Clean Energy Fuels Corp. (NASDAQ:CLNE) Q1 2024 Earnings Call Transcript

Clean Energy Fuels Corp. (NASDAQ:CLNE) Q1 2024 Earnings Call Transcript May 9, 2024

Clean Energy Fuels Corp. misses on earnings expectations. Reported EPS is $-0.08263 EPS, expectations were $-0.03. Clean Energy Fuels Corp. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, everyone, and welcome to today's Clean Energy Fuels First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. [Operator Instructions] Please note this call may be recorded. [Operator Instructions] It is now my pleasure to turn the conference over to Mr. Robert Vreeland, Chief Financial Officer. Please go ahead.

Robert Vreeland: Thank you, operator. Earlier this afternoon, Clean Energy released financial results for the first quarter ending March 31st, 2024. 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. 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-Q filed today. These forward-looking statements speak only as of the date of this release. The company undertakes no obligation to publicly update any forward-looking statements or supply new information regarding the circumstances after the date of this release. The company's non-GAAP EPS and adjusted EBITDA will be reviewed on this call and exclude certain expenses that the company's management does not believe are indicative of the company's core business operating results. Non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP and should not be considered as a substitute for or superior to GAAP results.

The directly comparable GAAP information, reasons why management uses non-GAAP information, a definition of non-GAAP EPS and adjusted EBITDA, and a reconciliation between these non-GAAP and GAAP figures is provided in the company's press release, which has been furnished to the SEC on Form 8-K today. With that, I will turn the call over to our President and Chief Executive Officer, Andrew Littlefair.

Andrew Littlefair: Thank you, Bob. It pleases me to say that we kicked off 2024 with a strong first quarter. Our base business of fueling fleets, constructing and maintaining stations for those fleets, and providing other services that keeps trucks, shuttles and buses operating on a clean fuel performed well. We also made good progress in our business of developing renewable natural gas dairy projects. I'll expand with a few more details on both in a moment. The 8.6% year-over-year growth in RNG fuel volumes is a testament to the stability and growth in our base business. In addition, it reflects the significant RNG volume that is now flowing through the new state-of-the-art fueling stations that we have built and opened over the last two years, where we have an anchor customer in Amazon.

We are also seeing other vehicles begin to fuel at these stations, which helps our fuel margins. As always Bob will give you more details about our financial results, but I would be remiss in not calling out the $12.8 million in adjusted EBITDA for Q1 compared to minus $4 million of Q1 of last year. The significant upswing is attributed to the growth in our core business that I just mentioned, as well as circumstances which we found ourselves during the beginning of last year with historically high natural gas prices in California that impacted our bottom line. Our balance sheet remains strong with almost $250 million of cash and investments on hand. And you should see continued, improved adjusted EBITDA results through this year. I'd like to take a moment to address the environmental credit situation because I think some might tie the ups and downs of those prices a little too tightly to our overall business.

Of course, we're not pleased with where the California LCFS prices have been trading as of late. During the first quarter of 2024, the federal D3 RIN prices remained strong and positively impacted our results. We have witnessed a volatile LCFS credit price for quite some time, so we went into 2024 planning for that to continue. And it's our strong view that a higher LCFS credit price is needed over time to support the robust pace of low carbon energy investment necessary to achieve California's emissions targets. And we believe that members of the California Air Resources Board and staff understand this and are working with all stakeholders on the solution. But like most policy matters, it requires time and process. Ultimately, we believe the compliance curve will be strengthened and will help.

Let me drill down a little further. Our fueling station and RNG distribution business generates margin from D3 RIN credits, LCFS credits, California and Oregon volumes, federal alternative fuel tax credits and margin on the fuel sale itself. Using RNG instead of diesel results in lowering fueling costs and lower emissions for our customers. It also contributes to a solid base margin for us. The credits are additive to this base margin. On the RNG production side, our dairy projects generate revenue from RIN credits, LCFS credits and RNG sales. The financial return of these projects is further enhanced by credits that will be generated under the Inflation Reduction Act through the investment tax credit and beginning in 2025, the 45Z production tax credit.

These projects produce ultra-low carbon intensity fuel for customers, while also providing a solution for our partners in the agriculture sector. Let me return to the growth in our core business for a moment, which is providing fuel and reliable services to our fleet customers. Over the last few months, we have signed agreements with municipalities across the country, demonstrates the continued confidence in the reliability and emission benefits of operating with RNG. These agreements included everything from Long Beach Transit for about 1.5 million gallons of RNG a year to operate their fleet of city buses, to the vehicles at the Port of Seattle and to Atlantic County Utilities Authority in New Jersey that is expected to use 0.5 million gallons of RNG for their waste collection vehicles.

Another deal that we just recently signed is one that I know our sales team and myself particularly proud of and that is Harris County METRO, which services the Greater Houston area. Houston Metro is one of the largest transit agencies in the country that operates their fleet of buses primarily on diesel. Well, that's about to change, and they're making the switch with Clean Energy. We will be building a new state-of-the-art station for up to 120 of the first buses to operate on natural gas. All told, the close to $15 million contract to construct a new station and to modify their facilities for natural gas fueling represents one of the largest transit agreements we've made in many years. These municipalities are on the hook by their constituents to keep the buses running on time and the trash picked up, they must depend on vehicles that operate not only sustainably, but reliably as well.

RNG is the cleanest fuel available and is the most reliable performer of any other alternative. And no other company in the country keeps those stations which provides that fuel operating better than clean energy. Another unique advantage that clean energy holds over virtually every other fuel provider is that we now produce our own ultra-low carbon RNG at dairies. This is in addition to the approximately 78 different offtake agreements we have with RNG suppliers provide the largest natural gas fueling infrastructure in North America. We deliver RNG to 454 different stations daily and RNG now represents 88% of the transportation fuel we sell. This allows us to give RNG customers the greatest level of assurance that they will receive in this clean fuel without interruption.

Others try to match one RNG production project with one contract fleet customer. The customers, especially national fleets, want to know that providers and operators of their stations have a portfolio of supply in case there is interruption in any one supplier. No other company provides that confidence the way Clean Energy does. In fact, we recently won the deal to service Fort Collins Transit by beating out 12 other competitors, including two global energy majors, because of the agency's confidence in our ability to keep the RNG flowing 24/7. And we apply this strength across all transportation sectors, whether it's for municipalities or the world's largest logistics operators like UPS, for which we provide RNG in over 25 states, and Amazon, for which we have constructed 19 state-of-the-art RNG stations over the last several years that provide fast-fill and time-fill options for thousands of heavy duty trucks.

On a daily basis, Amazon trucks are fueling at Clean Energy stations in 26 different states. We feel good in our positioning at this critical time as the Cummins X15N engine hits the heavy duty truck market. Reviews of the new engine by those fleets that have been testing it have remained stellar. Pivoting to our RNG production business. We've had a busy first part of the year completing a series of digester projects and dairies across the Midwest with our partner, BP. These projects began injecting RNG into the pipeline a few months later than what we had originally hoped, but we remain pleased with the overall outcome and continue to learn with every project. 2023 was one of the worst markets in decades for our friends in the US dairy business.

Combination of low milk prices and high feed costs created very challenging financial conditions for dairy farms, including some of the farms we partner with for our RNG projects. To that point, a dairy in Idaho that hosts one of our 50-50 joint venture projects with BP filed for Chapter 11 bankruptcy protection in April. The proceedings are at an early stage, so we're not able to comment on the details of the process, but we are, of course, monitoring the situation very closely. Importantly, the dairy is still operating while the reorganization proceeds. And our RNG project creates an important operational, environmental and financial solution for the farm once the project is completed. Despite some challenges, our view on dairy RNG remains intact.

These long-term projects produce the lowest carbon fuel for the customers. And they provide an important solution for our farm partners, all while capturing methane from animal waste and removing it from the atmosphere. As an example of our commitment to adding to our low carbon RNG supply, I'm pleased to say that we are expanding our current relationship with Maas Energy Works with whom we have RNG offtake contracts by signing a new development partnership to construct RNG digesters at a handful of dairies across the country. Daryl Maas and his team are some of the best developers in the business and we're excited about this development agreement. But we just signed it yesterday, so we will be formally announcing it with a press release early next week with more details.

The other recent partnership that we have formalized is with Frank Brand, owner of South Fork Dairy in Dimmitt, Texas. You might remember it's Frank's Dairy that experienced a tragic fire last year. Frank lived up to his reputation as one of the best in the business by overcoming this horrible situation, rebuilding his barn and replacing his large herd in less than a year. He is also committed to working with Clean Energy and building an RNG digester for all the business and environmental reasons it allows. We couldn't be prouder to call Frank our partner. I hope I've left you with the impression that we remain optimistic about our future. The fundamentals of our business of producing and selling RNG to the transportation industry is strong and growing, despite some external forces that might not always seem to go our way.

We believe we put the best team in place to execute our strategy and they prove that every day. And with that I'll turn the call over to Bob.

Robert Vreeland: Thank you, Andrew, and good afternoon to everyone. We had a solid first quarter of 2024 with revenue of $103.7 million, a GAAP loss of $0.08 per share, non-GAAP loss of $0.01 a share and adjusted EBITDA of $12.8 million. All the earnings metrics are much improved from a year ago and were better than our expectations for the first quarter of 2024. Recall that the first quarter of 2023 was significantly impacted by the historically high natural gas prices in California, which ultimately was a drag on earnings, but was a big positive on revenue since much of that increase in gas costs was reflected in our pricing to customers. That's actually the main reason you see a year-over-year decline in our revenues because of that run up in the natural gas costs in California last year.

Having said that, our net results for the first quarter of 2024 certainly got off to a better start than a year ago, which puts us in a good position to remain confident in maintaining our annual guidance for 2024. First quarter results for 2024 can be summed up by saying we had continued growth in RNG volumes. RIN revenues exceeded our expectations, which helped to offset certain LCFS credit sales that moved into the second quarter. We experienced lower net losses than expected from our RNG equity method investments, while the rest of the business, including our underlying fuel margins performed in line with expectations. To shed some light on this. In the first quarter of 2024, the upside in RIN revenue was principally due to an average RIN price realized of $3.12 plus we saw better net economics to us from our RNG supply offtakes.

Our LCFS revenues were slightly negative for the first quarter of 2024 because we sold $2.25 million of LCFS credits in the first week of April that we ordinarily would have sold within the first quarter. Those LCFS revenues of $2.25 million will show up in our second quarter results. We would expect to get back into a normal LCFS credit sale timing cadence for the end of the second quarter with a plan to transact all of our LCFS sales in the second quarter. And finally, the lower net loss than expected from our RNG equity method investments is principally related to the timing of finalizing construction and placing the dairy projects into service and the ramp-up of operations. We ended the first quarter with approximately $249 million -- $250 million in unrestricted cash and investments.

We maintain our capital expenditure guidance of $60 million for our distribution business. We are raising our forecast for our dairy RNG investments to $120 million up from $100 million principally due to the Mass Energy RNG deal that Andrew mentioned. With that, operator, please open the call to questions.

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