen fueling station. Right. We have our part.
Speaker Change: But we're not jumping in and becoming the hydrogen supplier at this time, you know, so.
Speaker Change: Now we're seeing a lot of interest on it. We're seeing a lot of interest at the transits on this.
Speaker Change: And I'd like to think that we're
Speaker Change: That's always been our strategy is to try to do what it is the customer, you know, as we can be helpful. Yeah, we've said it. I mean, you know, the hydrogen world, it's what we do today, right, delivering highly pressurized gas into vehicles.
Speaker Change: and so we can do it and we're proving that with the transit but we're not
Speaker Change: We're not getting out ahead of ourselves on that. We're accommodating our customers, but we're good at it.
Speaker Change: Understood, thank you.
Speaker Change: We'll go next to Eric Stein with Craig Hallam.
Speaker Change: Hi, Andrew. I'm Bob.
Andrew Littlefair: Hi, Eric. Hey.
Speaker Change: Hey, so I'm jumping around on calls so I can virtually guarantee I'm going to ask a question that someone else has.
Andrew Littlefair: But I will give it a shot. Oh boy, yep, I'll give it a shot. Just in light of the election outcome, I've read quite a bit that California has taken a number of measures to kind of ring-fence the LCFS.
Andrew Littlefair: Any thoughts on...
Andrew Littlefair: On that, in addition to, I know we've got a meeting coming up here in a couple days, any thoughts on what the outcome there might be as well? And you can tell me that it's already been asked and I can read the transcript later.
Speaker Change: No, it has not been asked. Good question. Okay. And, you know, I've read a lot of the things that you've read, and I hear about, you know,
Andrew Littlefair: them wanting to sort of protect the program, usually that kind of thing has been more focused on the waiver.
Andrew Littlefair: and how they would get around if the EPA somehow didn't grant them a waiver on the different truck rules. That's how I've always read that. Now, on the LCFS,
Speaker Change: I'm not sure, Eric. I'll have to get back to you on that. That's not really ringing a bell. I mean, I think the LCFS is...
Speaker Change: It's a 10-year program, as I mentioned on the call, Eric, that you didn't, maybe you didn't hear, I mean, you know, there's a vote tomorrow on, kind of, the next rules. Yeah, I'm curious on your thoughts on that.
Speaker Change: six, seven years, as long as you do projects up until then. And the compliance curve will ramp down and there'll be an automatic feature that I think it'll get adopted to. So I think generally it's good news for the industry and it will be constructive to prices.
Speaker Change: and you'll begin to work the bank off.
Speaker Change: There's no resupply credits and it won't happen overnight.
Speaker Change: The Credit Bank
Speaker Change: That's how I see it.
Speaker Change: Okay.
Speaker Change: All right, that is helpful, and yeah, we'll be watching tomorrow, right, I guess, that vote.
Speaker Change: And maybe just on the 45Z, I mean I know we're still waiting on guidance there.
Speaker Change: You know, and just curious.
Speaker Change: I know you get asked this every quarter, when do you think that guidance could come, has there been any change to what you think it might look like, and again, I guess coming back to...
Speaker Change: The political outcome yesterday, you know, does that, does that impact what you think the 45Z is or the form it may take given, given the outcome?
Speaker Change: Well, you know, I've been wrong on that one, you know, I just...
Speaker Change: Knowing the interest
Speaker Change: and, you know, how important these kinds of programs were to the Biden administration. I just had it, and my conversations with key members in the White House, I just figured they would have gotten that thing done and got it put to bed, and it hasn't been.
Speaker Change: So now we've heard, like you probably have heard, that they're gonna promulgate that draft rule after the election.
Speaker Change: Thank you.
Speaker Change: Now, you know, there's a timing associated with that, and so they better do it pretty soon so that it becomes effective, you know, with the comment period and all before they leave office.
Speaker Change: There have been some that have discussed, well, maybe we should get rid of the elements of the IRA, get rid of the thing altogether, but then there's been letters to the Speaker and to the leadership saying, no, wait a minute, don't take a meat cleaver to the IRA. There's a lot of good stuff in there for rural America and for biofuels. So,
Speaker Change: these rest of the IRA rules out
Speaker Change: Pretty soon.
Speaker Change: and some of them we'll get.
Speaker Change: you know, maybe just before the next President Trump takes over, we'll get...
Speaker Change: finalize and maybe some won't. I think you'll have the Congress look at the IRA carefully and look for certain things
Speaker Change: certain programs that they may want to trim, may want to use a scalpel rather than a big cleaver at the whole thing. And so I think there's going to be a lot of support for elements of the IRA, but there will be some trimming, I believe.
Speaker Change: And I think, you know, largely the 45Z will have pretty good bipartisan support.
Speaker Change: And, you know, that's just kind of where we are. So, you know, it's hard to tell. It's hard to...
Speaker Change: You know, you've got Mr. Musk involved now, so, you know, how does that affect certain elements of it? But, you know, it's a little hard to tell, but what I've seen over the time is this has gotten to be more bipartisan as you really begin to look at it, right?
Speaker Change: Even when you go look at our piece of the business, you have dairies in rural districts that are in red states.
Speaker Change: and you have blue states and blue cities that want this stuff, so it's complicated.
Speaker Change: I think it will largely go into effect over time.
Speaker Change: Okay. All right. I'll take the rest offline. Thanks a lot. Okay.
Speaker Change: We'll move next to Pavel Maltatov with Raymond James.
Pavel Maltatov: Thanks for taking the question and I appreciate all the political commentary, very helpful. On a different topic, you guys have been selling to Houston Metro.
Pavel Maltatov: for I think as long as the company has been around. So when you say the first private station,
Pavel Maltatov: for Houston Metro. Can you just explain how that's different from what you've been doing with our customer?
Pavel Maltatov: I'm kind of looking around the room here, but I'll have some folks. You know what? I called on Houston Metro.
Pavel Maltatov: to get them to go from diesel to natural gas like 25 years ago. I met with the mayor of Houston, Bob Ledeer, like 20 years ago. A long time. So I've been at it. We, our team, have been at it a long time. But we haven't been doing business with Houston Metro. So they finally came to the program.
Pavel Maltatov: and asked us and we bid on a big fueling station where they're going to take their first 120 buses that are going to go to natural gas. It's really big.
Pavel Maltatov: Yeah, that's right. No, that's right, Andrew. So it's new. They were one of the...
Pavel Maltatov: They were one of the holdouts in the country, you know, look where they are, they're down in the oil and gas areas, so they were just slower to come to the program.
Pavel Maltatov: Epivato, maybe you were thinking of Dallas, but Dallas we've been doing for years.
Pavel Maltatov: They've been like this, you know kind of just they hadn't we haven't done anything for him. So it was very exciting that they
Pavel Maltatov: have decided they're going all in.
Speaker Change: okay yeah that's that's helpful I think the you're right I was probably thinking of the that that other city in Texas exactly yeah there's a bunch of others
Pavel Maltatov: That's the big one for us.
Pavel Maltatov: That's right. Let me ask the...
Speaker Change: Kind of a CFO question, the financing that you guys did just about a year ago at the end of 23,
Pavel Maltatov: No, we haven't pulled it down and there won't be.
Pavel Maltatov: There won't be a need.
Pavel Maltatov: on that, I'll, I'll, um,
Pavel Maltatov: I mean, we have a hundred million.
Pavel Maltatov: that we haven't pulled, that is available to us. So, if something came along...
Pavel Maltatov: was kind of incremental to our growth.
Pavel Maltatov: plan right now we would utilize that but for what we have in front of us we're good.
Speaker Change: Understood, Bill.
Speaker Change: Yeah, exactly. You better get some popcorn and a pillow because I think it's going to go on for about five hours.
Speaker Change: Appreciate it. I keep practice tomorrow. Thank you. Bye bye.
Speaker Change: Friday.
Speaker Change: We'll move next to Betty Dang with Scotiabank.
Betty Dang: Hey Andrew, hey Bob. I wanted to ask for, hello, for an earlier question you talked about your project in Idaho that is incurring operating costs during the construction phase. Could you elaborate a bit there and is this common for your R&D projects under construction?
Speaker Change: It is not common, but this was unique and part of the uniqueness is the potential and the size of this deal that, you know, kind of came our way together with our partner on that. But so it factored into.
Speaker Change: The arrangement factored into the overall picture and the ultimate outcome could be on this project. So I'll just say
Speaker Change: You know that's how this thing evolved, but it really it really relates to us doing Building and performing work around the handling of manure
Speaker Change: and we knew that we knew when we kind of went in that that would there would be kind of a cost to that so it's built into our overall kind of project returns of what we would be doing but
Speaker Change: That piece is so instrumental also to the ultimate end operation of the digesters that we really we did want to take a
Speaker Change: kind of almost a significant stake in and we're willing to around that kind of handling of manure, but just frankly the way the accounting works on that is that you're not going to put that activity you know into the cost of building those digesters.
Speaker Change: In the end, this will, in our view, very much help the efficiency of this project. The fact that we've been more involved in that front-end process. On, say, smaller dairies, we can...
Speaker Change: kind of that critical manure handling piece, you know, so that's really almost before our project and then we'd construct the project. This one we chose to to kind of get into that piece as well.
Speaker Change: That will, that will carry on.
Speaker Change: And so we are, you know, we're producing.
Speaker Change: When we're producing the RG, that'll kind of continue, but.
Speaker Change: Thanks.
Speaker Change: Okay, understood. So, kind of a one-off here. For my next question, I wanted to ask, in your opening remarks, you talked about how you're receiving a greater share of the RINs. Is that just coming from the mix, including more of your own R&G production, or would that be from your share with your R&G suppliers going higher?
Speaker Change: It's principally on the share and the supplier and just the market dynamics. So, you know, we talked about that. We have talked about that because, you know, about a
Speaker Change: I'll say, you know, but last year
Speaker Change: that number was kind of coming down and we said that we were working at that and some of that's dictated by market dynamics and you know kind of who holds leverage and that sort of thing and we saw that we would be able to.
Speaker Change: you know, leverage our position in that space. And so we're seeing some of that.
Speaker Change: We'll move next to Daishan Elani with Jeffreys.
Daishan Elani: Hey guys, thanks for taking my question. I've been jumping between calls, so I'm not sure if this has been asked already.
Speaker Change: But the first question was on just the guide, the full year guide. Usually, you know, 4Q tends to be, you know, the high watermark. At least it's been, you know, the last year. And then if you keep that cadence, then we could see...
Speaker Change: You guys reading your folder guide, is there anything that I'm missing, you know, to think about for 4Q, you know, like any puts and takes there?
Speaker Change: No, Deshaun, look, you know, I would say that the kind of the high watermark sometimes can be Q3.
Speaker Change: you know if we absolutely repeated it then we'd be at that high end you know frankly maybe maybe exceed the high end there so
Speaker Change: But, you know, we gave the range, and I wasn't going to micromanage this thing. You know, we gave a range of 62 to 72, and based on our results thus far, we...
Speaker Change: you know, we feel like, OK, well, that that's that stays put, you know. And if we go over it a little bit, great. If we but if we don't, you know, we're still within our range.
Speaker Change: Got it. That's helpful. And then the second question was just on, I guess,
Speaker Change: This has been asked a couple of times, I'm sure, already, just on elections, but more so how do you think about the RVO obligations next year with the new administration, you know, with D3 wins? There are many things to consider, like...
Speaker Change: Andrew Littlefair, MD, MPH, FAO, Co-Founder and Chief Investment Officer
Speaker Change: You know, that's a little bit of crystal ball, right? So, we know that the next EPA is going to look at that. We're all over that. We understand it. You know, there could be small, you know, fine exemptions and all. So, there will be another RVO.
Speaker Change: Will they set it next year? I don't know. It may slip a little bit. So we'll kind of see. But yeah, we'll work on it.
Speaker Change: Yeah, hard to form a view on that at the moment.
Speaker Change: Fair. Thank you.
Speaker Change: Huh?
Speaker Change: We'll move next to Jason Gabelman with TD Cowen.
Jason Gabelman: Hey, good afternoon. Thanks for taking my questions.
Jason Gabelman: I wanted to ask on...
Jason Gabelman: I want that I go back to the upstream RNG projects that are ramping up and I think we've thought about OPEX kind of being $3 per gallon
Jason Gabelman: Now that some of your assets are kind of hitting steady state, is that the right number? And then similarly on kind of the credit value that you capture, I think the rule of thumb was kind of around 70%.
Jason Gabelman: of whatever the credit is you would capture in the upstream assets, is that still fair?
Speaker Change: I think the OPEX is ballpark.
Speaker Change: Andrew Littlefair, the CEO of Vreeland, Andrew Littlefair
Speaker Change: and so we're ramping that but it's
Speaker Change: achievable and in the ballpark. And then ...
Speaker Change: on the on the share of the credits.
Speaker Change: Andrew Littlefair
Speaker Change: I think you're well I mean you're generally in the 80-20
Speaker Change: But look, the market, we kind of have to see a little bit on the PTC. There's, you know, that's out there. There's a little bit of, you know, maneuvering around.
Speaker Change: who keeps to those values, and therefore, we're on both sides of the fence there. So on our projects, we'll do things that, certainly at arm's length,
Speaker Change: you know, between ourselves, but I think when we're, you know, when we are
Speaker Change: In the marketplace, you know, we have
Speaker Change: You know, we make sure that we get our fair share of the credits, you know, from that downstream Position and then on the as we're the producer. Well, we're gonna we're going to be the main customer for that
Speaker Change: Okay. The 80-20 is in the ballpark, but you may hear...
Speaker Change: You know, someone gets more than that or a little less, but I think that would be moving by.
Speaker Change: Just in terms of the direction of travel, would you say that backlog...
Speaker Change: A pause, given the uncertainty both in the LCFS vote and just ahead of the election. Just some color around how that backlog's trended would be helpful.
Speaker Change: Yeah, I would say it's it's
Speaker Change: I'm not going to go full pause on that kind of thing. I mean.
Speaker Change: and cautious. I think you know how we at the moment the way we view this is that we have
Speaker Change: We have not all that we can handle, but we've got a good slate of projects that we're bringing on that we've got with Daryl Moss. We've got another one in Texas.
Speaker Change: No.
Speaker Change: So we're staying disciplined, but I don't want anyone to think that some, you know, backlog's kind of drying up or anything like that. We're.
Speaker Change: You know, we're kind of cognizant of, you know, getting returns, and so we're just mindful of wanting, you know, the time frame on that. So, you know, we may look, we look at.
Speaker Change: We're looking at everything.
Speaker Change: Okay, thanks for the answers.
Speaker Change: You got it.
Speaker Change: We'll move next to Paul Chang with Scotiabank.
Paul Chang: Hey guys, I just want to follow up with Betty's earlier question. You're getting a little bit higher share of the green. Can you quantify that?
Speaker Change: What percentage that you are getting more, you said 1%, 2% and also whether you are seeing that trend continuing into next year?
Speaker Change: You can kind of engineer the math on that really almost from our statements and assuming index and all that.
Speaker Change: you'll see a little bit more but I can say that maybe it's
Speaker Change: You know it's closer to 5% last year was like three and a half percent like our net net take on the rent
Speaker Change: Bye.
Speaker Change: Thank you. Thank you.
Speaker Change: So.
Speaker Change: So you're saying that it's three, three and a half percent?
Speaker Change: Look, the market, there's all kinds of dynamics there, Paul. I would say that...
Speaker Change: that were, we are trying to cut.
Speaker Change: deals appropriate for us at the producers, but then you also have customers that want to share and their sophistication is growing so and then that market you know, everybody's wanting to put their RNG places, so We have improved in that area
Speaker Change: But there is resistance in the form of just, you know, market dynamics, competition, customers wanting more shares, so...
Speaker Change: You know, it's a good trend, but it's not going to go to the moon here overnight.
Speaker Change: Also, the other question is a little bit of the curveball maybe. In the U.S. and in Canada, it seems like you get pretty excited about the outlook in Canada.
Speaker Change: And also, Dan, do you have a plan on how many stations you're trying to build out in Canada versus in the U.S.? Because in the past, I don't think you have really been focusing on building out the Canadian network. It seems like most of the stations are in the U.S.
Speaker Change: You know, Paul...
Speaker Change: We're starting carefully, right? In Canada, you really needed, and before you want to get too far ahead of yourself, you needed the X-15N, right? You needed the larger engine that could handle the grades.
Speaker Change: Frankly, you actually need an 18-speed transmission.
Speaker Change: to handle the western canoes.
Speaker Change: a network running from Alberta West.
Speaker Change: to the Pacific Ocean. And it'll start with seven stations. It'll eventually, when you build out the different nodes on that, you know, you could see a day where it would have 20 stations.
Speaker Change: and you'll also then go east.
Speaker Change: But you know
Speaker Change: We have very engaged partners. We have very engaged fleets. We have some of the most significant dealer networks.
Speaker Change: I like the way it's going. The economics in Canada is very strong.
Speaker Change: Very cheap natural gas. Today it's
Speaker Change: So the economics sing in Canada and so we're ready to get the X-15 there, we're ready, we have to get the 18-speed transmission as well, we'll have those stations.
Speaker Change: at least the beginning of the Western network at about the time that those trucks were available.
Speaker Change: Andrew Littlefair, thank you for joining us.
Speaker Change: OK. We do. Thank you. I'm going to say yes. All right. Sorry.
Speaker Change: And with that, we have no other questions holding. I would like to turn the call back over to Andrew Littlefair for any additional or closing comments.
Andrew Littlefair: Thank you, Operator. I want to thank everyone for listening this afternoon, and we look forward to updating you on our progress next quarter.
Speaker Change: We'll see you next.
Speaker Change: Thank you. Ladies and gentlemen, that does conclude today's program. We thank you for your participation. You may disconnect at any time.
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