Good day and welcome to the Clean Energy Fuels Second Quarter 2022 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Robert Vreeland, Chief Financial Officer. Please go ahead, sir.

Thank you, operator. Earlier this afternoon, Clean Energy released financial results for the second quarter ending June 30, 2022. If you did not receive the release, it is available on the Investor Relations section of the company's website at www.cleanenergyfuels.com, where the call is also being webcast. There will be a replay available on the website for 30 days. Before we begin, we'd like to remind you that some of the information contained in the news release and on this conference call contains forward-looking statements that involve risks, uncertainties, and assumptions that are difficult to predict. Words of expression reflecting optimism, satisfaction with current prospects as well as words such as believe, intend, expect, plan, should, anticipate, and similar variations identify forward-looking statements, but their absence does not mean that the statement is not forward-looking. Such forward-looking statements are not a guarantee of performance, and the company's actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in the Risk Factor 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 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, and thank you for joining us. We are very pleased with the results of the second quarter of this year, both by the numbers and by the trends that we see in our business with the strategies that we've put into place over a year ago. These strategies are beginning to show real results. Fuel volumes of 107 million gallons were up year-over-year, more than 5% compared to the second quarter of 2021, and revenues came in at over $97 million. Comparing the revenue number from the second quarter of 2021 is hard because we had a large initial noncash revenue charge related to the warrants we issued to Amazon last year. But taking last year's initial charge out, revenue in the second quarter of this year was up by 20% despite the continued uncertainties of the economy, supply chain, COVID, and volatile energy prices. As we told you on our last call, our adjusted EBITDA should increase throughout the year, which it did from Q1's $3.3 million to $10 million in the second quarter. And just as importantly, we saw the margin on our fuel volume increase 12% from the first quarter of this year to $0.28 a gallon. That's despite lower prices on the credits from California's Low Carbon Fuel Standard and the federal RIN program. I believe this is a testament to the diverse and recurring revenue nature of our business model. Fortunately, the LCFS and RIN prices have stabilized and even risen slightly over the last month. In the second quarter of this year, we had positive cash flow from our operations, and we ended the quarter with $187 million in cash and equivalents after making additional investments in our RNG joint ventures with TotalEnergies and BP. This performance positions us with a strong balance sheet as we continue to expand our RNG production and supply offering. Anyone who has followed Clean Energy for very long knows that I am the eternal optimist about the future of our proposition. But I have to say I cannot remember a time that I have been more enthusiastic about what's going on in the alternative fuel market and specifically with renewable natural gas for heavy-duty vehicles. One of the reasons for the optimism was highlighted in an in-depth article that appeared a few weeks ago in one of the leading trade publications, Heavy Duty Trucking, about the new Cummins 15-liter natural gas engine. Cummins officials quietly began to talk about this new product last year to those of us in the industry. But recently, they have stepped up their public communications like I have not really seen them do over the last two decades of our close association. Cummins' general manager for their natural gas business was quoted in the article that customers have been asking for a 15-liter engine for over 10 years. But Cummins wanted to wait to bring a larger engine to market until the time was right and they were confident there would be demand for it. And now is that time. The article goes into detail about how Cummins took the learnings of the previous generations of their 12, 9, and 6.7-liter natural gas engines and are confident that they have designed a larger engine that will be well received by the heavy-duty truck market. Not only will this engine provide more power and torque, but it will do it weighing 500 pounds less than their current 15-liter diesel engine. Cummins' enthusiasm for this new 15-liter natural gas engine is powerful, to say the least. The new 15-liter engine is already operational in China and is expected to be commercially available in the U.S. in 2024. But some of the largest fleets in the country plan to test the new engine early next year, including Walmart, Warner, and Tyson Foods, just to name a few. In fact, Cummins said it received requests from more than 400 different fleets to demonstrate the 15-liter natural gas engine. These requests were from existing customers that have been operating the 12-liter natural gas engine. But really, for me, more exciting, many other fleets that have never looked at natural gas before wanted to be on the list. Puneet Jhawar, the GM at Cummins, said in the article that one of the main reasons why now is the right time to bring a larger natural gas engine for heavy-duty trucking to the market is the introduction and expanding availability of renewable natural gas. According to G&A Consulting, RNG represented 98% of all natural gas consumed in the California vehicle market in 2021 and over 60% nationally. And for Clean Energy, those figures are 100% in California and over 75% nationally. I've spent a lot of time on these calls regaling the environmental benefits of RNG. So I won't repeat myself other than to say it has a greater beneficial effect on climate change and reduction of greenhouse gas than electric. So why wouldn't a heavy-duty truck fleet that is looking to reduce its emissions look at RNG? We have been hearing for many years about the hundreds of reservations for new heavy-duty electric trucks from a handful of OEMs with nothing but a few test trucks to show for. I remind you that Elon Musk, who deserves a lot of credit for his success in the electric passenger car market, rolled out with great fanfare the Tesla Semi in 2017 and said it would be commercially available in 2019. Yet here we are in the back half of 2022 and it's still not available. And if Tesla is having difficulty with manufacturing a battery large enough to power a heavy-duty truck or has rethought the obstacles involved, then I'm not sure who can anytime soon. If I were making a bet, I would place a chip on a manufacturer of truck engines that's been in the business for over a century and that has been producing and improving natural gas engines for 20 years to offer heavy-duty fleets commercial alternatives to diesel that will provide them the sustainability benefits that they are looking for. Something else that Puneet with Cummins said in the article and I wholeheartedly agree with him is that he rejects the notion that RNG is a bridge fuel. Now let's pivot to our upstream RNG business. It's been a little over six months since we rolled out our RNG plans on RNG Day, and I'm pleased to say we are not only executing on that plan, we are ahead of schedule in some key areas. For instance, we set a goal of executing contracts representing 25 million gallons of low-carbon dairy RNG by the end of the year and it looks like we will be over 29 million gallons. We wanted to have three dairy projects completed by the end of 2022, and it looks like we will have four completed, three of which should be injecting RNG into the pipeline. Right now, we have seven projects under construction. We intended to have eight projects under construction by the end of the year, and we are on track to have nine by the end of the year. And another seven projects are in the final design and permitting stages. We know we've been bumping into representatives from other companies that have recently jumped into the RNG production business out in the farmland. But what distinguishes Clean Energy from others with dairy owners is our ability to bring to these savvy business owners a large customer base of fleets thirsty for RNG demand. Few, if any, other companies in the business can offer the assurance to have a steady monetization of dairy owners' RNG like we can because of our downstream fueling infrastructure. Now there will be a seminal event that takes place on September 28 outside of Columbus, Ohio, that demonstrates exactly this point. As you know, we announced last year that Amazon contracted with us to build 19 new stations to fuel their rapidly growing fleet of RNG heavy-duty trucks it is deploying. The Amazon fleet fuels with us daily all over the country and has already fueled at over 85 of our existing Clean Energy stations. But next month, we will be cutting a ribbon on the first of these 19 new stations that we designed and constructed from the ground up specifically for Amazon but will also be available to other customers. Besides the local officials and Amazon executives joining me on stage in Columbus, will be Evan Barton, the owner of the South Fork Dairy, a 3,300-milking-cow farm in Newark, Ohio. We recently signed a contract with Evan to develop a digester that should produce 0.5 million gallons of RNG a year when completed. It will be a great demonstration of the beginning-to-end benefits of RNG with a dairy owner, who will be able to solve the issue of fugitive methane from his cows' manure, standing alongside a logistics operator, who will be running a fleet of heavy-duty trucks with the cleanest fuel in the world that originates from that dairy. The new station in Ohio looks awesome with multiple fast-fill dispensers, 50 time-fill dispensers, and 110 parking spots for Amazon RNG trucks. Amazon is up to, I guess, over 3,000 RNG trucks purchased with more to come, and their fuel volume at our existing stations grew by over 40% from January to June of this year. We expect that growth rate to only accelerate as these new stations come online. The station in Ohio was the first completed, and several more will be opening soon after that. A few other recent wins that I would like to mention are the signing of contracts with three large new transit agencies in Fort Worth, Texas, Arlington, Virginia, and Sacramento which represent over 5.8 million gallons a year. We also are expanding with our long-term customer, South Jersey Gas, by building a new station for a larger natural gas fleet. And Republic Services is adding another 110 RNG trucks here in California that will fuel at a station in Carlsbad. CalPortland, our good ready-mix customer, continued to expand its RNG truck fleet last quarter. And the finance program we have with Chevron to put new RNG heavy-duty trucks into the ports of L.A. and Long Beach continues to have success with over 730 new trucks either already financed or working their way through the approval process. Much of this success is being driven by our grants department, which has secured grants through multiple California programs for dozens and dozens of heavy-duty trucks for our customers in addition to the Chevron financing program. I’m pleased to report that fuel volumes in all of our segments, refuse, transit, heavy-duty trucking, fleet services, and airports grew in the second quarter. I’ve gone on a little long and I know you’re anxious to hear from Bob, but I hope you can fully appreciate where my optimism comes from that I mentioned at the top of my remarks. The prospects and opportunity offered by RNG have literally changed our business and given us the ability to be a significant player in the world’s efforts to tackle climate change. We are executing on all levels from the RNG production side down to the construction and first-grade operations of fueling stations for new and expanding customers. And with that, I’ll hand the call back to Bob.

Thank you, Andrew, and good afternoon to everyone. We had a strong second quarter compared to last year and a good rebound from our first quarter. Increased volumes and margins per gallon contributed to these improved results. I'll discuss the overall results and some key metrics. Starting with our GAAP results, we reported a loss of $13.2 million for the second quarter of 2022, down from a loss of $79.7 million last year. The previous year's second quarter included contra-revenue charges of $78.1 million related to the Amazon warrant, as well as $5.2 million in income from the alternative fuel tax credit, which was absent in our second quarter of 2022. The contra-revenue charge for the Amazon warrants in the second quarter of 2022 was $4.8 million, making last year's charge significantly larger due to an initial vesting charge included in the total. On a non-GAAP basis, our loss for the second quarter ending June 30, 2022, was $848,000 compared to a non-GAAP income of $1.8 million a year ago, which included the alternative fuel tax credit income. Andrew mentioned that our adjusted EBITDA was $10 million for the second quarter of 2022, down from $14 million last year, which also included the tax credit income. In terms of cash flows, our cash flow from operations in the second quarter of 2022 was $27.4 million, with CapEx spending at $10 million. A year ago, our cash flow from operations was $9.7 million with CapEx spending of $4.6 million. The increase in cash flows this year reflects positive operating results and improved working capital. The performance in the second quarter was driven by higher volumes and an increased margin per gallon. Volumes increased compared to last year and the first quarter of 2022 in all core sectors: refuse, transit, fleet services, and airports and trucking. Our RNG volumes reached 50 million gallons in the second quarter of 2022, which is a 17% increase from a year ago and a 26% increase from the first quarter of 2022. We expected our volumes to grow over the year, and it was encouraging to see the RNG volumes rise in the second quarter. Our margin per gallon improved from $0.25 in the first quarter of 2022 to $0.28 in the second quarter. Last year, our margin per gallon was $0.26. The improvement in the second quarter was mainly due to the higher fueling gallons and higher retail prices, along with increased RNG gallons. This diversity in our margin structure benefits us. We would prefer more stability across commodity and environmental credit pricing, but the second quarter showed that our margin per gallon can rise in a higher retail fuel price market, even with challenges on environmental credit pricing. We expect this trend to continue into the third and fourth quarters. While we anticipate lower RIN and LCFS pricing through the end of 2022, we also expect favorable margins at the retail level, similar to what we experienced in the second quarter. Our effective revenue per gallon was $0.91 in the second quarter of 2022, reflecting the impact of higher pump prices alongside our stable maintenance prices. This $0.91 compares to an effective price of $0.67 a year ago and $0.88 in the first quarter of 2022. Compared to last year, our revenue per gallon was up $0.24, contributing about $24 million to the year-over-year revenue increase. Our commodity cost per gallon also rose by about $0.22, resulting in a $0.02 improvement in our margin per gallon. This equates to a significant amount over 100 million gallons for the quarter. Regarding operating expenses, our SG&A and other costs in the RNG joint ventures for the second quarter of 2022 were in line with our expectations, with no significant issues to note. From a balance sheet perspective, we contributed $51.6 million to the separate BP joint venture for capital calls related to dairy projects during the second quarter. At the end of the quarter, we had $187 million in cash and investments on our balance sheet. We are in the process of securing a modest level of debt at the corporate level, anticipating that as our RNG projects come online toward the end of the year, project-level financing will also increase. All of this is still in progress as discussed. With that, we will open the call to questions.

And we'll take our first question today from Eric Stine with Craig-Hallum.

Are you there?

Eric, I didn't hear anything. But I hear you now. Go ahead.

Okay. All right. You hear me now. Good. Well, first, maybe on the supply side. I know coming into the year, obviously, expecting significant demand for RNG but knew that at least in 2022, it would be a challenge to keep up with that. So I mean, obviously, 50 million in the quarter, that’s a strong number. But maybe where do you stand in supplying that RNG from third parties while you’re working towards bringing on your volumes?

Go ahead, Bob. No, you have that...

Yes, Eric, we are in a good position regarding that. We are still targeting around 194 million gallons, supported by adequate supply. During the second quarter, we increased from about 39.7 million gallons in the first quarter to 50 million, thanks to new producers and additional supply. We are optimistic about the rest of the year.

Got it. I assume you still feel very confident about achieving your goal by 2025 that 100% of your volumes will be RNG.

Eric, Bob and I have been involved in various investor calls, and I believe we've mentioned this to you as well. I encourage everyone to take a moment to review RNG Day because we are currently six months into the plan, and it has proven to be an effective template for us. We are actually ahead of schedule. According to the plan, we aim to produce 105 million gallons of our own equity dairy gas, complemented by third-party landfill and dairy gas. Our target is to reach 300 million gallons or more. We remain committed to this plan and are currently ahead of it. We are on track and may need to scale up further to meet demand, but right now, we have some capacity built in, and we're progressing well.

Got it. And maybe just turning to Amazon just to clarify. Did you say up 40% year-to-date on volumes? And then curious. Just what are you seeing in terms of their suppliers? I know, obviously, they’re planning to use this in their own heavy-duty fleet. But their intention is also to push it down to others that they do business with.

Yes, there has been a 40% increase in volumes from January to June. This indicates that more trucks are being utilized, with an increase in drivers and trucks on the road. Regarding Amazon, while I need to be cautious about what I say, I did refer to their recently released sustainability report, which mentioned they have purchased around 3,000 trucks, a figure from 2021. It appears that more trucks are being delivered weekly. There have been reports indicating significant delays in truck deliveries due to supply chain issues, which likely affects Amazon as well. However, they have ordered a large number of trucks, and we are starting to see these trucks organized at our new locations, which is very promising. Some of this information can be seen through images released by them, showing trucks at various sites, whether they are new stations or existing ones. We're looking forward to their deployment.

No, fair enough. Lastly, what are your thoughts on the Inflation Reduction Act? If not in that bill, do you see other paths by the end of the year?

Yes, we all would struggle to guess how Washington will operate. Currently, the news regarding the revised Deficit Reduction Act is notable, particularly the inclusion of the Alternative Fuel Tax Credit, which has a three-year extension in the bill. This extension is retroactive for this year and continues forward. It highlights a bipartisan effort. I'm uncertain if that bill will pass, as it requires 50 votes from the Democrat side. However, I believe it will, given the important content of the bill. Everyone involved in the green transition is trying to understand the new provisions, as there’s a lot of new language included. The bill supports the alternative fuel tax credit, biofuels, and renewable natural gas. While I cannot predict its passage, I appreciate that the alternative fuel tax credit continues to appear in bipartisan bills. If the Deficit Reduction Act fails for any reason, I'm confident that the AFTC will eventually be included in a larger package later in this Congress.

Next, we'll hear from Rob Brown with Lake Street Capital.

First question on kind of the demand environment. What are you seeing in terms of incremental interest with fuel prices here? Is it driving incremental demand? Or is the demand really around the RNG situation?

No, I think it's both, Rob. It's a good question. It certainly has sparked discussions with our sales force and these large fleets. I was surprised to learn that Cummins had 400 fleets expressing interest in testing the new engine. I expected about 30 or 40 from the largest fleets, so that number was unexpected. This surge in interest coincided with the rise in oil and diesel prices, along with the availability of RNG. Our sales force is definitely having more conversations about fuel pricing. We can offer a very attractive fuel price right now, which provides a significant discount to the current diesel prices. While diesel prices have generally decreased, they remain high, especially in California at around $6.50. Nationally, prices are still over $5, which is significant. We can still provide a compelling price for RNG, and our discussions are focused on that. Having a pricing advantage compared to diesel is crucial, and we also have the cleanest fuel available, making this a compelling market opportunity.

Great. Regarding the supports for the RNG market, how do you see that developing? What is the impact on your operations? Is it primarily about supporting production, or do you also anticipate benefits for the entire downstream process?

Rob, I'm sorry. I sort of missed the first part of your question.

Yes. Do you see additional research and development or dairy renewable natural gas support in this tax bill? And how does that impact you?

Well, there are several different factors to consider. I'm referring to various aspects that we're all trying to understand. There are different elements related to investment tax credits. Can you hear me, Rob?

Yes. Yes, I can hear you.

Okay, good. I mentioned that some of the others dropped their call. We're trying to understand the investment tax credit better and see how it might work. That would be significant. There are grant programs for equipment and some credits similar to the alternative fuel tax credit, related to the carbon nature of transportation fuel involved. I don't want to speculate too much, but it seems that if you combine some of these elements, there's substantial support available, more than I initially expected. Additionally, there's the alternative fuel tax credit. From my perspective, while I appreciate the bipartisan support for these initiatives, I've never felt that we need them. As it stands, RNG is already compelling with the current credits, and these additions enhance that appeal. It does incur higher costs to capture methane, process it, and deliver it through pipelines compared to fossil natural gas, but it's much cleaner and has a significantly lower carbon footprint. We certainly value the provisions in this bill, which should help enhance demand on the supply side. I also think the RNG incentives contained in this bill will positively impact demand as well. Overall, this appears to be beneficial for us.

Next, we'll hear from Manav Gupta with Credit Suisse.

The first question I had was more on the CARB side. It looks like things are moving in the positive direction. Gavin Newsom actually sent a letter telling CARB they need to raise the targets for carbon reduction. And there are others out there who are basically saying, look, if CARB does follow through with some of that, there could be some support for LCFS prices. So that's part one. And then for some reason, I don’t know why this debate keeps coming back, where the people say, "Well, RNG will not be part of the LCFS credits," though CARB has been very supportive of the entire RNG proposal and even dairy farm RNG. So if you could talk a little bit about what’s going on at CARB and how you strongly feel that dairy farm RNG will remain a part of LCFS credits?

Yes, Manav, thank you for bringing that up. This issue is particularly challenging. It seems there is a recurring narrative influenced by environmental justice groups who want to exclude dairy RNG from the plan. We have conducted several public workshops and issued a scoping plan. It is clear that the California Resources Board sees dairy RNG as a vital element of the strategy. I continue to address it, even though some analysts seem to persist in discussing it. I’m not sure why that is happening. However, as you pointed out, the governor has reiterated his support. When we consider the latest information, including the draft scoping and the governor’s recent comments, CARB has acknowledged that the approach is effective and may enhance compliance curves. Ultimately, most people understand that this will support and enhance low-carbon fuel pricing in the future.

Perfect. My second and quick follow-up is, I know you don’t want to speculate on the bill. But there is a 30% investment tax credit in there, specifically which could help you. This was not earlier available for biogas or RNG. Like if this does go through, it means you can achieve a lot more with the same amount of capital because essentially you’ll be getting paid back 30% of the money you spend through direct pay. So can you talk a little bit about how, if this does go through, that helps CLNE do more with the same amount of money?

You're right, Manav. I've been careful not to make premature assumptions. The tax credit in this bill is very compelling. It is a refundable tax credit, and it would significantly benefit us. The timeline for the investment tax credit aligns perfectly with the years when we'll be spending several hundred million dollars. This would reduce our capital expenditures and enable us to accomplish more with less money.

Yes, we do have a question from Matthew Blair with TPH.

I was hoping to understand a little bit more on the margin increased to $0.28 per gallon this quarter from $0.25 last quarter. It looks like your RNG share moved up to 47% versus 41%. But then it also looks like your COGS per gallon was actually exactly flat quarter-over-quarter even though natural gas prices moved up quite a bit. So I was hoping you could just kind of help us understand the dynamics there. Are there any hedges in place that help protected you from rising natural gas prices in Q2?

Yes, Matthew, this is Bob. There’s no hedging involved, and I’m not sure what you mean by flat cost since you are referring to the first quarter.

Right.

Yes, they were slightly higher than before. We experienced a significant commodity cost in the first quarter, which was somewhat anticipated. Therefore, we didn't notice a major shift, but we observed that retail prices have increased. This is where the underlying commodity economics work in our favor, despite the lack of substantial movement.

And when you say retail cost, is there...

In the cost item...

Okay. Are you referring to...

I’m comparing our situation to the current environment. That’s our main competition, and it reflects how pricing fluctuates between natural gas and oil. I don’t have a significant amount of refined product, so there’s some leverage with my commodity depending on price changes. With the high cost of oil leading to more expensive diesel, we find ourselves in an overall elevated price environment. However, my commodity doesn't necessarily have to increase in tandem with that.

Okay. And if I’m looking at this correctly, it looks like your overall station count actually went down by about 20 stations in Q2 versus Q1. Was that a result of high grading or...?

No, that's due to the way they were reported. I think one of them includes Canada, while the other does not. In the recent report, we provided a clearer distinction between U.S. and Canada, whereas the prior report combined the two.

We'll now hear from Craig Shere with Tuohy Brothers.

Congratulations on a great quarter. I want to address the numerous inquiries regarding LCFS. Please correct me if I'm mistaken, but it appears that having a significant quantity of ultra-low CI CO helps reduce LCFS. Furthermore, replacing slightly positive CI landfill gas with ultra-low dairy, even from third parties, boosts your margin. Given that we might have around 1.5 years before the new CARB targets come into effect, if there is a broader market uptick in ultra-low dairy at a pace faster than anticipated, this could positively impact your margin, even if LCFS faces some challenges for a year or two. Am I expressing that correctly?

Yes. On the same volume count, if it's dairy instead of landfill, we would still see a positive margin impact. That is correct.

I’m not sure if you want to address this directly, but perhaps you could provide a general perspective. You had 50 million RNG gallons in the quarter concerning the mix of dairy. Is the flow rate through your nozzles decreasing the overall CI score more quickly than you anticipated?

Yes, I would say that we're on track with that. The CI and the amount of low CI are certainly increasing. As a percentage of our LCFS volumes, it's going up as we had planned. However, within our portfolio of RNG that we deliver, the CI score is decreasing and it's below zero.

Is it sub-zero on average for California or nationwide?

For all the RNG volumes, if you included all volumes, then you would likely be a bit higher or perhaps closer to zero. However, I’m specifically focusing on the portfolio of RNG gallons, which is currently predominantly from landfills. But it’s transitioning to...

But yes, it moves quickly downward, and Craig, your instinct is correct. It decreases rapidly because the value is so low.

Yes, it does. It moved fast. I mean, we're seeing it's moved fast even from Q1 to Q2 within our portfolio. Okay.

What I was trying to point out is that the factors influencing the weaker LCFS are also contributing to your downstream higher margins. It's a natural hedge.

Craig, I understand what you're saying. You're being cautious and asking if increasing dairy production in California might dampen prices despite higher margins. Generally, that's a valid point. I'm still trying to wrap my head around it, and there may be others on the call who can model it faster. The shift from a 20% compliance curve to a 30% compliance curve is significant. You'll need a substantial amount of renewable natural gas, and I'm not sure how quickly that will happen. The compliance curve is steepening over a shorter timeframe, which I believe will put considerable pressure on pricing. I'm not certain how to balance that. I see your point, but that difference between 20 and 30 over five years is quite substantial.

Next, we have a question from Pavel Molchanov with Raymond James.

One of the other interesting provisions of the Inflation Reduction Act is a first-ever tax credit for green hydrogen. And you’ve taken kind of a mixed perspective on hydrogen and transport historically. And if this thing were to pass, would you be open to perhaps introducing hydrogen fueling into your existing stations?

Pavel, we believe that RNG is potentially the best feedstock for this purpose. We've consistently supported this initiative. As you know, we have a hydrogen fueling station, and we're currently completing another, plus we've just bid on two more. I see this primarily as being about demand; there needs to be vehicles and improved technology. While I think these developments will benefit hydrogen, we don't want to start building speculative $25 million hydrogen fueling stations without sufficient demand. I’m confident this will help the market, but we still have significant progress to make regarding the commercial viability of green hydrogen. We are open to moving forward right now and are likely a leader in this area for transportation, especially since our customers are utilizing federal funding. There are not many private fleets in our sector that can afford this yet. Where it makes sense and where there are federally funded projects, we are involved. If demand increases or if legislation accelerates this, we will be prepared. We have the customers and locations available for hydrogen, but we need assistance from the industry regarding reforming and reducing costs, as hydrogen remains quite expensive.

Yes. Let me ask a housekeeping question. Depreciation expense on the income statement was less than $11 million the last two quarters. But you’re guiding to $55 million for the year. So it looks like it’s going to step up to like $16 million or $17 million per quarter. First of all, is that math accurate? And if it is, what’s the reason and why?

I expect that we will increase the depreciation on certain sites that we are relocating. Some of these are related to pilot locations that require remodeling or repurposing. We have assessed the situation together and determined that if these locations are not opened or do not have sufficient volumes, we will move that equipment. I have estimated around $8 million for this specific situation, which should not be considered a new ongoing expense.

Okay. Understood. So for next year, we should not assume these extra expenses to continue?

Correct. We expect to see some impact as we bring on the Amazon stations. There may be some adjustments in the opposite direction, but overall, it will increase. I wouldn't predict that we'll maintain an $11 million per quarter pace, which would total $44 million. However, as the stations become operational, there could be an additional $4 million to $5 million annually. So, you'd likely see depreciation in the $50 million range at a normalized rate.

Our final question today will come from Greg Wasikowski with Webber Research.

The good ones are gone, so I’ll just keep it to one. On the 15-liter engine, when talking to customers about that, do you get a sense that there’s a portion of fleet owners who, in the absence of the 15-liter engine, might have already made the transition to natural gas or would be making it imminently? But since the 15-liter is kind of on the horizon in the next couple of years, they’re just hanging on and waiting for that?

It's a great question, Greg. I've been in this industry for a long time and there's always a concern about creating a chilling effect. Some might wonder why they should invest in something now when they can wait. However, I also recognize that many fleets require versatility and need the ability to operate these large national fleets in various terrains and conditions. Many of them prefer the 15-liter engine. For example, J.B. Hunt has been transparent in the past about their preference for a 15-liter over the 11.9, feeling it better meets their needs. When you observe that around 75% to 80% of major over-the-road companies opt for 15-liter engines, it becomes clear that this is what they want and what Cummins understands. While there may be some customers who choose to wait until the 15-liter is available, the 11.9 engine is still very suitable for day cab operations. Many regional applications, including those for companies like Amazon, rely on 11.9s because they are efficient for day cab use, even among over-the-road trucks that aren’t fully loaded. Therefore, I believe there will still be solid demand for the 11.9 as we await the 15-liter.

That will conclude today's question-and-answer session. I'll now turn the conference over to Mr. Andrew Littlefair for any additional or closing remarks.

Operator, thank you. Thank you, everyone, for joining us today. We look forward to updating you on our next quarter. Have a good day.

Thank you. This concludes today's call. Thank you for your participation. You may now disconnect.