Clean Energy Fuels Corp. Q4 FY2021 Earnings Call

Hello, and welcome to the Clean Energy Fourth Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note today’s event is being recorded. I would now like to turn the conference over to Robert Vreeland, CFO. Please go ahead.

Thank you, operator. Earlier this afternoon, Clean Energy released financial results for the third quarter and year ending December 31, 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'd like to remind you that some of the information contained in the news release and on this conference call contains forward-looking statements that involve risks, uncertainties and assumptions that are difficult to predict. Words or expressions 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 most recently filed Form 10-Q filed in November 2021 or in our Form 10-K that will be filed later 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 those 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. I think my remarks could be a little shorter today because hopefully you were able to watch our RNG Day presentation last month. We went into some detail about our strategy to expand our business by investing in the production of RNG, which allows us to deliver this incredibly clean fuel to a growing customer base. If you haven't been able to watch the presentation, I highly encourage you to do so. A recording of the presentation can be found on the investor page on Clean Energy's website. Despite the country and the world having to grapple with the COVID pandemic's ups and downs throughout 2021, the year ended up being one of the most strategically important since Boone Pickens and I founded Clean Energy 25 years ago. Earlier in the year we established joint ventures with BP and TotalEnergies to work together and build a steady supply of low-carbon RNG for the future. Soon after, we signed the company's largest fuel deal ever with Amazon, and our transformation into the leading provider of a negative carbon intensity fuel continued through the remainder of 2021 with the signing of partnerships with some of the country's largest dairies. In the fourth quarter of the year, the company delivered 105 million gallons, which was a 9% increase over the fourth quarter of 2020 and the most gallons we've ever delivered in a quarter in the company's history. We continued to see solid gains in refuse and transit while the deployment of Amazon's new fleet began to provide a lift to our heavy-duty truck sector. Our revenue for the quarter was $92 million, an increase of 23% compared to the same quarter in the previous year. Deducting a few non-cash charges including the Amazon warrant, the increase in revenue would have been close to 26%. Adjusted EBITDA for the quarter rose to $18 million from $13 million in Q4 2020. And after making contributions to the BP and TotalEnergies joint ventures, we ended the quarter with $229 million in cash and investments, with only $39 million in debt, allowing us to end 2021 in a very good financial position. As I mentioned, our fueling agreement with Amazon is beginning to show results. Amazon heavy-duty trucks have fueled at over 85 different existing Clean Energy stations around the country through the end of the fourth quarter. We also made good progress on the 19 new stations that we are building based on the Amazon demand, with construction underway at multiple locations and engineering and permitting underway at many more. As a reminder, while Amazon will be a large anchor customer, all these new stations will be publicly accessible and located in high-traffic distribution center areas and other busy corridors. This will allow other customers to fuel at the stations, adding volume without deploying additional capital. To that point, our current customer, NFI, recently added another 100 heavy-duty natural gas trucks to their fleet, which will fuel at our stations in California and Texas. Valley Express Services is adding 30 heavy-duty trucks and Pacific Green Trucking is increasing their natural gas fleet with 23 trucks. Valley Express and Pacific Green finance their new trucks through our program with Chevron and will fuel with RNG at our stations near the ports of LA and Long Beach. I believe the momentum and recognition of RNG is building in the heavy-duty truck market. What I refer to as the 'Amazon effect' is beginning to be felt across the industry. I'm sure it did not go unnoticed by most companies involved in logistics and the movement of goods when Amazon celebrated the delivery of their 1,000th heavy-duty RNG truck in the fourth quarter of last year. As I've said before, it's easy to place a reservation for a handful of trucks to be delivered many months, if not years, from now that will operate on electric technology with significant uncertainty and costs surrounding the charging infrastructure. But if companies really want to attain their carbon reduction goals in a cost-effective and immediate timeframe, RNG is the alternative more companies are taking seriously. When you add Amazon to the other large trucking and logistics companies like UPS, Estes, and Matson and Mail Transportation, to the largest refuse companies in the U.S. like Waste Management, Republic Services and Waste Connections, and transit agencies from LA to Dallas to New York, all operating their fleets on RNG, it's easy to understand my optimism. The increased commitment to RNG is being demonstrated all the way through the supply chain from the significant investment in RNG supply dairies by venture capital firms and large energy companies, through the other end with new natural gas projects. Since our RNG Day in January, Werner Enterprises, one of the country's top trucking companies, announced that it will be working with Cummins to validate the new 15-liter natural gas engine. I had a lengthy conversation a few weeks ago with the President of Cummins Engine Business, Srikanth Padmanabhan, on a phone call and he reiterated their enthusiasm about the highly anticipated 15-liter engine that is expected to be available in 2024, as well as the newly available 6.7-liter natural gas engine that is very popular in the straight truck sector. Cummins’s commitment to their natural gas engine program is a strong endorsement of the lowest carbon transportation fuel solution. Our transit business had big wins recently with the extension of our agreements with the large agencies in Los Angeles and Washington, D.C., which represent over 1,800 buses between the two. We also added a new transit customer with Golden Empire which is expected to use 1 million gallons of RNG a year to operate 100 buses in Bakersfield, California. Refuse companies continue to expand with RNG highlighted by our good customer Republic Services upgrading fueling stations in Huntington Beach and Anaheim, California to accommodate additional trucks. We also signed recent fueling agreements with Suburban Disposal in New York and Waste Connections in Illinois. And we extended our relationship with Valley Vista Services in Southern California with an RNG supply agreement of an expected 14 million gallons over 10 years. In addition, we were awarded a 10-year extension from our longtime customer EJ Harrison in Ventura, California to provide an estimated 8 million gallons of RNG for their fleet of refuse trucks. This is a sampling of fleets which are easily and affordably meeting their goals to reduce carbon emissions and address climate change today. But we also realize the future will include other technologies and Clean Energy plans to participate in those as well. As we've previously mentioned, we have already expanded in hydrogen fueling highlighted by the award from Foothill Transit in October for us to build a station for the agency's fuel cell buses to be powered by hydrogen made with RNG. As I mentioned during the RNG Day presentation, we joined BP and others in investing in a company, BTR Energy, that has developed software that will allow electric vehicles to track the electric molecules produced from RNG. It's interesting to note that the lowest carbon intensity score that an EV can obtain with electricity produced by solar or wind is zero. But with electricity produced from RNG, depending on the source of the RNG, it is possible for an electric vehicle to have a much lower carbon intensity score into the negative hundreds. BTR Energy software will also allow the OEM of the EV to participate in low carbon fuels programs. To wrap it up, I hope you can understand why we are so pleased with our performance last quarter and last year. And because of our recent expansion in RNG supply, which will allow us to leverage our large RNG fueling distribution network, we believe Clean Energy is well positioned to continue to lead the transportation industry into a cleaner, low carbon future. And with that, I'll hand the call back to Bob.

Thank you, Andrew. I’ll recap 2021 and then move into our guidance for 2022. We had a good fourth quarter, particularly with good volumes, and volumes, as we all know, are very important. But we did see approximately a $2.5 million negative impact from sustained lower LCFS pricing during the quarter. Our GAAP net loss for the fourth quarter was $2.4 million or a penny a share, while on a non-GAAP basis we had net income for the fourth quarter of $6.4 million or $0.03 a share. Our GAAP net loss for the year was $93 million which was higher than our guidance of $86 million due to non-cash unrealized losses on our zero-cost fuel hedge, some additional stock compensation related to stock awards occurring in December, and the lower LCFS pricing that I mentioned. Adjusted EBITDA for the fourth quarter of 2021 was $18 million versus $13.6 million a year ago. And for the year adjusted EBITDA was $57 million. Now we had maintained and kept our guidance of $60 to $62 million on the adjusted EBITDA which we absolutely felt that, at least at a minimum, the lower end of that range of $60 million was achievable had we seen better LCFS pricing during the fourth quarter. But $57 million is a good number and we're excited about that, and certainly an improvement over last year, which was $45 million. Our revenues of $92 million for the fourth quarter of 2021 were in line with expectations and reflected higher effective prices caused by higher fuel pump prices and continued higher rent prices. Our effective margin per gallon for the fourth quarter was $0.27 per gallon. And for the year, it ended at $0.26 per gallon, which was at the high end of our range at the beginning of the year that we cited of $0.22 to $0.26. We saw a nice progression upward in our margin per gallon during the year reflecting more trucking and fleet fuel gallons, including the effect of more RNG and higher rent pricing during 2021. As Andrew pointed out, we ended the year with $229 million of cash and investments and $39 million of debt. We generated $41 million in cash flow from operations and spent $23 million on property and equipment. But we continue to be in good financial shape as we look forward. Looking forward to 2022, as I mentioned on our RNG Day presentation, I would go into a little more detail on the 2022 guidance. So first off, there is no change to the financial metrics that we presented on January 26 at RNG Day. We're estimating 454 million gallons for volume, GAAP revenue of $400 million, which includes an estimated $44 million of contra revenue related to the Amazon warrants, a GAAP net loss of $57 million and adjusted EBITDA of $65 million. One of the largest assumptions, to be clear on, is we have included approximately $21 million of alternative fuel tax credit in our forecast for 2022. We are bullish on that becoming law during the year; it was addressed and in fact some have proposed changing that to a five-year run-out. So we've incorporated timing assumptions. We're assuming that comes into law in the third quarter of 2022. The important point here is that we're not anticipating any AFTC revenues would be recorded for the first two quarters, which is about $5 million a quarter, and then we would have a retroactive pickup in the third quarter if that is when in fact this passes into law. We'll keep an eye on that. We have refined our rent and LCFS price assumptions since January 26. We were assuming for 2022 rents at $2.85 and LCFS at $165, and we've changed that to rents closer to say $3 and LCFS around $155. There's no change in the combined total of rent and LCFS revenue as a result of these slight adjustments, but we did want to sync those up with our current views. Our volume margin per gallon for 2022 averages out to about $0.28 a gallon, which is up $0.02 a gallon from 2021. On 454 million gallons, that's around $9 million of incremental gross margin. This is really coming from added truck and fleet fuel gallons as well as the RNG helping drive that margin per gallon, and then, of course, just an overall increase in gallons over last year. Our SG&A is forecasted to be $101 million, which includes approximately $20 million of stock compensation. Excluding the stock compensation, our SG&A increases from 2021 by about 8%. The rise in the cash portion of SG&A is principally in personnel related to the growth in RNG activities, including supporting the supply side, and the addition of Amazon and other new and expanding customers in our distribution network. Staying with the operating expenses, as Andrew mentioned, we're also looking ahead at various alternative fuel technologies. I have included approximately $4 million to $5 million of development, 'skunk works' operating expenses, not SG&A. This is $4 million to $5 million that we anticipate incurring in 2022. Depending on how that research and development goes on those alternative fuel technologies, we'll see how that goes beyond 2022. At the moment, I have not included any of these types of costs beyond 2022. Looking at adjusted EBITDA of $65 million versus 2021 of $57 million: really, 2022 is a year of putting more pieces together to facilitate the implementation of our RNG strategy, but we're able to do this and still improve financially. Remember, for example, 2021 included the last year of the earnout from our sale of our upstream to BP, which was $3.9 million that's in the 2021 number that is not in 2022. We're absorbing an incremental $2 million of cost as our share of the startup cost at the RNG joint ventures, and we're also adding about $6 million in SG&A cash expenses, which I alluded to, primarily in personnel and support. Yet our adjusted EBITDA is expected to improve from 2021, which is why the margin per gallon, the additional volume and the $0.02 per gallon increase is very important. On the RNG Day metrics, we also provided indications of cash flow and capital expenditures. We're planning still $57 million in operating cash flow, $71 million of CapEx supporting the distribution side of the business with maybe $40 million to $50 million of that representing expanding our network to accommodate Amazon volumes. And then we plan to spend up to $195 million as contributions into the RNG joint ventures. We were also in the process of raising a modest amount of debt at the corporate level, but we have flexibility with that because we have a fair amount of cash on the balance sheet and we do have discussions on the speed at which we make these investments. And with that, operator, I'll open the call to questions.

Yes, thank you. At this time, we will begin the question-and-answer session. And the first question comes from Eric Stine with Craig-Hallum.

Hi, Andrew. Hi, Bob.

Hi, Eric.

Hey. So you mentioned the Amazon effect. Just curious if you can go into that a little bit more in detail, whether I would assume that's more in conversations, when you would anticipate that that might flow through to actual truck orders. And then obviously, there'd be a little bit of a lag but when you might see volumes as a result and then curious your thoughts on whether Amazon is having some success or is pushing this into their supply chain?

Right. So, Eric, I think we're seeing that now. We're having conversations, and we know that Cummins and the OEMs are having discussions with large fleets now. I think you'll begin to see—and we're already seeing—some uptake in adoption of natural gas right now with some of these large fleets. I think the announcements by some of these fleets, for instance the one working with Cummins, were announcements we hadn't seen before, so they are really important. Also, as Amazon has fielded their trucks, that announcement and the visibility of those trucks operating extremely well across many routes got a lot of attention. Those trucks are operating in essentially 30 states across the country at our stations. They're getting a lot of use and a lot of visibility, and I think all of that bodes very well. So, the Amazon effect is happening as we speak. Interest in RNG is higher than we've ever seen. All of our customers want that right now, and that is tied to adoption of natural gas engines and new trucks, so I think all of this is being driven by the success of the Amazon program. We're seeing it now.

Okay, got it. Maybe just one other. On your RNG Day, one of the areas that was a key part of your 5-year plan was switching out O&M customers over to RNG. Maybe just what you're seeing early success there, how you anticipate that playing out, and then taking it another step—what do the economics look like? Because I would assume that, because it's for someone else who owns the station, they would share in those economics as well. So there actually is an economic benefit were you to make this switch, which I think was something like $90 million of your 5-year EBITDA plan.

Right. So Eric, I'll have Bob join me here as well. There's a couple parts to that. For those that didn't see RNG Day, one concept was moving RNG, a negative carbon fuel, into our existing infrastructure that is already providing natural gas—often landfill gas. There's a pickup in value certainly when we own the supplies. Now, the number you referenced around $70 million to $90 million over time relates to switching feedstock and owning the supply. For our O&M customers—transit customers and refuse customers—we may be providing operation of a station and are paid on a per-gallon basis. Those are good margins for us but low revenue per gallon. When we switch in RNG and become a fuel supplier to those customers, which we've always wanted to be able to do, we do split the economics with the customer. Often the customer owns the station and will get a larger share than we will, but it's a big upgrade on our margin per gallon going from a fuel provider plus operations and maintenance to being the RNG supplier. It's a big pickup for us and also a pickup for the customer.

Not to mention that it helps them in the area where they operate. They get to be a sustainable fleet. All of these operators are under pressure, so that's exactly what they want. For instance, New York City Transit was progressive when they put natural gas buses in versus diesel buses many years ago. We were doing operation and maintenance, but when they asked us to provide the fuel, they got to pick up the benefits and share in that. Once we began providing the fuel other than just operations and maintenance, they became an envied sustainability contributor in New York City. That's our rendition of a drop-in replacement where existing natural gas transit can now drop in a renewable fuel. Eric, like I said, it's like magic.

All right, thanks a lot.

You bet.

Thank you. And the next question comes from Rob Brown with Lake Street Capital Markets.

Good afternoon.

Hey, Rob.

Rob.

Wanted to get an update on the number of RNG projects you have underway. I think months ago you had about five—how's that changing? And where are you at in terms of signing up new RNG projects?

Good question. We have about seven farms under construction. We have 10 signed LOIs, which are in process but not yet under construction, and then we have 15 to 20 projects behind those in the pipeline. Those 15 to 20 projects will involve roughly 50 dairies. So there's a lot happening right now. That's an increase from 30 days ago and in line with what we talked about on January 26. More projects are under construction now than what I talked about in January.

Okay, great progress. On the LCFS pricing that you talked about, Bob, how is that changing? What's the market dynamics there? And do you have a sense as to how that changes over the year?

We've got it on average around $155, and it's a little bit lower than that in some periods. We were anticipating that $165 might be a little aggressive. I don't know that we see radical change there; there could be moves if there is action by regulators, like scoping workshops, but I think we're fairly steady at about where we think it is, roughly $155 on average.

I think, Rob, we tend to be longer-term constructive and bullish on the pricing of the Low Carbon Fuel Standard. That's not to say we see a dramatic spike here, but we think as regulators look at the success of the program and the increased obligations in outer years, the price of LCFS could move up a bit. We thought it prudent to price it here closer to where we see it today rather than speculate, but our team believes over the middle term the outlook is constructive and the price could move up.

Great, thanks. I'll turn it over.

Thank you. And our next question comes from Manav Gupta with Credit Suisse.

Hey, Bob and team. Just a quick question: going back to the Analyst Day, I think you had indicated eventually you'd like to be in that about 105 million gallon range by 2026. Doing some rough math, would it be fair to say you would probably need somewhere like 50–55 dairies somewhere to get to that 105 million gallon number?

You're roughly in that ballpark. At about 2 million gallons a dairy, you're getting near that range.

It depends on cluster terms. You'll have a core dairy and satellite dairies, so you could end up with more dairies because you'll be drawing in smaller, local dairies. These 15–20 projects right now contemplate multiple dairies, so the dairy count could be higher than a straight division would suggest.

Okay, fine. Now the second quick follow-up: when we look at the cash statements you provided on the RNG Day, it appears at some point not only do the JVs start paying down debt but they actually start paying you some distribution. Can you confirm at what point the JVs actually start making enough cash to pay you some form of distribution?

Yes. That primarily happens around 2025–2026. You see the debt reduction because distributions come in from the JVs, principally in 2025 and 2026, with perhaps a little bit in 2024 depending on timing.

Perfect. And last quick question: you were doing about $13–$14 million in quarterly EBITDA, now you hit over $18 million. Next year's guidance implies more like $16 million quarterly. You mentioned a few factors why it's moving, but could you help bridge the gap—why moving down from $18 million a quarter now to about $16 million?

Yeah. In the fourth quarter that reached $18 million, we had about $4 million of an earnout in that quarter from our sale of upstream supply to BP. That earnout won't repeat. Also, volume tends to grow during the year as fleet rollouts and adoption occur, and it doesn't all happen on January 1. The other thing is our $65 million adjusted EBITDA guidance for 2022 includes the alternative fuel tax credit assumptions, but you shouldn't spread that evenly in Q1 and Q2 because we're not anticipating recording any of it in the first two quarters. You would see the AFTC mostly in the third quarter retroactively and then in Q4. So, quarter-to-quarter comparisons can look odd because of that timing.

That was super helpful. Thank you so much.

You're welcome, Manav. Thanks for the question.

Thank you. And the next question comes from Pavel Molchanov with Raymond James.

Thanks for taking the question. You mentioned just a few moments ago the need to back out the AFTC in the first couple quarters of the year. Any incremental thoughts on whether the tax credit will be revived in some form in this congressional session?

Pavel, I don't think there's been significant movement in Washington in the last six weeks on reinstating the tax credit. The House is still figuring out what pieces of a larger bill they can assemble. That said, I remain optimistic that an alternative fuel tax credit will be included in some form in a tax title later in the year. Historically, that credit has been viewed as less controversial, and we've had it for many prior years. I believe industry groups and members of Congress see the value, so while timing is uncertain, I think it remains likely it gets addressed this year.

Okay. Maybe a follow-up on a macro question: we're almost exactly two years from the start of the pandemic. You have good insights into fleet-based transport—refuse trucks, urban transit, airports, and other segments. Is everything back to pre-COVID levels or not quite?

I'd say essentially yes. We did see a small late-December blip with Omicron that impacted transit and some sectors for a few weeks, but by December and into January most sectors, including airports and transit, came back close to pre-COVID levels. Airports might still be a tad below in some markets but overall pretty close.

Thank you. And our next question comes from Greg Wasikowski of Webber Research.

Hey, good afternoon, guys. How are you doing?

Good.

How are you, Greg?

A couple higher-level questions on fleet transition activity and then one on hydrogen. First: outside of regions with LCFS credit programs, in what states or specific regions or municipalities are you seeing the most fleet transition activity from diesel to gas? And similar question: by application—transit bus, refuse truck, or specific heavy-duty classes of truck?

Generally, we see quite a bit of interest in Texas, the Southeastern United States where you see a lot of trucking, and the Northeastern U.S., particularly on the refuse side. The Midwest is seeing interest as well, and of course the West is always strong, especially where LCFS is in place. We're seeing uptake of RNG in 30-plus states, so it's not just a California thing. Activity is being pieced together across the country.

Outside of LCFS states and regions, what's the main catalyst for end users or fleet owners to transition from diesel to gas? Is it diesel price, CNG accessibility, decarbonization goals, public pressure—what are you seeing most?

All of those factors play a role. Economics underlie most decisions—private fleets rarely move to a more expensive option without a clear business case. Sustainability and low-carbon goals are a bigger driver today than before, and customer or public expectations can support adoption. Public transit agencies often act as testbeds for new technologies since they're typically funded to do pilot projects. For many, sustainability and the ability to meet environmental goals alongside viable economics is the deciding factor.

One more on hydrogen: Andrew, you've spoken about hydrogen and fuel cells before. Can you compare hydrogen fuel cells versus hydrogen combustion? Does that come up in your conversations with customers? From Clean Energy's perspective, do you have a preference or is it all the same to you?

It doesn't come up often with customers except in transit pilots. Transit agencies often test fuel cell buses because they receive federal funding and act as testbeds—typically 15–20 vehicles in a larger fleet. Private sector customers aren't serious about hydrogen yet. Our view is RNG will be a very viable renewable feedstock available through the existing pipeline system. Building a new nationwide hydrogen delivery system is a very large task and could be decades in the making. I think the bridging to hydrogen will be through fuels that can be transported using today's delivery infrastructure—likely RNG reformed at stations in the early years. Whether hydrogen ends up being combusted in ICEs or used in fuel cells, or blended, remains to be seen, but hydrogen infrastructure and production costs are very high. Given the economics our customers care about, I don't see hydrogen playing a broad commercial role in the near term, whereas RNG can scale now.

All right, appreciate the color, Andrew. Thank you.

Thank you. And our next question comes from Craig Shere with Tuohy Brothers.

Hi. I just want to clarify on JV distributions—upstream to the partners by 2025–2026, maybe starting at the end of 2024. How should we think about this in terms of self-funding and any equity contribution partners left to make over the next couple of years?

Craig, we laid this out somewhat in RNG Day. At the portfolio level, we expect projects to become self-funding at some point, and in our five-year plan we kept the capital structure fairly simple—cash in, cash out, distributions available to the corporate level. We could leverage projects and use different capital structures over time, but we did not lay out a detailed five-year capital structure plan. The intent is distributions from the JVs flow back to corporate to pay down corporate debt and support growth.

Got it. It sounds like maybe a 3 or 4 to 1 ratio on projects to dairies in a cluster. As you get deeper with JV partners, are you finding ways to lower all-in unit costs and get more operating leverage than originally anticipated?

It's a little early, but we do expect synergies and efficiencies as the industry standardizes tank, membrane and cleanup technologies and as we standardize project design. Some early projects have had higher costs, but as we refine the approach we expect unit costs to come down.

We're hiring the right people and focused on standardization. Similar to how station construction became standardized years ago, the RNG projects will benefit from repeating designs and improved supply chains, which should reduce costs over time.

Fair enough. Appreciated. Thank you.

Thank you. The next question comes from Matthew Marra with Tudor, Pickering, Holt.

Hey, good morning, Andrew and Bob. Bob, I was hoping you could share Clean's revenue from the LCFS either in Q4 or full year. I think that was $5.7 million in Q3—do you have the Q4 number?

It was $3.8 million in Q4.

Great, thank you. And unfortunately, it looks like the New Mexico LCFS bill failed in the State Senate this week after passing the State House earlier in the week. Are you expecting any other states to pass an LCFS program this year, and which ones are on your radar?

I'm still hopeful about New York; they're actively wrestling with it and have co-sponsors in both houses, but more work is needed, including discussions with the governor. New Mexico and New York were the closest. We've also been having discussions in states like Illinois, Michigan, and New Jersey, but most of those are probably a year behind. These bills often take two years in state legislatures because they create a new regulatory regime and involve many stakeholders. Separately, there's growing discussion in Washington about a national carbon fuel credit system similar in concept to the RIN system. Industry groups are pitching that to members of Congress and the administration, so that's another development to watch.

Thank you. And next question comes from Jason Gabelman with Cowen.

Yeah, hey. Thanks for taking my questions. First, on RNG production ramp-up, there was a dark green bar showing RNG under LOIs. Can you discuss the rate of conversion you have from LOIs to projects in construction?

Early on we've had a very high hit rate—around 90% conversion from LOIs to executed projects. Farms are getting approached by multiple developers, so there's competition, but we have a strong go-to-market, long experience in the RNG space, strong partners in BP and TotalEnergies, and a national distribution system. Farmers know us and our capability, so while we won't win every deal, we're pleased with our conversion rate and pipeline.

I also wanted to ask about California's LCFS program. I know the petition to remove certain RNG pathways was denied, but it's still being discussed in the scoping plan. What are you hearing from CARB right now and what's the appetite to amend carbon intensity values or credits generated from RNG?

The most current public statements from CARB indicate they see the program as working. The petition from Environmental Justice groups raised concerns about certain feedstocks, which has been referred to scoping for further discussion. That doesn't mean the issue goes away, but the recent public statements affirm CARB's support for the program and its outcomes. The program is capturing methane that otherwise wasn't captured, which is a significant environmental benefit.

On cap-and-trade, we don't really benefit from California's cap-and-trade program; in some cases we see small costs, for example on our LNG plant and similar assets that come under the program. It's relatively small overall and not a major factor for us, though we do notice it.

All right, super. Thanks for all the answers.

Okay, thank you.

Thank you.

Thank you. And this concludes the question-and-answer session. Now I’d like to turn the floor over to Andrew Littlefair for any closing comments.

Operator, thank you. And thank you all for joining us today. We look forward to updating you on our next quarter.

Thank you. The conference has concluded. Thank you for attending today's presentation. You may now disconnect your lines.