Earnings Call Transcript - CLNE Q4 2022

Operator, Operator

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

Robert Vreeland, President

Thank you, operator. Earlier this afternoon, Clean Energy released financial results for the quarter and year ending December 31, 2022. If you did not receive the release, it is available on the Investor Relations section of the Company's website at www.cleanenergyfuels.com, where the call is also being webcast. There will be a replay available on the website for 30 days. Before we begin, we'd like to remind you that some of the information contained in the news release and on this conference call contains forward-looking statements that involve risks, uncertainties and assumptions that are difficult to predict. Words of expression reflecting optimism, satisfaction with current prospects as well as words such as believe, intend, expect, plan, should, anticipate and similar variations identify forward-looking statements but their absence does not mean that the statement is not forward-looking. Such forward-looking statements are not a guarantee of performance, and the Company's actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in the Risk Factors section of the Clean Energy's Form 10-K filed today. These forward-looking statements speak only as of the date of this release. The Company undertakes no obligation to publicly update any forward-looking statements or supply new information regarding the circumstances after the date of this release. The Company's non-GAAP EPS and adjusted EBITDA will be reviewed on this call and exclude certain expenses that the Company's management does not believe are indicative of the Company's core business operating results. Non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP and should not be considered as a substitute for or superior to GAAP results. The directly comparable GAAP information, reasons why management uses non-GAAP information, a definition of non-GAAP EPS and adjusted EBITDA and a reconciliation between these non-GAAP and GAAP figures is provided in the Company’s press release which has been furnished to the SEC on Form 8-K today. With that, I will turn the call over to our President and Chief Executive Officer, Andrew Littlefair.

Andrew Littlefair, CEO

Thank you, Bob. Good afternoon everyone and thank you for joining us. We are continuing to make excellent progress on the execution of our RNG business strategy over the last quarter. With our investments in renewable natural gas facilities and new stations, we expanded our leadership position. Clean Energy remains the largest supplier of RNG used as transportation fuel in North America. In the important California market, more than half of the RNG used in natural gas vehicles is from Clean Energy. In 2022, our California RNG portfolio had a weighted average carbon intensity of minus 51, which demonstrates the success of our RNG strategy to develop and secure the lowest carbon RNG available in the market. We expect the carbon intensity of our product to continue to decline as our dairy investments begin producing gas this year. We funded our joint ventures for the projects underway while strengthening our balance sheet, leaving us well positioned for the future. In the fourth quarter of last year, we sold over 54 million gallons of RNG, which was an increase of 21% compared to the same quarter in 2021. The expansion of our relationship with Amazon is having a positive impact on this growth, and we’re also seeing increased demand for the Clean fuel from other heavy-duty trucking firms, as well as transit, refuse, and other sectors. Our revenue for the quarter came in at $114 million, which was $22 million more than Q4, 2021. We generated $13 million of adjusted EBITDA for the quarter. Bob will get into more details about our financial performance momentarily, but let me just say we acknowledge that our 2022 adjusted EBITDA number ended up lower than we expected it to be at the beginning of the year. We experienced a few sustained headwinds in the latter part of the year that impacted our results. The biggest contributor to this was the lower prices of environmental credits under California’s low carbon fuel standard program or LCFS federal credits program. The LCFS credit prices declined almost 60% over the course of the year, and it was just too much to overcome in the fourth quarter. Also, the rollout of new stations that we are building for Amazon around the country has been slower than we projected. Competition for prime real estate near distribution centers, entitlements, and permitting approvals have delayed several stations from our initial timeline for completion. We believe we have turned the corner on several of the issues that have hindered us and slowed our station construction. Also, we believe we are at the lows of the environmental credit and regulatory situation, and credit prices should improve over the medium term. And as I previously mentioned, we continue to be pleased with the way we’re performing on our plans that we laid out to you over a year ago to expand our business, particularly by having more control over the supply of low carbon RNG flowing to our fueling infrastructure with the 13 dairy projects underway. We remain confident that the investments we’re making today will generate attractive returns in the future. But for 2023, we believe we will continue to see pressure on environmental credit prices. As another step to position us for future growth, we secured a $150 million sustainability-linked loan with Riverstone Credit Partners last quarter. This should keep our balance sheet healthy as we continue to build fueling stations and additional RNG facilities with our partners, TotalEnergies and BP. At the end of 2022, we had over $263 million in cash and investments. This is after contributing nearly $178 million into our RNG Production joint ventures since their inception, and expanding our fueling infrastructure by funding 23 additional station projects during 2022. Speaking of new RNG production, it doesn’t seem that long ago I participated in a groundbreaking at Del Rio Dairy in the Texas Panhandle, which is Clean Energy's first biogas digester to be built from the ground up. I'm pleased to announce today that as of a few weeks ago, the methane captured from the manure produced by Del Rio's 8,000 dairy cows is now being injected as renewable natural gas into the pipeline. That capacity will flow at a rate of 140,000 MMbtu, translating into 1.1 million gallons of ultra-low carbon fuel at Clean Energy stations annually. We’ve also made good progress at other dairies with construction underway on projects in Iowa, Minnesota, Idaho, and three in South Dakota. Engineering has begun at another five sites. Overall, we are pleased with the progress of our new RNG supply facilities. Remember, when these dairy digesters begin to produce RNG over the next two years, this fuel will receive some of the lowest carbon intensity scores available for our customers and generate the greatest number of credits. No other alternative fuel solution comes close to the negative CI scores that RNG produced at agricultural facilities achieve. The beauty is that RNG drops right into the existing pipelines and then into our existing fueling infrastructure. On the RNG demand side, as I previously mentioned, we opened new stations as part of our announced agreement with Amazon. In addition to the 80 existing Clean Energy stations that have been supporting the Amazon fleet of heavy-duty trucks, new stations in four states have been added to our fueling network. All these stations are purpose-built for Amazon but also have public access and are strategically located in and around distribution centers, allowing for fleets from a variety of companies to fuel with RNG. One station that has been open for only a few months has already become our largest bi-monthly volume station. There are another handful of stations that will be opening in the next few months, with a robust schedule through the rest of this year. We are particularly excited that these stations will be open and accessible for truck fleets when the new Cummins 15-liter natural gas engine hits the market next year, as the commercial introduction of heavy-duty electric trucks and the required charging infrastructure continues to get pushed out. This next generation of Cummins natural gas engines, combined with our already installed RNG fueling infrastructure, will accelerate fleets' ability to reach their emissions reduction goals significantly quicker. Before I close, I wanted to mention that we added one of the largest transit agencies in the country as our customer in the fourth quarter, San Diego MTS, which signed a contract for 86 million gallons of RNG fuel for its fleet of 764 buses. We also renewed an RNG contract with the largest transit agency in the country, LA Metro during Q4, and will be supplying them 20 million gallons of RNG annually for their bus fleet. Our relationships with refuse customers continue to expand during the quarter with new contracts with Athens Services, Burrtec Waste, and additional stations for Republic Services. We remain as optimistic as ever about the future of renewable natural gas both as a direct transportation fuel and as an ultra clean feedstock for other alternatives. We believe we are well-positioned as one of the largest developers and owners of dairy RNG production, and we are growing our leadership position in the distribution of RNG. Thank you for your time today. And now I will hand the call over to Bob.

Robert Vreeland, CFO

Thank you, Andrew, and good afternoon to everyone. As reported today, we finished 2022 with $420 million in revenue, and a GAAP loss of $59 million versus 2021 revenues of $256 million, and a GAAP loss of $93 million. Our adjusted EBITDA for 2022 was $50 million versus $57 million in adjusted last year, which last year included $4 million of earnouts from our sale of RNG assets to BP. On an adjusted non-GAAP basis, we reported net income for the year 2022 of approximately $3 million versus non-GAAP net income of approximately $8 million in 2021. Although our adjusted EBITDA fell short of our estimate of approximately $60 million, the variances to our estimates were temporary in nature, we believe, and timing related in terms of volume associated with station builds, and SG&A spending, in our view nothing systemic or permanent in nature. For example, we thought there could be some rebound in the LCFS credit prices during the fourth quarter, and the LCFS credit prices actually remained at their lowest level of the year throughout the fourth quarter. LCFS prices have gone up recently, so a little later than we anticipated, but still moving up as we thought as additional information is kind of hitting the marketplace around that program. We also saw the price of natural gas double for the month of December in California, increasing by the equivalent of $1 a gallon in our largest market. We had some delays in station openings, which pushed out volumes, and our fourth quarter SG&A spending increased, which was largely due to really our own success in adding personnel to accommodate our RNG growth activities. Looking forward, we believe we have upsides ahead, given where the credit prices are today, knowing we’re much closer to opening more stations to support Amazon, and our RNG dairy projects continue to proceed well, with tailwinds from the Inflation Reduction Act ahead of us. And with that, I mean, I'll go into our 2023 outlook here in a moment. I'd like to take a moment here just as a reminder on our presentation, we’ve presented our volumes and revenue tables in our new format in our Form-10K that we filed today. We made this change in the third quarter on our 10-Q filing, where we separated fuel volume volumes and the O&M service volumes. And we enhanced our revenue disclosures around our volume-related product and service revenues. So with that, I wanted to inform you that today we posted an updated company presentation on our Investor Relations website that provides this new volume and revenue table format for all four quarters of 2022. In the back of that presentation, we have had some questions on visibility to the first quarters of 2022 in the new format, so we're accommodating there. So now taking a closer look at the fourth quarter of 2022, our revenues were $113.8 million, compared to $91.9 million a year ago. Higher volumes and fuel prices, along with higher station construction sales in the fourth quarter of 2022, contributed to the increase over 2021, with the lower environmental credit prices in 2022 offsetting some of the revenue increases. We reported a GAAP net loss of $12.3 million in the fourth quarter of 2022 compared to a GAAP net loss of $2.4 million in 2021. On a non-GAAP basis, adjusted EBITDA for the fourth quarter of 2022 was $12.6 million, and adjusted non-GAAP net income was $2 million for the fourth quarter of 2022. This compares to adjusted EBITDA of $18 million and adjusted non-GAAP net income of $6.4 million in the fourth quarter of 2021. For the quarter, our overall product and service margins were slightly higher in the fourth quarter of 2022 versus 2021 despite the lower credit prices; however, our spending on growing our RNG business was higher in 2022. As expected and planned, as well, as I mentioned, 2021 benefited from the earn out income of approximately $4 million when comparing the two periods. Andrew noted that we finished the year with approximately $264 million in cash and investments, which included proceeds from a debt raise of $150 million in December. As part of that financing, we paid off the equipment financing debt at NG Advantage of approximately $27 million. Also, as of the end of December 31, 2022, we had contributed approximately $178 million into our RNG supply joint ventures with our partners TotalEnergies and BP. Cash provided by operating activities for 2022 was $66.7 million, and we had 44.5 million in property and equipment purchases. These are both up from 2021, where operating cash flow was $41.3 million and property and equipment purchases were $23.1 million. So nice on the cash front. Now, looking at 2023, we normally provide annual guidance, which we'll do here. We've provided our annual outlook in our press release. For a GAAP net loss of a range of $105 million to $115 million, which is reconciled to our outlook for adjusted EBITDA of a range of $50 million to $60 million. On the GAAP net loss, you'll note a large increase in the Amazon Warrant incentive charge, which is associated with an estimated volume increase for Amazon in 2023 as we complete more stations. Revenues are projected to be around $350 million, that's our GAAP revenue. That's net of around $66 million in these non-cash incentives. Our 2023 outlook reflects continued double-digit fuel volume growth in the range of 15% to 20%. Much of that is RNG, which is also projected to grow in that same range. Service volumes growth is expected to be in the mid-single-digit range. Our outlook reflects environmental credit prices that really don't rebound much from what we saw in the fourth quarter of 2022 and beginning in 2023. As we know, those have been they were lower in the fourth quarter. And so we're kind of seeing that continuing in 2023, and our outlook contemplates that. Our SG&A spend will increase slightly to around $30 million per quarter, which is up a little bit from the fourth quarter, as we've added personnel at the end of 2022, and our stock compensation kind of levels out but that is about $5 million to $6 million higher in 2023 versus 2022. We’re estimating around $25 million to $30 million of cash flow from operations, mostly reflecting added interest costs and our CapEx spend is estimated at around $90 million. And that’s at the core business of Clean Energy. We may also contribute up to $40 million more into our RNG supply joint ventures, and that’s on top of the $178 million that we’ve already contributed. And, frankly, that doesn’t bring in potential pipeline, and for this exercise, that’s really what we have good line of sight on, but it could be higher. Clearly the credit pricing environment, inflation, and industry volatility have changed from the beginning of 2022. But we feel very good about the view forward and upside possibilities with continued volume growth, the tailwind from the Inflation Reduction Act, and the forthcoming launch of the Cummins 15-liter engine, along with the continued demand for this very low carbon fuel of RNG. With that operator, please open the call to questions.

Operator, Operator

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

Manav Gupta, Analyst

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

Robert Vreeland, CFO

Correct. Okay, I'll address that. You're correct. And I’ve actually, we’ve, even a year ago, contemplated that 2023 would be minimal contribution. So we will be flowing gas in a number of projects. But there’s time between flowing gas and revenue recognition, which has to do with the whole pathway certification, and when we really can do get to meaningful revenue. So, you’re correct, there’s not much of a contribution there in 2023. And then we’ll see how 2024 kind of shakes out and just, for sure, as we go into 2025 and 2026. And, there you start to get into the inflation Reduction Act and contributions that could happen there. So that’s why, but then I’ve also say, a big part of our forecast being flat is also the credit price deal. We going into the fourth quarter, we felt there would be more information about a pathway forward in California, but we also knew the rim had information there, that just didn’t really materialize in our view, very meaningfully. So the market kind of stayed flat. We’re not going to predict exactly when that will turn around. We’re more bullish on it and know that we believe that it will. But we’re that’s just a big part of the flatness because we’re kind of assuming fairly recent credit prices stick around. On the dairies, yes. Nine of those are wells, seven, eight are constructing for sure. And I think we’ll get a number of those online. One’s already flowing gas, and we’ll get maybe four or five in 2023. But again, you’re not really seeing EBITDA. But which is okay, it’s that’s a long time, and we’ve recognized that, but, we’re also very mindful of the execution on operational execution on these, which is going well. I mean, I think we’ve experienced some of the delays that a lot of the folks in the industry are seeing just on equipment and things like that, but relative to it was pretty exciting to finally start injecting gas into the commercial pipeline at one of our dairies. So that’s one of the keys as well as getting those things running.

Manav Gupta, Analyst

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

Robert Vreeland, CFO

Well, I think Manav, of course, the ITC will apply, it will reduce our capital by 30%. Now, that tends to flow in a year after, but I mean, no, that's real. And so it will lighten the capital load by 30%. Our projects will qualify. And you’re right. That is the scope of when we looked at, well, we talked about a year ago, to get to roughly 100 million gallons of our own equity projects, equity RNG projects, that number still holds. We still believe that’s a good number. And so there’s more work to be done, and there are a lot of opportunities, a lot of projects still to come. We feel good about the projects 13 that we have underway, which, if you look back 18 months ago, we've moved quickly. There’s a robust pipeline of more projects. We haven’t lost any enthusiasm. We just try to stay focused on here. We have the lowest carbon fuel that’s commercially available today in the world. And there are a lot of regulatory policy folks speaking and all sorts of different levels projecting how that fuel should be used and how it might be used and trying to micromanage the market. But what we know is we have a really low carbon fuel that can be used today that can be disseminated in a nation’s pipelines now. When we look at that fuel, and we compare it to other technologies that are available, we feel very well positioned. So there’s more to be done. And you’ll see that come on. And so don’t be surprised if you see us continue to do things to move along that pathway that we all talked about a year ago, because we haven’t lost any interest in that.

Rob Brown, Analyst

Hi, Andrew and Bob. Just wanted to double-check, did you say 350 million of revenue next year? Was that the fuel volume revenue or the total?

Robert Vreeland, CFO

That was total. That’s net of about $66 million in non-cash incentives.

Rob Brown, Analyst

Yes. Can you give us some color on the Amazon station activity? How many stations do you sort of plan on completing this year? And I guess, maybe, where’s the uncertainty on getting some of those things open? Are you still seeing the permitting delays? Or is that sort of starting to be worked through?

Robert Vreeland, CFO

Rob, we've made an announcement regarding the development of 19 stations for Amazon, and we've opened 4 of those so far. You can expect most of the remaining stations to be completed in 2023. Many of these projects are underway in various stages, with some anticipated to finish by the end of the year, around October or November. Importantly, about half of them are expected to be operational in the first half of the year. Our experience in building stations is extensive, as we've completed close to 750 projects, including 87 truck stops in one year. However, the challenge we face is with Greenfield locations, as we're building truck stops from the ground up near highly sought-after distribution centers. The coordination with Amazon and the necessary entitlements and permitting has been quite challenging, taking anywhere from 6 months to a year. We have been working on many of these projects for a while now, and while permitting and construction usually take about 5 months, there's still a lot to do this year, and we hope to continue that progress next year as well.

Eric Stine, Analyst

Hi Andrew, hi Bob.

Andrew Littlefair, CEO

Hey, Eric.

Eric Stine, Analyst

So just coming back to the 2023 EBITDA guide. Looking for modest growth there, and I know part of that is because you’ve got RNG plants pushed down a little bit; you’re still conservative on the credit side, and you’ve got higher OpEx. But you’ve got some areas where you’re more optimistic as well. Is that a fair way to characterize it? And then secondly, can you just talk about maybe the linearity of it throughout the year? I know that the natural gas spike in California was, I believe, even more pronounced in the first quarter. So, how do you expect to start the year? And then maybe for it, how it plays out for the remainder of the year?

Andrew Littlefair, CEO

Rob, when you were assigning all about getting on here in a second. But when you’re assigning the EBITDA and what that is where we’re guiding to. Look, it may kill me here. If you went back to credit prices of last year, you have that 44.5 million of EBITDA. So we’re trying to be responsible by not projecting, getting over our skis on projecting what’s going to happen in the LCFS. We remain bullish. We think the fact that California is now talking about increasing the obligation curve 20% to 30%, that’s a huge increase. We believe that when that finally gets done, that’ll put pressure on LCFS prices. In fact, when you look back at the workshop that happened just a few days ago, the LCFS prices went up. We actually thought that was supposed to happen back in November last year. So it happened now. We’re mildly bullish on what’s going to happen with the LCFS. And we certainly are in the medium term, probably more 24, 25, but it’s not the case that the RNG projects are not on production yet because we always knew those would come on and contribute in 24. That’s more to do with the credit prices. Bob, now you might pick me up here on that.

Robert Vreeland, CFO

No, I agree there. Eric, you asked about the linearity versus. Yes, I mean, it’s versus giving guidance. Yes, I mean, last year didn’t bode too well without a little bit of linearity. But I would say that there’s a little bit of similarity between the years where historically Q1, we’ve just a little bit of a slower quarter. And then as we talk about completing stations, they’re not all going to get done here in March. That plays into increasing volumes throughout the year. You are correct Eric, it is interesting. I’ll put the little caveat out there. California did have a huge issue with natural gas pricing in January. Natural gas prices doubled in December. They went from like $7 and end to $15 and that’s about $1. And then they went from $15 and went to $50. That’s kind of mind-boggling. We’re going to see some impact from that. There’s no doubt about it. It may be somewhat painful. The good news is we have a fair amount of the year to manage around that and recover from it. That was part of how we do things. I didn’t get out there and change guidance in January at all. But it’s something that those are the types of things that we had some headwinds in '22. We thought we were out of the woods, and just when we thought it would be a little better, California, our largest market doubled. All is temporary volatility. Our view is long on this solution and the fuel. We’ve got projects being built out, and we’re in this for the long haul.

Andrew Littlefair, CEO

These projects tend to be, oh, Eric, I'm sorry. These projects tend to be in the range of 1.5 million to 2 million gallons. Now we have one underway in Idaho right now. It's really a big project, $5 million. But let's just say $2 million is a good number. So you could see that we've got many more projects come on, which we are very excited about the scope and the size of the market is still big. Now what you'll have, Eric, is you won't have as many 10,000 cow dairies or larger, but you'll begin to cluster these. And so there are dozens and dozens of projects that are still out there. Right now, we have 27 in our pipeline, not of the ones we've discussed, not of the 13 that are somewhat underway. We've got another 27 that we've been talking to and treating paper with. We’ve always sort of said that you’d be in the 35 to 40 projects before this is realized.

Matthew Blair, Analyst

Hey good afternoon, Andrew and Bob, thanks for taking my question. So, if I heard correctly, you were saying that your current profitability would look more like $95 million at 2022 credit prices. And I think at one point you were providing a 2023 guide of $136 million. So could you walk through the delta between that original 2023 guide and then the $95 million? Would that be just an assumption of lower volumes coming through in 2023 than what you originally envisioned?

Robert Vreeland, CFO

Matt, I would say there's a little bit of that. I mean we're in a little bit of a different world than we were at the beginning. Look back to January 2022, credit prices were extremely high, and the world was in a little different place. The lion's share of it is just simply an assumption on credit prices, that's huge. The other gap there is what I'm going to say, nothing notable other than a little here and a little there, as your environment changes, your plans change. For us, as usual, I really feel that it's kind of timing related on when the volumes come on is the biggest piece. It really is. And so it's not if, it's when, and just how we're always constantly trying to get engaged when will the trucks show up at the fueling station, going through the buying cycle and the adoption. When we open up stations, we build those because there’s a need for volume. As soon as they open, the fuel starts flowing. So it's that volume kind of follows how you're opening stations for the most part. We get more volume at our existing stations as well but that’s it.

Andrew Littlefair, CEO

I think, Matthew, if you were to look back and piece everything together, it becomes clear that we are approaching closer to $95 or $100. It’s about the timing of the projects. We have realized that these projects take longer to go into production than we anticipated a year ago. There's some positive news here. A year ago, we didn't have the IRA, the ITC, or the production tax credit. If you factor those in and consider some of the projections for '25 and '26, those figures are substantial. Ultimately, everything will balance out. When you consider figures like $4, $5, or $6, I'm leaving it for you to decide on the specifics, but those are significant numbers that could be linked to the production tax credit.

Robert Vreeland, CFO

Okay, and I just want to confirm that the $50 million to $60 million for 2023. That does not include any ITC add backs, correct? Correct? Well, yes, and it wouldn’t necessarily mean ITC is more of an investment tax credit, but yes, there’s no IRA number in the $50 million to $60 million.

Greg Wasikowski, Analyst

Hey, good afternoon guys. I don’t mean to beat a dead horse here but just going back to the financial metrics and projections from the RNG day a little over a year ago. Really, obviously a lot has changed. I’m just wondering, what at all can we still take away from the 2022 to 2026 projections whether it’s can we slide things to the right? Is the general ramp or the shape of the ramp still intact? Should we just be kind of hair cutting everything by a certain percentage or should we just wipe it out altogether? Just curious when you look at that, what can we still take away from those numbers?

Andrew Littlefair, CEO

Well, let me hit some of the broad strokes. We still see the need almost exactly the same as we did. The 2026 number remains similar. We still see third-party in the same place. And by the way, we’re kind of on track on being able to lay that in as we thought. And then the RNG dairy in our account and our partners' account, we haven’t come off of that. Now, I think it may be that you might need to slide everything six months to the right. I think that’s probably prudent to do. Of course, as we’ve discussed here this afternoon, is the credit prices that we used back then are different. We have to employ our best thinking on those credit prices, we have to believe that by the time you get to 24 and 25, the credit prices will strengthen substantially, and of course, we like some of the benefits that we received from the IRA, certainly, the production tax credit is very meaningful out there as well. So we haven’t really pivoted in terms of saying, oh, let’s not, let’s not do this RNG or let’s not pursue dairies or let’s not pursue third party. It’s all pretty much still intact. If you want to critically look at what’s changed, you could say, well, some of these projects, dairy projects are probably taking a little bit longer to build, but in the scheme of things, when you have 30, 35 projects underway, I don’t know how meaningful that is. If there’s an impact, it could be late 2023 or early 2024, but I think it’s generally going to hold in pretty well.

Matthew Blair, Analyst

Okay.

Unidentified Speaker, Analyst

Sure. Just trying to understand that what is the kind of impact, any rough estimate, and what’s the incremental costs for you guys?

Robert Vreeland, CFO

I don’t know. I don’t know. No, but I mean, if you’re getting into kind of transportation costs, you’re kind of dollars on the MMBtu kind of thing. So our guys know it. See if we can get it for you, but I don’t know.

Andrew Littlefair, CEO

Yes, that would be great. We’ve been asked by someone to get this. But I don’t worry about it, I’m not worried about paying it. So don’t put me down to the fight.

Paul Cheng, Analyst

Sure. Then my final question is just a simple accounting question. On the – we are talking about that credit reduction, the capital reduction, say 30% or so. Accounting wise how does it work? I would imagine in your cash flow statement, your CapEx numbers still remain the same. You are just receiving the tax credit and or check from the government and showing up that way?

Robert Vreeland, CFO

Yes, it will reduce the basis in our assets. It will lower the value of what we have capitalized. So if you’re going to $100 million and you get your $30 million, then you’re going to end up netting with a $70 million asset there.

Paul Cheng, Analyst

No. But I guess my question is that from an accounting standpoint, when we're looking at your 10-K on your cash flow statement, let’s say if you suppose to have $200 million on the CapEx in 2026, and we assume that in 2025, you spent $100 million, so you end up at $30 million. So yes, the cash flow statement is still showing up in your capital spending line at 200 or so 170.

Robert Vreeland, CFO

It’s going to show gross.

Jason Gabelman, Analyst

Hey, guys, thanks for taking my questions. Two if I may, first on the clean fuel production credit, which I think starts in 2025. It seems like the benefit, your RNG production could be pretty high. If it’s not, if the credit isn’t capped, it can be as high as $6 a gallon. Is that your interpretation? And do you expect that credit value to be capped? And then my second question is just on the near-term numbers. It looked like 4Q, the fuel margin, excluding all the credits, was just $0.04 per gallon, which was down quarter-over-quarter, I think by $0.06. Was that just due to the higher natural gas prices? And do you expect that to rebound back to the $0.10 where it was in Q3 and that’s once again, just the fuel dollar per margin excluding any of the credits?

Robert Vreeland, CFO

Andrew, do you want to talk about the PTC.

Andrew Littlefair, CEO

Jason, it's a good question. The production tax credit has not yet been promulgated. It hasn't been adopted by the treasury department by the Treasury Secretary. I’ve been told our folks here, let's be careful. We don't know how that's going to come out. On its face, it appears that it could be a rather big credit based on carbon intensity. Estimates between $5 to $6 are common, but stranger things have happened. So I don't know how to handicap that yet. I also know that this incentive was designed to get really low carbon fuels produced. You want to be careful how much you cap it because then it works against what it was designed to do. But could it be? Do I think it will? I don’t know that. I'm not sure it would be, but it could be. Have you heard something, Jason?

Robert Vreeland, CFO

Jason, on your second question, by the numbers that you're giving me, I can tell that and I’m not saying right or wrong at all. But I think you’re just taking the fuel sales value that has the Amazon, non-cash incentive netted down in there. Then you’re figuring out the product cost and coming out to your $0.04. I will say that there’s a couple of things: The number can be influenced by how, what the value of the Amazon incentive number is; because that nets that it nets down the revenue and then your cost is kind of the same. Your margin gets a little skinnier as a result of the value of that. If you want to have that in there or not is up to you. But I can say, yes, Q4 was impacted certainly by the doubling of natural gas costs in California. That’s our largest market. We’re going to see a little pressure on that in the first quarter. I would like to say that dissipated, we kind of righted itself. All the way down into residence; it’s a complete debacle in my opinion. It’s a bit of a debacle and how we’re managing natural gas here in the state. We had to, we were forced to raise our prices at the pump to accommodate that. We don’t always do that. We’re mindful of our customers wanting that, to enjoy the spread in the pricing. We don’t always jump out there and do that right away. We did. So anyway, I think your $0.04 is influenced. See how it’s influenced by the non-cash incentive charge? And then yes, you do have a little bit of pressure on the COGS.

Operator, Operator

We have reached the end of the question-and-answer session. I would now like to turn the call back over to Andrew Littlefair for closing comments.

Andrew Littlefair, CEO

Great. Thank you. Thank you, everyone for joining us today. We look forward to updating you on our progress next quarter.

Operator, Operator

This concludes today’s conference. You may disconnect your lines at this time, and we thank you for your participation.