Clean Energy Fuels Corp. (NASDAQ:CLNE) Q4 2022 Earnings Call Transcript

Clean Energy Fuels Corp. (NASDAQ:CLNE) Q4 2022 Earnings Call Transcript February 28, 2023

Operator: Greetings and welcome to the Clean Energy Fuels Fourth Quarter 2022 Earnings Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Robert Vreeland. Thank yoi, you may begin.

Robert Vreeland: Thank you, operator. Earlier this afternoon, Clean Energy released financial results for the quarter and year ending December 31, 2022. 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. Before we begin, we’d like to remind you that some of the information contained in the news release and on this conference call contains forward-looking statements that involve risks, uncertainties and assumptions that are difficult to predict. Words of expression reflecting optimism, satisfaction with current prospects as well as words such as believe, intend, expect, plan, should, anticipate and similar variations identify forward-looking statements but their absence does not mean that the statement is not forward-looking.

Such forward-looking statements are not a guarantee of performance and the Company’s actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in the Risk Factors section of the Clean Energy’s Form 10-K filed today. These forward-looking statements speak only as of 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. The directly comparable GAAP information, reasons why management uses non-GAAP information, a definition of non-GAAP EPS and adjusted EBITDA and a reconciliation between these non-GAAP and GAAP figures is provided in the Company’s press release which has been furnished to the SEC on Form 8-K today. With that, I will turn the call over to our President and Chief Executive Officer, Andrew Littlefair.

Andrew Littlefair: Well thank you Bob. Good afternoon everyone and thank you for joining us. We are continuing to make excellent progress on the execution of our RNG business strategy over the last quarter. With our investments and renewable natural gas facilities and new stations we expanded our leadership position. Clean Energy remains the largest supplier of RNG uses of transportation fuel in North America. In the important California market more than half the RNG use of natural gas vehicle is from Clean Energy. In 2022, our California RNG portfolio had a weighted average carbon intensity of minus 51 which demonstrates the success of our RNG strategy to develop and secure the lowest carbon RNG available in the market. We expect the carbon intensity of our product to continue to decline as our dairy investment begin producing gas this year.

We funded our joint ventures for the projects underway while strengthening our balance sheet leaving us well positioned for the future. The fourth quarter of last year we sold over 54 million gallons of RNG which was a increase of 21% compared to the same quarter in 2021. The expansion of our relationship with Amazon is having a positive impact on this growth and we’re also seeing increased demand for the Clean fuel from other heavy duty trucking firms as well as transit, refuse and other sectors. Our revenue for the quarter came in at $114 million which was $22 million more than Q4, 2021. We generated $13 million of adjusted EBTIDA for the quarter. Bob will get into more details about our financial performance momentarily, but let me just say we acknowledge that our 2022 adjusted EBITDA number ended up lower than we expected it to be at the beginning of the year.

We experienced a few sustained headwinds in the latter part of the year that impacted our results. The biggest contributor to this was the lower prices of environmental credits of California’s low carbon fuel standard program or LCFS federal wins program. The LCFS credit prices decline almost 60% over the course of the year and it was just too much to overcome in the fourth quarter. Also, the worldwide of new stations that we are building for Amazon around the country has been slower than we projected. Competition for prime real estate near distribution centers, entitlements and permitting the approvals with several stations behind our initial timeline for completion. We believe we turned the corner on several of the issues that have hindered us and slowed our station construction.

Also, we believe we are at the lows of the environmental credit and regulatory situation and credit prices should improve over the medium term. And as I previously mentioned, we continue to be pleased with the way we’re performing on our plans that we laid out to you over a year ago to expand our business, particularly having more control over the supply of low carbon RNG flowing to our fueling infrastructure, the 13 dairy projects underway. We remain confident that the investments we’re making today will generate attractive returns in the future. But for 2023, we believe we will continue to see pressure on the environmental credit places. And another step to position us for future growth we secured $150 million sustainability link loan with Riverstone Credit Partners last quarter.

This should keep our balance sheet healthy as we continue to build fueling stations and additional RNG facilities with our partners, TotalEnergies and BP. At the end of 2022, we had over $263 million in cash and investments. This is after contributing nearly $178 million into our RNG Production joint ventures since their inception, and expanding our fueling infrastructure by funding 23 additional station projects during 2022. Speaking of new RNG production, it doesn’t seem that long ago, I participated in a ground breaking in Del Rio dairy in the Texas Panhandle, which is Clean Energy’s first biogas digester to be built from the ground up. I’m pleased to announce today that as a few weeks ago, the methane captured from the manure produced by Del Rio’s 8000 dairy cows is now being injected as renewable natural gas into the pipeline.

That capacity will flow at a rate of 140,000 MMbtus, ultimately translating into 1.1 million gallons of ultra-low carbon fuel at Clean Energy stations annually. We’ve also made a good progress at other dairies with construction underway on projects in Iowa, Minnesota, Idaho, and three in South Dakota. Engineering has begun at another five sites. Overall, we are pleased with the progress of our new RNG supply facilities. Remember, that when these dairy digesters begin to produce RNG over the next two years, this fuel will receive some of the lowest carbon intensity scores available for our customers and generate the greatest number of credits. No other alternative viewing solution comes close to the negative CI scores that RNG produced at agricultural facilities we see.

And the beauty is that RNG drops right into the existing pipelines and then into our existing fueling infrastructure. On the RNG demand side, as I previously mentioned, we opened new stations as part of our announced agreement with Amazon. In addition to the 80 Odd existing Clean Energy stations that have been supporting the Amazon fleet of heavy duty trucks, new stations in four states have been added to our fueling network. All these stations are purpose built for Amazon but also have public access and are strategically located in and around distribution centers, allowing for fleets from a variety of companies to fuel with RNG. One station that has been only open for a few months has already become our largest bi-monthly volume. There are another handful of stations that will be opening in the next few months, with a robust schedule through the rest of this year.

We are particularly excited that these stations will be open and accessible for truck fleets when the new Cummins 15-liter natural gas engine hits the market next year, as the commercial introduction of heavy duty electric trucks, and the required charging infrastructure continues to get pushed out. This next generation of Cummins natural gas engines, combined with our already installed, RNG fueling infrastructure, will accelerate fleets ability to reach their emissions reduction goals a lot quicker. Before I close, I wanted to mention that we added one of the largest transit agencies in the country as our customer in the fourth quarter, San Diego MTS, which signed a contract for 86 million gallons of RNG fuel for its fleet of 764 buses. We also renewed an RNG contract with the largest transit agency in the country, LA Metro during Q4 and will be supplying them 20 million gallons of RNG annually for the bus fleet.

Our relationships with refuse customers continues to expand during the quarter with new contracts with Athens Services, Burrtec waste and additional stations for Republic Services. We remain as optimistic as ever about the future of renewable natural gas both as a direct transportation fuel, as well as for an ultra clean feedstock for other alternatives. If quickly be calm, one of the largest developers and owners of dairy, RNG production, and our growing our leadership position in the distribution of RNG. Thank you for your time today. And now I’ll turn hand the call over to Bob.

Robert Vreeland: Thank you, Andrew, and good afternoon to everyone. As reported today, we finished 2022 with $420 million in revenue, and a gap loss of $59 million versus 2021 revenues of $256 million, and a gap loss of $93 million. Our adjusted EBITA for 2022 was $50 million versus $57 million in adjusted last year, which last year included $4 million of earnouts from our sale of RNG assets to BP. On an adjusted non-GAAP basis, we reported net income for the year 2022 of approximately $3 million versus non-GAAP net income of approximately $8 million in 2021. Although our adjusted EBITDA fell short of our estimate of approximately $60 million, the variances to our estimates were temporary in nature, we believe, and timing related in terms of volume associated with station builds, and SG&A spending, in our in our view nothing systemic or permanent in nature.

For example, we thought there could be some rebound in the LCFS credit prices during the fourth quarter and the LCFS Credit prices actually remained at their lowest level of the year throughout the fourth quarter. LCFS prices have gone up recently, so a little later than, than we anticipated, but still moving up as we thought as additional information is kind of hitting the marketplace around that program. We also saw the price of natural gas double for the month of December in California, increasing the equivalent of $1 a gallon in our largest market. And we had some delays in station openings which pushed out volumes and our fourth quarter SG&A spending increased which was largely due to really our own success in adding personnel to accommodate our RNG growth activities.

Looking forward, we believe we have upsides ahead, given where the credit prices are today, knowing we’re much closer to opening more stations to support Amazon, and our RNG dairy projects continue to proceed well, with tailwinds from the inflation Reduction Act ahead of us. And with that, I mean, I’ll go into our 2023 outlook here in a moment. I’d like to take a moment here just as a reminder on our presentation, we’ve presented our volumes and revenue tables in our new format in our Form-10K that we filed today. We made this change in the third quarter on our in our 10-Q filing, where we separated fuel volume volumes and the O&M service volumes. And we enhanced our revenue disclosures around our volume related product and service revenues.

So with that, I wanted to inform you that today we posted an updated company presentation on our Investor Relations website that provides this new volume and revenue table format for all four quarters of 2022. In the back of that presentation that was posted we have had some questions on visibility to the first quarters of 2022 in the new format, so we’re accommodating there. So now taking a closer look at the fourth quarter of 2022, our revenues were $113.8 million, compared to $91.9 million a year ago. Higher volumes and fuel prices along with higher station construction sales in the fourth quarter of 2022 contributed to the increase over 2021, with the lower environmental credit prices in 2022 offsetting some of the those revenue increases.

We reported a GAAP net loss of $12.3 million in the fourth quarter of 2022 compared to a GAAP net loss of $2.4 million in 2021. On a non-GAAP basis, adjusted EBITA for the fourth quarter of 2022 was $12.6 and adjusted non-GAAP net income was $2 million that’s for the fourth quarter of 2022. This compares to adjust the dividend of $18 million and adjusted non-GAAP net income of $6.4 million in the fourth quarter of 2021. For the quarter, our overall product and service margins were slightly higher in the fourth quarter of 2022 versus 2021 despite the lower credit prices, however, however, our spending on growing our RNG business was higher in 2022. As expected and planned and as well, as I mentioned, 2021 benefited from the earn out income of approximately $4 million when comparing the two periods.

Andrew noted that we finished the year with approximately $264 million in cash and investments which included proceeds from a debt raise of $150 million in December. As part of that financing, we paid off the equipment financing debt at NG Advantage of approximately $27 million. Also, as of the end of December 31, 2022 we had contributed — we have contributed $178 million into our RNG supply joint ventures with our partners TotalEnergies and BP. Cash provided by operating activities for 2022 was $66.7 million. And we had that’s against we had 44.5 million of property and equipment purchases. These are both up from 2021 where operating cash flow was $41.3 million and property and equipment purchases was $23.1 million. So nice on the cash front.

Now, looking at 2023 we normally provide annual guidance, which we’ll do here. We’ve provided our annual outlook in our press release. For a GAAP net loss of a range of $105 million to $115 million, which is reconciled to our outlook for adjusted EBITDA of a range of $50 million to $60 million. On the GAAP net loss, you’ll note a large increase in the Amazon Warrant incentive charge which is associated with an estimated volume increase for Amazon in 2023 as we complete more stations. Revenues are projected to be around $350 million. That’s our GAAP revenue. That’s net of around $66 million and these incentive charges. Our 2023 outlook reflects continued double digit fuel volume growth in the range of 15% to 20%. And much of that is RNG, which is also projected to grow in that same range.

Service volumes growth is expected to be in the mid-single digit range. Our outlook reflects environmental credit prices that really don’t rebound much from what we saw in the fourth quarter of 2022 and starting 2023. So, as we know, those have been they were lower in the fourth quarter. And so we’re kind of seeing that continuing on in 2023, and our outlook contemplates that. Our SG&A spend will increase slightly to around $30 million per quarter, which is up a little bit from the fourth quarter, as we’ve added personnel at the end of 2022 and our stock compensation kind of levels out but that is about 5 million to 6 million higher in 2023 versus 2022. We’re estimating around $25 million to $30 million of cash flow from operations, mostly reflecting added interest costs and our CapEx spend is estimated around $90 million.

And that’s at the core business of Clean Energy. We may also contribute up to $40 million more into our RNG supply joint ventures, and that’s on top of the $178 million that we’ve already contributed. And, frankly, that doesn’t bring in potential pipeline and for this exercise, that’s really what we have good line of sight on it, but it could be higher. Clearly the credit pricing environment, inflation and industry volatility have changed from the beginning of 2022. But we feel very good about the view forward and upside possibilities with continued volume growth, the tailwind from the inflation Reduction Act, and the end of the forthcoming launch of the Cummins 15 litre engine and just frankly the continued demand for this very low carbon fuel of RNG.

With that operator, please open the call to questions.

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Q&A Session

Operator: Thank you. At this time, we’ll be conducting a question-and-answer session. Our first question comes from Manav Gupta with UBS. Please proceed with your question.

Manav Gupta: Good afternoon, guys. I first want to just if you could you mentioned earlier on the call 13 dairies in progress. So if you could help us understand the pace of development here, what stage of development are they? In if you could be a little more granular and let us know how many of those should be online by end of first half or by year-end? And the bigger question I’m trying to get to here is Bob is it looks like the dairies are in progress. But you’re not really accounting for too much of EBITDA contribution from these dairies in 2023. That’s why the guidance is relatively flat. So if you could talk about that also.

Robert Vreeland: Correct. Okay, I’ll address that. You’re correct. And I’ve actually, we’ve, even a year ago, we kind of we contemplated 2023 would be minimal, minimal contribution. So we will be flowing gas in a number of projects. But there’s time between flowing gas and, and revenue recognition, which has to do with the whole, pathway certification, and when we really can do get to meaningful revenue. So, you’re correct, there’s not much of a contribution there in 2023. And then we’ll see how 2024 kind of shakes out and just, for sure, as we go into 2025, and 2026. And, there you start to get into the inflation Reduction Act and contributions that could happen there. So that’s why, but then I’ve also say, a big part of, of the, the forecast being kind of flat, as well, as is the credit price deal.

We going into the fourth quarter, we felt that there would be more information about, kind of a pathway forward, if you will, particularly in California, but we also knew the rim, had information there, that just didn’t really materialize in our view, very meaningful. So the market kind of stayed flat. We’re not going to kind of say that, that, try to predict exactly when that will turn around. We’re more bullish on it and know that we believe that it will. But, we’re, that’s just a big part of the flatness because we’re kind of assuming, fairly recent credit prices stick around. On the dairies, yes. On the dairies, look there, probably nine of those are our wells, seven, eight are constructing for sure. And I think we’ll get a number of those absolutely.

Well, one’s already flowing gas, and we’ll, we’ll get maybe four or five in 2023. But again, you’re not really seeing EBITDA. But which is okay, it’s, that’s a long time, and we’ve recognized that, but, we’re also very mindful of the execution on, operational execution on these, which is going is going well. I mean, I think we’ve experienced some of the delays that a lot of the folks in the industry are seeing just on equipment and things like that, but relative to it was pretty exciting to finally start injecting gas into the commercial pipeline at one of our dairies. So that’s one of the keys as well as getting those things running

Manav Gupta: Bob my quick follow up here is, if I remember correctly, and let me know if I’m wrong. But last year at the RND analyst day, you had come out with a full budget, I think somewhere between 1.2 to 1.4, which was what you would have to put into develop this RNG offering, and take it to the gallon volumes that you were targeting. And what I’m wondering here is with the IRA, Inflation Reduction Act and direct pay, there’s a 30% ITC credit now. So in your mind, does that final CapEx number that you need to develop your RNG offering fully, does it drop by 25% 30%? If you could talk about that?