Clear Power Fuels Company (NASDAQ:CLNE) Q1 2023 Earnings Convention Name Could 9, 2023 4:30 PM ET

Firm Individuals

Robert Vreeland – CFO

Andrew Littlefair – Co-Founder, President, CEO & Director

Convention Name Individuals

Eric Stine – Craig-Hallum

Robert Brown – Lake Road Capital Markets

Manav Gupta – UBS

Matthew Blair – Tudor, Pickering, Holt & Co.

Dushyant Ailani – Jefferies

Jason Gabelman – TD Cowen

Craig Shere – Tuohy Brothers

Paul Cheng – Scotiabank

Operator

Good afternoon, women and gents, and welcome to the Clear Power Fuels First Quarter 2023 Earnings Convention Name. [Operator Instructions]. This name is being recorded on Tuesday, Could 9, 2023. I might now like to show the convention over to Robert Vreeland, Chief Monetary Officer of Clear Power Fuels. Please go forward.

Robert Vreeland

Operator. Earlier this afternoon, Clear Power launched monetary outcomes for the primary quarter ending March 31, 2023. For those who didn’t obtain the discharge, it’s accessible on the Investor Relations part of the corporate’s web site at www.cleanenergyfuels.com, the place the decision can also be being webcast. There will likely be a replay accessible on the web site for 30 days. Earlier than we start, we might prefer to remind you that a number of the info contained within the information launch and on this convention name incorporates forward-looking statements that contain dangers, uncertainties and assumptions which are troublesome to foretell. Phrases of expression reflecting optimism, satisfaction with present prospects in addition to phrases reminiscent of imagine, intend, count on, plan, ought to, anticipate and related variations establish forward-looking statements, however their absence doesn’t imply that the assertion will not be forward-looking.

Such forward-looking statements are usually not a assure of efficiency, and the corporate’s precise outcomes might differ materially from these contained in such statements. A number of components that might trigger or contribute to such variations are described intimately within the Threat Components part of Clear Power’s Type 10-Q filed immediately. These forward-looking statements converse solely as of the date of this launch. The corporate undertakes no obligation to publicly replace any forward-looking statements or provide new info relating to the circumstances after the date of this launch. The corporate’s non-GAAP EPS and adjusted EBITDA will likely be reviewed on this name and excludes sure bills that the corporate’s administration doesn’t imagine are indicative of the corporate’s core enterprise working outcomes.

Non-GAAP monetary measures ought to be thought-about along with outcomes ready in accordance with GAAP and shouldn’t be thought-about as an alternative choice to or superior to GAAP outcomes. The immediately comparable GAAP info [indiscernible] administration makes use of non-GAAP info, a definition of non-GAAP EPS and adjusted EBITDA and a reconciliation between these non-GAAP and GAAP figures is supplied within the firm’s press launch, which has been furnished to the SEC on Type 8-Ok immediately. With that, I’ll flip the decision over to our President and Chief Government Officer, Andrew Littlefair.

Andrew Littlefair

Thanks, Bob. Good afternoon, everybody, and thanks for becoming a member of us. Nicely, for the primary quarter, the excellent news is that our underlying progress and fundamentals had been robust. Dangerous information is our first quarter outcomes had been impacted by an anomaly and hopefully, a onetime incidence, which was a historic spike in pure fuel costs in California, leading to a $10 million compression in our earnings. A confluence of occasions, together with unusually chilly climate in California, the dearth of pure fuel storage capability by the fuel utilities and the El Paso pipeline that provides 20% of the pure fuel to California being out of fee. All contributed to trigger the value of pure fuel to spike as excessive as $50 an MMBtu right here in California in January. The transfer from $7 an MMBtu in November to January was a 600% enhance, translating into a rise in our prices on the pump from roughly $1 a diesel equal to $7.50.

We did every thing we might to mitigate this unprecedented chain of occasions that impacted the price of our commodity. However California continues to be our greatest market by far, with the biggest companies within the state, dozens of refuse, truck fleets, airport automobiles and a rising variety of heavy-duty vehicles, all fueling at our community of 150 stations throughout the state. We handed alongside a number of the enhance in gas price to those clients, however we felt we are able to solely achieve this a lot. Excellent news is that they understood largely, as a result of each family and enterprise in California was additionally seeing their fuel payments not less than tripled, if not quadrupled throughout January.

The opposite essential level of this historic enhance is that the value started to reasonable in February, though there have been nonetheless some balancing results that we had been feeling. The El Paso pipeline is again on-line and fuel utilities have filed plans for extra storage. And as of March, the value of pure fuel on the SoCal Citygate was again nearer to $7 in MMBtu. One thing else that has been impacting our backside line and that we mentioned within the final quarter’s name is the value of the environmental credit. I do know these are adopted intently by many on this name. And as you already know, there was a pleasant turnaround within the California low carbon gas credit score worth not too long ago, a few 35% enhance. However for almost all of Q1, costs had been on the low finish and had an affect on our adjusted EBITDA when in comparison with a yr in the past.

By March, credit score costs had been in keeping with our plan, if not exceeding. Within the first quarter, we offered over 53 million gallons of renewable pure fuel, which was 34% greater than we offered in the identical quarter of final yr. We received a number of massive transit contracts, transformed present clients from conventional CNG extra worthwhile RNG and opened further RNG stations the place Amazon heavy-duty vehicles are the anchor buyer. Our income for the quarter was $132 million, $48 million greater than Q1 2022, however this was closely impacted on the plus facet by the commodity worth in California that I simply spoke about. By the point we received to March, we noticed our total enterprise start to proper itself and observe the plan that we had originally of the yr.

Our stability sheet stays in superb form with $220 million in money and investments, addition to $132 million money off stability sheet at our RNG provide joint ventures. As I spoke about final quarter, our first RNG provide venture, Del Rio Dairy in Texas is now on-line. We now have 3 dairies in commissioning and a couple of others in closing building. By summertime, we should always have 6 initiatives producing RNG. A lot of you’ve gotten learn in regards to the tragic hearth in South Fork Dairy in Texas, the place we had plans to construct an RNG digester. Whereas we have now funded some design, engineering and early gear purchases for that venture, we had not began on-site building. And we at the moment are working with the dairy proprietor as he plans to rebuild the barn and repopulate the herd.

We are going to hold you up to date on his progress. We have added experience in building, venture administration and origination to our RNG crew which are conserving our initiatives transferring alongside at a superb tempo. Not solely clear power and our clients stay bullish on this ultra-clean [indiscernible], Washington is aware of the advantages of RNG as properly. I hope you noticed the announcement {that a} invoice was launched final month within the U.S. Home representatives present $1 per gallon tax credit score for automobiles that use RNG. It is fascinating to notice that the bipartisan invoice is being cosponsored by a Republican member from a rural district, Brian Fitzpatrick. and a Democrat from our city Southern California District [indiscernible] Linda Sanchez.

So members perceive each the environmental advantages of RNG, which reduces air air pollution and carbon emissions. And that the funding of tens of tens of millions of {dollars} per new RNG digester advantages their agricultural communities. We imagine a companion invoice will quickly be launched within the Senate by one other bipartisan coalition. 70% of all on-road gas utilized in pure fuel automobiles in 2022 within the U.S. was RNG, which is a good testomony to its acceptance and the convenience to transition it to present fueling infrastructure and fleets. I believe a tax credit score will likely be a giant enhance to the adoption of RNG if it passes.

We’re additionally very excited in regards to the rollout of the brand new Cummins 15-liter pure fuel engine. It looks as if per week would not go by that we do not hear some good — a number of the nation’s largest fleets like Wal-mart, Werner, NICE we’re taking supply of those preproduction 15-liter engines. I’ve spoken a number of occasions on these calls in regards to the significance of this 15-liter engine to the heavy-duty truck market as a result of it delivers the facility, torque and economics the trade wants. And it is extremely gratifying to see the early response. Just a few weeks in the past, I used to be with the CEO of the biggest trucking firm in Canada and a buyer of ours, . And he’s anxiously ready the supply of two take a look at 15-liter engines in a number of months.

I’ve gone on slightly lengthy, and my purpose is to maintain my remarks shorter, giving us extra time to get to your questions. However I do need to finish by highlighting why I used to be in Canada, which was for a major announcement with the biggest pure fuel firm in Canada and 1 of probably the most profitable power corporations in North America during the last couple of a long time, Tourmaline. Mike Rose, Tourmaline’s Founder and CEO, and I introduced that the two corporations are partnering to construct a community of pure fuel stations throughout Western Canada primarily focusing on the heavy-duty truck market.

We have recognized places for the primary 4 with 1 already working in Edmonton and have plans to ultimately add 15 or so stations that will likely be co-owned by the two corporations. Clear Power will construct and function within the stations. We’re very bullish about this new partnership with Tourmaline in addition to our total enterprise. As I detailed on the prime of my remarks, we skilled some headwinds originally of the yr, however the momentum has already shifted again. RNG continues to be a breakthrough fueling resolution, permitting fleets to decarbonize rapidly and affordably. No different firm is healthier positioned for the RNG future with our increasing low-carbon provide and our rising fueling infrastructure. Thanks to your time immediately. And now I will hand the decision over to Bob.

Robert Vreeland

Thanks, Andrew and good afternoon to everybody. Let me begin with giving slightly shade — little extra shade across the $10 million drag on earnings within the first quarter from the excessive California pure fuel costs. The short math on that’s that we have now about 2 million gallons monthly with publicity to pure fuel worth motion within the California market. And we noticed an incremental worth enhance of round $6.50 a gallon. In order that’s a rise in our price. We had been capable of enhance our retail costs by $2 a gallon so taking our worth on the pump to $7.99 a gallon versus diesel on the time was $5.99. In order that left us about $4.50 a gallon that we absorbed plus we skilled some elevated fuel utilities at our California LNG plant for about one other $1 million affect.

So disappointing after we actually had been having a pleasant quarter, however that’s handed and admittedly, with out that anomaly, the quarter was actually extra in keeping with what we had been anticipating. Latest developments within the pure fuel costs relative to grease stays wholesome, which means we have now a powerful economics at our retail pricing. LCFS credit score pricing has elevated into the mid-80s from the low 60s, which is the place it was at on our final name. And much more not too long ago, there’s been a pleasant rise in RIN pricing. So the present financial panorama is nice for us, and we expect that we are able to get well a lot of the $10 million anomaly by the tip of this yr. Transferring on and taking a look at volumes. We noticed will increase in quantity throughout all of our core sectors with the biggest positive aspects coming from transit and trucking when in comparison with a yr in the past.

The transit sector has seen extra restoration this yr, and we have additionally had some good buyer positive aspects. After which our volumes with Amazon continued to extend, which helps to drive the trucking sector progress. Each of those sectors, the transit and trucking contributed to the expansion in gas gallons, which was up 18% year-over-year. After which Transit additionally contributed to service gallon progress, which was 7% in comparison with the primary quarter of 2022. We reported a GAAP working lack of $35.4 million for the primary quarter of 2023 on revenues of $132 million, in comparison with a GAAP working lack of $20 million on $83 million in income a yr in the past first quarter. On the draw back for the primary quarter outcomes of 2023 in comparison with the identical interval in 2022, we have now the $10 million drag from the California fuel spike in 2023.

Our elevated quantity with Amazon resulted in incremental Amazon warrant costs of $10 million in 2023. And our RIN and LCFS revenues mixed had been down $4.5 million from a yr in the past as a result of decrease credit score costs. On the upside, in 2023, we have now $4.3 million of incremental different gas tax credit score income in comparison with a yr in the past, as the choice gas tax credit score was not in impact within the first quarter of 2022. Our adjusted EBITDA was destructive $4 million for the primary quarter of 2023, which incorporates the $10 million destructive affect from the California fuel costs. We have additionally, in our desk in our press launch, we have disclosed the EBITDA elements of our RNG provide JVs, since we’re working 1 venture, and we’ll be working extra this yr. Having stated that our adjusted EBITDA of the destructive $4 million breaks down as a destructive $2.9 million coming from the distribution enterprise and destructive $1.1 million coming from our RNG provide enterprise.

And you may calculate these figures utilized within the press launch and our 10-Q, however we intend to replace our firm presentation on this adjusted EBITDA to point out you the two completely different contributors to the adjusted EBITDA. We will replace our firm presentation that we’ll placed on to our web site quickly. And with that, operator, please open the decision to questions.

Query-and-Reply Session

Operator

[Operator Instructions]. Your first query comes from Eric Stine with Craig Hallum.

Eric Stine

So thanks for the small print on the RNG pipeline. Perhaps in case you might transcend that slightly bit. I do know prior to now, you have talked about sort of the subsequent degree, which is the variety of crops that you have in engineering section. And I might additionally love to listen to simply sort of the dimensions of the pipeline because it stands now possibly versus 6 months in the past, 12 months in the past?

Andrew Littlefair

Proper. So we slice — Eric, thanks. We slice this stuff alternative ways. So once you sort of — once you kind of boil all of it down, we have now 9 beneath building. Now 1 of these is South Fork. And I can go in slightly extra element on that in a minute, however we have now 9 beneath building, we have now 4 beneath engineering. In engineering these initiatives are fairly detailed, proper? So it is — you are spending some cash at that time, and also you’re getting as much as about 30% drawing. So that they’re properly underway, and you’ve got MOUs and every thing. After which we have now 2 sort of within the early phases of growth. So they’re about to enter engineering.

So these are the initiatives, let’s simply name them lively the place you are actually transferring ahead. Then the pipeline can sort of ebbs and flows, Eric. There are 18 to twenty lively within the pipeline the place we’re coping with the farmers and passing paper forwards and backwards. And so now simply to be clear, that quantity might in all probability . I imply our guys are in contact with greater than that. However that is the quantity that I requested for this morning, as we’re sort of taking a look at those who we actually are beginning to get an actual good line of sight on. There are extra. However time will inform over right here over the subsequent few months of sort of which of them then transfer into the true lively pursuit. However the pipeline is powerful and our guys have actually accomplished, I believe, a pleasant job on not solely on the event, but in addition on the RNG provide facet, which may be very lively for us as properly.

Eric Stine

Bought it. And simply curious, I suppose, initially, I imply I believe prior to now, you talked about an final purpose. I imply, clearly, you may develop past this with BP and whole in some unspecified time in the future, however I believe focusing on like 105 million gallons. Is that also a quantity we should always take into consideration?

Andrew Littlefair

Sure, nonetheless. No, I am glad you convey that up as a result of it is nonetheless — as a result of we have sort of talked about it. We did acknowledge on the final name that a few of these initiatives had been taking slightly bit longer and so there’s slightly slippage, if you’ll, to the fitting. However the primary purpose continues to be in place that is nonetheless what we laid out slightly over a yr in the past of the 105 million, 100 million gallons of our personal fairness account with our companions on the provision facet.

That is nonetheless — we’re nonetheless on observe for that. Now we have all the time been very clear that a few of that will likely be greenfield that we’ll develop some and it may very well be an M&A. And so we’ll nonetheless work on that. However we nonetheless like that quantity, frankly. I might prefer to see that go up. However our companions are nonetheless appeared with us on that. After which on the identical time, and that is in growth 2026. Now we have to then convey much more third-party, low CI fuel and landfill fuel to the equation as properly. So we’re very busy on that entrance. However we actually have not modified the dimensions of what we’re making an attempt to attain or the cash that we will have to spend with our companions on it.

Eric Stine

Okay. After which, I suppose, possibly final 1 for me. Simply I believe final quarter, with the Amazon stations, you’d — not by way of something that you simply had been doing. It was extra allowing delays, these types of issues. Curious the place that stands? Has that loosened up slightly bit? And once you may get again to what you’d view extra of a standard rollout, in case you’re not [indiscernible]

Andrew Littlefair

It has. We labored actually exhausting — we have now a really massive crew on the location acquisition, entitlement allowing, this facet of the equation after which, in fact, building, proper? And we have labored hand in glove with our buddies at Amazon as properly, our building occasion and all of that crew. Beginning late final yr to see what we might do to streamline the method and dealing collectively, using all of the levers that we have now. I am blissful to notice that we have now 7 stations which are beneath building proper now, and that can come on within the subsequent 5 months, and I reviewed that with Amazon the opposite day.

And all the — possibly much less 1 of the unique stations that we signed on to Amazon that we have disclosed, will — ought to be accomplished by the tip of the yr. So there’s much more to be accomplished there. It has sped up some. We get slightly break with the climate, proper? I imply we have made great progress in a few stations out right here in California, right here within the final 6 weeks after the rain stopped. And that is additionally the case in different elements of the nation. So I am feeling good. Now we have cameras on all these places. And we have now assembly — a standing assembly with a giant crew each Friday morning at 8:30, and numerous actions we’re bringing these initiatives alongside.

So I am feeling significantly better about that. And people are like magic, Eric. You opened 1 of these stations and actually inside a number of days, even earlier than we had been in closing commissioning and able to get the occupancy allow from a metropolis, even these 158 vehicles in there. And so it is a good looking factor once you see it. And so we’re very enthusiastic about.

Operator

Your subsequent query comes from Rob Brown with Lake Road Capital Markets.

Robert Brown

Simply following on with Amazon, what number of stations at the moment are open? And do you’ve gotten a way of how the truckload you are feeling for the time being?

Andrew Littlefair

Nicely, now you , I all the time give this little warning and I get in bother if I — however I do know this. that we — you already know there’s a few items to that, proper? So we, early on, going again, I suppose, what, 18 months in the past, we — as they started to take vehicles, we opened up our nationwide community of stations. And as of the final week in my assembly with of us of executives Amazon reported that we have truly fueled heavy-duty vehicles, Amazon vehicles and mediums at 101 of our completely different stations. And that is a every day incidence.

And as of final week, it seems to us — as a result of it modifications once in a while. You are approaching 1,500 vehicles which are fueling every day. Now as these stations, that I simply mentioned with Eric come on-line, you may see that quantity, I hope, go up. And I do know that by way of the general public info that Amazon’s disclosed, I believe they’ve admitted to 2,000 or 2,500 vehicles that they’ve disclosed. And so our numbers ought to proceed to go up as these stations come on-line.

Robert Brown

Okay. After which on the 15-liter rollout that they are testing proper now, how does that ramp roll out? How do you kind of see that flowing into the fleet over the subsequent 2 or 3 years?

Andrew Littlefair

It was actually pleasing to see — I wish to say that Cummins has actually gotten into this in a giant manner. And you may even see it, Rob. However gosh, within the final 6 weeks, nearly each week, there’s one other announcement popping out about completely different elements of the enterprise. And final week, on the ACT Expo [indiscernible] large presence by Cummins, 1 of my salesman reported that he thought there was as many as 20 Cummins people there. Now that they had a few different fuels, however about absolutely half of that [indiscernible] was pure fuel, portion of numerous buyer curiosity there.

In reality, Rob, 1 of the one the trip and drive, huge gas cells and electrical automobiles and all of the showbiz of superior know-how and innovation there, the one car that made it there beneath its personal energy to be in the fitting drive the heavy responsibility was the Cummins pure fuel product that was pushed in. It was truly being operated on the time by Wal-mart. These automobiles, the way in which I perceive it, and also you may get higher info from Cummins, however the way in which I perceive it, there’s about 40 a number of the nation’s largest fleets which are in line now to — are sort of in sequence to take supply of these automobiles.

These are new engines which are being positioned into present diesel OEMs, proper, into vehicles [indiscernible] so that they need to go to the store from the fleet and put within the new engine. And a few of — these are on the street now, a few of them — a few of these fleets I discussed in my remarks. And I have never seen something official from Cummins, however the early experiences are, the girl that drove the truck from Wal-mart had simply an excellent report that she imported there to the individuals at Expo. So I’ve my fingers crossed that the client expertise goes to be good. The torque and horsepower is nice. I noticed — I believe immediately, Cummins made one other announcement on their upfitting program on their new design back-of-cab. And I actually like this since you’re starting to see kind of the OEM nature that Cummins can convey now with their upfitting functionality to convey the gas system and every thing collectively as a manufacturing facility product. They’ve improved that. They’ve 170-gallon choice, and I believe 130-gallon choices that basically look slick.

Robert Vreeland

It is a lot lighter, 400 kilos lighter.

Andrew Littlefair

Sure, that tank bundle — thanks, Bob, it is 400 kilos lighter. So looks as if issues are going properly, and I am hoping I can by no means — I all the time get on the market slightly bit forward of myself. However the story is later this yr, the sort of order ebook will open in some unspecified time in the future. And I am hoping that we start to see these orders taken for that engine.

Operator

Your subsequent query comes from Manav Gupta with UBS.

Manav Gupta

I truly rapidly needed to the touch slightly bit on the third-party volumes. A few of your upstream initiatives are delayed. A few of your rivals upstream initiatives are additionally barely delayed. However in your steering, you had indicated that you simply’re nonetheless seeing very robust contractual volumes from third events for each landfill and dairy RNG. Are you able to speak slightly bit about your third-party quantity contracts, as they relate to RNG and the volumes you truly distribute by way of your shops?

Andrew Littlefair

Certain. Bob, [indiscernible] useful right here. However we — the third occasion, I will begin, Manav, good to listen to your voice. The third occasion is an important piece to our story till we start to — properly, it all the time will likely be, proper? I believe what the depend is — we have now 63 completely different RNG suppliers. So we work with nearly everyone within the enterprise landfill and dairy. Our dairy is rising dramatically this yr that we’re bringing in from third occasion.

I believe it is going from roughly in California from 20 million gallons of load of dairy RNG final yr to one thing nearer to $60 million for 2023. So a giant good enhance. And we have now what about 20% enhance in third-party provide for 2023. That is proper now on price range. So we’ll find yourself with about 234, I believe, million gallons for the yr. And it is going properly, Manav.

Robert Vreeland

Sure. Andrew, I agree. And I believe — I imply it ebbs and flows as we have now all the time seen it, nevertheless it’s probably not being impacted by us seeing that initiatives are delayed sort of factor. However we — as a result of all of our third-party provide is just about working items. And so something that we come throughout there is perhaps from an operational matter, the place yield is slightly completely different, however as a result of we’re sort of unfold out with plenty of the suppliers, then all that’s anticipated. And we’re planning on our 234 million gallons from third occasion for this yr.

Andrew Littlefair

Sure. So I believe we’re on observe on that. So no, it is a good query. Are we seeing a slowdown? And no, I believe we’ll have the ability to meet our demand with our — which is largely as a consequence of our third-party provide.

Manav Gupta

Congrats on that. And a fast follow-up, after which I will flip it over — you talked about in your opening feedback, you’re seeing some enchancment in LCFS costs. There have been conferences at [indiscernible] they wish to make some modifications over there to help larger carbon costs. You guys clearly speak to them much more than we are able to. So assist us perceive slightly higher what is going on on with carb and are they really critical about making some modifications, which can assist help larger carbon costs sooner or later? And I will flip it over after that.

Andrew Littlefair

Okay. Nicely, I might say, first off, we’re in weekly or every day contact with completely different teams that — at them as they take a look at changes to low carbon gas normal program, which sort of the way in which it really works, Manav, is there will likely be 1 extra sort of group workshop on the finish of this month — finish of Could, first of June. then it is best to see a while, this stuff aren’t set in stone proper now, nevertheless it appears to us fairly intently that in June, July, you may start to — then someday in mid-June, you may have a proposed rule out on changes to the low carbon gas normal.

And the Board will then start to listen to that some 30 days or so after. So someday in late July, August, that can sort of transfer alongside. And naturally, there will be a lot of enter on that. I would not say that the ARB is trying to make changes to boost the value and I do not know that they might agree with that. I Assume they’re trying to make some changes in this system to extend the compliance curve that’s require extra obligation by the obligated or compliance by the obligated events to make use of extra renewable gas — low-carbon fuels within the state that we’re at about 20%. And so there’s a few decisions that is sitting earlier than ARB, all of that are constructive for our enterprise, we imagine, biomethane enterprise is 30%, rising from 20% to 30% or 35%.

And an terrible lot of the trade and others have weighed in and we expect the time is correct to maneuver to the 35%, and we imagine that the trade is prepared to spend the cash. The personal sector are prepared to convey — spend the cash to have the ability to get to the 35% over time. In order that’s thrilling. We predict that can shake out. There are another issues which are sort of — I might contemplate kind of some hurdles about the place the provision might come from and the way lengthy you may go into sure — how lengthy might RNG go into sure markets. And we’re making our views recognized on that if the ARB lastly on this level, if the ARB strikes to a 35% compliance degree.

You are going to want all of the RNG you may get from all around the United States. And I hope that is the place they’re going to land. And in that case, that can, I believe, positively affect costs. And I believe, frankly, you are seeing the market start to [indiscernible] slightly bit that there’s going to be a better obligation threshold. And I believe that is why the costs moved from 60 to 85 — 62 to 85. And it is doubtless it might transfer slightly bit larger, though it would not take impact for an additional yr, proper?

Operator

Your subsequent query comes from to Dushyant Ailani with Jefferies.

Dushyant Ailani

My first one is on the Tourmaline contract. May you sort of share some extra shade across the economics of the cadence of R&D stations coming on-line over the subsequent couple of years? Sure, simply possibly some extra shade on that.

Robert Vreeland

Sure. Nicely, we have now line of sight on 4. One is definitely working. And we’ll get these — we should always get these constructed for probably the most half this yr, possibly going into the primary quarter of ’24 on the opposite 3. After which — however we have already recognized in all probability 10 others in that market, and people will come on. So like our entire mannequin is we received — it’s important to undergo a interval to construct them, it would not take that lengthy. What we’re most enthusiastic about there may be the — is our associate there Tourmaline, they’re on this to drive adoption of pure fuel heavy-duty vehicles.

They need pure fuel heavy-duty vehicles on the street up there in Canada. And as Andrew and I’ve been up there, the view may be very bullish on that kind of car. They do want the 15 liter. In order that additionally performs in. However the timing is nice as a result of if we had all of the stations proper now, we would not in all probability have the automobiles. So we do not — so we have to hurry up and get these constructed after which we’re working — the factor is with Tourmaline, they’ve so many operations. They see the entire numerous geographic areas the place there’s 1000’s of vehicles going by places every day. So we’ll get about 4 on this yr, early a part of subsequent yr and simply carry on going from there.

Andrew Littlefair

The great factor in Canada is you’ve gotten an enormous huge useful resource of pure fuel and you’ve got very costly diesel. So you actually have economics. This factor sits by itself backside up there. And over time, you’ll parse in some RNG, however — and everyone is open to that. And as you already know, could know, there’s a federal RNG low-carbon gas program in Canada. It sort of kicks and phases in over time. It is — I believe it is already in, in D.C. However so everyone understands that you’re going to start to mix in RNG later, however it should begin out compressed pure fuel and the economics of a as in comparison with diesel.

Dushyant Ailani

Understood. After which only a fast follow-up on that. By way of allowing, how is that coming alongside? Are there any points round that? Or is it comparatively simpler to get it versus what you have seen versus Amazon?

Robert Vreeland

Sure. I would not say straightforward, however on the primary 4, we’re fairly properly into these. And also you all the time have it, however I do imagine that these — the areas are sort of heavy industrial. And so simply — I do not know that the allowing goes to be as prevalent as it’s, is after we need to put one thing into San Bernardino.

Dushyant Ailani

Understood. And my closing query, after which I will flip it over. Simply on Del Rio by way of pathway approvals. How is that coming alongside? After which any sort of ideas on the opposite services which are going to come back on this summer time. I believe you talked about 6 flowing by summer time. So simply in case you might share some shade on the pathways approval for these.

Andrew Littlefair

Sure. Pathways take longer. So you’ll start to function this stuff would come on manufacturing and then you definitely’ll put into storage, proper? The pathways can take. We started working on this. The trade, everyone is conscious of it, the pathways in my humble opinion, take manner too lengthy proper now, proper? Pathways might be wherever from 12 months to longer. You do not have to attend for the pathway, however you possibly can’t function your full potential and it’s important to retailer some fuel. It is beneath — that pathway is underway, however that takes some time.

Robert Vreeland

Sure, as a result of it’s important to run the dairy. It’s important to get plenty of months of operation information that they gather after which set up the CI rating. So all that’s within the works, if you’ll. However that can take a while.

Operator

Your subsequent query comes from Matthew Blair with TPH.

Matthew Blair

Andrew and Bob, might you discuss how the economics for dairy RNG will change in 2025 when the advantages of the IRA move by way of? Ought to we count on that you’d obtain a PTC of roughly $80 per MMBtu along with the present help from D2 RINs and LCFS applications.

Robert Vreeland

Nicely, we’ll get PTC at no matter, we hope it is $80, however it might be an addition, Matt, I imply, to your level, it is sort of on prime of the economics that we have already — that we have in-built to justify the funding, it is additive for positive. And the massive query is on how a lot. However we proceed to listen to that it may very well be substantial.

Andrew Littlefair

It is graded on the carbon depth of the gas and that rule must be promulgated by the Treasury Secretary. In order that hasn’t occurred but. So we do not need to depend our chickens earlier than they hatch, however we expect it may very well be substantial [indiscernible].

Robert Vreeland

Sure. And it is related within the market. It is within the narrative for positive.

Matthew Blair

Sounds good. After which might you discuss what offers you confidence to maintain the complete yr information of $50 million to $60 million EBITDA. Are there any elements which are coming in higher than anticipated that may offset the $10 million loss from Excessive California pure fuel costs in Q1?

Robert Vreeland

Sure. I imply we have — now a few of this has to remain. However look, after we set our plan and talked about our steering, we stated we’re sort of going low on LCFS within the low 60s. That stated proper now, $85 million and if there’s extra encouraging information, that might go much more. So I believe the LCFS is cooperating properly. The RIN is cooperating properly. After which simply normally, sort of the underlying commodity economics at our stations earlier than credit, we’re at like a 30-plus unfold between WTI crude and NYMEX okay? So that you’re at 70-something and $2.26.

And after we see that, that simply implies that we’re very aggressive. Now we have a low-cost delivered product. That is in opposition to a comparatively high-priced competitor in diesel. And that — in order that’s good for us. So I like all that, transferring ahead, and we have now sufficient of the yr. You have got about 9 months. So we really feel like you possibly can increase sort of our $10 million choosy, if you’ll and stick with it.

Matthew Blair

Sounds good. After which final query. I believe you’ve gotten stations in Seattle and Tacoma in Washington State unveiled their LCFS program. May you discuss how that is going and whether or not you are beginning to obtain like every kind of LCFS contribution from Washington to this point?

Andrew Littlefair

We do. We take part in this system in Oregon and Washington. I do not imagine we gather something but in British Columbia, however I can not offer you any extra specifics than that.

Robert Vreeland

It is Not materials but.

Andrew Littlefair

It isn’t materials but, however we’ll attempt to get again to you on that, however I simply do not know, it isn’t quite a bit. Now we have a number of stations up there.

Robert Vreeland

It should develop. So it will — will probably be significant. It would not actually the radar for the time being. However we see quantity up there. We’ll get it. Oregon rather less, however…

Andrew Littlefair

Greater pricing.

Robert Vreeland

They’ve nice costs. So I imply it is extra in regards to the truck visitors and that kind of [indiscernible]. It isn’t something that we’re doing to not be there.

Andrew Littlefair

Attempting to get that quantity, Matt. I will attempt to get a quantity.

Operator

Your subsequent query comes from Paul Cheng with Scotiabank.

Paul Cheng

Andrew and Bob, simply two questions. One, in Amazon, are you able to speak in regards to the path to profitability on that three way partnership. I do not assume they’re worthwhile but? And what’s the financial system of scale that you simply want so as so that you can actually be worthwhile on there? And in addition that if we’re taking a look at, there is a a number of avenue. I suppose that you would be able to get to whole company worthwhile over the subsequent, say, by 2025, if the plan undergo, what’s the most crucial path for a very powerful driver in your opinion so that you can get to profitability?

Robert Vreeland

Okay. Paul, in your first query on Amazon, let me see if I get this proper — on sort of Amazon profitability, if you’ll — so I do not know that we have — we’ve not, I do know I will not say I do not know. I will say we have now not mentioned the economics on Amazon. So I am curious — I might be curious as to possibly what you are taking a look at to say, when would Amazon be worthwhile or not. I believe that definitely, what we — definitely 1 of the issues we see in our numbers is the Amazon warrant cost, okay? That’s — that is not an merchandise that impacts the sort of money collected on the station by way of after we transact on worth per gallon and simply what all is entailed relative to that.

So there may be that facet to it. The — so — and the Amazon warrant cost will likely be right here for some time as they devour the quantity of spend that was focused for them to earn the warrant.

Paul Cheng

Sure. No, possibly let me rephrase it. If I exclude the warrant costs, in case your three way partnership with Amazon immediately. You do not have to inform me the precise quantity, however are you able to share whether or not they’re worthwhile?

Robert Vreeland

Nicely, I will say this. We’re investing in constructing stations. And we have now a mannequin that may recommend that we’d like a good return on investments. And so — and it is honest. Look, all that is sort of negotiated, however understood that the dedication that we have now with Amazon is nice for each events, okay? So we make — we should always have the ability to earn cash, and they need to have the ability to get 1 of one of the best fuels on the lowest price round with the RNG and all of that. After which the extra they spend relies on quantity, in order that advantages us. In order that entire program is nice. And I will say that it is useful.

Andrew Littlefair

I might add, I imply, Paul, it isn’t spec, proper? We’re not specking stations, hoping that an Amazon truck goes to point out up, proper? So there’s a — we’re working hand in glove with Amazon, and we have now a relationship to quantity commitments for growing these stations, and that is useful for each corporations.

Robert Vreeland

Then in your different query by way of total company profitability, what’s wanted there to essentially sort of recover from the road of, let’s name it, optimistic web revenue, if you’ll. And in the end, it is about quantity and the adoption of professional quality fleets of pure fuel automobiles. I imply that drives every thing, all it actually does. I imply, all of the initiatives of RNG provide, and look, we — so we’re — however we’re bullish on that as a result of — properly, I imply as a result of it is sort of the epitome of renewable power that is operating our transportation fleet.

So in fact, we’re — however the — and a part of that — the massive a part of that, Paul, is as a result of for some time, we’re already sort of constructed out to tackle far more quantity and so that may — that may actually sort of pop with us as a result of we might already tackle numerous capability with out actually increasing far more vital CapEx. And in order that’s actually — that is the play on it. And the massive market that’s simply untapped actually is the Class 8 heavy-duty market. That is 40 billion-plus gallons a yr. That predominantly makes use of the 15-liter engine.

Paul Cheng

So Bob or Andrew, do you assume that, that path to profitability, the essential mass is like 80 million or 100 million-gallon gross sales? Or that what’s that quantity in your opinion once you’re taking a look at your inside mannequin?

Robert Vreeland

Nicely, good query. And there is a lot — there’s slightly bit, however quite a bit beneath that, I imply, as a result of as we undergo, as we simply talked about with our Amazon warrant cost and that kind of factor. Nevertheless it will not — I will simply say this, it isn’t an incredible carry as a result of you possibly can sort of — you can begin to do the mathematics and say, in case you added 100 million extra gallons that $0.45, $0.50 a gallon on a margin with out expending an entire lot of different OpEx, you are placing in — you are dropping in one other $50 million that places us on the optimistic facet sort of issues.

Operator

Your subsequent query comes from Craig Shere with Tuohy Brothers.

Craig Shere

Needed to only dig slightly bit into the EBITDA ramp. First, for this yr by way of making up for the $10 million drag in principally January, it feels like pricing energy and low fuel costs that every one issues are many equal from right here ahead with LCFS and RINs, who is aware of that, that is simply sort of a static scenario the place you’ve gotten a chance. So if every thing stays the identical, as it’s immediately, ought to we assume that making up that $10 million could be sort of ratably equal over the subsequent 3 quarters, if it occurred, versus rising over time? Or how do you see that development?

Robert Vreeland

Nicely, sure, it rises. I imply the development — our development, as stated, it might be — our development could be considerably much like final yr, which was — it rises. However the purpose it arises is due to quantity. It isn’t rising as a result of we’re saying that’s — that LCFS goes to go . We’re not sort of planning that to occur.

Andrew Littlefair

Quantity ramp. It is the Amazon station quantity ramp, different stations that come on. It is a quantity ramp. And it is all the time — and I do know it frustrates a few of you that need — we should always possibly — and we’re engaged on possibly slightly extra readability quarter-over-quarter. However we have all the time had these of you that comply with us whereas, we have all the time had a ramp that begins slightly bit low within the first quarter after which ramps as they take trash vehicles and we end stations. And it is all the time the case, and will probably be the case once more this yr.

Craig Shere

I hear you. I am sorry, possibly I did not ask clearly. The ramp by way of volumes was all the time part of the plan. However the January dislocation was not and the very broad unfold that you simply’re having fun with between fuel and diesel immediately will not be. And so to the diploma upside versus plan for the rest of the yr could make up for January. I suppose what I am making an attempt to ask is — assuming I do not know what the longer term is. However assuming all issues stay equal, is there — there isn’t any particular purpose to assume that you’ll have a stronger upside versus plan within the fourth quarter than within the second. Is {that a} honest assertion?

Robert Vreeland

Nicely, I believe we already answered and also you stated that wasn’t the reply. It could be stronger due to the quantity, however on a relative foundation, you get there. I imply you are going to see the ramp and you are going to see sort of the — whereas we did not see actually any profit — a lot of a profit aside from sort of in March and Q1, however definitely not at these sort of present costs. So all I can say is that do you’ve gotten the identical ramp, however but higher economics and what we deliberate, proper, I imply…

Craig Shere

So due to this fact, as the quantity goes up, that is impactful.

Robert Vreeland

Sure, it does. As you get extra quantity at higher economics. However these — the volumes, to your level, that is within the plan, that is high-quality. However what’s not within the plan is sort of the LCFS and the RIN and in addition to the unfold that we’re seeing on than nat fuel. I imply these have profound results. So in case you simply say, look, all else equal and lay on this new pricing, that is the way you get there.

Craig Shere

Honest sufficient…

Robert Vreeland

You do not have to undergo any huge — every other huge hoops.

Craig Shere

Let me pivot to the upstream. You introduced sort of a breakout, which was good of the two enterprise traces by way of the adjusted EBITDA. Assume the RNG provide is merely a difficulty of fastened overhead on a burgeoning enterprise that clearly is transferring in the direction of breakeven and optimistic EBITDA. However you have received these delays that you simply alluded to on the pathway points, might we fairly count on your upstream enterprise to be breakeven to optimistic by the primary half of ’24.

Robert Vreeland

Certain. Sure. I imply — Sure. I imply there’s ways in which you — sure, there’s ways in which you get there, which is by producing the fuel after which there’s economics on the fuel, and that is what will get you a breakeven.

Craig Shere

Sure.

Andrew Littlefair

Operator, if I can simply, Matthew Blair could also be gone, however the reply was in Washington in Q1, we did a few million gallons and 50% of it was RNG.

Operator

Your subsequent query comes from Chris Sung with Webber Analysis.

Unidentified Analyst

Andrew and Bob, I simply needed to only dig in on the earlier query, EBITDA maybe asking in a barely completely different manner. How did Q1 and Q2 to this point examine to your inside expectations for final quarter? Like with destructive margins, proper, with the historic ramp in pure fuel costs, like larger volumes sort of harm your full yr EBITDA steering. So I used to be simply questioning like was many of the $10 million hit. Was it simply on pricing or mixture of higher-than-expected quantity for the quarter? And the way does that match into the remainder of your full yr steering contemplating that you simply as you are conserving it unchanged?

Robert Vreeland

Sure. The $10 million was actually on the price of fuel, okay? So you are taking that out after which our quarter was inside our plan. All issues thought-about, there’s quantity and different margins and simply all all through. So we had been sort of — we met our expectation aside from $54 California fuel. So proper — so we really feel like, okay, properly, that was there, however you’ve gotten a $10 million gap that you have dug, what does the atmosphere seem like immediately? Look, if nothing had modified, I in all probability need to say there, I might say there’s — It might be hard-pressed to say you are going to make up a $10 million gap, however issues have gotten extra optimistic than what we sort of laid out a few months in the past by way of what our assumptions had been.

In order that’s good for us. I imply the atmosphere is — that is a superb atmosphere. We’re simply dissatisfied that we needed to soak up what went on, which was — I imply, frankly, it was horrific. The checks that I used to be writing for fuel payments was out of — it was simply unbelievable. And our clients, too. We had an entire marketing campaign to contact our clients as a result of we have now numerous sort of pass-through fuel prices as a part of the association. And so we add clients that was going to get a invoice from us that was 7x what they’ve seen prior to now. And that provides ramifications all all through. Are they going to have the ability to pay? I imply it was devastating to numerous trade right here in California.

Andrew Littlefair

Eating places went out of enterprise.

Robert Vreeland

I imply we have seen a number of the different teams within the different power. Power transition that sort of — we’re pretty properly sort of blown away. A giant a part of their quarter was additionally this subject. So I really feel like — I really feel like we financially, but once more, have weathered a major storm. I used to be not — that is not just a bit speaking level and okay, it prices us $10 million. It was — that is some huge cash, and it was large. And that is after we took costs as much as practically $8 a gallon in comparison with diesel at $5.99.

Unidentified Analyst

Sure. No, proper. And I sort of see it silver lining proper, it is just like the pricing [indiscernible] with RNG. Sorry?

Robert Vreeland

Sure, with silver lining, I imply, I converse too extremely of it as a result of we have had a good variety of occasions that we have needed to climate within the first quarter. However proper now, the economics are good for us. And it appears good. I imply, the 15 liter, the joy about that, Canada. It appears good trying ahead.

Unidentified Analyst

Nice. And I am making an attempt to attempt to squeeze 1 extra query in. I do know we have requested about this prior to now, and it is all the time good to sort of test in. Is there any updates on the rail or marine markets with respect to commercialization or timelines to commercialization for RNG and/or hydrogen through RNG?

Robert Vreeland

On the marine market?

Andrew Littlefair

On the marine market. properly, the one replace I might say is that our second ship is being cooled down. It isn’t our ship. The second affected person’s ship is being cooled down in Brownsville on the finish of this week and can then full a sea trial and start to maneuver to the Port of Los Angeles. In order that’s good each time these suggestions, there will be 2 in service later right here within the subsequent month or so, they usually use quarter million gallons of LNG on a spherical journey. So we like that. And the third ship ought to be right here late 2023. No actual — Chris, I could also be behind right here, no actual hydrogen or RNG going into transport but, not so far as we all know, however we’re placing LNG in a number of ships and there are another very massive transport traces which are out speaking to us and others about extra ships to be introduced into the port.

Unidentified Analyst

No, I respect the colour. Thanks for that.

Operator

Your subsequent query comes from Jason Gabelman with Cowen.

Jason Gabelman

It is Jason Gabelman from Cowen, however all my questions have truly been answered.

Operator

There aren’t any additional questions presently. I flip the decision over to Andrew Littlefair for closing remarks.

Andrew Littlefair

Operator, thanks. Thanks, everybody, for becoming a member of us immediately, and we stay up for updating you on our progress subsequent quarter. Good afternoon.

Operator

Women and gents, this concludes your convention name for immediately. We thanks for taking part and ask that you simply please disconnect your traces.