Clean Energy Fuels Corp (CLNE) 2021 Q4 法說會逐字稿

Hello, and welcome to the Clean Energy Fourth Quarter 2021 Earnings Call. (Operator Instructions) Please note, today's event is being recorded.

I'd now like to turn the conference over to Robert Vreeland, CFO. Please go ahead, sir.

Thank you, operator. Earlier this afternoon, Clean Energy released financial results for the quarter and year ending December 31, 2021. If you did not receive the release, it is available on the Investor Relations section of the company's website at www.cleanenergyfuels.com, where the call is also being webcast. There will be a replay available on the website for 30 days.

Before we begin, we'd like to remind you that some of the information contained in the news release and on this conference call contains forward-looking statements that involve risks, uncertainties and assumptions that are difficult to predict. Words 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 Clean Energy's most recently filed Form 10-Q filed in November of 2021 or in our Form 10-K that will be filed later today.

These forward-looking statements speak only as of the date of this release. The company undertakes no obligation to publicly update any forward-looking statements or supply new information regarding the circumstances after the date of this release.

The company's non-GAAP EPS and adjusted EBITDA will be reviewed on this call and exclude certain expenses that the company's management does not believe are indicative of the company's core business operating results. Non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP and should not be considered as a substitute for or superior to GAAP results.

The directly comparable GAAP information, reasons why management uses non-GAAP information, a definition of non-GAAP EPS and adjusted EBITDA and a reconciliation between these non-GAAP and GAAP figures is provided in the company's press release, which has been furnished to the SEC on Form 8-K today.

With that, I will turn the call over to our President and Chief Executive Officer, Andrew Littlefair.

Thank you, Bob. Good afternoon, everyone, and thank you for joining us.

I think my remarks could be a little shorter today because hopefully, you were able to watch our RNG Day presentation last month. We went into some detail about our strategy to expand our business by investing in the production of RNG, which allows us to deliver this incredibly clean fuel to a growing customer base.

If you haven't been able to watch the presentation, I highly encourage you to do so. A recording of the presentation can be found on the Investor page on Clean Energy's website.

Despite the country and the world having to grapple with the COVID pandemic ups and downs throughout 2021, the year ended up being one of the most strategically important since Boone Pickens and I founded Clean Energy 25 years ago. Early in the year, we established joint ventures with BP and TotalEnergies to work together and build a steady supply of low-carbon RNG for the future. And soon after, we signed the company's largest fuel deal ever with Amazon and our transformation into the leading provider of a negative carbon intensity fuel continued through the remainder of 2021 with the signing of partnerships with some of the country's largest dairies.

In the fourth quarter of the year, the company delivered 105 million gallons, which was a 9% increase over the fourth quarter of 2020 and the most gallons we've ever delivered in a quarter in the company's history. We continue to see solid gains in refuse and transit, while the deployment of Amazon's new fleet began to provide a lift to our heavy-duty truck sector.

Our revenue for the quarter was $92 million, an increase of 23% compared to the same quarter in the previous year. Deducting a few noncash charges, including the Amazon warrant, the increase in revenue would have been close to 26%.

Adjusted EBITDA for the quarter rose to $18 million from $13 million in Q4 of 2020. And after making contributions to the BP and TotalEnergies JVs, we ended the quarter with $229 million in cash and investments with only $39 million in debt, allowing us to end 2021 in a very good financial position.

As I mentioned, our fueling agreement with Amazon is beginning to show results. Amazon heavy-duty trucks have fueled at over 85 different existing Clean Energy stations around the country through the end of the fourth quarter. We also made good progress on the 19 new stations that we are building based on the Amazon demand with construction underway at multiple locations in engineering and permitting underway of many more.

As a reminder, while Amazon will be a large anchor customer, all these new stations will be publicly accessible and located in high-traffic distribution center areas and other busy corridors. This will allow other customers to fuel these stations adding volume without deploying additional capital.

To that point, our current customer, Estes Express Lines, recently added another 100 heavy-duty natural gas trucks to their fleet, which will fuel their stations in California and Texas. Valley Express services is adding 30 heavy-duty trucks and Pacific Green Trucking is increasing their natural gas fleet with 23 trucks. Valley Express and Pacific Green finance their new trucks through our program with Chevron and will fuel with RNG at our stations near the Ports of L.A. and Long Beach.

I believe the momentum and recognition of RNG is building in the heavy-duty truck market. What I refer to as the Amazon effect is beginning to be felt across the industry. I'm sure it did not go unnoticed by most every company involved in logistics and the movement of goods when Amazon celebrated the delivery of their 1,000th heavy-duty RNG truck in the fourth quarter of last year.

As I've said before, it's easy to place a reservation for a handful of trucks to be delivered in many months, if not years, that will operate on an electric technology with significant uncertainty and costs surrounding the charging infrastructure. But if companies really want to attain their carbon reduction goals in a cost-effective and immediate time frame, RNG is the alternative more companies are taking seriously.

When you add Amazon to the other large trucking and logistic companies like UPS, Estes and Matheson Mail Transportation, to the largest refuse companies in the U.S. like Waste Management, Republic Services and Waste Connections and transit agencies from L.A. to Dallas to New York, all operating their fleets on RNG, it's easy to understand my optimism. The increased commitment to RNG is being demonstrated all the way through the supply chain from the significant investment in RNG supply at dairies by venture capital firms and large energy companies through the other end with new natural gas projects.

Since our RNG Day in January, Werner Enterprises, one of the country's top trucking companies announced that it will be working with Cummins to validate the new 15-liter natural gas engine. I had a lengthy conversation a few weeks ago with the President of Cummins Engine business, Srikanth Padmanabhan, and he reiterated their enthusiasm about the highly anticipated 15-liter engine that is expected to be available in 2024 as well as the newly available 6.7-liter natural gas engine that is very popular in the straight truck sector. Cummins commitment to their natural gas engine program is a strong endorsement of the lowest carbon transportation fuel solution.

Our transit business had big wins recently with the extension of our agreements with the large agencies in Los Angeles and Washington, D.C., which represent over 1,800 buses between the two. We also added a new transit customer with Golden Empire, which is expected to use 1 million gallons of RNG a year to operate 100 buses in Bakersfield, California.

Refuse companies continue to expand with RNG, highlighted by our good customer, Republic Services, upgrading fueling stations in Huntington Beach and Anaheim, California to accommodate additional trucks. We also signed recent fueling agreements with Suburban Disposal in New York, Waste Connections in Illinois, and we extended our relationship with Valley Vista services in Southern California with an RNG supply agreement of an expected 14 million gallons over 10 years.

In addition, we were awarded a 10-year extension from our long-time customer, E.J. Harrison in Ventura, California, to provide an estimated 8 million gallons of RNG for their fleet of refuse trucks.

This is a sampling of fleets, which are easily and affordably meeting their goals to reduce carbon emissions and address climate change today. But we also realize the future will include other technologies. And Clean Energy has plans to participate in those as well.

As we've previously mentioned, we have already expanded in hydrogen fueling highlighted by the award from Foothill Transit in October for us to build a station for the agency's fuel cell buses to be powered by hydrogen made with RNG.

So I mentioned during the RNG Day presentation, we joined BP and others in investing in a company, BTR Energy, that has developed a software that will allow electric vehicles to track the electric molecules produced from RNG.

It's interesting to note that the lowest carbon intensity score that an EV can obtain with electricity produced by solar or wind is 0. But with electricity produced from RNG, depending on the source of the RNG, it is possible for an electric vehicle to have a much lower carbon intensity score in the negative hundreds. BTR Energy software will also allow the OEM of the EV to participate in low carbon fuels programs.

To wrap it up, I hope you can understand why we are so pleased with our performance last quarter and last year. And because of our recent expansion in RNG supply, which will allow us to leverage our large RNG fueling distribution network, we believe Clean Energy is well positioned to continue to lead the transportation industry into a cleaner, low carbon future.

And with that, I'll hand the call back to Bob.

Thank you, Andrew.

I'll recap 2021 and then move into our guidance for 2022. We had a good fourth quarter, particularly with good volumes. And volumes, as we all know, are very important. But we did see approximately about a $2.5 million negative impact from sustained lower LCFS pricing during the quarter.

Our GAAP net loss for the fourth quarter was $2.4 million or $0.01 a share. While on a non-GAAP basis, we had net income for the fourth quarter of $6.4 million or $0.03 a share. Our GAAP net loss for the year was $93 million, which was higher than our guidance of $86 million due to noncash unrealized losses on our Zero Now fuel hedge, some additional stock comp related to stock awards occurring in December and the lower LCFS pricing that I mentioned.

Adjusted EBITDA for the fourth quarter of 2021 was $18 million versus $13.6 million a year ago. And for the year, adjusted EBITDA was $57 million.

Now we had -- we maintained and kept our guidance of $60 million to $62 million on the adjusted EBITDA, which we absolutely felt that at least at a minimum, the lower end of that range of $60 million was achievable had we seen better LCFS pricing during the fourth quarter. But $57 million is a good number, and we're excited about that and certainly an improvement over last year, which was $45 million.

Revenues of $92 million for the fourth quarter of 2021 were in line with expectations and reflected higher effective prices caused by higher fuel pump prices and continued higher RIN prices. Our effective margin per gallon for the fourth quarter was $0.27 a gallon. And for the year, it ended at $0.26 per gallon which was at the high end of our range at the beginning of the year that we cited of $0.22 to $0.26.

We saw a nice progression upward in our margin per gallon during the year, reflecting more trucking and fleet fuel gallons, including the effect of more RNG and higher RIN pricing during 2021. As Andrew pointed out, we ended the year with $229 million of cash and investments and $39 million of debt. We generated $41 million in cash flow from operations and spent $23 million on property and equipment. But we continue to be in good financial shape as we look forward.

Looking forward to 2022, as I mentioned on our RNG Day presentation, I would go into a little more detail on the 2022 guidance. So first off, there is no change to the financial metrics that we presented on January 26 at the RNG Day. We're estimating 454 million gallons for volume, a GAAP revenue of $400 million, which that includes an estimated $44 million of contra revenue related to the Amazon warrants, a GAAP net loss of $57 million and adjusted EBITDA of $65 million.

One of the largest assumptions to be clear on is we have included approximately $21 million of alternative fuel tax credit in our forecast for 2022. And we are bullish on that becoming law during the year. It was addressed. They, in fact, even changed that to a 5-year run out on that. So we've included -- we've had almost -- we've had it literally every year, timing is the question. So we're assuming that comes into law in the third quarter of 2022.

The important point here is that we're not anticipating any AFTC revenues. We wouldn't be recording any for the first 2 quarters, which is about $5 million a quarter. And then we would have a retroactive pickup in the third quarter, if that is when, in fact, this is passed and goes into law, and we'll kind of keep an eye on that.

We have refined our RIN and LCFS price assumptions. Back January 26, we were assuming for 2022, $2.85 RIN and $165 LCFS, and we've changed that to be RINs really closer to, say, $3 and the LCFS around $155. There's no change in the combined total of RIN LCFS revenue as a result of these kind of slight adjustments, if you will. But we did want to sync those up, the RIN and the LCFS, pricing a little more with our current views.

Our volume margin per gallon for 2022 averages out to about $0.28 a gallon. So that's up $0.02 a gallon from 2021. On 454 million gallons, that's around $9 million of increment to our gross margin. And this is really coming from added truck and fleet fuel gallons as well as the RNG helps drive that margin per gallon. And then, of course, just an overall increase in gallons over last year will drive added margin dollars.

Our SG&A is forecasted to be $101 million, which includes approximately $20 million of stock compensation. Excluding the stock compensation, our SG&A is up from 2021 by about 8%. The rise in the cash portion of SG&A is principally in personnel related to the growth in RNG activities, including supporting the supply side and the addition of Amazon and other new and expanding customers in our distribution network.

Now staying with the operating expenses, as Andrew mentioned, we're also looking ahead at various alternative fuel technologies. I have included approximately $4 million to $5 million of, I'll call it, development skunk works operating expenses, not SG&A. This is $4 million to $5 million that we anticipate incurring in 2022. And depending on how that research and the development goes on those alternative fuel technologies, we'll see how that goes beyond 2022. At the moment, I have not included any of these types of costs beyond 2022.

And then looking at the adjusted EBITDA of $65 million versus 2021 of $57 million, really 2022 is a year of putting more pieces together to facilitate the implementation of our RNG strategy. But we're able to do this and still improve financially.

So remember, as some examples, 2021 included our last year of the earn-out from our sale of our upstream to BP. That was $3.9 million that's in the 2021 number, $3.9 million that's in 2021 that is not in '22. We're absorbing an incremental $2 million of cost as our share of the startup cost at the R&D joint ventures, and we're also adding about $6 million in SG&A cash expenses, which I alluded to, primarily in personnel and support, but yet our adjusted EBITDA is going to improve from '21, which is why the margin per gallon, the additional volume and the $0.02 per gallon is very important to help support that.

On our -- the RNG Day metrics, we did give indication of cash flow and capital expenditures. So we're planning still $57 million in operating cash flow. $71 million of CapEx supporting the distribution side of the business with maybe $40 million to $50 million of that representing expanding our network to accommodate Amazon volumes. And then we plan to spend up to $195 million as contributions into the RNG joint ventures.

We were also in the process of raising a modest amount of debt at the corporate level. But we have flexibility, of course, with that because we have a fair amount of cash on the balance sheet and we do have some discretion on the speed at which we make these investments.

And with that, operator, I'll open the call to questions.

(Operator Instructions) And the first question comes from Eric Stine with Craig-Hallum.

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

Right. So Eric, I think we're seeing that now, right? We're having conversations with, and we know that Cummins is having and the OEMs are having discussions with large fleets now. And so I think you'll begin to see we're already seeing some uptake in adoption of natural gas right now with some of these large fleets.

And I think the announcements by some of these fleets, for instance, the Werner One, working with Cummins, we hadn't seen these kind of announcements really before. So I think they're really important.

Also, I think it's important to note that as Amazon has fielded now, well, that announcement or at least that tweet or text that got out in late last year of the thousands, so there's more than that many trucks now. Those trucks are operating extremely well, and they're getting great visibility. And they're moving about essentially in the 30 states across the country at our stations and they're getting a lot of use and a lot of visibility.

And I think all of that bodes very well. So I think the Amazon effect is happening as we speak. The interest in the RNG is -- I've never seen it really higher. All of our customers right now want that. And that is part and parcel -- as we talk about natural gas engines or adoption of new trucks and all, it's always hand in glove with the RNG. And so I think all of this is because of the success of the Amazon program, we're seeing it right now.

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

Right. So Eric, I'll have Bob join me here as well. But there's a couple of parts to that. So for those that didn't see the RNG Day, there's 1 concept which was moving RNG negative fuel in California to our existing infrastructure that is already providing RNG, but it might be landfill gas. And so there's a pickup. Certainly, when we own the supplies, dramatic pickup.

Okay. Now what your question though, started with -- and that number got to be around $70 million to over time, $70 million to $90 million type number. So -- and I think I was describing the Wall Street Journal, didn't sound very articulate. I said it was like magic.

But we're already providing that fuel. And so it's really switching in the other feedstock, and we have -- it's better for the bottom line. Okay.

But the way your question started out was the -- our O&M customers. So now this is transit customers and refuse customers where we may be providing operations of the station. And we get paid for that on a gallon, but those are good margins for gallons as we've said many, many times, but low, low, right? Low cents per gallon, let's put it that way. Good margins, low revenue per gallon for us.

So when we switch in RNG, become a fuel supplier to those customers which is we've always wanted to be able to do. Yes, we do split that with the customer. And if they do own the station in these cases, they do most often. Yes, they'll get a larger share than we will, but it's a big upgrade on our margin per gallon going from a fuel provider with our downstream share in addition to our operation and maintenance. So it's a big pickup for us. It's also a pickup for the customer.

And so I was just getting at -- that answered it, but I was just getting at the fact that, I mean, that's a big part of your EBITDA pickup. But I mean there's certainly incentive for the customer to do that because the economic is going to be better for them as well.

Absolutely. Not to mention that it helps them in the area where they operate, right? They go to a sustainable fleet, right? So that [wasn't less and less] any of these operators. They're all under pressure. So that's exactly what happened. I'd like to think that New York City Transit was progressive when they put the natural gas buses in versus diesel buses many years ago. And we are doing operation and maintenance.

But when they asked us to provide the fuel they got to pick up. They've got to share in that. And as we did once we began providing them with fuel other than just operations and maintenance. And they are now an envied sustainability, climate change contributor there in New York City.

That's just a drop in, right? So that's our own rendition of a drop in fuel is the existing natural gas transits then now get to drop in a renewable.

Eric, like I said, it's like magic.

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

Wanted to get an update on the number of RNG projects you have underway, I think a month ago, you had about 5. How is that changing? And where are you at in terms of signing up new RNG projects?

No, it's a good question. We have about 7 farms under construction. We have 10 signed LOIs. So those are in the process. They're not under construction yet, but they're headed that way. Then we have 15 to 20 projects, I sort of say, are behind those in the pipeline where we've had substantial -- we're doing substantial due diligence and discussions with the developers and the farmers.

Those 15 to 20 projects will involve 50 dairies. So there's a lot happening right now. And that's a little bit of an increase from 30 days ago, but it's in line with what we talked about on January 26. More projects under construction now than what I talked about in January.

Okay. Great. Great progress. On the LCFS pricing that you talked about, Bob, how is that changing? And what's sort of the market dynamics there? And do you have a sense of -- it's hard to predict, of course, but do you have a sense of maybe how that changes over the year.

Yes. We kind of have it on average, around 155, and it's a little bit lower than that. So we're anticipating that there's room to move up there, but we felt like it was probably at 165 might be a little bit aggressive. And so I think -- I don't know that we see radical change there. I mean it can. I mean, again, we thought in the fourth quarter, there could be a move upward if there was some action by CARB and their kind of scoping workshops and whatnot. But I think we're kind of fairly steady at about where we think it is at the 155 on average.

I think, Rob, we tend to be longer term kind of constructive and bullish on the pricing of the low-carbon fuel standard. That's not to say we see some dramatic fly up here. But we think it's the scoping and they look at the success of the program and they look at the increased obligations in the outer years, we think that the price of the LCFS could likely move up a bit.

So we thought it was prudent to price it in here sort of where we see it today rather than speculate. But I would think -- our team believes in that -- we, of course, have some experts to help us on this. We think sort of over the middle term that we're constructive on the pricing and think that it could move up a little bit, too.

And the next question comes from Manav Gupta with Credit Suisse.

Just a quick question was I'm going back to the Analyst Day RNG Day. And I think you had indicated eventually you would like to be in that above 105 million gallon range by 2026. And I was just doing some rough maths, would it be fair to say you would probably need somewhere like 50, 55 dairies somewhere to get to that 105 number -- 105 million gallon number?

We're crunching here...

Around there. I mean you're at 2 million a dairy. So...

It's around there. It kind of depends. So Manav, think with me in terms of the clusters, okay? So you'll have a dairy, but you bring in satellite dairies. So it could actually be higher than that, right, because you'll be drawing up smaller local -- smaller dairies. But you're -- as I said, these 15 to 20 projects right now contemplate 50 dairies. So it could be...

Could be higher than 105 million...

For the whole, for the 105 million could be -- in terms of dairies, it could be higher than that.

Okay. Fine. And just a second quick follow-up here is, when we go to the cash statements that you provided on the RNG Day, it appears at some point, not only do the JV start paying down the debt, they actually start paying you some distribution. So can you confirm that at what point do the JVs actually start making enough cash, so they actually start paying you guys some form of distribution?

Yes. And that is -- I want to say it's like '25, '26. So yes, where you're seeing the debt reduction is because we're seeing distributions come in from...

From the JVs.

From the JVs because -- the -- and it's principally '25 and '26. There could be a little bit in '24, the more meaningful...

Perfect. And then the last quick question here is you were doing about $13 million, $14 million in EBITDA. Now you've hit $18 million. Next year's guidance is doing more like $16 million. And I think you mentioned a few factors why it's going to be moving down a little from $18 million to 16 million. But if you could just help us and bridge the gap why we're moving down from $18 million a quarter now EBITDA to about $16 million number?

Yes. So in the fourth quarter, that $18 million, we had about $4 million of earn-out in the $18 million in the fourth quarter from our sale of upstream supply to BP, and we've had that for 5 years and which was a question that we had about actually how are we going to get to -- we were anticipating we could get to $20 million in the fourth quarter, and we got to $18 million.

So -- and then I mean, our -- so we should not see that kind of radical bump in the fourth quarter for something like that. Our volume tends to grow during the year because -- I mean because of fleet rollouts and adoption, it just doesn't all happen, say, January 1. And then I think the other thing that I was just being careful with on the $16 million is that has the alternative fuel tax credit in there. And -- but you don't want to put that evenly in Q1 and Q2 for the alternative -- so if you end up having to -- you would end up taking the alternative fuel tax credit.

So let's say, out of the $65 million, so you would get to kind of $40 million -- what's that $44 million, which is kind of $11-ish million Q1, Q2, but then Q3, you're going to see about $11-plus million maybe even $15 million of AFTC and then $11 million plus $5 million in Q4. So I don't give guidance on the quarters, though.

What I considered, Manav, was I was doing math, but it is important. Thanks for the question because it's -- the AFTC in a quarter is significant. If you just do the math, you're not going to be happy. So...

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

You guys mentioned just a few moments ago, the need to kind of back out the IT -- or the AFTC in the first couple of quarters of the year, going back to what we talked about during the webinar 1 month ago, any incremental thoughts on whether the tax credit will be revised in some form in this congressional session?

So I think, Pavel, just for the group, I think you're saying would they change it to add in some sort of renewable natural gas credit?

I just make more broadly, is there any in the last 6 weeks since you did the last investor call, is there any movement in D.C. on the reinstatement of the tax credit?

I don't think there's been any movement in DC on any piece of legislation in the last 6 weeks. Do you?

So no, I don't think so. I really think -- I mean, other than Supreme Court Justice nominee or something, I don't think there's been any I think that the house is trying to figure out just what pieces of a bill that they can assemble, they haven't, but they haven't decided on that yet. And just what style that will take but I don't think so yet, Pavel.

Now that doesn't lead me to believe that it's not going to happen. I still feel like, as I mentioned before, that our particular alternative fuel tax credit amongst many other things, okay, because it's not the only thing. We'll end up being in some sort of tax title at some point when they begin to fashion different pieces of legislation.

And that remains to be seen how that all comes together. But it will. It should. The reason I feel pretty confident on it is we've had that tax credit for the last, I don't know, 10 or 12 years, I can't remember which. And it was identified during the -- with the 2 Chairman from the Tax Committees and the Senate, the ranking and the minority as one of the noncontroversial titles.

So it doesn't appear to be in kind of the lightning rod bucket. And so I think that when they figure out kind of how this whole thing is going to come together, I'm guessing later in the year, you'll see that part of some sort of tax title at some point.

Okay. Let me follow up with kind of a macro question. So we're almost exactly 2 years from the start of the pandemic, and you guys have very good insights into what's happening in fleet-based transport of the market segments that you sell into, so refuse trucks, urban transit, airports, maybe a few other markets. Is everything back to pre-COVID levels or not quite?

Yes. I would say we -- it's interesting because you and I have talked about this before, we did see a little bit of a late December, it's kind of hard to tell because those holidays put a little -- in our transit customers, especially holidays impacts it. A little more significantly in those -- that week or so than you would think.

But I think we detect in the late December and early January, we saw a little bit of the Omicron.

There was some Omicron.

There was a 5-week, 4-week blip, but having said that, I would say that airports in general in -- as they came up into December were just about right back at and transit as well. We may have seen 3 or 4 weeks there at the end -- last couple of December and early January, where it came off just a tad. But I think the answer to your question is yes, it looks to me like we're back to pre-COVID levels. All of our sectors came back.

Okay, including airports?

Yes. They could still be off a tad. But they're pretty close.

And the next question comes from Gregory Wasikowski of Webber Research.

A couple of higher-level questions on fleet transition activity and then one on hydrogen. I'll start with the fleet transition. Just curious, outside of regions with the LCFS credit programs, in what states or specific regions or municipalities are you seeing the most fleet transition activity from diesel to gas? And then like similar question but along the lines of the application, whether it be transit bus, refuse truck or a specific heavy-duty class of truck.

Well, okay. So generally, I would say the fleet transition and all the fleets is we always see quite a bit of interest in Texas, in the Southeastern United States is where you see a lot of trucking. And then in the Northeastern United States, we particularly see a lot of interest on the refuse side.

And so it kind of -- I've kind of almost named all the parts of the country. But Texas, Southeastern United States, Northeast, a lot of activity on refuse. Trailing that a little bit is the Midwest. And then, of course, the West, the West is always strong, Southwestern United States.

I mean that's strong. But that was covered in your low-carbon fuel. Now we are seeing uptake on RNG in 30-some-odd states right now. So it's not just a California thing, and it's not just regional. It's beginning to be pieced together all across the country.

Yes. Okay. No, I appreciate that. And then maybe a similar but asking in a different way, what's the -- again, in the non-LCFS states and regions, what's the main catalyst for end users, fleet owners in the decision transitioning from diesel to gas. Is the primary focus on the price of diesel or is it CNG accessibility, internal decarbonization goals, public pressure? Like what are you seeing the most outside of that LCFS states and regions?

Well, no, you've identified it. I mean I think it's always been -- it's been similar. The sustainability and the low-carbon piece obviously is a bigger driver today than before. But underlying it, I think you're right, Greg. Underlying it, though, is always a sense of economics. You don't often see -- you certainly don't see private fleets just to step into something knowingly, it's a lot more expensive.

Now they're beginning to get more support from their -- either their customers or their -- the public on their sustainability goals. And so they're willing to -- I think they're willing to take, let's call it, more risk and more cost. Now public transit and public agencies are certainly being, for instance, DFW, right? It's very important for them to try to mitigate and have what they consider to be one of the cleanest, low-carbon airports in the world, right?

And the transportation piece of this is very important to them. There's not a lot they can do about airplanes. So the transportation part of it was very important, and that's why they really pushed hard on RNG. And I think our friends in Dallas Area Rapid Transit think the sustainability part was really important for them to go to natural gas and now RNG.

So it's incremental a little bit. Cost is always important, but this environmental piece is getting to be a bigger, bigger driver. So I don't know that, that helps you at all, but we're seeing a lot of that.

They understand. I mean the RIN is out there. It's a federal program. So...

Right. Yes.

Right. Okay. No, that's helpful. And then one more on hydrogen, if I could. Andrew, you've spoken about hydrogen and fuel cells in transportation in the past. But I was wondering if you could compare and contrast hydrogen fuel cells versus hydrogen combustion. Cummins spoke about it during their Analyst Day, hydrogen ice. And some other players have talked about it for certain applications.

Does that come up in your conversations with customers and end users at all? And then from CLNE's perspective, do you have any preference one way or the other, if it's a fuel cell electric vehicle or burning hydrogen directly? Or is it really all the same to you?

First, it never comes up with a customer. So I don't know who's interested in it, but it's -- we don't ever hear that much from a customer. Occasionally, you'll hear it from a transit customer -- and I always want to remind you why that is. And it's -- I think they feel it's a part of their duty because they're funded by 100% from the federal government on these kind of projects is that they're a testbed. And so you see transit agencies do this. We've got 5 more RFPs coming down the track right now. It's usually about 15 to 20 vehicles out of a fleet of several hundred. Super expensive tests.

These are hydrogen and fuel cell buses. So you'll see the transit agencies do it because they think that's part of the their social compact with getting free money from the Feds is to be able to do this kind of thing. Private sector is not serious about it. Yes. So we don't really hear that. Now in terms of the -- look, I'm not an expert on all this, but I have said, and I do think we'll end up being somewhat right on the fact that we think that RNG will be a very viable green, renewable feedstock, and it will be available using the nation's pipeline system. This idea that you're somehow going to put in a new hydrogen delivery system, I just don't think that's going to happen. I think that could be 50 years in the making.

By the time you build plants and you start hauling hydrogen around pipelines of hydrogen, I mean that is really a tall task. So I think the way that it will happen in the bridging to it for hydrogen will be through fuels that will be transported using the delivery system that's already put in place in the United States.

And I happen to think in the early next 5, 10, 15 years, that will be RNG that will be reformed at the stations. And I'm not sure, Greg, if it will end up being somehow put in a combusted as a hithane, a blend of hydrogen or if it ends up being put into a fuel cell.

I think the RNG will be the feedstock for the foreseeable future. And somehow maybe it gets blended with some hydrogen perhaps. This hydrogen thing is very expensive.

I mean it's -- people kind of casual about it, but it's very expensive. I mean so I look at the -- we have 50 salesmen that talk to fleet operators every day that are very interested in the bottom line. And I don't see how hydrogen fits into that at all.

And the next question comes from Craig Shere with Tuohy Brothers.

I just want to clarify on this JV distribution upstream to the partners by mid-decade, '25, '26, maybe starting at the end of '24. How should we think about this in terms of self-funding? And any decline rate on equity contribution to partners left to make over the next couple of years?

Well, Craig, I think we kind of -- I'll say we laid that out somewhat in -- on the RNG Day. So at some point there, we probably will get to self-funding and at kind of at the portfolio project level.

I think in our model, our -- at least what we laid out for the 5-year plan is we were being fairly simplistic and not getting -- we were not going down a variety of kind of capital structure avenues. And so we kept it fairly simple of cash needed, cash in, cash comes out, we could pay it. But frankly, we can -- we'll be able to lever projects. And so there's not -- not anticipation on our part of kind of blowing up this case with added equity and that sort of analysis. So -- but we weren't going to lay out a 5-year capital structure plan on that.

We just kind of took their EBITDA and it's -- that's a distribution available to the corporate in which case we'll pay down some -- we'll start paying down corporate debt. We've kind of funded it through at the Clean Energy corporate level would really be kind of how we would lever those deals. That could be at the project someday.

Got you. And this ratio, I don't know if this is what you had in mind originally, but it sounds like it could be 3 or 4:1 on the projects and the number of dairies feeding into the projects. Are you finding, as you get deeper and deeper in this with your JV partners that you're finding more and more ways to lower the all-in unit costs delivered just get more operating leverage than originally thought?

Well, I don't know...

We're looking. Okay. I don't know. It's a little early on.

Yes, I think it's a little early, Craig. I mean we our view is there will be some synergies and some efficiencies. I think some of these early projects have been right in the middle of a supply chain and steel and some increased costs. So our hunch is and our view is that some of those costs will come in. And I feel fairly certain of that. But I would say through the projects that have been underway in the last 3, 4 months that we've come up with dramatic cost reductions.

We're certainly -- we're on that path of that kind of mindset and thinking and hiring the right people, very mindful of this is -- this should be kind of repetitive. I mean all farms and families around those are different, of course. But the basic setups, I think, have room for...

The industry is trying to standardize tanks and the membrane technologies and the cleanup technologies, all of that come into play. We did that. We've done this on the station side years ago. It used to be that every station was built. It wasn't until that we understood the inlet pressure at a given location that we then went and designed a compressor totally unique. It was a work of art, each one. And we stopped that 15 years ago, 20 years ago. And the same thing will happen here as we get better at it and do more of these.

And the next question comes from Matthew Blair with Tudor, Pickering, Holt.

Bob, I was hoping you could share Clean's revenue from the LCFS either in the fourth quarter. I don't know you might have a full year number. I think that was -- it was $5.7 million in Q3. Do you have the Q4 number?

It was $3.8 million.

Great. And then unfortunately, it looks like the New Mexico LCFS bill failed in the state Senate this week after passing their state house earlier in the week. I know it's hard to predict politics, but are you expecting any other states to pass an LCFS program this year? And if so, which ones are on your radar?

Well, I was -- I'm still hopeful that New York, they're wrestling with it now. This is not easy there either. They're in the throes of it. It looks to me like we have a fairly nice set up in terms of cosponsors in both the house and the Senate there, the assembly and the Senate. But we have more work to do there with the governor and with particular governing Chairman there. So more there.

I would say it was New Mexico and New York that were the closest in terms of ready-to-pass-type legislation. And then there's 6 or 8, I don't have it right here in front of me, Matthew, but there's -- we've had discussions and our industry associations and players have had discussions in Illinois and Michigan and other states, New Jersey and others. But I'd say they're all a year behind. This -- I think the way we should all think about it is that these are likely kind of 2-year-type bills.

Look, you're putting in a whole new regime of regulation and obligations for industry and all. So this isn't like passing a seatbelt mandate or a motorcycle helmet mandate. I mean there's a little more to it than that on this and lots of interest at stake. And so it's reasonable to think that these are -- will take some fulsome discussion. And often in state legislatures that takes 2 years.

There has been, maybe this is a good place to put it in. I am starting to read for the first time a carbon, like an RFS, a carbon fuel credit system national. That is starting to percolate up from the industry associations to different groups in Congress, and I imagine next stop administration. There will be a lot of work to be done there, too. But that's the first -- I've always wondered why you wouldn't have sort of a national federal carbon fuel program, like the RIN. That sort of makes sense to me. And just this week, I'm starting to read about some of the industry association making those pitches to members of Congress and the administration. So stay tuned on that, too.

And the next question comes from Jason Gabelman with Cowen.

I first wanted to ask about the RNG production ramp-up that you provided during the RNG Day. There was a dark green bar showing the RNG that's under LOIs. Can you just discuss what kind of rate of conversion you have from LOIs to getting these projects executed into the construction phase?

We know early in this. We've had a very high hit rate, 90%.

Got it. Is there -- I mean would you say that a lot of the farms that you're pitching to, you see a lot of competition on them? Or are you mostly the only company in the room?

No, we see -- no, we're seeing competition. I wouldn't say it's not quite like an RFP. But no, we're -- these farmers have heard from land, let's call them land men and women and developers. I think that Wall Street Journal story the other they talked about somebody that's saying that the particular farmer had 10 different people in there. So we're seeing some of that.

But -- what I said on RNG Day, I think, is true. And humbly, we like our go-to-market sort of face here. We're in the business. We've been in the RNG business one way or another, not necessarily at the dairy level, but for a long time, 14 years.

We've worked with our partners, Total and BP, in this business for a long time. Our partners have deep pockets. And we have financial capability as well. We have a long-term offtake interest. A lot of these farmers have heard about us for a long time. So we have a reputation, and they know we have a national distribution system.

So we like -- we're not really afraid of competing because we think we have a lot to offer. And we, as you can tell by the pipeline and all that we've been in the business now 9 months and our hit rate, we're able to move nimbly. And so we like our -- we won't get every deal, of course, not. But we like our conversion rate, and we like our chances.

Got it. I also wanted to ask about California's LCFS program. I know we previously discussed that the petition to remove RNG from the LCFS program was denied. But I believe it's still being discussed within the scoping plan that's ongoing this year. Can you just talk about what you're hearing coming out of CARB right now and the appetite to amend if at all, the carbon intensity or carbon or LCFS credits that are generated from RNG?

The last -- I think the most current thing that I've seen from the ARB and we have people who worked this real closely. But the most current thing is 2 public statements from the ARB and 1 in the Gannett papers and the other in the Wall Street Journal saying they like the program.

And it's working.

And it's working. Now they didn't have to say that, and they get those things cleared. And so I think that's a fairly strong public statement that happened in the last couple of days.

Now look, the petition you're talking about is a letter from the Environmental Justice Committee and that's not going to go away but you're going to see that continuing. But what I think has happened on that particular interest, which is moving dairy farms out of the state of California, if you really want to understand what that really means is no dairy cows in California. That's what was really what we're trying to get at here, right?

And so that was referred to the scoping, which is let's know we deny your request here, and let's talk about this later in another discussions format in another period. So I think this probably is not the last we've ever heard of that, but I think the fact is that the program is working. The situation is you're capturing a lot of methane that you otherwise weren't capturing. And so it's nothing like success here.

Got it. And if I could squeeze just one more in. Just want to ask if -- do you see any benefit in your business from California's cap-and-trade program? Are you able to capture any value, given that those credits are moving higher?

I don't know. Bob?

Not really. I mean we're probably a little more on the receiving end of the cost, if you will, right, because we have a little bit of some of our stuff like say our LNG plant and things like that, that come under cap and trade. And so we've -- so but it's a hard one to necessarily complain about because, frankly, I'm also quite happy when the LCFS is at 200.

So -- yes, so we're not -- no, we're not benefiting from it, and it has been a little bit of a cost to us. But relatively speaking, we have a very small footprint when it comes to that. So we're not talking about really even really big bucks, but it's -- we've noticed that.

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

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

Thank you.

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