Greetings, and welcome to Clean Energy Fuels, Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are on a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host Mr. Robert Vreeland. Thank you. You may begin.
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 risk, 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 identifying forward-looking statements, but their absence does not mean that the statement is not forward-looking.
Such forward-looking statements are not a guarantee of performance, and the company's actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in the Risk Factors section of Clean Energy's Form 10-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.
Thank you, Bob. Good afternoon, everyone, thank you for joining us. We continue to make excellent progress on the execution of our RNG business strategy over the last quarter. With our investments in renewable natural gas facilities and new stations, we expanded our leadership position. Clean Energy remains the largest supplier of RNG used as a transportation fuel in North America. In the important California market, more than half the RNG used to fuel natural gas vehicles is from Clean Energy. In 2022, our California RNG portfolio had a weighted average Carbon Intensity of -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 investments 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 an 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 in Q4 2021. We generated $13 million of Adjusted EBITDA for the quarter.
Bob will get into more details about our financial performance momentarily. 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, the federal RINs program. The LCFS credit prices declined almost 60% over the course of the year. It was just too much to overcome in the fourth quarter. The rollout of the 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 approvals put several stations behind our initial timeline for completion. We believe we've turned the corner on several of the issues that have hindered us and slowed our station construction. We believe we are at the lows of the environmental credit and regulatory situation, and credit prices should improve over the medium term. As I previously mentioned, we continue to be pleased with the way we are 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. For 2023, we believe we will continue to see pressure on the environmental credit prices.
In another step to position us for future growth, we secured a $150 million sustainability-linked 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 that I participated in a groundbreaking at 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 of a few weeks ago, the methane captured from the manure produced by Del Rio's 8,000 dairy cows is now being injected as renewable natural gas into the pipeline. At capacity, it 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 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 fueling solution comes close to the negative CI scores that RNG produced at agricultural facilities receive. 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 by 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 L 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 we'll be supplying them 20 million gallons of RNG annually for their 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. We have quickly become one of the largest developers and owners of dairy RNG production and are growing our leadership position in the distribution of RNG. Thank you for your time today, and now I'll hand the call over to Bob.
Thank you Andrew. Good afternoon to everyone. As reported today, we finished 2022 with $420 million in revenue and a GAAP loss of $59 million, versus 2021 revenues of $256 million and a GAAP loss of $93 million. Our Adjusted EBITDA for 2022 was $50 million versus $57 million in Adjusted EBITDA last year, which last year included $4 million of earn-outs 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 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 we anticipated, but still moving up as we thought as additional information is kinda 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.
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. 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 10-K that we filed today.
We made this change in the third quarter, in our 10-Q filing, where we separated fuel volumes and the O&M service volumes, and we enhanced our revenue disclosures around our volume-related product and service revenues. 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. 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.
The 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 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 EBITDA for the fourth quarter of 2022 was $12.6 million, and the adjusted non-GAAP net income was $2 million. That's for the fourth quarter of 2022. This compares to Adjusted EBITDA 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, 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 earnout 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.
As of December 31, 2022, 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. That's against $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. Nice on the cash front. 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-$115 million, which is reconciled to our outlook for Adjusted EBITDA of a range of $50 million-$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 in these incentive charges. Our 2023 outlook reflects continued double-digit fuel volume growth in the range of 15%-20%. 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. As we know, those they were lower in the fourth quarter. 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. Our the stock compensation kinda levels out, but that is about $5 million-$6 million higher in 2023 versus 2022.
We're estimating around $25 million-$30 million of cash flow from operations, mostly reflecting added interest costs. Our CapEx spend is estimated around $90 million. That's at the core business of Clean Energy. We may also contribute up to $40 million more into our RNG supply joint ventures. That's on top of the $178 million that we've already contributed. Frankly, that doesn't bring in potential pipeline, for this exercise, that's really what we, you know, 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 tailwinds from the Inflation Reduction Act, the forthcoming launch of the Cummins 15 L engine and, you know, just frankly, the continued demand for this very low carbon fuel of RNG. With that, operator, please open the call to questions.
Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from Manav Gupta with UBS. Please proceed with your question.
Good afternoon, guys. I first wanted just if you could. You mentioned earlier on the call, 13 dairies in progress. If you could help us understand the pace of development here, what stage of development are they? And if you could be a little more granular and let us know, you know, how many of those should be online by end of first half or by year-end. 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. If you could talk about that also.
Correct. Okay, I'll address that. You're correct. Manav, actually, you know, even a year ago, we contemplated 2023 would be minimal contribution. We will be flowing gas in a number of projects. But, you know, there's time between flowing gas and revenue recognition, which has to do with the whole, you know, pathway certification and when we really can get to meaningful revenue. You're correct. There's not much of a contribution there in 2023. You know, we'll see how 2024 kinda shakes out and just for sure, as we go into 2025 and 2026 and, you know, there you start to get into the Inflation Reduction Act and contributions that could happen there. That's why.
Manav, I'll also say, you know, a big part of the forecast being kind of flat, as well is the credit price deal. You know, going into the fourth quarter, we felt that there would be more information about, you know, kind of the pathway forward, if you will, particularly in California. We also knew the RIN, you know, had information there, that just didn't really materialize in our view, very meaningful. The market kind of stayed flat. We're not gonna kinda say that, you know, try to predict exactly when that will turn around. We're, we're bullish on it and know that, we believe that it will.
You know, we're, that's just a big part of the flatness because, we're kind of assuming, you know, fairly recent credit prices stick around. On the dairies. Yeah.
Yeah.
On the dairies, look, they're, you know, probably nine of those are. Well, 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 get, maybe four or five in 2023. Again, you're not really seeing an EBITDA. You know, which is okay. It's, you know, that's a long time, and we've recognized that. You know, we're also very mindful of the execution on, you know, the 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. Relative to...
It was pretty exciting to, you know, finally start injecting gas into the commercial pipeline at one of our dairies. You know, that's one of the keys as well, is getting those things running.
Bob, my quick follow-up here is, if I remember correctly, and let me know if I'm wrong, but last year at the RNG Analyst Day, you had come out with a full budget, I think somewhere between $1.2-$1.4, which was what you would have to put in to develop this RNG offering and take it to the gallon volumes that you were targeting. What I'm wondering here is with the IRA, Inflation Reduction Act, and direct pay, there's a 30% ITC credit now. 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.
Well, I think, Manav, of course, the ITC will apply, and it will reduce our capital by 30%. Now, that tends to flow in, you know, one year after. I mean, no, that's real. It will lighten the capital load by 30%. Our projects will qualify. You're right, that is the scope. When we looked at, you know, when we talked about a year ago, to get to the roughly 100 million gallons of our own equity, you know, projects, equity, you know, RNG projects, you know, that number still holds. We still believe that's a good number. There's more work to be done, and there's more money to be raised. There's more debt to be organized.
There are a lot of opportunities, a lot of projects, still to come. You know, we feel good about the projects, 13, that we have underway, which, you know, if you look back 18 months ago, we've moved quickly. We have a robust pipeline of more projects. We haven't lost any, you know, through all of it, even with the reduction of the credit prices, we haven't lost any enthusiasm. You know, what we try to stay focused on here is we have the lowest carbon fuel that's commercially available today in the world.
You know, there are a lot of regulatory policy folks speaking at all sorts of different levels and projecting how that fuel should be used and how it might be used and trying to micromanage the way the market will work. You know, what we know is we have a really low carbon fuel that can be used today, that can be disseminated in the nation's pipelines now. When we look at that fuel and we compare it to the other technologies that are available that most people wanna talk about right now, we feel very well-positioned. There's more to be done, and you'll see that come on.
Don't be surprised if you see us, you know, continue to do, things to, you know, move along that pathway that we all talked about a year ago, because we haven't lost any interest in that.
Thank you so much.
You bet.
Our next question is from Rob Brown with Lake Street Capital Markets. Please proceed with your question.
Hi, Andrew and Bob. Just wanted to double-check.
Hi, Rob.
Did you say $350 million of revenue, outlook next year? Was that the fuel volume revenue or of the total revenue?
That was total. That's net of... I'm just, you know, put it out there. That's net of about $66 million in, you know, non-cash incentives.
Yep, got it.
Just so you know.
Thank you.
Yeah.
Thank you. I know you gave some color on the Amazon station activity. How many stations do you sort of plan this year? I guess maybe, where's the uncertainty at on getting some of those things open? Are you still seeing the permitting delays, or is that sort of started to be worked through?
Rob, we... You know, I have to be careful with my friends there. They don't want me talking too much about what we've previously announced. You know, we had made an announcement that we would develop 19 stations through them. You know, you can slice and dice this number all out. We've built and opened four of those. You could assume that the remainder of that, for the most part, will come on in production in 2023. We've got a lot underway. In various stages right now. Some of those will get finished right toward the end of the year, October, November timeline. You know, there'll be...
Half of them will come on in the first half of the year. That's really important for us. What we've seen, Rob, is it's different. You know, building stations is not new for us, right? In our, in our history, we've built close to 750 station projects. We actually, one year, you'll remember, Rob, we built 87 truck stops in one year. Then I think the next year was a like number. Building stations is not new to us. What has been a little challenging is greenfield locations, right? You're building truck, what's called the truck stops from scratch in and around highly sought distribution centers. The locating, the coordination with Amazon, then the entitlements and the permitting.
Entitlement's really more, those of you haven't built anything in a while, the entitlement process in the country is daunting. That can be anywhere from, you know, six months to a year. You know, we have a lot of these projects we've been working on now for quite a while. Then the permitting less so. The construction part of it is not anything that's much different than what we've always seen, which is You know, five months. A lot more to be done this year, and we hope we'll just continue on that next year as well.
Okay. Thank you. I'll turn it over.
Our next question is from Eric Stine with Craig-Hallum. Please proceed with your question.
Hi, Andrew, Bob.
Hey, Eric.
Just coming back to the 2023 EBITDA guide. Looking for modest growth there, and I know part of that, so you've got RNG plans, I guess, pushed out a little bit. you know, you're still conservative on the credit side, and you've got higher OpEx. you've got some areas where you're more optimistic as well. You know, I guess, is that a fair way to characterize it, one? Secondly, can you just talk about maybe the linearity of it throughout the year? I know that the natural gas spike in California was, I believe, even more pronounced in the first quarter. you know, how do you expect to start the year, or how it plays out for the remainder of the year?
You know Rob when you were, when we're assigning... I'll let Bob get on here in a second. When you're assigning the, you know, the EBITDA and what, you know, why that, why that is, you know, where we're guiding to. Look, and he may kill me here, but if you went back to credit prices of last year, you'd add $44.5 million of EBITDA. We're trying to be responsible by not trying to project, you know, get over our skis on projecting what's gonna happen in the LCFS. We remain bullish. We think the fact that California is now talking about increasing the obligation curve from 20%- 30%, look, that's a huge increase.
We believe that when that finally gets done, that'll put pressure on LCFS prices. In fact, when you go back from the workshop that happened just a few days ago, you know, the LCFS price is up. We actually thought that was supposed to happen and it was supposed to happen in back in November last year. It happened now. You know, we're mildly bullish on what's gonna happen with the LCFS. And we certainly are in the medium term. That'd probably be more 2024, 2025. It's not the fact that the RNG projects, you know, are not on production yet, because we always, we always knew that those would come on and really contribute in 2024, as most do with the credit prices.
Bob, now you may fix me up here on that, but...
No I agree there. Eric you asked about the linearity.
Yeah. Just, I mean.
Versus giving guidance for the quarter.
Yeah, I know, but I mean, that would be helpful.
Yeah, exactly. Look, here...
Yeah.
You know, last year didn't bode too well without a little bit of linearity. I would say that, you know, talking about it, so I'm gonna say that there's a little bit of, you know, similarity between the years where, you know, historically Q1, you know, it's just a little bit of a slower quarter. You know, as we talk about completing stations, they're not all gonna get done, you know, here in March kind of thing. That plays into, you know, increasing volumes throughout the year.
Right.
You are correct Eric. It is interesting. I'll put that, the little caveat out there. California did have a huge issue with natural gas prices in January. I noted that natural gas prices doubled in December, so they went from, like, $7 an M to 15, and that's about $1. Then they went from 15 an M to 50. Yeah. That's kind of mind-boggling. We're gonna see some impact from that. There's no doubt about it. I mean, it's, you know, like usual. I mean, it may be some painful. The good news is we have a fair amount of the year to try to manage around that and recover from it. That's something that, you know.
That's kinda part of how we do things. I didn't get out there and, you know, necessarily change guidance on January at all. It's something that's, you know, those are the types of things that we had some headwinds in 2022, frankly. We had it in the third quarter, and then we thought Again, that was part of the optimistic view of the fourth quarter, was that we had that high gas price from the third quarter out of the way. Just when we thought we were kind of out of the woods, California, our largest market, doubles. You know what? All of that is temporary volatility, you know?
I mean, our view is long on this solution and the fuel and, you know, we've got projects being built out and, you know. We're in this for the long haul.
Got it. That's helpful. Maybe just going into the RNG, just maybe an update. I know you've provided it before, but, you know, as you see the JVs playing out, ultimately, the number of projects you see and then maybe the average gallons per project. Thank you.
Well, you know, these projects the dairies tend to be. Oh, Eric, I'm sorry. Eric, these projects tend to be in the range of, you know, 1.5 million gallons-2 million gallons, 2.5. We have one in underway in Idaho right now. It's a really big project. It's 5 million. Let's just say 2 million is a good number. You could see that we've got many more projects to come on, which we are very excited about. You know, the scope and the size of the market is still big. What you'll have, Eric, is you won't have as many 10,000 cow dairies or larger, but you'll begin to cluster these.
There's dozens and dozens of projects that are still out there. In fact, right now we have 2027, I think, in our pipeline. Not of the ones we've discussed, not of the 13 that are sort of, I put under construction and underway. We've got another 2027 that we've, you know, we're talking to and trading paper with. I think we've always sort of said that you'd be in the, you know, 35-40 projects before this is, you know, before we realize what we laid out for you last year.
Okay. Thank you.
Yeah.
Our next question is from Matthew Blair with Tudor, Pickering, Holt & Co. Please proceed with your question.
Hey good afternoon Andrew and Bob. Thanks for taking my question. I think if I heard correctly, you were saying that your current profitability, would look more like $95 million at 2022 credit prices. I think at one point you were, you were, you know, providing a 2023 guide of $136 million. Could you walk through the delta between that original 2023 guide, $136 million, and then the $95? I guess, would that be just an assumption of lower volumes coming through in 2023 than what you originally envisioned?
You know, Matt, I would say there's Yes, a little bit of that. I mean, you know, we're in a little bit of different world than we were at the beginning. You know, look back to January of 2022, you know, credit prices were extremely high and, you know, the world was in a little different place. I think that, I mean, for sure the lion's share of it, you know, is just simply an assumption on credit prices.
Right.
That's huge. The other gap there is what I'm gonna say, nothing notable other than a little here and a little there. You know, kind of as your environment changes, you know, you get, you know, plans change and, you know. For us, you know, I, as usual, I really feel that it's kinda timing related-
Yeah
of, you know, of when the volumes come on is the biggest piece. It really is. So it's not if, it's when and just how. You know, we're always constantly trying to get engaged, you know, when will the trucks show up at the fueling station, you know, going through the buying cycle and the adoption and all of that and getting it there and, you know, as things move. Look, moving out stations, these, you know, varies. When we open up stations, because they're purpose-built stations for all of our customers these days. We're building them because there's a need for volume. So as soon as they open, the fuel starts flowing.
Yeah.
It's, you know, that volume kind of follows how you're opening stations for the most part. I mean, we get more volume at our existing stations as well, but that's it. I mean, it's just...
I think, Matthew, probably if you were to go back and look at and try to piece it together, and of course, I was just giving you kind of back of the envelope that gets you to close to 95 or 100. It's timing. It's timing on the projects, right? We probably realize today these projects take a little bit longer to come on production. Than, you know, we thought a year ago.
Okay. the,
What didn't? You know, the other thing, I don't let's not go down this too long. What, you know, there is some good news in here, right? I mean, when we were laying that out for you a year ago, we didn't have the IRA. We didn't have an ITC. We didn't sure didn't have a producer.
Production Tax Credit
... pro-Production Tax Credit. You lay that in and put any kind of number on it that, you know, is been bandied about in 2025, 2026, those are really big numbers. It's all gonna work out here in the wash. I mean, in those numbers, when you put, lay $4 or $5 or $6, whatever you want, I'm gonna let you do it, not me, those are big numbers out there that can be attributable based on the, you know, the Production Tax Credit.
Okay. I just wanna confirm that the $50 million-$60 million for 2023, that does not include any ITC add backs, correct?
Correct.
Well yeah. It wouldn't necessarily. I mean, the ITC is more of an Investment Tax Credit, but, yeah, there's no IRA number in the 50-60.
Great. Thank you very much.
Okay.
You bet.
Thank you.
Our next question comes from Greg Bakoski with Weber Research. Please proceed with your question.
Yeah. Hey, good afternoon, guys. I don't mean to beat a dead horse here, but just going back to, you know, the financial metrics and projections from the RNG day, a little over a year ago. Obviously, a lot has changed. I'm just wondering, you know, what at all can we still take away from, you know, the 2022 - 2026 projections, you know, whether it's can we slide things to the right? Is the general ramp or the, you know, the shape of the ramp still intact? Should we just be kinda hair cutting everything by a certain percentage or, you know, should we just wipe it out altogether? Just curious, when you look at that, you know, what can we still take away from those numbers?
Well let me hit some of the broad strokes, we still see the need almost exactly the same as we did. The 2026 number of, you know, the 459, you know, whatever the total was, we still see that. We still see the third party, exactly in the same place. By the way, we're kinda on track on being able to lay that in as we thought. The RNG dairy in our account and our partners' accounts, we haven't come off of that. Now, I think, you know, it may be that you might need to slide everything six months to the right. I think that's probably prudent to do.
Of course, you know, as we've all discussed here this afternoon, the credit prices that we used back then are different. We all have to employ our best thinking on those credit prices. We happen to believe that by the time you get to 2024 and 2025, you know, the credit prices will strengthen substantially. Then, of course, you know, we like some of the benefits that we've received from the IRA. Certainly, the Production Tax Credit is very meaningful out there as well. We haven't really, you know, pivoted in terms of saying, "Oh, you know what? Let's not, let's not do this RNG," or, "Let's not pursue dairies," or, "Let's not pursue third party." It, it's all pretty much still intact.
You know, if you want to critically look at what's changed, you could say, well, some of these projects, dairy projects are probably taking a little bit longer to build. I mean, gosh, in the scheme of things, you know, when you have 30, 35 projects underway, you know, it's, I don't know how meaningful that is. Then if there's an impact, it could be in, you know, late 2023, 2024, early 2024, but I think it's generally gonna hold in pretty well.
Okay. That's helpful.
Yeah.
So it-
Yeah.
Go ahead Bob.
No go ahead.
Well yeah I mean maybe I'm saying the same thing, but, you know. It gets tempered a little bit, you know, frankly, we have, you know, we have tailwinds from the IRA that come in there and really help that, and really help that out. Because you can, you know. You can look at a model like that and simply, you know, change a credit price, and the numbers would go down. I mean, I can tell you the math on that. Yeah.
Mm-hmm.
If you take the LCFS from, you know, from 185 - 100...
62
... or 62, it's gonna go down. We don't believe that for that five-year period,
Neither do our partners, by the way.
Yeah. Maybe there's a little temperament there. You know, we also didn't plan in 2025 for Production Tax Credit to come in as well. You know, we're almost kind of back in. I think that, you know, in general, the shape of the curves and the potential out there is still there.
Okay. That's, that's helpful. I'm not gonna ask you for exact numbers, but is it fair to say that, you know, when we look out into 2025 and 2026, you know, the delta between your revised estimates for those years is smaller than, you know, looking at 2023 kind of rate in front of us right now?
Yes.
Is that fair to say?
Yeah that's fair to say.
Okay that's helpful. Then one more, if I could just. I think you guys mentioned in your prepared remarks, it's about competition, for the Amazon sites. Can you maybe elaborate on that a little bit more? You know, things outside of just permitting, you know, what competitive forces were kinda at play and whether they.
Yeah Greg again if competition, and maybe you thought of competition to build natural gas and RNG fueling. That's not the kind of competition. It's just pressure on real estate competition.
What kind of scarcity?
And, and-
Scarcity of that type of property.
What kind of properties cities want in their city.
Okay. Okay.
It's really.
It's not others doing the not others.
No
... trying to do the same thing that you're doing.
No.
It's just, you know, different uses for the land in general.
Exactly.
Gotcha. Okay. Cool. That's helpful. Thanks a lot guys. I'll pass it on.
Yeah, you bet. Thank you.
Our next question comes from Pavel Molchanov with Raymond James. Please proceed with your question.
Thanks for taking the question. I know you're not giving guidance formally beyond 2023, but you said that you expect California LCFS pricing to improve over the next two years. What gives you the confidence in that, directionally?
Yeah. Pavel, what gives us the confidence on it is that the Low Carbon Fuel Standard is working, and RNG is an important component of it. I think that we feel fairly confident, certainly after the workshop of the twenty-second, that all of the comments were supportive of an increased obligation curves, increasing the obligation and compliance curves from 20% - 30%. I think there's a chance that they could go to 35%. You know, there's this new concept that the staff has actually endorsed, which is kind of a ratchet, that if you're in an oversupplied market, that they could ratchet down the compliance curve. You know, you could kind of theoretically go from 30% - 32%.
I think all of that is you're gonna need all the RNG you can get. I think you're gonna be back in a much more supportive environment for increased prices.
Okay. Let me ask a similar question about RINs, you know, which I think for the year as a whole, RINs were as large as the tax credit and California combined. The EPA seems to be kind of rethinking, you know, the entire, you know, RVO framework, including, you know, these electric RINs that are being discussed. What's your thinking directionally on where that goes?
Yeah I Pavel I actually think that, you know, we've learned a lot over these last few weeks since they came out with their new proposal on the RVO and for the Renewable Fuel Standard and the eRIN. I think they've overshot and the EPA has. When you look at the four or so largest organizations that the EPA listens to, you know, the Renewable Fuels Association, the AFPM, and the API, and the RNGC, just to name a few, all of them, Growth Energy, all of them are unanimous in that the proposed eRIN framework won't work.
you know, specifically as we look at it, Pavel, you know, the way they kind of engineered the equivalency of how they would have credits, what kind of level of credits you would get depending where you put your fuel and where frankly the EPA wanted the fuel, I don't think that's probably gonna end up being the way it's gonna being enacted. The idea that they kinda jury-rigged the math to create RINs out of thin air, frankly, to incent RNG to go to make electricity for light-duty electric vehicles versus putting RNG into a hard-to-decarbonize heavy-duty truck, I don't think that, I don't think that that's gonna end up being the case. I think it was almost just too much, you know.
It's gonna fall apart under its own weight. It was too obvious. The move in the origination from the producer at the, you know... The other day, Pavel, I was with the chairman of the Agriculture Committee and a member of Congress who happens to own a dairy farm and happens to have a RNG digester at his dairy farm in Central Valley, California. We're standing on the bladder on top of the, on, you know, on top of it. And of the lagoon there and, you know, filled up with methane that this guy's capturing. We, by the way, get all that gas, and it goes into heavy-duty trucks.
I said to the chairman of the Agriculture Committee, I said, "Well, now there's one for you." I pointed at the congressman whose dairy farm it was, and I said, "Can you imagine that the EPA's proposed that the generator is no longer Congressman Valadao, and it's no longer, they're not the generator here at the dairy farm. They're gonna pass that on to the to Ford or to someone making electric vehicles in Detroit or Elon Musk." He said, "Well, you gotta be kidding me. How can that possibly be?" That's just another example of what was going on in this deal, and I just don't think that's gonna all is gonna end up being enacted that way at all.
Appreciate the color on that.
I think what's gonna happen, Pavel, is you'll see perhaps they're under an obligation to enact the RVO by June. Now, whether or not they do that, I don't know. I'm not sure they're gonna get this all cleaned up and figured out, the eRIN, to make that date. It, you know, wouldn't surprise me that the eRIN maybe gets delayed some and restyled some and that they go with some other kind of RVO in June. We'll, you know, we'll have to see.
Just a quick question at the end. Smaller programs, do you get anything from Oregon or Washington State LCFS?
We do, but a little bit. We have several customers... I'm looking at one of my guys. Oregon?
Mm-hmm.
Which-
Yeah, Oregon for sure.
It's Oregon.
Washington State, not quite yet.
Washington State, not quite yet, but we will there. Oregon program, credit prices are worth more.
They're worth more.
They're nice, but we don't do a lot of fuel up there yet, Pavel.
Right.
I think we have four or five customers right now.
Yeah.
Okay. Thank you, guys.
Yeah.
Okay.
Our next question is from Craig Shere with Tuohy Brothers. Please proceed with your question.
Good afternoon. Thanks for taking the questions.
Yeah.
I mean, obviously, neither CARB nor the EPA wants these programs to implode. I guess I, what I wanna ask is one, do you see a silver lining that the regulators feel more pressured with these low prices? Two, do you see any catalysts for other state programs? There were some draconian possible recommendations with options being evaluated by the CARB, you know, kind of eliminating, you know, projects past a certain line in the sand from west to east or other things.
Do you see them starting to shy away from some of those draconian changes and just focus on total supply demand in terms of, you know, the carbon reduction, you know, track versus tweaking the market, you know, in other ways?
Well, Craig, look, I think I hope what I've been trying to say on this call is that I'm actually somewhat optimistic of the way both these programs are gonna end up. It hasn't helped, you know, as, as the markets watch this kind of making a sausage and regulatory proclamations and staff workshops and all that. You know, that's kind of can be a little bit of unnerving. It frankly has done that to the credit prices in the latter part of the year. I think I'm picking up where you are. I don't believe that either California or the EPA wants to dismantle these programs, okay?
I think unfortunately, there was a tendency to want to micromanage and steer and pick winners and losers, and it's maybe some things that we see governments do from time to time, and certainly staff in governments do from time to time. Not always, you know, well, well-guided and certainly often not, you know, market. I think it's beginning to... Having said that, if I look at California... You know what overpowers some of these, the micromanaging of, you know, west, you know, lines in the sand and the west and pathways and Book and claim and some of these different things and length of service and, you know, all that, some of that stuff that had been kind of proposed is that they know the program works.
They know that half the dairies in the state of California, for instance, have voluntarily gone into capturing methane. They know they need RNG in order to lower the carbon in the state. It works. Other states know it works. The governor of the state know Governor Newsom, he knows it works. The last thing you wanna do is, you know, kill the golden cow, if you will. I think what you'll see is what kind of overpowers all of those tendencies to wanna micromanage the program is the fact that they're gonna increase the obligation curve from 20% - 30%. That's big.
If they go to 35%, which many have suggested that there's no better time to do it. You're gonna need all the RNG and a lot of these, you know, little programs, little things that they were kinda wanting to test, I think will go away because you're gonna need it all. I feel actually kind of. You know, I'm an optimist, but I feel actually that that is headed in a, in a better direction. Then as we relate to the, to the, to the EPA, I feel similar in a similar way.
You know, for the federal government to decide that they wanna decide where this fuel should go and jury rig the, the math on generating RINs to force it to go to make electricity for their electric vehicle program, I just don't think that is the way it's gonna go. I know that there's a... You know, it'd be kind of interesting, we should tune in tomorrow. There's a confirmation hearing by the fellow in charge of this program, at the EPA, in charge of the Office of Air and Radiation. He's trying to get confirmed tomorrow. I'm sure these questions that we've talked about just now about what they were trying to do with the program, probably he brought up tomorrow.
I kinda feel like, I don't have anything against eRIN, but I think the way that it was being done was probably not the right way to do it. Not even sure the EPA has authority to do it, but we'll see. I think in particular, some of the things they were doing, you know, is probably not the right way to go about it. I think I'm not the only one with that. Just about everybody. You should read those comments. I mean, I think there was general agreement in that.
That's helpful. And you're talking about finishing up the 19 stations for Amazon. I guess, you know, do you require similar massive, you know, fueling, you know, fleet fueling agreements? Or, you know, so what's next after that? Do you have to have other Amazon-type agreements in order to roll out the next 10 or 20 new stations? Or do you just see increasing widespread adoption with the new Cummins 15 L engine, and so you're just gonna have more open access and just keep going?
Well, no, you just keep going. Look, 19, I hope there's more beyond that with Amazon, right? There could be many more just with Amazon alone. Like we've long said, look, we're not just a one-trick pony in terms of just Amazon. I mean, you know, look, we're working with all the large trucking fleets. We have a eye. You know, we are really focused on these 40 sort of household-name, largest fleets that are working right now with Cummins as they introduce the test vehicles for these next four, five, six months. We hope, as they order the order book sometime in 2023 on the 15 L. You know, we're all over those fleets to work with them to build and develop stations for them in the future as they, we hope, begin to order vehicles. There'll be...
You know, we have a very large network that can take a lot of fuel now. Many of these fleets will use our nationwide network. Then, you know, we would be thrilled to work with some of these, very large fleets to do what we're doing with Amazon. I'm sure that'll be the case.
last.
You know, for instance, Craig, you know...
Yeah.
I don't know how it'll pan out, so I'm just giving as just, you know, I'm just speculating just kind of for fun. I mean, look, we know Walmart's testing the new Cummins 15 L. We know Werner. I would love to be the fuel partner using RNG for those kinds of fleets. There's a bunch of them.
Last one from me. To the degree there's wider spread adoption and, you know, these fleets want, you know, to drive lower carbon fuel in other geographies nationwide, not just California or Oregon or what have you, do you think that there's increasing multifold pressure, you know, on, you know, two or three or four more states to come up with these types of-
Yeah.
LCF programs in the next two, three years?
Yeah. You know what, that was part of your question. I wrote them down here. I wrote down New York, Illinois, and New Mexico. There will be other states. I think New York's pretty close, and Illinois has, I think, introduced it. We've got some work to do in North Carolina. You'll have other states. There'll be some that won't go, but you'll have other states do it. I think New Jersey. Once New York goes, you'll probably get New Jersey and the others in the area. Yeah, they should. You know, Craig, if California does something to louse up their program, they will.
Gotcha. Okay. Thank you for those insights.
Okay.
Thank you.
Our next question is from Paul Cheng with Scotiabank. Please proceed with your question.
Hey, guys. Good afternoon.
Hey.
It's pretty late, so real quick. There's some discussion, I think California may want to change the way no longer give the LCFS credit to RNG unless it prove the gas is physically in the state. Want to see if you guys have any read or have you talked to the government official there to see where that stand? If it does get passed, how that impact your, yeah, your operation? I mean, what % of your projects that currently under construction, realistically that you will have the pipeline connection all the way to California? Then also, how much is your RNG sales that currently from the third party you would be able to do that? Thank you.
Yeah. Hey, Paul. I mean, it's kind of around the book or claim, the Book and claim and whether you know, whether they're gonna require us to physically move gas in to do that. You know, I mean, first we don't, you know, we think that's yet to be determined.
Right.
We're not really moving around.
No
... to try to accommodate that. You know, in some sense, I think there'd be some cost, there'd be some cost added.
It's not.
You know, one of the beauties is we've got pipelines and we already have.
Yeah
... you know, we have certified pathways, so we actually, we do have to be able to get gas.
Right
... from the farm to the dispenser in San Diego. I mean, it has to be able to go there. What we talk about and, you know, I mean, but it's a little tricky, right? Once it goes in... Once methane goes into the pipeline, it's methane. It's kind of indistinguishable. You know, it's like putting a dollar in the ATM. You know, I mean, you go take it out, it's not the same dollar, but it's a dollar. You know, look, however we would have to track molecules, I think you'd add a little cost, but it would be-
Yeah
... done. I don't think-
The way I understand it, Bob, I mean, that there's discussion of that they wouldn't allow you to use the current book and claim, but you have to pay for essentially the transportation, right?
Yeah. You pay for it.
... that's not a deal killer, Paul. I mean, it's, you know, it's not fair and it's not the way it should work. frankly, this is the kind of crazy stuff that's going on. again, I'm gonna kind of assign it to faceless bureaucrats, right? I mean, it... By the way, that's not the case if you use it for hydrogen, even while they would want to do it for us. I mean, that's the kind of thing that is just... I just think that when cooler heads look at something, I don't see that. if it were to happen as they've discussed in some of these workshops, there would be a extra cost to it. it's...
We can accommodate.
Yeah.
I mean, we certified our pathways today.
Yeah. We have to do that now.
The connectivity, all of it. It's all that work, and that's a lot of work, and it's time consuming.
Don't.
As it is today.
... don't, You know, that's not in stone yet, Paul.
Sure. Just trying to understand that what is the kind of impact. Any rough estimate on what's the incremental cost for you guys?
I don't have. Don't know.
No. No, I mean, if you're getting into kinda transportation costs, you know, you know, your kinda dollars on the MMBtu kinda thing.
Our guys know it. I'll see if we can't get it for you, Paul. I don't know it.
Yeah, that would be great. We're being asked by some clients on the topic.
I'm busy fighting it. I'm not worried about paying it. Don't... Put me down in the fight column. Yeah. Okay.
Sure. My final question is just a simple accounting question. On the, we're talking about that the credit reduction, the capital reduction, say, 30% or so. Accounting-wise that, Bob, how does it work? We imagine in your cash flow statement, your CapEx number is still remain the same. You're just receiving the, that, tax credit or check from the government and showing up where?
It'll reduce the basis in our asset. It will lower, it'll basically lower the value of what we have capitalized. If you're gonna, you know, $100 million and you get your $30, you're gonna kinda end up net with a $70 million asset there.
No, I guess my question is that from an accounting standpoint, when we're looking at your 10-K on your cash flow statement, let's say if you supposed to have $200 million on the CapEx in 2026, and let's assume that in 2025 you spend $100 million, so you end up at $30 million. Yes, the cash flow statement is still showing up in your capital spending line at $200 million or you show $170 million?
It's gonna show gross.
Okay. This $30 million, that way it's going to show up in the cash flow statement?
It's gonna show up in the investing section.
Okay. Will do. Thank you.
Yeah.
Gross.
Yeah.
You're proud of yourself, aren't you, Bob, with the accounting?
Yeah. I'm doing what I think is conservative and what the FASB would want me to say.
Thanks, Paul.
Our next question is from Jason Gabelman with Cowen. Please proceed with your question.
Hey, guys. Thanks for taking my questions. Two, if I may. The first, on the Clean Fuel Production Credit, which I think starts 2025, it seems like the benefit to your RNG production could be pretty high if it's not, if the credit isn't capped. It could be as high as $6 a gallon. Is that your interpretation? Do you expect that credit value to be capped? My second question is just on the near term numbers. It looked like 4Q, the fuel margin, excluding all the credits, was just $0.04 per gallon, which was down quarter-over-quarter, I think by $0.06. Was that just due to the higher natural gas prices? Do you expect that to rebound back to, I guess, the $0.10 where it was in 3Q?
That's once again just the fuel, dollar per margin, excluding any of the credits. Thanks.
Okay. Andrew, I don't know if you wanna talk about the PTC. You know, Jason, it's a good question. I, you know, that as you point out, that the production tax credit has not been promulgated. It hasn't been, you know, it hasn't been adopted by the Treasury Department, by the Treasury Secretary. I've told our folks here, you know, let's be careful. We don't know how that's gonna come out. We don't know. It appears on its face as, you know, as the law has suggested, that it would, it could be a rather big credit based on the Carbon Intensity. You know, I've seen estimates between $5-$6. I also know that's a big number.
Jason, it's the first time I really heard anybody ask us. Maybe it's 'cause you and I have talked about it before or something, but whether, you know, that it could be capped. You know, stranger things have happened. I don't know how to handicap that yet. I know that this incentive was designed to get really low carbon fuels produced. You know, you wanna be careful how much you cap it, because then it works against what it was designed to do. You know, could it be? Sure. Do I think it will? I don't, I don't know that I'm not sure it would be, but it, you know, it could be. Have you heard something, Jason?
No, no, that's... I was seeing if you did. I have not heard anything one way or the other.
No, you know, I also know politicians and, you know, someone said, "Whoa, that's pretty big," you know. But there are a lot of big numbers associated with all this stuff, so I'm not so sure that it would be. I don't know how fair that would be just to cap it.
Yep.
It's so low carbon, you know. We'll see how that goes.
Yeah Jason on your second question, by the numbers that you're giving to me, I can tell that, and I'm not saying right or wrong at all, but, I think you're taking like the fuel sales value that we report, that has the Amazon non-cash incentive netted down in there. You're kinda, you know...
Doing the math.
... figuring out the product cost of sales and coming out to your $0.04. I will say that there's a couple, probably a couple things. I mean, one, the number can be influenced by what the value of the Amazon incentive number is. Right? Because that nets that, it nets down the revenue, and then your cost is kinda the same. You know, your margin gets a little skinnier as a result of the value of that. Whether you wanna have that in there or not is up to you. I can say that, you know, the value of that charge was, you know, the largest it's been in any quarter, and it was larger than Q3, so it was like $7 million in Q3 and $8.8 million.
That's netted in your revenue number. I will say yes, you know, Q4 was impacted certainly by the doubling of natural gas costs in California because it's such a big market. We're gonna see a little pressure on that in the first quarter. I would have liked to have said, you know, that dissipated. That kind of righted itself. I already know in January that it, you know, costs went from $15 and then to $50. I don't know if any of you have heard on the news about... I mean, it's all the way down into residence and, I mean, it's a complete debacle in my opinion, my own humble opinion there.
It's a bit of a debacle on how we're managing the natural gas here in the state. Now, having said all that's in January. We'll work our way out of that. In January, we did, by the way, have to, we were forced to our own selves, no one, no one externally, but raise our prices at the pump totally to accommodate that. We don't always do that because we're mindful of our customers wanting that, you know, to enjoy the spread in the pricing, and so we don't always jump out there and do that right away. We did. Anyway, I think your $0.04 is influenced, see how it's influenced by the non-cash incentive charge and then, yes, you do have a little bit of pressure on the COGS.
Thanks.
Okay.
We have reached the end of the question and answer session. I would now like to turn the call back over to Andrew Littlefair for closing comments.
Operator thank you. Thank you everyone for joining us today. We look forward to updating you on our progress next quarter.
This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.