Clean Energy Fuels Corp

NASDAQ:CLNE

Good afternoon, ladies and gentlemen, and welcome to the Clean Energy Fuels Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions] This call is being recorded on Tuesday, February 27, 2024. I would now like to turn the conference over to Robert Vreeland, Chief Financial Officer. Please go ahead.

Thank you, operator. Earlier this afternoon, Clean Energy released financial results for the fourth quarter and year ending December 31, 2023. 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 Clean Energy's Form 10-Q and also a Form 10-K. I will note here, for 2023's 10-K, which is due by Thursday the 29th, we are waiting for the finalization of our internal review and external audit procedures for a SOC 1 report from one of our outside service providers. We just received the SOC 1 report from the service provider this morning. Once we finish these procedures around the SOC 1 report, we will file our 10-K.

Now, back to the forward-looking statements that we'll hear on this conference call. 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 and will be reviewed on this call and exclude certain expenses that the company's management does not believe are indicative of the [indiscernible] 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. I know that people on this call are aware that the overall renewable energy sector has experienced market volatility in recent months. This is not new to us. We have been in business for over 26 years and a public company for over 17. Despite these external factors, the fundamentals of our business remain strong, and so does our conviction in our strategy. I think 2024 and 2025 will be very exciting years at Clean Energy and set the stage for many good years thereafter.

As we start out a new year, I would like to take a moment to reiterate the pillars of our business and the strategy we've put in place to grow our business. The first pillar is our belief that RNG is the most effective solution to decarbonize heavy-duty transportation in North America. RNG is affordable, available today and has the greatest positive impact of any form of renewable energy.

The pipeline infrastructure to move the RNG from its source to customers is robust and in place. Natural gas engine technology is currently available for regional trucks and a larger 15-liter engine for Class 8 trucks that operate longer routes, the heavier loads, is being added as we speak.

The 15-liter engine also happens to be the largest segment within the trucking industry. Our industry's fuel, infrastructure and vehicles are available today and have been proven over multiple decades. The emissions benefits of RNG, both carbon and NOx, are clear, and they are supported by science. And dairy RNG is the only commercially available fuel with a negative lifecycle emissions factor.

The second pillar, and the one that sets us apart from virtually any other company, is that Clean Energy has the leading network of RNG distribution stations in North America, which enable our customers to achieve their low carbon goals by supplying RNG to their fleets. Many of our stations are strategically located on important trucking corridors with public fueling access for existing and future customers, and that number is growing with the opening of stations where Amazon operates as our anchor customer. Some of our stations are customer-owned where we provide services and supply RNG.

The third pillar of our business is how we work with our customers in many ways beyond just the sale of fuel. This includes education on the benefits of RNG and achieving emission goals, truck procurement, operational support, station construction and servicing, facility modification and navigating the complex world of sustainability, reporting, public policy and grant applications.

Clean Energy is also the largest distributor of third-party RNG production to the transportation industry. We supply our customers with RNG from over 100 different production sources. We are the largest off-taker in the business. We could not be more pleased to extend our network and our service offerings to a vast group of fleets that will soon be able to adopt RNG vehicles thanks to Cummins new X15N engine, which is a catalyst for our growth.

The feedback from the fleets operating the test units of this engine has been very positive. PACCAR has recently opened the order book for trucks equipped with the X15N, and commercial deliveries are expected in the early part of the second half of the year. [indiscernible] OEMs have said they will follow soon by offering the new engine in their models. The largest segment of the trucking market will soon have access to an RNG solution, and this could not come at a better time for our industry and customers.

RNG as a transportation fuel is becoming more mainstream. During the last quarter, our customer base and volumes grew with fleets that operate in the Ports of L.A. and Long Beach, like Lincoln Transportation Services, Ecology Auto Parts and Cross Border Xpress; with transit agencies such as NICE Bus in Long Island and multiple refuse operators. And hot off the press, we recently signed an agreement with Cemex, one of the largest concrete companies in the world, to fuel 40 of their cement trucks.

The RNG industry recently notched a significant victory with New Mexico, passing legislation to establish a low carbons fuel program. We believe this demonstrates the acceptance of these programs as a good way to address emissions issues that continue to expand. There are positive signs that other important states in the Midwest and Northeast could so follow.

3 years ago, we established our fourth pillar with the formation of joint ventures with BP and TotalEnergies to invest directly in RNG production facilities at dairies in the U.S. We did this because we believe in RNG as a long-term solution, and our industry needs more RNG to meet growing demand. We saw an opportunity to invest our capital at attractive returns in these projects while augmenting the third-party RNG supply I just mentioned, and we are doing just that. To date, Clean Energy has invested $238 million of our capital into these joint ventures and another $35 million of our own funds in the future RNG dairy projects. 6 projects have completed construction and are operating, or are in final commissioning. 2 projects are in or near construction, and we continue to evaluate others in our pipeline.

[ Bringing ] these projects online is no small feat, requires complex engineering, construction, operations and regulatory approvals. The world needs this ultra-low carbon fuel, and our industry needs to produce it more efficiently. We have the right platform and the right partners to take on this challenge, and we are on the path to achieving improvements in project costs and timelines.

Bob will go into more detail. But when these projects come online, they have a ramp-up period of about 9 to 12 months, where the project is producing gas but not yet monetizing federal and state environmental credits. The 5 projects coming online at the beginning of this year, this ramp-up period will have a negative drag on our financials in 2024 until we can monetize the RNG produced with environmental credits [indiscernible] [ used ] to virtually store RNG until the regulatory pathways are certified to maximize revenue from environmental credits.

This will create a lag in revenue recognition, while operating costs are being recognized at the time we produce the renewable gas. This is an accounting and regulatory feature of our industry that we want investors to understand and should not detract from our successful completion of dairy RNG projects, all producing ultra-low emissions fuel that we supply to our customers.

This is also more amplified as we are starting from 0 in the upstream production of RNG. As we bring more projects online, the glaring financial start-up impact should be muted by projects operating at full financial capabilities.

And the fifth pillar of our business strategy is the fact that we have a strong balance sheet to fund our continued growth in both stations and RNG projects. In December, we announced a $400 million term loan facility with Stonepeak. $300 million was funded at close, and an additional $100 million can be drawn by us for the 2-year commitment period. We have secured the capital needed for our next phase of growth, and we are pleased to be partnered with a well-respected infrastructure investment firm like Stonepeak.

Our existing station footprint is well-positioned to support additional volumes from new customers. We also expect opportunities to expand our network, with new stations strategically positioned for our customers, like our stations we have built to benefit Amazon. Over the last 3 to 4 months, we've opened 2 stations for heavy-duty trucks in Texas, 2 in California, a second one in Ohio and others around the country, bringing the total in 2023 to 18 purpose-built stations. Amazon continues also to utilize over 75 other clean energy stations on any given day.

Let me just close by repeating, we are very optimistic that, over the next 12 to 24 months, you'll see much of the strategy that we laid out several years ago fall into place, with the investments beginning to show the fruits of our labor. At a time when more uncertainties continue to surround other alternatives, customer interest of RNG is increasing, especially with the introduction of the Cummins X15N. In 2024, we will remain focused on the adoption of RNG fuel along with growing RNG production.

Thank you for your time today. And now, I'll hand the call over to Bob.

Thank you, Andrew, and good afternoon to everyone. I'll speak to our fourth quarter and year-end 2023 results and then discuss our outlook for 2024.

Our fourth quarter and year-end results met our expectations, with our annual results being within the range of our most recent guidance. For the year ended 2023, GAAP net loss was $99.5 million versus our guidance of $98 million to $103 million. And our adjusted EBITDA for 2023 was $43.6 million versus our range of $42 million to $47 million. Keeping in mind, our annual results were significantly impacted by the $10 million in net incremental costs we incurred back in the first quarter from the historic run-up in California gas costs in January of 2023. Without this $10 million gas cost anomaly, we would have more than beat our original guidance on GAAP net loss, and we would have landed in the middle of our original guidance for adjusted EBITDA.

To meet our full-year expectations, we had to have a solid fourth quarter, which we did. We saw improved mix in our fuel gallons, with more vehicles fueling and helping increase fuel margins. Our RIN revenues continued to trend up, with a 35% increase over our 2023 third quarter. LCFS pricing, on the other hand, continued to be low, along with some delays in expected low-CI RNG supply, so we actually lost some ground in the LCFS area in the fourth quarter.

And lastly, we were able to get some relief at our Texas LNG plant with some insurance recoveries that we have been working on in the second half of the year to reimburse us for our losses due to that plant being inoperable all year. These insurance recoveries helped true up the annual results for the Texas LNG plant and were recorded as a reduction in SG&A, which is largely why there is a drop in SG&A expenses in the fourth quarter, although there were also incremental costs in SG&A during the fourth quarter from some new fueling station activities.

Importantly, all these factors were considered in some form in our latest annual guidance for 2023, knowing there likely would be a mix of outcomes that helped form our guidance range. We're pleased with the strong contributions of our vehicle fueling margins and glad that we're able to get some financial relief for our Texas LNG plant.

The other big fourth quarter highlight was our financing transaction in December, which Andrew mentioned in his remarks. After that financing transaction, and then paying off the $150 million of prior debt, and after contributing another $68 million into our dairy RNG JV with BP in December, we ended the year with $263 million of unrestricted cash and investments. Now, there was another $198 million of cash down at the JV we have with BP at the end of December, which is all earmarked for dairy projects.

I'll now turn my attention to 2024 and our outlook. First off, one of our goals of providing our 2024 outlook is to continue providing transparency into our model and level-set our outlook, particularly as we move our dairy RNG projects into production. And we know the outlook in the dairy RNG area is nuanced, with the timing of producing RNG and the time involved in ramping to steady-state operation and monetizing the RNG.

We appreciate, however, that what we lay out for 2024 can help form your thinking about 2025 and beyond. So where we can, we will answer questions about outer years, recognizing there is still significant clarity needed around the IRA and the production tax credit, for example, seeing the actual timing around dairy RNG production and the timing of revenue recognition and how that takes shape and where and when M&A fits into the equation. As we've said all along, we're willing to consider acquiring existing projects and even pipelines that meet our investment return requirements to help accelerate building our RNG production volumes.

For 2024, we're providing a breakdown of our results between our legacy fuel distribution business and the results we anticipate from our dairy RNG equity method investments. We've referred to these equity method investments in the past as RNG supply; but, just to avoid any confusion, this is our RNG supply that we are producing in our dairy RNG joint ventures with BP and TotalEnergies and the related net economics attributed to clean energy. Nothing has changed here from how we've been presenting information and discussing our business, but just to provide further clarity since we are breaking out this information in separate tables.

I'll start with the net results and then go into some of our key assumptions for our guidance on 2024. Our consolidated GAAP net loss for 2024 is estimated to be in a range of $111 million to $101 million compared to our consolidated GAAP net loss of $99.5 million in 2023. The breakdown is $93 million to $87 million GAAP net loss from the fuel distribution business and $18 million to $14 million GAAP net losses from our dairy RNG equity method investments.

Our consolidated adjusted EBITDA is estimated to be in a range of $62 million to $72 million for 2024 compared to $43.6 million for 2023. Breakdown of adjusted EBITDA for 2024 is $76 million to $82 million from the fuel distribution business compared to $50 million in 2023 and a negative $14 million to negative $10 million from our dairy RNG equity method investments compared to a negative $6.7 million for 2023.

As you can see, the fueling distribution business continues its financial improvement, and you see the effects of the dairy RNG joint ventures being in ramp-up mode. I think this is where we have the biggest expectation gap on how quickly projects will produce at a positive earnings level. Our focus in 2024 is twofold with the RNG projects, execute operationally and optimize revenue however possible. And we do have good optimization choices with our network and even outside the network.

Now, staying on the RNG equity method investments and looking at the ramp, we're expecting nearly 100% of the net losses to occur in the first half of 2024, and then we'll start to see the effects of monetizing the RNG in the second half of the year. Of course, there's risk involved from both the amount of gas produced and when it's produced and the end demand markets from a pricing standpoint mainly.

I'll also point out that we have a large project in Idaho, with around 37,000 dairy cows, that is estimated to be complete from the end of '24, maybe beginning of '25, that is responsible for over half of the earnings drag in 2024. Idaho project has certain operating expenses that are occurring as we separately build out the main project, and those operating expenses are reflected in our 2024 guidance. Those are also heavier in the first half of 2024.

Also, one other point to make is our recently-announced investment in Rimere is being reflected as an adjustment out of adjusted EBITDA, as we view the money that we are contributing into Rimere to be more of an investment, albeit reported as development cost in that JV.

Now, taking a step back for some of the assumptions in our 2024 guidance, our guidance contemplates RIN price staying around the $3 level, noting that we've seen that kind of bounce above and below the mark recently, with a reason to be cautious here. And the LCFS pricing, we have that considered remaining soft around the low $60 level.

Our RNG volume is estimated to be 245 million gallons, or 8.4% above 2023. While this increase may seem a little light, I'll note that we had around 13 million gallons of RNG that we dispensed in 2023 to assist some other participants in the market in meeting their demand, and we are not including a repeat of those gallons in our 2024 plan. Not to say that, that couldn't happen again, but we're not putting them in our plan.

GAAP revenues are estimated to be in a range of $440 million to $450 million. We're estimating about $69 million in noncash Amazon warrant charges for 2024, which reduces our GAAP revenue. Now, keep in mind here that there was about $22 million of Amazon warrant charges in our 2023 total warrant charges of $60.6 million, $22 million that won't reoccur in 2024 due to that portion of the warrant charge being fully amortized at the end of '23.

The SG&A for 2024 is estimated to be in a range of $115 million to $120 million, including $18 million of stock-based compensation, noting again that the Q4 run rate was low due to LNG plant recoveries that were recorded in SG&A. Our 2024 capital plan calls for $60 million of capital spending in the distribution business and $100 million in dairy RNG investments, noting, again, that there is $198 million in cash down at the dairy JV with BP. Lastly, we're forecasting GAAP cash flow from operations of a range of $45 million to $55 million for '24.

With that, operator, please open the call to questions.

[Operator Instructions] Your first question comes from Manav Gupta from UBS.

My question relates a little bit to the guidance. I think you made a very strong case why it's slightly negative in the first half and then improves. I'm just trying to understand, if you continue on this run rate and the volumes do ramp, would it be fair to say that, exiting 2024, your upstream EBITDA would actually be a decent positive number and would start making a contribution in year 2025? If you could, talk a little bit about that.

I would say, Manav, and we're being careful here, that we expect the projects that are going online this year, that their performance will ramp up and improve throughout '24. And there is certainly a good chance that they can produce EBITDA. One caveat I'm going to put out there is you've got the production tax credit. But we're not 100% reliant on that PTC, but, frankly, that's where some of our hesitation is, is just in quoting numbers on this stuff because we don't have the guidance. But that guidance comes out and it's clear, then we'll be able to speak to that. But we certainly know that the process that we've put online so far, we're happy with their operations. They're producing gas. We absolutely see a path forward that they will produce the gas that we anticipate, and then you can start to do the math on those projects. It's like, well, if you're producing that gas, then we start to look at -- and then, of course, you have to look at what your view is on LCFS and RIN. We're soft in '24, but in '25, who knows? That could come back. But those are other factors in there. So this was a long answer to I'm optimistic.

My quick follow-up here is that [ it ] looks like New Mexico is moving ahead with its new LCFS program. And then, there is some buzz out there that the reason the car workshop got delayed is because they might actually even be adding to the [ stand ], like making the standard even more stringent, so help with the overall balance of carbon credits. Any view you have, or anything you have heard, would really help us out.

Yes. Manav, I think you're exactly right on that. It makes my group nervous. We and the industry have been engaged with CARB and others in the state government to make them understand that it would be very important, as they finalize these goals, to do everything they can to tighten down the obligation curve. And so, I think there is some expectation that that's being received well. And while you know that the first release suggested that the curve would steepen, or deepen from 13% to 18.5%. There's some talk that, that could go up into the 20s, maybe even mid-20s. So we believe that the LCFS program can handle that, that there's plenty of RNG and plenty of low carbon fuels to do that, and that this would be a good time for them to be aggressive. That, of course, Manav, as you correctly point out, will begin to increase the obligation and reduce the oversupply of credits that are currently on the books, and probably reduce that oversupply faster than some people might think.

So I think that, that month delay is a bullish sign for the low-carbon fuel standard and for credit pricing.

We agree. And hopefully, New Mexico also kicks in and you can supply volumes over there also.

Manav, if I can just embellish a little bit, we are encouraged. Next week, Illinois has a Senate Committee hearing on the low carbon fuel standard. New York is a difficult one, right? There's negotiations there with the governor's office as we speak. As you know that that's been passed in various houses in New York in past sessions. New Jersey, things seem to be going well. Pennsylvania, there's been a bill written in the House, and [ there's ] talking about introducing it in the Senate and Michigan. I think, if you were to look for a near-term state to move maybe quicker, though these are large ones, of course, is probably Illinois. So stay tuned.

Your next question comes from Eric Stine from Craig-Hallum.

So maybe just starting with Amazon. Curious, I know that their truck fleet build-out is underway. I know they're waiting on the 15-liter, as well. Just curious if you have started discussions on potentially either the next round of stations or the next supply agreement for RNG.

Well, boy, if there was ever a customer that doesn't want me talking about stuff like that, it's my friends at Amazon. So good try, Eric, try to catch me in a weak moment. But let me say this. We obviously supply a lot of fuel to them, the important thing is RNG, all over the United States. The program has gone very well. And I believe Amazon has indicated they have over 2,500 12-liter trucks operating. I don't know if they've said it or not, but I believe it's been indicated that they've actually tested a 15-liter. So I take these all as good signs. We have a sales manager that is in constant contact with the team on the logistics side and the fuel side and the truck side at Amazon. So we're in constant, I don't want to say negotiations, constant contact with how we might augment stations that we've recently built, where some of their fleet will be deployed at existing locations and new locations.

So it's really all I can say right now, Eric. Of course they're one of the larger fleets. Of course we're talking to them. We think that the program has been such that it will likely be expanded, and we're trying to do everything we can to be that company that helps them expand it.

I don't know if this is something you could answer, but I know that each location has the private but also the public side. Anything you can talk about in terms of non-Amazon volumes at those stations, maybe how those are trending? And I would think that those, kind of like the rest of your network at this point, that there's a lot of room for growth within those stations.

Well, there's a lot of room. I think it's early to overstate the third-party volume at these locations, right? However, they're all [ beautily ] situated for third-party volumes, right? So they're public access, 10 gallons a minute, plenty of volume. They're all in warehouse districts. I mean, they were picked because they're great locations. We have seen some additional volume come into the San Bernadino location and a few of those in California, where we have more robust fleet activity. But we really are counting on the 15-liter that, as these fleets that are housed in the same locations, as Amazon begin to bring the 15-liter into their fleets, we expect that those will avail themselves to our public assets locations.

And I hope, Eric, that the Amazon, while it's a little different because in many ways we've built from ground-up terminals for Amazon, right? A lot of the existing trucking fleet and the largest fleets, they have terminals already. So it's my expectation, when we kind of replicate the Amazon model, it will be at locations. It'll be faster to market with these stations.

But it'll be essentially the same design. There will be public access in many of these locations. Some of it will be private, and it will be both fast-fill and time-fill. But largely, many, many in the industry are looking at those Amazon locations. Look, they're beautiful to see a 5-acre location with 220 trucks. When I look at some of the other competing technologies, they can't park 220 trucks that take 80 gallons a truck for 16,000 gallons a day in one location. And then those trucks can go 1,000 miles, or 800 miles. The other technologies aren't there yet. And we've done this now all over the country for Amazon. We're very proud of it.

So, I mean, you obviously ideally, longer-term, would love to replicate Amazon with some of the bigger fleets, but you don't need it, right? You've got plenty of room, whether it's at the Amazon stations or other stations, that you don't need that cap back [indiscernible] near-term. Well, you're right. I mean, we have -- I guess with this now, my number has to go up -- about 118 to 120 public truck stop locations in the country. We have on the order of a couple hundred, maybe 250 million to 350 million gallons of excess capacity at those locations. So we aren't hard-pressed to have to continue to build out.

Now, for instance, my friends at Knight-Swift, they have 26,000 power units, I believe. They buy 5,000 units. They have terminals all over the United States. We want to put locations in. Typically, these kind of fleets do about 2/3 backlog, 1/3 out of the public network. So we have a lot of the public network built for these lanes. It's very sticky if we're able to be the fuel provider at their terminals. And so I hope that's what we get to do. And of course, we're in discussions with a lot of those fleets that have already taken and tested the 15-liter and then some of who have already put in orders.

Your next question comes from Rob Brown from Lake Street Capital Markets.

I just wanted to get a little bit more on the ramp in the RNG facilities. I think you talked a little bit about some timing of producing gas but holding in inventory and waiting for the credits. But I just wanted to clarify how the timing of the ramp kind of plays out.

Well, I mean, essentially, you're at about a 6- to 9-month period where you're producing gas and operating, but you're not monetizing these the credits, okay? So you can maybe get there sooner, but you've got to get temporary pathways, but that's about what it is. So as we have 5 of these coming online, that's why we're seeing kind of the monetization of that happening towards the back end of the year, because you've got to get to a steady-state. You've got to get steady-state operations.

Yes. So Rob, let me help because it can be a little confusing. I know Bob knows this, but, I mean, maybe to help everyone on the call. You've been building this project for a year, all right? You begin injecting. There's a commissioning, which isn't like just turning on a switch, takes a little bit of time. There's a commissioning process. That could take a month. You begin injecting gas, and then there's a period where you get out the cobwebs a little bit and you stabilize the production, and you get it up to kind of a steady-state, but that may take 30 to 60 days to get it to where you're really producing it at a state. At about that time, then, you begin to keep very close track of your data. And let's call it at the end of 3 months, can be as long as 4 months, 5 months, you've got steady-state operations. You have really good data. That's when you go submit it to the EPA for their verification.

Now, that's quick. That could be 30 days, and then you get a provisional pathway at that point, and you begin to, I believe, and someone who's sitting around table here, correct me if I'm wrong. I believe, then, you are able to get the RINs at that point.

There's the LCFS.

Well, I'm not there yet. And then, at that point, then it's really after that, you begin to put your application together. And frankly, you know I've been very kind of outspoken on this. The pathway process for the low-carbon fuel standard has been way too long. When we first started this business, it was 4 months, maybe a month or so longer than what the Feds were doing at the EPA, stretched out now to anywhere between 12 months and 18 months. So it's ridiculous, okay? And it's broken. And they've outsourced it to third parties, and there's this verification effect. It's not uncommon for those of us in the business to have to put it in, put in our application and wait 6 months. Nothing happens. And then, they have been nerve to ask us to resubmit for another 6-month wait, and then maybe another. So that obviously has to get fixed and reduced, and there has to be some sort of compromise here where they allow us at least to true up and produce our gas because, otherwise, this is a real penalty. It's like building a skyscraper and then waiting around 18 months for anybody to move in.

And now, I happen to feel pretty good about the fact that we have sounded that alarm and at the highest levels of government and at CARB. And I'm told that they hear us now and that we're going to be working to reduce that time. So let's hope that's the case.

But that whole process, between when you begin to inject, when you can begin to get store, a steady-state store, when you can collect RINs, but the low-carbon fuel standard takes substantially longer, and you can't split those 2 things. So it really hamstrings you.

So this is why we say it's really a 6- to 9-month process after we begin steady-state. So I wish it was a lot sooner, and I'm hopeful that it will be, and I feel like it will. But that's kind of the current situation. And that's why there's this drag with these projects that will come on this year. And I think it's -- [ or ] some, we're modeling our company, thinking that there would be much more contribution, EBITDA contribution this year from these projects. It's just not the way it works. It's not unique to us. It's the way that the process works.

And then, in terms of the ability to do the construction and sort of the activity in terms of cost of the facility build and sort of the ability to get the gas you want, how is that going? Has that been in line with expectations? And is there any sort of uncertainty there?

Well, I think, Rob, I mean, and Bob said this a little bit, and I think you all know it. These projects have taken -- I think it's not, again, unique to us, and I'm not trying to hide behind others. I mean, these projects have tended in the industry to take a little bit longer than many of us thought. Now, not years, months, and ours did. We thought that these projects would conclude in the third quarter and early fourth quarter, and they took an extra 3 months of really of commissioning and getting them all done. So the time to finish these projects has taken a little bit longer. And I would say maybe it was the pandemic. Maybe it was the supply chain. We saw an increase in cost in these projects, 10% to 15% to 18%. Now, that's stabilized, but we also know, Rob, that as we go forward, we're going to have to bring in -- and I feel certain we have a project team underway here at Clean Energy. We need to bring in these costs, right? We need to try to systematize and be able to replicate these projects without the kind of artwork design and each one so customized. And we're working on that now. And others in the industry have brought some new designs of how they might handle the digesters, as such.

So we need to wring out some of the pricing, bring in the time to market of the construction and the permitting these things, and then certainly the pathway to begin to produce and collect, monetize the credits. There's work to be done. Good news is we're going to need this RNG. Look, if it goes the way we think, and if you look at what Cummins is saying, they believe they'll sell about 3,000 to 3,500 15-liters in 2024. They've suggested in their materials, these are not mine, 7,000 units next year, and then they say it could go up to somewhere between 8% and 15% penetration of the Class 8 market. Class 8 market, by the way, is about 0.25 million engines. So that could be anywhere between 15,000 to 25,000 units in the third year.

Well, in that year, you need 300 million gallons, 375 million gallons of RNG, right? Two years, you need 110 million or 115 million. So the industry needs RNG. So you're going to need to drop down. There will be many more landfills coming on and into the market, as well as dairies. And the dairies, the industry has done a pretty good job at tackling some of the largest dairies, but there are many thousands of other dairies that are smaller. So you're going to have to just lower the cost to be able to tackle these smaller dairies. And I feel certain that the industry will do that.

Your next question comes from Derrick Whitfield from Stifel.

Taking a slightly different approach on your guidance, could you offer some broader parameters around the amount of [ wet cow ] equivalent you'll have online at the end of 2024 and 2025 with projects that are clearly under contract today?

I didn't get the first part of that.

I didn't either.

So the question was just could you offer some broader parameters on the amount of wet cow equivalent you guys will have online in 2024 and 2025 with the projects that are under contract?

Yes. So let me kind of total up here. So about 29,500 wet cow equivalent of the projects we've just finished, about another 8,500 that are in construction. Well, actually, it's more than that. It's 8,500 plus 36,000, so almost 45,000, for a total of about 75,000 wet cow equivalents. Then our pipeline, which it's just ones that we're looking at, is about another 115,000. But I think it's a good point, Derrick, as it may be an opportune time to mention. But all of us in the industry have these pipelines, right, and we've traded documents with farmers. And we even spend money on doing some of the early design work and CI investigation and this and that.

But being good stewards of our money, some of the projects that we thought we were about to put in construction, we've had to slip some of those based on several factors, right, based on the LCFS credit pricing, based on some of the things that we saw coming out of CARB, the fact that we didn't really have clarity on the PTC, a little bit of a glitch on the ITC because of the pricing, the prices of equipment and about 2 of the projects that we were literally getting ready to go into construction on here a month ago.

As you take a look at the potential of a [ Greek 4 ] model, which means you might have to, if it goes the way they're talking about, clean out the lagoon every year, that throws a loop into the economics. And so, look, none of these things are game-stoppers. They're just, as we look at deploying precious capital, we have to be careful. And there may be a better time. There may be an opportunity when we get a little better view of the economics around the PTC and other things that we would pull the trigger.

So we continue to work on a robust pipeline. We continue to look at M&A opportunities, but we take all this into it, and I think our shareholders want us to. In the meanwhile, we're aggregating and bringing in more RNG than anyone else in the business. But when we deploy our capital, we want to make sure it's a very solid project that meets our thresholds and our partners' thresholds. And so we've dropped a couple here for a second to make sure that we like the projects as we go forward.

It makes complete sense, and that's what investors would want you guys to do. Maybe just taking part of your answer, when you look at the current M&A environment, maybe could you speak to the competitive landscape and your thoughts on what a dairy-heavy RNG package might transact for on a dollars per MMBtu basis, or however you'd like to characterize it? And the reason I ask is we really haven't seen a dairy-heavy package transact in the last quite a bit of a while. So any color that you could offer on that would be greatly appreciated.

I don't know that I'm going to be much help to you there, Derrick, though we've looked at several. We've tried to make transactions on a couple, as you may or may not know. But I think I better stay away from that, other than to say that I think it's taken a while for some, with maybe everyone in the industry, to kind of come off the fact that we no longer have $200 LCFS pricing, and we're at $60. That makes a difference. By the way, I think it's important to note, it doesn't make these projects negative. It just makes them [ bad ] a little bit longer, right? And it kind of makes you scratch your head a little bit on whether or not you want to embark on a 12% return, right? So some of our friends in the business [ had ] packages that were maybe looking to transact, Still, we're looking at pricing as if we had $200 LCFS. We don't.

So as one of my investment banking friends says, well, they just need a little market therapy. So we'll see some of those transact at some point. There was a time, too, where we were going to have [ eRINs ], right? So a lot of people were thinking it's voluntary market and it's eRINs. It's interesting that most of the folks in the industry are now looking to come back to the transportation sector. So that puts us in a very nice position, as we're the biggest off-taker, right? We have the most end users. We have the most stations. And so we're talking to all the suppliers in the business, and we're looking at several of these deals.

So we are still very bullish on the need for RNG, optimistic about our role in it, and we'll be there kind of when it's time.

Your next question comes from Matthew Blair from TPH.

We thought the step-up in RIN revenue was pretty encouraging in Q4. Could you talk about what drove that? Was that simply just a higher RIN price environment on the screen? Or were you able to capture a higher percentage of that RIN revenue relative to your RNG gallons?

It was mostly price driven on that. I mean, I think there was the take, and all that was fairly steady, if you will. I mean, in the past, we'd seen it come down, so I think it's stabilized a little bit there. So that was helpful.

And then we've been hearing that new dairy RNG producers are having a hard time getting their gas into the California market just simply due to how saturated is with RNG already. Does this present an opportunity for your downstream station network in California to perhaps capture a bigger piece of the pie of the economics, going forward?

Yes.

Don't tell anybody, Matthew. I think it's good for us, and it's good for when ours comes online too. All of our stations in California are about almost 150. All of our stations in California are 100% RNG, but only about half of it's dairy, right? So there's still lots of room for us, for third parties, and for our own. So that's why we're pretty bullish on the need for bringing low CI into the state, because we have a home for it.

And our network supports the vehicles. So as the demand actually goes, then we certainly have capacity at our stations.

Well, a good example, just it sounds (indiscernible), just to bring it down. I mean, okay, so you open up a San Bernardino location for Amazon, and they have 200 trucks there. They all want RNG. And we had a peak day the other day, where they used 15,000 gallons in 1 night. So that is the kind of growth that I hope we'll see a lot more of, but that is ongoing.

Your next question comes from Craig Shere from Tuohy Brothers.

I'm not sure I understand. If you get a catch-up on RINs and LCFS credits once you finally get these certifications, will you effectively have a lot of bank credits on already-executed RNG production by the end of '24?

There's not a catch-up that's in play right now. There's some discussion of that. But no, as part of that whole timing thing that Rob Brown was asking about, and us having to make decisions on, in effect, kind of letting the gas go at a provisional. But there is discussion of a clawback, if you will.

Otherwise, you have to let go at 150.

Yes. Once it goes and you either transact at the provisional with the RIN, then it's done, and you're not banking any of that. If we want to virtually store, we would then virtually store, but then you're not at that point then. But you can't store the gas longer than 6 months. That's kind of the issue, is the gas has got to move after 6 months. So you get a little bit stuck with having to move that. If they would allow a clawback, that would be great, because you can move that gas. It's out of provisional, and then you could go back and say, okay, it's not at negative $150 million. It was really a negative $270 million and make up that difference. But that's not in place right now.

And that's what we're working on, Craig. And I think that's reasonable, right? Hey, allow us to produce it as if it were 250. I mean we don't have to be ridiculous, and then we'll come back and true it up. And then, it actually is 313, or whatever it is.

Two other quick ones here. And I'm sorry, I know you said this in your prepared comments, but I'm still confused about why this big Idaho dairy project will contribute about half of 2024 upstream losses if it's not completed. Why would you expense the costs of a project that's still in development? And then, my final question is on the M&A opportunity. How do you think about hurdle rates for prospective acquisitions? And how do you handicap things like emission credit pricing, PTC regulation and other variables?

Well, I'll start out on the Idaho. That is just it's unique to that project, but that project is really a massive project. It will be one of the largest in the country when we're done with that. But it has some features to it that, along with our partners, we are providing certain activities kind of around the farm and an area where we're constructing and that sort of thing that does not qualify for capitalization. So it's a little bit just kind of part of that program a little bit, but it's not kind of capitalizable cost. So it's nothing that's kind of nonsensical or why would you do that. It's when you're doing a project that's of that magnitude there. Look, in the grand scheme of things, this is not a big material piece of that contract, but it is enough to our quarterly earnings and what we put out there for the annual guidance for '24 that it was meaningful enough to just note that, that relates to something that's kind of in progress.

And I think the point there was really not wanting to have an impression that the 6 projects that we'll have operating in '24 had that kind of drag on it. It's like, well, why is there such a drag? And then you say, well, okay, well, we do have a massive project where we've got some OpEx that's going on concurrently with us building that out. So we're doing some services there.

Just to clarify, this is unique or a one-off. We shouldn't expect something similar in '25.

That's right. But, well, we don't have another deal that's structured like this, but also we don't have another deal that is this large. I mean look, and now we're getting down to maybe on one hand when you start talking about deals that [ have it ]. So there are certain aspects of that deal that we factored all into how the economics will work. I will say that, as we talked about these coming online, and then when you really go into operating that with all the digesters that they have and the massive size of that, there'll likely be some drag from starting that project up, but it's not because of how we're operating right now, okay?

Craig, I'm not going to give you hurdle rates on our M&A. And I missed the last part of the question. Was it PTC?

Well, how do we handicap some of the -- just the [indiscernible] dairy, PTC and [indiscernible].

I actually think, and I want to say that we have sort of been right on this. I'm handicapping the CARB outcomes as positive for the industry. You remember the whiteboarding stuff, Craig, we talked about a year ago. We weren't going to have any dairy. RNG was going to be excluded from the low-carbon fuel credit. They weren't going -- avoiding methane was out. Booking claim was going to crater the entire deal, on and on. Well, none of that [ had ] happened. All of that worked out well for us. All of it got grandfathered out for a long period of time. The last piece here we're talking about is the obligation curve, and that looks like they've taken another month to steepen it some more. That should work off a little bit of this bank. So just as the market started to say, well, look, there's an oversupply of credits for the next 2.5 years, I don't know, maybe not. It goes from 18.5% to 23% or 24%, 25%. That can make a material change in that.

So from a LCFS point of view, I'm feeling like we dodged all the bullets, and they've all come out rosy for the RNG business. So I like that.

On the PTC, I think all of us got a little scared about the IRA because the ITC was sort of bundled at Treasury where they disallowed some of the cleanup equipment. But as you saw a week ago, they came out and said, whoops, maybe we should include some of that. So that made me feel better about there wasn't a political change going on there. That just was complicated, and there was an oversight.

And so, when we look at the PTC, I feel like that legislation was clear. That was designed to encourage low-carbon fuels. So while I fully understand, having spent time in Washington, that a Treasury Secretary could do what he or she wants and could limit the size of that credit, I think the spirit of that was to encourage the lowest carbon fuel for transportation, suitable for transportation. So I'm guessing you're going to see something that's, I hope, on the higher side of something, a contribution, a credit per gallon, tax credit per gallon.

So I'm an optimist by nature, but I'm guessing that's the way that's going to turn out. Parts out in [indiscernible] is $1. And as you know, depending on where you get on carbon intensity, there have been those that have suggested it could be worth, I don't know, $6 or $7 a gallon. I don't want to be greedy, but we'll see where it lands on the PTC.

Your next question comes from Pavel Molchanov from Raymond James.

Back to the fuel distribution business, $60 million of CapEx in 2024. That's kind of a meaningful increase from the last several levels, correct?

Well, it was $90 million last year. Actually, we ended about $100 million. So it's come down from last year. Absolutely, it is remaining much higher than, say, a couple of years back, and then a little before that, where we were kind of [indiscernible]. Oh, no, we were into, like, $25 million, $30 million, I mean, because we were really ?

Pavel, if you go back a decade, we had those 3 years where we ran $100 million, $85 million, $87 million, is we're building out a lot of the network, then we dropped it down. And I think we ran about 3 years around $25 million, didn't we, and then it ticked up. And then Amazon, of course, ticked it up, and it remains up. I mean, look, I don't know that we've ever had a backlog as big as we have this year.

There's a little bit of Canada in there.

Yes, there's some Canada in there. Well, we have a partner there, [indiscernible].

Right. But, I mean, we've got, like, 4 more stations to build there and more on top of that. So yes, it is, at least from a current run rate standpoint, we're kind of back up in a bit higher number.

Right. I mean I think, between 2017 and 2022, it was $20 million to $30 million a year. So you make a good point. It's come down versus last year, but still elevated. So, geographically, where are you focused on the build-out?

Canada. And there's about a handful that are fairly large in California. And then, there's a couple of big transit opportunities that we've got. So it's not unlike always. We have probably more refuse projects that we've ever had that are in the pipeline right now. Now, some of those are with our customer running, some of it is with ours, so it kind of depends. Pavel, it's all over the country, and it's in all of our segments. Probably none in the airport segment, really, that I think of on the top of my head.

And then just a kind of quick housekeeping point. When you begin to generate meaningful sales from the joint ventures, will you be publishing price times volume?

Yes. We will publish volume from those exactly how we'll put it in. I mean, Pavel, in some of those, we may be maintaining those stations, so we're going to count that in our service gallons. But we will begin to report what kind of gallons are coming off of those production facilities.

Your next question comes from Betty Zhang from Scotiabank.

Appreciate the new disclosure where we're breaking out the distribution and the production EBITDA. I wanted to ask, could you help us with a bridge from the $50 million of EBITDA in 2023 to a midpoint of about $79 billion in '24? You talked about RINs to $3, LCFS at $60. So it seems like maybe a slight decline from the pricing we had in 2023, well, although RIN is up a little bit. So is that mostly coming from higher volumes? Or I think you talked about, in the past, fuel mix. But yes, just any color there?

Yes. I mean, it is continued growth in vehicle fueling, as well as we are fairly consistent with our assumption on the spread of diesel to natural gas, or oil to natural gas. So what we saw kind of going on and really kind of in the second, third and fourth quarter of '23, we do see that trend moving into '24.

Betty, one of the things, and you and I have talked about this before, but one of the things that I hope comes out the way Bob is breaking this out is, I mean, to see that the underlying strength of the fueling business, right? I mean, I noted today, with $78 oil and $1.80 natural gas, I don't know that we've ever seen a spread, I'm sure there's been one, but a 43-to-1 difference between natural gas and oil. So the underlying economics of our fuel, and therefore the fuel margin and the discount that we can offer to our customers, to help our customers and also have a nice margin ourselves, has probably never been better. And I think that should come through as you look at the contribution of the fueling business, distribution business in this year.

Yes. And look, the design of the model is also helpful. And in any vehicles that were fueling with us but did not fuel for 12 months last year, but then they have a full 12 months this year, and it kind of builds on itself like that. So that's like a built-in kind of gain that you get in addition to just adding new vehicles during the year.

So following onto that, I'm wondering why the RNG volume guidance then isn't higher; because, like you said, for those trucks that maybe weren't fueling last year for the full year, they're seeing a full year in '24. So you're looking for about 245 million gallons. And if you could maybe break that down between your own production versus third-party volumes?

Yes. Well, I don't know. I mean, maybe part of the nuance that you're seeing there, you can tell me if this is okay or not, but was the nuance that I spoke to in my comments, right? When we look at last year, there was 13 million gallons. It's meaningful that I would say was not, say, our vehicle fuel, but we did move this RNG out to participants, and it was RNG volume. And so, if you're kind of looking at a run rate from '23 up to '24, you would maybe handicap '23 and take out $13 million. So you're stepping up quite a bit from the mix of vehicle fuel, is really what probably more difficult for you to see, but that's what's happening, is now you can kind of get into the type of RNG gallons that are moving, and you really do want those to be all the way [ to ] vehicles, and the growth you're seeing is that. It doesn't have to be such a tremendous increase in just the volume number itself. It also matters the type of volume that's going on there. And what was the second part of your question? Was there a second part there?

Yes. I was wondering if you could break out the 245 million gallons for 2024 between your own production and third-party volumes.

Yes. Well, I mean, most of it, we're looking at kind of higher single digits on our own production, 7 million, 6 million, 7 million, something like that. And I think, as Pavel kind of -- those are not in the 244. My 244, or 245 is kind of our throughput of RNG. So like I said, we will report kind of separately about what kind of volumes are being produced. All of those gallons come to us, but they're feeding into my 245 million gallons, if you will. And so yes, I guess you could say that 7 million of that comes from us, and the rest of it comes from all the other 100 sources that we have of suppliers.

And there are no further questions at this time. I will turn the call back over to Andrew Littlefair, CEO, for closing remarks.

Thank you, operator, and thank you, everyone, for joining us. We look forward to talking with you next quarter.

Ladies and gentlemen, this concludes your conference call for today. Thank you for joining, and you may now disconnect your lines. Thank you.