Clean Energy Fuels Corp. Q2 FY2021 Earnings Call

Greetings and welcome to Clean Energy Fuels Second Quarter 2021 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Robert Vreeland, Chief Financial Officer. Thank you, sir. You may begin.

Thank you, operator. Earlier this afternoon, Clean Energy released financial results for the second quarter ending June 30, 2021. 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 would 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 Clean Energy’s Form 10-Q 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 excludes 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 and thank you for joining us. This was a great quarter for us. In Q2, we signed the most important commercial agreement in the history of our company with Amazon. Our business is growing again and surpassing pre-COVID levels. We raised $200 million in growth capital. Our earnings were better than expected. And there continues to be an increased understanding of the role our renewable fuel can play in addressing climate change today. Notably, our fuel volumes surpassed 100 million gallons a quarter again, a healthy 13% increase over the second quarter of 2020 when the pandemic had begun to take hold. We saw volumes bounce back in all sectors. And the good news in particular is that airport fleet volumes increased 36% and transit increased 24% compared to a year ago, which surpassed our own internal projections. Our renewable natural gas, or RNG volumes, grew 19% over the same quarter a year ago and continues to become a larger share of our overall fuel mix. Our efforts to accelerate that demand for this ultra clean fuel is only matched by our focus on bringing on additional RNG supply to meet the growing demand, which I will elaborate on in a minute. As you know, we are focused on providing more and more RNG, a fuel that can be rated to have a negative carbon intensity allowing our customers to meet their transportation sustainability goals easily, immediately and affordably. I am going to let Bob go into more detail about our strange revenue number this quarter, but it’s not hard to see. There were accounting-related non-cash charges that highly impacted it, most notably the Amazon warrant charge. Excluding the non-cash charges, our revenues would have been $79 million, a 29% increase and apples-to-apples comparison to the second quarter of 2020 which was $61 million. Our balance sheet has significantly improved placing us on solid footing. During the second quarter of the year, we added $200 million of cash through an at-the-market equity offering managed by Goldman Sachs. In fact, the demand was so high we raised $100 million in 1 day during the second round of the offering. We finished the quarter with $254 million in cash and investments after contributing $50 million into our negative carbon intensity RNG development joint venture with BP. Our debt at the end of the quarter was $42 million. This places us in a strong financial position as we expand our fueling infrastructure for our new large anchor customer, Amazon, and make investments in RNG production to ensure a growing supply of RNG fuel in future years. Our adjusted EBITDA for the second quarter was $14 million, a 51% increase over the adjusted EBITDA on the second quarter of last year. Overall, it was a strong quarter financially and operationally. Regarding the supply of RNG, let me just quickly report that our efforts to make agreements with dairies is moving along very well. No other company has as compelling an offer as we do, with a strong balance sheet supported by our joint ventures with TotalEnergies and BP and the largest vehicle fueling infrastructure in the country, which provides the mechanism to generate the valuable environmental fuel credits. Dozens of dairies from California to Texas to the Upper Midwest are in discussions with us. We have already signed our first partners and have a robust development pipeline. But before the RNG from these new partnerships comes online, we are also aggressively and continuously signing RNG supply contracts with third parties to meet today’s growing demand. Since the beginning of the year, we have secured an additional 53 million gallons of RNG with a healthy pipeline of additional supply agreements. As I mentioned, our base of existing customers is back to previous levels and we were adding new businesses as well. The adopt-a-port program with Chevron, which makes replacing old diesel trucks with clean RNG trucks affordable for smaller operators in the ports of LA and Long Beach continues to expand. Financing for over 485 heavy duty trucks is either closed or is in the contracting phase. These trucks will fuel in the ports at our surrounding network of RNG stations in Southern California. We are working our way through the additional $20 million of financing that Chevron recently committed to the program. And I believe it will accelerate as the state of California soon distributes another round of its grants for clean trucks, making the switch to RNG all that more appealing. On the East Coast, our existing customer, Manhattan Beer Distributors, recently announced that they would be expanding their natural gas fleet to 29 trucks, which will fuel at our stations in the New York City area. And in the middle part of the country, we signed a new customer, Energy, a large regional fuel provider in Nebraska. We will be taking over the operation of three stations that sell an approximate 900,000 gallons of CNG a year and we forecast that to grow as they add medium and heavy duty trucks to their fleet. Another new customer, the City of Fort Smith, Arkansas will begin to fuel a new fleet of natural gas refuse trucks and has plans to convert their entire fleet to natural gas. These are a sampling of recent agreements. But of course, the biggest deal signed during the second quarter of this year, well in fact, the biggest deal we have signed since the company began was the agreement with Amazon. I spent quite a bit of time discussing it on the last call. So I won’t go into much more detail today. But since our last call, Amazon issued their latest sustainability report, and in it they confirm for the first time that they plan to initially deploy 2,700 heavy duty natural gas trucks by the end of the year, and all the fuel we will provide for Amazon will be RNG. We are making good progress on the additional stations that we plan to construct for Amazon and Amazon continues to deploy its heavy duty truck fleet. In addition to the fueling infrastructure expansion, we are facilitating training classes with the Natural Gas Vehicle Institute for dozens of maintenance technicians who will be keeping the Amazon trucks on the road. Our excitement about our new relationship with Amazon has only increased since our last call. This significant supply agreement and their right to buy Clean Energy shares, provided they purchase hundreds of millions of gallons of RNG, demonstrates the overall commitment and strategic alignment that one of the world’s largest companies which moves more goods than anyone else has made to renewable natural gas. We are seeing that message open doors with other fleets, which have been a little hesitant in the past to think about leaving diesel. And fleets are feeling other pressure points as well. I don’t have to tell this audience that companies are under increased scrutiny to find ways to reduce their carbon footprint. Investors, regulators and the public are asking to see specific plans to meeting their emission reduction goals. I am going a little bit off the farm here, but it’s my belief that our RNG fuel solution has the momentum versus other alternatives. It’s almost becoming a weekly occurrence where we see stories about transit agencies turning back electric buses, because of serious issues, including thermal events. And by the way, where I come from we call those fires or delays and rollouts of electric heavy duty trucks and other promises and claims not kept by startup OEMs, or the lack of charging and fueling infrastructure for large vehicles, the expense of charging and fueling infrastructure, and a growing realization that there is no perfect clean solution, highlighted by a recent in-depth story by the Los Angeles Times about the environmental impacts and problems associated with the mining of minerals for large batteries. Now, don’t get me wrong, I think electric and fuel cells will be fine in the light duty space. And as I have said before our experience in station construction, along with our access to RNG fuel supply, which can be used as a clean feedstock in time will allow us to expand in other alternatives as our customers do. In fact, we have recently submitted bids to build hydrogen stations for transit agencies that will be testing a handful of hydrogen buses. But for fleets of large vehicles, which are looking for immediate and significant carbon reduction solutions, we think there is nothing comparable to RNG. It’s becoming easier to make our sales pitch. A fuel produced from capturing naturally occurring methane at dairies, which number in the tens of thousands and then turning it into a transportation fuel. Displacing a harmful incumbent fuel is an easy story. This two-pronged mitigation is why RNG fuel can receive a negative carbon intensity rating and why more fleets like Amazon are realizing it’s the easiest and most cost effective way to meet their aggressive sustainability goals. We already have a nationwide fueling infrastructure in place that is expanding. Cummins provides a natural gas engine that performs as well as its diesel counterpart, albeit with 90% fewer tailpipe emissions and a carbon negative fleet can be deployed in short order at much less cost than other untested alternatives. We have recently begun an exercise to dive deep into large heavy duty truck fleets with specific data that demonstrates to companies how they can reduce their greenhouse gas emissions. As an example, at their request in July, we provided one of the country’s largest fleets, which operates thousands of heavy duty diesel tractors, with specific data about how they could achieve their long-term carbon emissions reduction goal by replacing only 1,200 — that’s 1,200 — trucks over 3 years with RNG. Using the same California Air Resources Board carbon intensity scoring, this company would have to purchase over 6,400 electric heavy duty trucks, or 13,000 fuel cell trucks to achieve the same carbon reduction as only 1,200 trucks running a negative carbon RNG. As I mentioned at the top of my remarks, the second quarter was a great one for Clean Energy. Our recurring business is returning to normal levels and we are beginning to see real growth in our fuel volumes driven by new customers in no small part by one in particular, Amazon. And we are on solid financial ground as we continue to make additional investments for future growth. And with that, I will turn the call over to Bob.

Thank you, Andrew and good afternoon everyone. And I will reiterate what Andrew said, the second quarter was a good financial quarter for us. We started to see the anticipated rebound in volumes along with good fuel margins and a continued favorable environmental credit market for D3 RINs and LCFS. Of course, our GAAP results as reported were significantly impacted by the non-cash contra revenue charges of $78.1 million from the Amazon warrants. But looking at our non-GAAP earnings, we earned $0.01 a share with adjusted EBITDA of $14 million. These contra revenue charges related to the Amazon warrants is why we are reporting a revenue number of $0.5 million for the second quarter. Without those warrant charges and changes in fair value of Zero Now hedge, our revenue was $79 million or 29% above 2020 second quarter revenue of $61.3 million on a comparable basis. The Amazon warrant non-cash contra revenue charges for the second quarter included $76.6 million related to the immediate vesting of approximately 25% of the warrant shares and $1.5 million related to ongoing fuel delivery to Amazon under our fueling agreement. We will continue to record non-cash contra revenue charges each quarter that could be in the range of $3 million to $4 million per quarter related to the ongoing spending on fuel by Amazon. As also note the contra revenue charge related to the immediate vesting in the second quarter was higher than our initial estimate of $68 million due to additional warrants being issued in connection with our share issuance from our at-the-market stock offering program. As such, we have updated our guidance for estimated GAAP loss to $86 million for 2021 to reflect the increased contra revenue charges in the second quarter, which has no impact on our cash flows or adjusted EBITDA. We are maintaining our adjusted EBITDA guidance for 2021 of $60 million to $62 million. Now continuing on with the second quarter, total volumes were 101.4 million gallons compared to 89.5 million gallons a year ago. Andrew noted the big increases coming from airport fleets and transit sectors, which have been the most impacted by the pandemic. Trucking and refuse also saw year-over-year volume gains. And our RNG volume grew 19% to 42.9 million gallons in the quarter, up from 36 million RNG gallons in the second quarter last year. Our effective price per gallon in the second quarter of 2021 was $0.67 per gallon compared to $0.58 per gallon a year ago. This reflects generally higher natural gas prices and related prices at the pump as well as significant gains in our D3 RIN revenue. Both station construction sales and the alternative fuel tax credit revenues were better than a year ago by 15% and 20% respectively, collectively an improvement of $1.7 million for the second quarter compared to last year. Our overall gross profit margin improved in the second quarter of 2021 compared to 2020 exclusive of the non-cash contra revenue and non-cash fair value changes in our Zero Now hedge. Exclusive of these non-cash items, our gross margin was $32.1 million in the second quarter of 2021 compared to $22.8 million in the second quarter of 2020 or a 41% improvement. Increased volumes together with a rise in our margin per gallon from a year ago were the primary drivers of this year-over-year improvement in margin. Our effective margin per gallon for the second quarter of 2021 was $0.26 per gallon compared to $0.20 a gallon a year ago, also reflecting the greater fuel volumes and higher rent pricing. We believe our margin per gallon will remain within our expected range of $0.22 to $0.26 for the year. But as we have seen, we’ve been at the high end of that range in our first two quarters. Our SG&A was $21.6 million in the second quarter of 2021 compared to $16.9 million a year ago, an increase of $4.7 million, of which 57% or $2.7 million of that increase relates to an increase in stock compensation as expected. Our GAAP net loss for the second quarter of 2021 was $79.7 million which includes the effects of the non-cash warrant contra revenue charges and the Zero Now hedge changes. Our non-GAAP net income for the second quarter was $1.8 million or $0.01 per share, which we believe is more indicative of our operating results. Our adjusted EBITDA of $14 million for the second quarter of 2021 compares to $9.2 million a year ago, which again highlighted the benefit of increased volumes and improved margins principally associated with our RNG deliveries. Our cash flow provided from operations amounted to $9.7 million for the second quarter of 2021 compared to $54 million in the second quarter of 2020, which that figure included 2 years of alternative fuel tax credit collections in the second quarter of 2020. Exclusive of changes in operating assets and liabilities, cash flow from operations was $14.3 million in the second quarter of 2021 versus $6.6 million in the second quarter of 2020. CapEx spending was $4.6 million for the second quarter of 2021. Of course, we see that amount increasing as our station building continues and ramps up as we accommodate principally Amazon. And Andrew mentioned our cash and investments of $254 million, with debt of $42 million at the end of June 2021. We contributed $50 million in June into our RNG investment with our JV with BP and we anticipate funding our RNG JV with TotalEnergies on a project by project basis as specific projects are approved for funding. Our share of the net results of these JVs is and will continue to be reflected in our adjusted EBITDA as we progress forward in bringing projects up and producing RNG. With that, operator, we can open the call to questions.

Thank you. Our first question comes from the line of Eric Stine with Craig-Hallum. Please proceed with your question.

Hi, Andrew. Hi, Bob.

Hey, Eric.

Hey, so I know you mentioned that Amazon is not a surprise that it’s helping more broadly in discussions with customers. But maybe could you talk about specifically Amazon suppliers, maybe some specific data points as much as you can share, traction you are making there and kind of how you see that overall volume opportunity?

Our stations that we are building for Amazon are going to be open to the public. And of course knowing our business, Eric, when I open to the public that means they are open to other truck companies. In that case, I think it’s likely to be other vendors and suppliers as well as other fleets that operate for Amazon. We have seen a few companies that haul for Amazon begin to bring natural gas trucks into their fleet. And I think you will see more of that in the future. And that’s really all I can talk about right now, but I believe that as Amazon looks at their emissions and their goals and their reductions in the future, they are going to try to encourage many of the people they work with to bring on cleaner and cleaner vehicles over time. And we hope to be right in the middle of that and kind of stay tuned.

Yes, okay. Well, maybe just sticking with that, I mean, is there any way, obviously, as you’ve got the joint ventures now you’ve brought on more supply, you’ve had the supply agreements in hand for some time, maybe the size of the pipeline for RNG whether it’s versus a year ago, three years ago, anything along those lines would be helpful?

Right. And I am going to be a little cagey here, Eric. And it’s just because I guess there is a lot of good news here, but which is there are a lot of competitors out there trying to develop dairy projects. In one way that’s a really good thing because that confirms for me that there is a lot of money and some big players with deep pockets recognizing that this is a really viable fuel that’s economic and that has a great role to play in reducing carbon emissions today. So, that’s good. Remember that we are ahead even while we are competing at the dairy location. Often, and I don’t want to say the only game in town, we often get the supply from our competitors as they go look to put it in a vehicle tank, because we have the infrastructure. So, just because we are not developing a dairy farm and harnessing the dairy fuel for our own account, that doesn’t mean that we don’t ultimately bring that low carbon negative fuel to our customer, our fueling station. Now, obviously, we would like to get a lot of it on the upstream side, because that makes economic sense for us as well, but just want to keep that in mind. Compared to three years ago, there was hardly anything going on in the dairy business. So, when you look at the pipeline today, it’s dramatically increased. And I have said on a previous call, I am not going to dissect it today, I said in the previous call that we have got several projects that we have given the notice to proceed that are either in construction or signed or in our pipeline that’s grown since our last call, but I’ll just kind of leave it at that right now. But yes, Eric, compared to where we were several years ago, remember, we were early in this business. We started — I guess we were the first ones to put landfill gas in a truck 10 years ago — and so up until recently, it was all landfill gas. And it will continue — there is a lot of landfill gas in the United States and it will continue to be a lot of landfill gas. But you will also see more and more dairy and farmed hogs coming on board because of its low carbon nature.

Got it. That’s so much helpful.

For instance, let me give you one other little point. Our carbon intensity is coming down. By the fourth quarter this year our carbon intensity will be approaching zero for our fuel. It wasn’t too many years ago that it wasn’t that way. It’s coming down fast, because we do bring down this negative carbon fuel. The negative carbon fuel is so much lower carbon that it brings down the other. So, that’s a good thing.

Yes, no, that’s good. Maybe last one for me just, I mean, great to hear a rebound in transit and airport. Have you seen any change with variants and things along those lines or is that something that you kind of feel like those few areas are back on track and they should continue to grow going forward?

Yes, we are seeing them all grow. I don’t think airports are fully back. I mean, they have come back a long way. I’d say they are back to about where we were before, but they are still not operating on all cylinders yet just based on what I know on the passenger load. But they are pretty much back to where we were before, and I think there is growth there. Transit buses, I’ve said this from the early days of the pandemic, they kind of flipped the switch — they went from 100% to 50% and they drop it in big pieces. It doesn’t have as much to do necessarily with the passenger load on a given day, it is that they just turn on different routes. And we have seen transit back to pre-pandemic levels. Transit is back. We have seen transit properties growing. We see transit buses taking delivery of new natural gas transit buses. So I think you’ll see both those segments continue to grow. So, that’s good news that we are starting to finally see some growth back now. Refuse use grew last year, I want to say 8% and it’s continuing this year along those lines.

Okay, thanks a lot.

You bet.

Thank you. Our next question comes from the line of Rob Brown with Lake Street Capital Markets. Please proceed with your question.

Good afternoon.

Hey, Rob.

Hey, Rob.

Just wanted to get a little more color on the Amazon build out where are you at in terms of getting stations completed and do you expect to have really all of them by the end of the year or what’s sort of the timeline there?

Right. Of course, we have told Amazon we are going to bring those stations down as quickly as we can. As you know, the toughest part in developing a station is the siting of the land and the permitting and the due diligence on the utility and the acquisition or leasing of the land. That’s the longest lead item. The construction is actually the shortest part. We have made very good progress on the new locations. The majority of them have gotten through the real estate piece and you’ll begin to see construction phase on most of these stations being developed in the latter part, third and fourth quarters of this year; some of those will probably get finished next year as well, but we are making good progress on all of them. We are also making additional investments and adding to existing stations. We are currently fueling Amazon trucks and we have actually been fueling Amazon trucks at 37 of our different stations already. Some of those network co-locations are receiving additional investment to make sure they can serve the Amazon fleet well. Real estate locations in the Northeast are not easy to come by; there is a lot going on in certain states right now. But we made pretty good progress.

Okay, great. Thanks for that color. And then in terms of the fuel volume or the accounting of the revenue, I think, Bob, you mentioned some offsets going forward, could you just give some color on sort of is that volume driven or is that kind of a fixed amount?

It’s volume spend driven. Amazon vests and the warrant says they spend and there are thresholds and milestones, but from an accrual accounting standpoint, you assume they will make the various thresholds. So, we record those as the spend occurs. That’s where those will come from.

Okay, great. Thank you. I will turn it over.

Okay.

Thanks, Rob.

Thank you. Our next question comes from the line of Pavel Molchanov with Raymond James. Please proceed with your question.

Thanks for taking the question. So we are obviously waiting for the infrastructure buildout and I noticed that one of the changes from the original March version to what’s actually going to be voted on is there is some provision for buses that are low emission, but not zero emission. Have you guys looked at whether nat gas can be included within that?

Right. Well, Pavel, we were heavily involved in that. Go back about six or eight years when the LoNo program was put in place. It always envisioned low-NOx, which is natural gas buses. It’s just that the previous administration decided not to fund any natural gas buses. The LoNo program was often used for electric vehicle programs. This year, some U.S. senators felt like the LoNo program should return to the original legislative intent, which is that you could help fund low-NOx buses, especially using RNG on the road, which can arguably have lower carbon content than electric. The LoNo program has gone from a couple hundred million a year to $5.25 billion. There is a 25% carve out of that $5.25 billion for low-NOx buses, which would be natural gas buses. So it’s a big recognition and it’s a solid carve-out. So you got about $1 billion basically there that’s going to be for natural gas buses. We are real pleased about that. When you compare that versus the other $3 billion that’s going to go to electric, you are going to get on a bus-for-bus comparison about as many natural gas buses funded as you will electric. So yes, we are on top of that one.

Okay. Going back to your comments in the intro about certain municipal bus leases that are unhappy with their electric purchase, do you know of any specific examples of a city fleet that did a pilot or initial deployment of electric and then essentially gave up on it and said, we are going to go back to what we had before?

You mean transit properties that tried it and walked away from electrification entirely? I think Albuquerque did. Foothill Transit has decided to now go with hydrogen. Indianapolis was a disaster and Duluth had issues — those are the ones that come to mind. I am sure there are others that just haven’t had a good experience. I know it sometimes comes across like we pick on electric, but I recognize there may be a role for public funding to push on new technologies. Twenty years ago public monies helped fund natural gas buses. When you have something funded heavily by the feds, people don’t look at it as dollar-and-cents. When it’s a private sector fleet and it’s your own money, the economics become different, and that’s where the private sector will be more cautious. That’s important to understand.

That’s helpful. Thank you, guys.

You bet.

Thank you. Our next question comes from the line of Manav Gupta with Credit Suisse. Please proceed with your question.

Hey, Bob. Hey, Andrew. I mean, I am trying to understand this: you put in about $50 million with the BP JV and then you are saying with TotalEnergies, it’s going to be more project by project based. I know you can’t get too specific, but let’s say we are looking out to year end 2022 or you pick 2023 — how many dairies are you targeting would have contracted with you and how many do you think would be online between BP and TotalEnergies, just some rough numbers so we can model those JVs a little better?

That’s a good question. All these dairy projects vary so much by size. Generally speaking, on the negative carbon dairy side you might spend on the low side maybe $20 million per million gallons. Our intent is to spend the $400 million in the BP deal and the $400 million in the TotalEnergies deal and it could go bigger. But if you model through both at $100 million each, that would be about $200 million at the JV level, $100 million each. I don’t know that we are going to give a dairy headcount or exact gallon count today. What we have said is by 2025 100% of our fuel could be that way. And working with very large fleets — if you run the numbers on Amazon and the gallons they will need, all of that has to be RNG. You can see we need another 50 million to 100 million gallons just for them. There is going to be a lot of money put to work here from us, our partners and others that we will bring in, because the future is going to be landfill and dairy projects over time.

With significant flow from those investments more in 2023?

Right.

So the intent is to spend the full amount of capital there that can be leveraged at the project level?

TotalEnergies indicated their preference to upsize their JV and they have said they would like to see that go up to $400 million. We are not ready to do that yet, but that is their intent. So there will be a lot of money put to work.

Perfect. I had a policy question. On one hand, we obviously see the Biden administration about lowering carbon emissions and everything. And then all you see from most members of the administration is talk about EVs. I think even today, it was all EV. On the ground, do you think the current administration is more supportive of biofuels or is the support just EV and nothing really has changed even from the prior era?

It’s easy for politicians to lump everything together and talk about an EV future — that’s comfortable. But you see carving out for natural gas, like the LoNo program, because policymakers recognized you should do what you can today to lower emissions and not wait. There isn’t a fuel cell truck you can buy today at scale, and there isn’t an electric heavy duty truck at scale either. If you don’t do something available today, you are just allowing diesel. That’s why you saw the carve out in LoNo. I’d call your attention to a recent letter from the Executive Officer of the South Coast Air Quality Management District, Wayne Nastri. He wrote a compelling note calling out that low-NOx natural gas must be part of the equation to improve air quality. He said even after significant spending on electric technologies, they still must do other things to bring down emissions. He argued that pitting RNG and natural gas against electric is foolish: you have to employ all technologies, otherwise diesel persists. That’s what we often see at the federal level too, for instance natural gas is in the corridor program funding as well. It’s just not as politically fashionable to talk about it.

Perfect. My last question is, you had 42.9 million gallons of RNG supplied in the quarter; help us understand how much of that was landfill versus dairy and how that has tracked over the last year or so?

You have been consistent on that, Manav. I don’t know that we are going to break that down in detail today. But we are increasing our dairy supply. If you look back, last year dairy was a small percentage and by the end of this year dairy should be a larger percent — maybe on the order of around 10% of our supply by year end rather than a few percent. We will continue to bring on dairy at higher rates as we go because of what it does for our carbon intensity.

We have delivered more dairy through the first six months of this year than we did all of last year. The dairy is growing as expected. The very good quarter was not heavily weighted toward dairy RNG, but the dairy piece is catching up and the pace is what you should be tracking.

Thank you so much for taking my questions.

You bet. Thank you.

Thank you. Our next question comes from the line of Jason Gabelman with Cowen. Please proceed with your question.

Hi guys. I want to ask first on this margin range that you have provided, could you just help us understand what’s kind of driving the potential for you to come in at the high end versus the low end, is it just RIN volatility, is that the main factor? And if so, what’s the sensitivity there?

It’s some of that, Jason, but not all. It’s also anticipation of volume rebounding from the pandemic. We still are not seeing anything out there impacting our volume right now, so we anticipate a gradual recovery. As we put on more fuel volume and we grow volumes, that is a driver to our margin per gallon along with RINs. LCFS has been lower than when we started the year, so that hasn’t been off the charts. There is a bit of this and that, but increasing fuel volume and better mix, including Amazon fuelings, helps our core fuel volumes and margins.

There is a little mix in there, too.

Okay. Great. And then I guess, just more broadly on the volume outlook, now that they have kind of rebounded to 2019 levels, I think your Q2 was similar to Q2 2019. Could you give us a sense of the volume trajectory moving forward into next year? And within that, the RNG volume growth as well?

We said earlier in the year that we came out of Q4 at around a 12% to 15% year-over-year volume growth pace. We expect Q3 will rise and Q4 may be in that 12% to 15% range above prior year levels. Assuming no major setbacks, we should be in solid double-digit volume growth as we move into 2022, but we’ll watch how deals and the market shake out before giving more specific guidance.

And then the last one, just on the equity raise you did in the quarter, did you consider other channels of financing? Why was equity more attractive than other options you could have pursued?

We are always looking at different options. Historically we have used convertibles and other instruments. Given market conditions and the need for growth capital at the time, we felt it prudent to add liquidity via equity to the balance sheet. That doesn’t mean we will not use other financing in the future, including project-level debt where appropriate, but this was the right choice at that moment.

Alright. Great. Thanks a lot. I appreciate the answers.

You bet.

Thank you. Our final question comes from the line of Todd Firestone with Evercore ISI. Please proceed with your question.

Good afternoon. Thanks for taking my question. I had a couple questions. One was maybe I could come at it a little different angle. Are you able to disclose or maybe an internal estimate of what one of the Amazon trucks would use annually on a gallon basis?

I don’t know that we have ever really said exactly, but it wouldn’t be divulging any Amazon secret. For normal over-the-road trucks that operate like Amazon’s, depending on whether they are regional or super-regional, they tend to use anywhere between 12,500 gallons and 20,000 gallons annually. A number in the 14,000 to 15,000 gallon range is a good placeholder for an over-the-road tractor.

Great. I appreciate that. Second question is just on the number of stations and the logistics around that. I apologize if you disclosed it on a prior call, but is there a hard or soft cost contingency built into building these stations? What I am really trying to get at is, are you seeing trouble getting workers and the crews to build these stations and is there any reason to be concerned about that?

We have seen some cost increases like everyone else, but nothing horrific. Some of our steel cylinders we pre-ordered and secured supply that will take us through most of our initial Amazon builds. We always put a contingency on construction of somewhere around 10% or a bit more, which we may use. We haven’t seen anything off scale.

Labor-wise, we are active on station builds and have been keeping a lot of people employed. We have good contracts and long-standing subcontractors who have worked with us through thick and thin, so we are not seeing a need to hire dozens of new construction crews.

I appreciate that color. That’s all I have.

Okay. Thanks Todd.

Thank you. We have reached the end of our question-and-answer session. I would like to turn the floor back over to Mr. Littlefair for any closing remarks.

Good. Well, thank you, operator. And thank you, everybody for participating and listening in today. We will keep you posted as we go forward on RNG and our station buildout and growth plans. Talk to you next time. Thank you.

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.