# Clean Energy Fuels Corp. (CLNE) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Clean Energy Fuels Corp.'s 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1368265/000155837023002365/clne-20221231x10k.htm
Accession: 0001558370-23-002365
Filing date: 2023-02-28
Report date: 2022-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/CLNE/
All MD&A years: /company/CLNE/mda/
Previous year: /company/CLNE/mda/fy2021/ (FY 2021)
Next year: /company/CLNE/mda/fy2023/ (FY 2023)

Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (this discussion, as well as discussions under the same heading in our other periodic reports, are referred to as the “MD&A”) should be read together with our audited consolidated financial statements and the related notes included in this report, and all cross references to notes included in this MD&A refer to the identified note in such consolidated financial statements. This section of the Form 10-K generally discusses 2022 and 2021 items and year-to-year comparisons of 2022 to 2021. Discussions of 2020 items and year-to-year comparisons of 2021 and 2020 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 24, 2022.

Cautionary Note Regarding Forward-Looking Statements

This MD&A contains forward-looking statements. See the discussion about these statements under “Cautionary Note Regarding Forward-Looking Statements” at the beginning of this report.

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Overview

We are North America’s leading provider of the cleanest fuel for the transportation market, based on the number of stations operated and the amount of gasoline gallon equivalents (“GGEs”) of renewable natural gas (“RNG”) and conventional natural gas sold. We calculate one GGE to equal 125,000 British Thermal Units (“BTUs”) and, as such, one million BTUs (“MMBTU”) equals eight GGEs. Through our sales of RNG, which is derived from biogenic methane produced by the breakdown of organic waste, we help thousands of vehicles, from airport shuttles to city buses to waste and heavy-duty trucks, reduce their amount of climate-harming greenhouse gases (“GHG”) from 60% to over 400% based on determinations by the California Air Resources Board (“CARB”), depending on the source of the RNG, while also reducing criteria pollutants such as Nitrogen Oxides, or NOx. RNG is either delivered as compressed natural gas (“CNG”) or liquefied natural gas (“LNG”).

As a clean energy solutions provider, we supply RNG and conventional natural gas, both sourced from third party suppliers, in the form of CNG and LNG, for medium and heavy-duty vehicles; design and build, as well as operate and maintain (“O&M”), public and private vehicle fueling stations in the United States and Canada; develop and own dairy anaerobic digester gas (“ADG”) RNG production facilities; sell and service compressors and other equipment used in RNG production and at fueling stations; transport and sell RNG and conventional natural gas via “virtual” natural gas pipelines and interconnects; sell U.S. federal, state and local government credits (collectively, “Environmental Credits”) we generate by selling RNG as a vehicle fuel, including Renewable Identification Numbers (“RIN Credits” or “RINs”) under the federal Renewable Fuel Standard Phase 2 and credits under the California and the Oregon Low Carbon Fuel Standards (collectively, “LCFS Credits”); and obtain federal, state and local tax credits, grants and incentives.

At present, we see the best use of RNG as a replacement for fossil-based fuel in the transportation sector. We believe the most attractive market for RNG is U.S. heavy-duty Class 8 trucking and, based on information from the American Trucking Association and our own internal estimates, we believe there are approximately 4.1 million Class 8 heavy-duty trucks operating in the U.S. that use over 40 billion gallons of fuel per year. As of December 31, 2022, we deliver RNG to the transportation market through 569 fueling stations we own, operate or supply in 42 states and the District of Columbia in the U.S., including over 200 stations in California. We also own, operate, or supply 25 fueling stations in Canada as of December 31, 2022.

Critically, to generate the valuable Environmental Credits, RNG must be placed in vehicle fuel tanks. We believe our stations and customer relationships allow us to deliver substantially more RNG to vehicle operators than any other participant in the market – we calculate that we have access to more fueling stations and vehicle fleets than all our competitors combined. As of December 31, 2022, we served over 1,000 fleet customers operating over 50,000 vehicles on our fuels.

Longer term, we plan to expand availability of hydrogen fuel for vehicle fleets. As operators deploy more hydrogen powered vehicles, we can modify our fueling stations to reform our RNG and deliver clean hydrogen to customers. We also believe our RNG can be used to generate clean electricity to power electric vehicles, and we have the capability to add electric vehicle charging at our station sites, although the cost of adding electric vehicle charging capacity may be significant.

Impact of COVID-19, Inflation, Labor Shortage, Material Availability and Interest Rate

The COVID-19 pandemic had an adverse effect on the volume of our sales, which we saw bottom in the second quarter of 2020. We have since seen improvement in volumes in all customer markets with notable increases in the trucking customer market led by Amazon and the airports (fleet services) customer market, which increased by 28% and 10%, respectively, during the three months ended December 31, 2022, compared to the prior year period. Our total volume of GGEs sold and serviced for the year ended December 31, 2022 increased 7% compared to that in the prior year. The increase in fuel and O&M services volumes in the fourth quarter of 2022 and in fiscal year 2022 compared to that in the respective prior year periods was primarily due to COVID-19 restrictions being lifted and an increase in economic activities and travel generally.

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During the year ended December 31, 2022, we have experienced increases in commodity and supply chain costs due to inflationary pressures. Additionally, effects stemming from the COVID-19 pandemic have caused disruptions in labor supply and in supply chains, leading to shortages of certain materials and equipment and higher labor costs. The future duration and extent of these pressures and effects are difficult to predict. Although we have partially offset these increased costs through price increases for our products and services, our efforts to manage the current inflationary pressure and to recover inflation-based cost increases from our customers may be hampered by the structure of our contracts as well as the competitive and economic conditions of the markets in which we serve. For more information, see “Risk Factors” in Part I, Item 1A of this report.

As of December 31, 2022, the majority of our debt outstanding represents a long-term loan bearing variable rates of interest. Changes in market interest rates will affect the interest expense incurred from this outstanding long-term debt instrument, increasing or decreasing our interest expense in future periods. Furthermore, changes in market interest rates may affect the interest rate and corresponding interest expense on any new issuance of short-term and long-term debt securities. See “Quantitative and Qualitative Disclosures about Market Risk” in Part II, Item 7A of this report for more information.

We believe we have sufficient liquidity to support business operations through this volatile period, including total cash and cash equivalents and short-term investments of $263.5 million, excluding current portion of restricted cash, as of December 31, 2022 and $1.0 million of current debt. We have collected nearly all receivables relating to alternative fuel excise tax credits (“AFTC”) generated from 2021 fuel sales in 2022. In addition, as a result of the Inflation Reduction Act of 2022 being enacted on August 16, 2022, AFTC was reinstated and extended for an additional three years, beginning retroactively to January 1, 2022. For the year ended December 31, 2022, we recognized $21.8 million in AFTC revenue.

Performance Overview

This performance overview discusses matters on which our management focuses in evaluating our financial condition and our operating results.

Sources of Revenue

The following tables represent our sources of revenue:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended December 31,"],["Revenue (in millions)","\u200b","2020","","2021","","2022"],["Product revenue(1):","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Volume-related(2)","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Fuel sales(3)","\u200b","$","169.4","\u200b","$","131.0","\u200b","$","281.1"],["Change in fair value of derivative instruments(4)","\u200b","\u200b","2.1","\u200b","\u200b","(3.5)","\u200b","\u200b","0.5"],["RIN Credits","\u200b","\u200b","15.3","\u200b","\u200b","31.7","\u200b","\u200b","34.7"],["LCFS Credits","\u200b","\u200b","18.7","\u200b","\u200b","16.8","\u200b","\u200b","12.6"],["AFTC(5)","\u200b","","19.8","\u200b","","20.7","\u200b","","21.8"],["Total volume-related product revenue","\u200b","\u200b","225.3","\u200b","\u200b","196.7","\u200b","\u200b","350.7"],["Station construction sales","\u200b","\u200b","26.6","\u200b","\u200b","16.4","\u200b","\u200b","22.3"],["Total product revenue","\u200b","","251.9","\u200b","","213.1","\u200b","","373.0"],["Service revenue(6):","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Volume-related, O&M services","\u200b","\u200b","39.6","\u200b","\u200b","41.9","\u200b","\u200b","45.9"],["Other services","\u200b","\u200b","0.2","\u200b","\u200b","0.6","\u200b","\u200b","1.3"],["Total service revenue","\u200b","","39.8","\u200b","","42.5","\u200b","","47.2"],["Total revenue","\u200b","$","291.7","\u200b","$","255.6","\u200b","$","420.2"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","A discussion of product revenue is included below under \u201cResults of Operations.\u201d"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["(2)","Our volume-related product revenue primarily consists of sales of RNG and conventional natural gas, in the form of CNG and LNG, and sales of RINs and LCFS Credits in addition to changes in fair value of our derivative instruments. More information about our GGEs of fuel sold in the periods is included below under \u201cKey Operating Data,\u201d and more information about our derivative instruments, which consist of commodity swap and customer fueling contracts, is included in Note 7."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(3)","Includes $83.6 million and $24.3 million of non-cash stock-based sales incentive contra-revenue charges related to the Amazon Warrant (as defined in Note 13) for the years ended December 31, 2021 and 2022, respectively."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(4)","The change in fair value of derivative instruments is related to the Company\u2019s commodity swap and customer fueling contracts. The amounts are classified as revenue because the Company\u2019s commodity swap contracts are used to economically offset the risk associated with the diesel-to-natural gas price spread resulting from customer fueling contracts under the Company\u2019s Zero Now truck financing program."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(5)","Represents AFTC. AFTC was available for vehicle fuel sales made through December 31, 2021. In August 2022, AFTC was reinstated for vehicle fuel sales and extended for three years, beginning retroactively to January 1, 2022."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(6)","Our O&M services revenue represents sales from performance of O&M services. More information about our GGEs serviced in the periods relating to O&M services is included below under \u201cKey Operating Data.\u201d Additionally, a discussion of service revenue is included below under \u201cResults of Operations.\u201d"]]
[[/GREPCENT_TABLE]]

Key Operating Data

In evaluating our operating performance, we focus primarily on: (1) the amount of total fuel volume we sell to our customers with particular focus on RNG volume as a subset of total fuel volume, (2) O&M services volume dispensed at facilities we do not own but where we provide O&M services on a per-gallon or fixed fee basis, (3) our station construction cost of sales, and (4) net income (loss) attributable to us. All RNG and conventional natural gas sold are currently sourced from third-party suppliers. The following tables present our key operating data for the years ended December 31, 2020, 2021 and 2022. Certain gallons are included in both fuel and service volumes when the Company sells fuel (product revenue) to a customer and provides maintenance services (service revenue) to the same customer.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Fuel volume, GGEs(2) sold (in millions),","\u200b","Year Ended December 31,"],["correlating to total volume-related product revenue","","2020","","2021","","2022"],["RNG(1)","","\u200b","153.3","\u200b","\u200b","167.0","\u200b","\u200b","198.2"],["Conventional natural gas(1)","","\u200b","82.1","\u200b","\u200b","78.8","\u200b","\u200b","69.6"],["Total fuel volume","","\u200b","235.4","","\u200b","245.8","","\u200b","267.8"]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["O&M services volume, GGEs(2) serviced (in millions),","\u200b","Year Ended December 31,"],["correlating to volume-related O&M services revenue","","2020","","2021","","2022"],["O&M services volume","","\u200b","218.4","\u200b","\u200b","229.8","\u200b","\u200b","240.4"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended December 31,"],["Other operating data (in millions)","","2020","","2021","","2022"],["Station construction cost of sales","\u200b","$","24.0","\u200b","$","15.0","\u200b","$","19.4"],["Net loss attributable to Clean Energy Fuels Corp. (3) (4) (5)","","$","(9.9)","","$","(93.1)","","$","(58.7)"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","All RNG and conventional natural gas sold were sourced from third-party suppliers."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","GGEs are calculated based on the conversion rate of one MMBTU equaling eight GGEs."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(3)","Includes $19.8 million, $20.7 million, and $21.8 million of AFTC revenue for the years ended December 31, 2020, 2021 and 2022, respectively."]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["(4)","Includes $83.6 million and $24.3 million of non-cash stock-based sales incentive contra-revenue charges relating to the Amazon Warrant (as defined in Note 13) for the years ended December 31, 2021 and 2022, respectively. No amounts of non-cash stock-based sales incentive contra-revenue charges relating to the Amazon Warrant were recorded for the year ended December 31, 2020."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(5)","Includes an unrealized gain (loss) from the change in fair value of commodity swap and customer fueling contracts of $2.1 million, $(3.5) million and $0.5 million for the years ended December 31, 2020, 2021 and 2022, respectively. See Note 7 for more information regarding the commodity swap and customer contracts."]]
[[/GREPCENT_TABLE]]

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2021 – 2022 Developments

TotalEnergies Joint Venture. On March 3, 2021, we entered into an agreement (the “TotalEnergies JV Agreement”) with TotalEnergies to create 50/50 joint ventures to develop ADG RNG production facilities in the United States. The TotalEnergies JV Agreement contemplates investing up to $400.0 million of equity in production projects, and TotalEnergies and the Company each committed to initially provide $50.0 million (the “TotalEnergies JV Equity Obligations”). Pursuant to the TotalEnergies JV Agreement, each ADG RNG production facility project will be formed as a separate limited liability company (“LLC”) that is owned 50/50 by us and TotalEnergies, and contributions to such LLCs count toward the TotalEnergies JV Equity Obligations. On October 12, 2021, we entered into an LLC agreement (the “DR Development Agreement”) with TotalEnergies to develop a dairy ADG RNG production facility project (the “DR JV”). Under the DR Development Agreement, we and TotalEnergies each committed to contribute $7.0 million to the DR JV and on November 1, 2021, we and TotalEnergies each made an initial $4.8 million capital contribution to the DR JV.

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SG Credit Agreement. On March 12, 2021, we amended the credit agreement (as amended, the “SG Credit Agreement”) with SG to permit us to use up to $45.0 million of loan proceeds to fund certain station build costs and up to $20.0 million to fund the TotalEnergies JV Equity Obligations. Our ability to draw under the SG Credit Agreement ended on January 2, 2022. As of December 31, 2022, we repaid the remaining $2.0 million outstanding balance under the SG Facility and the related accrued and unpaid interest. Upon such payment, the SG Facility was paid in full and no amounts remained outstanding thereon. See Note 12 for more information about our outstanding debt.

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bp Joint Venture. On April 13, 2021, we entered into an agreement (“bp JV Agreement”) with bp that created a 50/50 joint venture (“bpJV”) to develop, own and operate new ADG RNG production facilities in the United States. 100% of the RNG produced from the projects developed and owned by the bpJV will be provided to the vehicle fuels market pursuant to our existing marketing agreement with bp. Pursuant to the bp JV Agreement, we and bp committed to provide $30.0 million and $50.0 million, respectively, with bp and us each receiving 30.0 million of Class A Units in the bpJV and bp also receiving 20.0 million of Class B Units in the bpJV. bp’s initial $50.0 million contribution was made on April 13, 2021. Pursuant to the bp JV Agreement, we had the option, exercisable prior to August 31, 2021 (the “bp Option”), to commit an additional $20.0 million to the bpJV upon which bp’s Class B Units would convert into Class A Units. On June 21, 2021, we contributed $50.2 million consisting of our initial contribution commitment of $30.0 million, the $20.0 million additional contribution to exercise our bp Option, plus $0.2 million of interest in accordance with the bp JV Agreement to effect the conversion of bp’s Class B Units into Class A Units.

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In December 2021, the bpJV issued a capital call (the “bpJV Capital Call”) for additional funding of $143.2 million to construct ADG RNG projects under the bpJV. Pursuant to the bpJV Capital Call, we and bp were each required to contribute $71.6 million to the bpJV. On December 31, 2021, we and bp each contributed $20.0 million and $71.6 million, respectively, to the bpJV in connection with the bpJV Capital Call. On June 30, 2022, we paid the remaining outstanding contribution balance of $51.6 million to the bpJV and satisfied our capital contribution commitment under the bpJV Capital Call.

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On March 30, 2022, the bpJV issued a second capital call (the “bpJV Capital Call 2”) in the amount of $76.2 million to provide capital for ADG RNG projects under the bpJV and to fund bpJV’s working capital needs. On September 30, 2022, we and bp each contributed $38.1 million to the bpJV in connection with the bpJV Capital Call 2.

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Amazon. On April 16, 2021, we entered into a Project Addendum to Fuel Pricing Agreement (“Fuel Agreement”) with Amazon Logistics, Inc., a subsidiary of Amazon.com, Inc. (“Amazon”), and a Transaction Agreement with Amazon (the “Transaction Agreement”), pursuant to which, among other things, we issued to Amazon.com NV Investment Holdings LLC, a subsidiary of Amazon (“Amazon Holdings”), a warrant to purchase up to an aggregate of 53,141,755 shares (the “Warrant Shares”) of our common stock at an exercise price of $13.49 per share, which was a 21.3% premium to the $11.12 closing price of our common stock on April 15, 2021.

The Warrant Shares vest in multiple tranches, the first of which for 13,283,445 Warrant Shares vested upon execution of the Fuel Agreement. Subsequent tranches will vest over time based on fuel purchases by Amazon and its affiliates, up to a total of $500 million in fuel purchases, excluding any payments attributable to “Pass Through Costs,” which consist of all costs associated with the delivered cost of gas and applicable taxes determined by reference to the selling price,

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gallons or gas sold. Importantly, in order for all the vesting conditions of the warrant to be satisfied, Amazon would have to purchase hundreds of millions of GGEs of RNG from us.

Under the Transaction Agreement, we were required to use commercially reasonable efforts to obtain the approval of our stockholders with respect to the issuance of Warrant Shares in excess of 50,595,531 shares of our common stock, pursuant to The Nasdaq Stock Market LLC’s Listing Rule 5635(b) (the “Stockholder Approval”). On June 14, 2021, we obtained the Stockholder Approval at our 2021 annual meeting of stockholders.

In accordance with the terms of the warrant, as a result of the issuance of shares of our common stock pursuant to the ATM Programs (as defined below), on June 14, 2021, the number of shares of our common stock that may be purchased pursuant to the warrant, at an exercise price of $13.49 per share, increased by an aggregate of 5,625,959 shares (the “Additional Warrant Shares”). The Additional Warrant Shares vest in multiple tranches, the first of which for 1,406,490 Additional Warrant Shares vested on June 14, 2021. Subsequent tranches of the Additional Warrant Shares will vest over time based on fuel purchases by Amazon and its affiliates, consistent with the vesting schedule for the Warrant Shares as described above. The right to exercise the warrants and receive the Warrant Shares and Additional Warrant Shares (the “Amazon Warrant”) that have vested expires April 16, 2031.

We believe our commercial partnership with Amazon will enhance our strategies, initiatives and efforts to achieve our goals to grow fleet and other consumer support for the use of RNG as a vehicle fuel for our target customers and geographies. We also believe the proceeds from the issuance of our common stock to Amazon in the event Amazon were to vest and then exercise the Amazon Warrant in part or as a whole for cash would enhance our liquidity in support of our operations, as well as our ability to execute our business plans and pursue opportunities for further growth. Accordingly, we believe securing this commercial partnership and incentiving Amazon to purchase the maximum amount of fuel under the Fuel Agreement is important for our business strategy. As a result of the immediate vesting of a portion of the Amazon Warrant, we recognized non-cash stock-based sales incentive contra-revenue charges (“Amazon Warrant Charges”) in the second quarter of 2021 of $76.6 million and a customer incentive asset of $38.4 million representing Amazon Warrant Charges associated with future contractually required minimum fuel purchases which will be recognized as the fuel is purchased.

For the year ended December 31, 2022, Amazon Warrant Charges were $24.3 million all of which were associated with fuel purchases. As of December 31, 2022, we had a customer incentive asset of $22.2 million, classified in “Prepaid expenses and other current assets,” in the accompanying consolidated balance sheets.

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AFTC. Under separate pieces of U.S. federal legislation, we were eligible to receive AFTC for the natural gas vehicle fuel sales made between October 1, 2006 and December 31, 2021. The AFTC credit was equal to $0.50 per GGE of CNG that we sold as vehicle fuel, and $0.50 per diesel gallon of LNG that we sold as vehicle fuel in 2020 and 2021. The Inflation Reduction Act of 2022, enacted in August 2022, reinstated and extended the AFTC incentive for three years through December 31, 2024, beginning retroactively to January 1, 2022. Under the extension period, AFTC incentive remains at $0.50 per GGE of CNG and $0.50 per diesel gallon of LNG that we sell as vehicle fuel through 2024.

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Riverstone Credit Partners. On December 22, 2022, we entered into a four-year $150.0 million sustainability-linked senior secured first lien term loan with certain affiliates of, or funds managed by, Riverstone Credit Partners L.P. (“Riverstone Credit Partners”), a dedicated credit investment platform managed by Riverstone Holdings LLC (“Riverstone”) that focuses on energy, power, decarbonization, and infrastructure. This financing provided us with additional capital to execute our RNG growth strategy, which includes the development of negative carbon intensity RNG projects and construction of new RNG fueling stations for transportation sector customers. Proceeds from the term loan will be used, in part, to accelerate our expansion and development of ADG RNG production projects. See Note 12 for more information about our outstanding debt.

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NG Advantage Debt Refinancing and Extinguishment. On January 31, 2022, NG Advantage entered into a second amendment to the Amended and Restated Loan and Security Agreement with Berkshire Bank (the “Berkshire ALA”) (See Note 12) pursuant to which Berkshire Bank agreed to extend new term loans in an aggregate principal amount of $14.0 million (collectively, the “Berkshire Term Loan 2”) to NG Advantage. The Berkshire Term Loan 2 bore interest at an annual interest rate of 5% and had a maturity date of January 31, 2027. Payments for interest and principal were due

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monthly beginning March 1, 2022, with a final payment of remaining principal and interest due on the maturity date. Borrowings under the Berkshire Term Loan 2 were collateralized by NG Advantage’s trailers and station assets, and prepayment of the outstanding principal was permitted and subject to prepayment premiums. NG Advantage used the proceeds from the Berkshire Term Loan 2 to extinguish $11.1 million of existing financing obligations, consisting of $10.4 million in cash payoffs and an application of $0.8 million in deposits held with the former lenders. As a result of the extinguishment, we recognized a $2.3 million loss on extinguishment of debt, which is included in “interest expense” in the accompanying consolidated statements of operations for the year ended December 31, 2022. In connection with the second amendment to the Berkshire ALA, Berkshire Bank released $7.0 million, classified in “Long-term portion of restricted cash” in the accompanying consolidated balance sheets as of December 31, 2021, to the Company related to the Company’s limited guaranty under the Berkshire ALA.

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On December 22, 2022, pursuant to the term loan credit agreement with Riverstone Credit Partners, NG Advantage fully repaid all outstanding principal balances and related accrued and unpaid interest under the Berkshire ALA and the Berkshire Term Loan 2. In connection with the extinguishments of debt under the Berkshire ALA and the second amendment to the Berkshire ALA, NG Advantage recognized a $1.1 million loss on debt extinguishment, which is included in “interest expense” in the accompanying consolidated statements of operations for the year ended December 31, 2022.

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Plains Credit Facility. On May 1, 2021, we entered into a Loan and Security Agreement (the “Plains LSA”) with PlainsCapital Bank (“Plains”) that provided us a $20.0 million revolving line of credit through May 1, 2022. In May 2022, the Plains LSA was renewed and extended through May 1, 2023. The interest rate on amounts outstanding under the Plains LSA was the greater of the Prime Rate or 3.25%. On September 16, 2021, Plains issued an irrevocable standby letter of credit on behalf of the Company to the Chevron Products Company, a division of Chevron U.S.A. Inc. (“Chevron”), for $2.0 million relating to the Company’s Adopt-A-Port program with Chevron. The standby letter of credit was valid until cancelled and was collateralized by the Company’s revolving line of credit with Plains, reducing the amount available under the line of credit from $20.0 million to $18.0 million. On January 31, 2022, Plains issued an irrevocable standby letter of credit on behalf of the Company to Berkshire Bank for $7.0 million as collateral under the second amendment to the Berkshire ALA. However, pursuant to the Riverstone Credit Agreement, on December 22, 2022, the Plains LSA was terminated.  Concurrently, the irrevocable standby letter of credit issued to Berkshire Bank in connection with the second amendment to the Berkshire ALA was cancelled. As a result, we deposited $2.0 million, in the form of a certificate of deposit, at Plains that serves as a security collateral for the standby letter of credit issued to Chevron. The $2.0 million is classified as short-term restricted cash and a current asset and is included in “Cash, cash equivalents and current portion of restricted cash” in the accompanying consolidated balance sheets as of December 31, 2022.

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Share Repurchase Program. On March 12, 2020, our Board of Directors approved a share repurchase program (the “Repurchase Program”) for up to $30.0 million (exclusive of fees and commissions) of our outstanding common stock. On December 7, 2021, our Board of Directors approved an increase in the aggregate purchase amount under the Repurchase Program from $30.0 million to $50.0 million (exclusive of fees and commissions). The Repurchase Program does not have an expiration date, does not obligate us to acquire any specific number of shares, and may be suspended or discontinued at any time. For the year ended December 31, 2022, we repurchased 1,190,254 shares of our common stock under the Repurchase Program for a total cost of $6.1 million (exclusive of fees and commissions) at an average price of $5.12 per share. As of December 31, 2022, we had used a total of $23.5 million under the Repurchase Program from its inception to repurchase 9,387,340 shares of our common stock and had a total of $26.5 million of authorized funds remaining under the Repurchase Program.

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NG Advantage Fixed Supply Commitment. NG Advantage had entered into an arrangement with bp for the supply, sale and reservation of a specified volume of CNG transportation capacity through February 2022. In connection with that arrangement, in February 2018, we entered into a guaranty agreement with NG Advantage and bp, which was amended in June 2020, pursuant to which we guaranteed NG Advantage’s payment obligations to bp in the event of a default by NG Advantage under the supply arrangement, in an amount up to $15.0 million plus related fees. On February 28, 2022, the supply arrangement between NG Advantage and bp expired, and our obligations under the guaranty agreement were fully released.

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Fueling Station Equipment Removal. On July 7, 2022, we entered into an amendment to our Liquefied Natural Gas Fueling Station and LNG Master Sales Agreement with Pilot Travel Centers LLC (“Pilot”), dated August 2, 2010, to decommission and remove station equipment of select fueling stations located on Pilot’s premises as agreed to in a phased removal schedule. The removal of the fueling station equipment and site improvements commenced in the third quarter of 2022 and is expected to be completed by the end of the first quarter of 2023. In connection with the removal of station equipment and site improvements, for the year ended December 31, 2022, we recognized $10.6 million in accelerated depreciation expense relating to the change in depreciable life of the affected station assets and $2.5 million in incremental asset retirement obligation charges.

​

At-The-Market Offerings. On May 10, 2021, we entered into an equity distribution agreement with Goldman Sachs & Co. LLC, as sales agent, to sell shares of our common stock having an aggregate offering price of up to $100.0 million in an at-the-market offering program (the “May ATM Program”). As of June 3, 2021, we sold 12,362,237 shares of our common stock under the May ATM Program, which exhausted the May ATM Program. On June 7, 2021, we entered into a new equity distribution agreement with Goldman Sachs & Co. LLC, as sales agent, to sell additional shares of our common stock having an aggregate offering price of up to $100.0 million in a new at-the-market offering program (the “June ATM Program” and, together with the May ATM Program, the “ATM Programs”). On June 8, 2021, we sold 10,473,946 shares of our common stock under the June ATM Program, which exhausted the June ATM Program.

For the year ended December 31, 2021, we issued 22,836,183 shares of our common stock under the ATM Programs for gross proceeds of $200.0 million, and incurred transaction costs of $6.5 million, including $6.0 million in commissions paid to Goldman Sachs & Co. LLC.

​

Debt Level and Debt Compliance

As of December 31, 2022, we had total indebtedness, excluding finance lease obligations, of $145.6 million in principal amount, of which $0.1 million is expected to become due in 2023. Certain of the agreements governing our outstanding debt, which are discussed in Note 12, have certain financial and non-financial covenants with which we must comply. As of December 31, 2022, we were in compliance with all of these covenants.

Key Trends

Market for RNG and conventional natural gas as a Vehicle Fuel

According to CARB, RNG and conventional natural gas are cleaner than gasoline and diesel fuel based on the GHG emissions produced by vehicles operated by these fuels. Additionally, RNG and conventional natural gas are generally less expensive for vehicle operators than gasoline and diesel on an energy equivalent basis. According to the U.S. Energy Information Administration, demand for renewable and conventional natural gas fuels in the United States has increased in recent years and is expected to continue to increase. We expect our sales of RNG and conventional natural gas to grow as more companies look to operate in an increasingly sustainable way. In addition to pressure from politicians, regulators and non-governmental organizations, the investment community has dramatically increased demands on companies to diminish their contributions to climate change. We believe that RNG is the best tool available today to reduce climate-harming GHG and meet sustainability objectives.

The market for our vehicle fuels, however, is a relatively new and developing market. As a result, it is difficult to accurately predict demand for our vehicle fuels, in general and in any specific geographic and customer markets, and consequently our timing and level of investment in particular markets may not be consistent with any growth in demand in these markets. Further, the new and developing nature of the market for our vehicle fuels has led to slow, volatile or unpredictable growth in many sectors. For example, to date, adoption and deployment of natural gas vehicles, both in general and in certain of our key customer markets, including heavy-duty trucking, have been slower than we anticipated.

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We believe challenging market conditions are caused by a number of factors, including the following:

[[GREPCENT_TABLE]]
[["","\u25cf","Volatile prices for oil, diesel and gasoline, which may decrease the price advantage of our fuels. In addition, these pricing conditions have led us to reduce the prices we charge some customers for our fuels, which has reduced our profit margins."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","There has been increased focus by some parties, including lawmakers, regulators, policymakers, environmental and advocacy organizations and other powerful groups, on electric or other alternative vehicles or vehicle fuels. For example, the executive order signed by President Biden in December 2021 directs the federal government to achieve certain goals, including replacing its fleet of over 600,000 cars and trucks with 100% zero-emission vehicles by 2035. In addition, California lawmakers and regulators have implemented various measures designed to increase the use of electric, hydrogen and other zero-emission vehicles, including establishing firm goals for the number of these vehicles operating on state roads by specified dates and enacting various laws and other programs in support of these goals. Among other things, we believe many California lawmakers and regulators desire to limit and ultimately discontinue the production and use of internal combustion engines because such engines have \u201ctailpipe\u201d emissions."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","We believe the lack of substantial growth in the heavy-duty trucking market has been driven in part by the experience of operators with, or perceptions of, unsatisfactory performance by prior models of heavy-duty natural gas truck engines, actual or perceived insufficiencies in the financial incentives to convert, and improvements in diesel engine technology. If these conditions continue, then the growth levels in this market will continue to be low. We believe the newest models of heavy-duty natural gas truck engines have substantially addressed concerns with prior models. Further, we have launched our Zero Now truck financing program and the Chevron Adopt-A-Port program to combat operator concerns, but these programs may ultimately be unsuccessful."]]
[[/GREPCENT_TABLE]]

To the extent these or other factors have contributed to curtailed demand or slowing growth in the market for our vehicle fuels, we believe they have also contributed to decreases in station construction activity in certain periods, as the success of this activity is dependent on the success of the market for our vehicle fuels generally. Moreover, we believe these factors have materially contributed to the volatility and declines in our stock price and market capitalization in recent years, which has and could in the future lead to decreased cash flows and indications of asset or goodwill impairment. If these adverse macroeconomic conditions and other uncertainties in our industry persist, our financial results and stock price may continue to be adversely affected.

In spite of these market conditions, we believe our key customer markets, including heavy-duty trucking, airports, refuse, and public transit, are well-suited for the adoption of our vehicle fuels because they consume relatively high volumes of fuel, refuel at centralized locations or along well-defined routes and/or are facing increasingly stringent emissions or other environmental requirements. We also expect the lower GHG emissions associated with our RNG vehicle fuel will result in increased demand for this fuel, resulting in our continued delivery of increasing volumes of RNG to our vehicle fleet customers. Additionally, we anticipate that, over time, cities and communities in the United States and Canada will follow large cities in Europe in banning diesel vehicles. If these projections materialize, we believe there will be growth in the consumption of our vehicle fuels in our key customer and geographic markets, and our goal is to capitalize on this growth if and when it materializes. In that event, we expect our operating costs and capital expenditures would increase in connection with any growth of our business in the future.

Our Performance

Overview. Our gross revenue mostly consists of volume-related product and service revenue and station construction sales. Our revenue can vary between periods due to a variety of factors, including, among others, the amount and timing of vehicle fuel sales, natural gas commodity prices, station construction sales, sales of Environmental Credits, and recognition of government credits, grants and incentives, such as AFTC. In addition, our volume-related product revenue has been and may continue to be subject to fluctuations as a result of our entry into certain commodity swap arrangements in October 2018, because the changes in fair value of these and certain other derivative instruments, including existing and anticipated fueling contracts under our Zero Now truck financing program, are included in volume-related product revenue. Furthermore, our volume-related product revenue has been affected by the Amazon Warrant Charges resulting from

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immediate vesting of a portion of the Amazon Warrant and subsequent vesting associated with fuel purchases made by Amazon and its affiliates.

Our cost of sales can also vary between periods due to a variety of factors, including fluctuations in natural gas commodity prices, station construction and labor costs, as well as the other factors that impact our revenue levels described above.

In addition, our performance in certain periods has been affected by transactions or events that have resulted in significant cash or non-cash gains or losses. Such gains or losses may not recur regularly, in the same amounts or at all in future periods and, with respect to non-cash gains and losses, do not impact our liquidity.

These significant fluctuations in our operating results may render period-to-period comparisons less meaningful, especially given the current uncertainties relating to macro-economic growth, inflation trends, and the ongoing effect of the COVID-19 pandemic, and investors in our securities should not rely on the results of one period as an indicator of performance in any other period. Additionally, these fluctuations in our operating results could cause our performance in any period to fall below the financial guidance we may have provided to the public or the estimates and projections of the investment community, which could negatively affect the price of our common stock.

See “Results of Operations” below for more information about our performance in 2021 and 2022.

Volume. The amount of RNG and conventional natural gas, in the form of CNG and LNG, that we sold increased by 8.9% from 2021 to 2022 primarily due to the effect of COVID-19 restrictions being lifted and an increase in economic activities and travel generally.

The amount of RNG we sell as vehicle fuel, which is delivered in the form of CNG or LNG, has continued to experience robust growth, and increased by 18.7% from 2021 to 2022. We believe the increased demand for RNG is attributable to the belief in the dramatic reduction in the amount of climate-harming greenhouse gas that can be achieved through the use of RNG and pressure from politicians, regulators, non-governmental organizations and the investment community directed at companies to reduce their contributions to GHG emissions. To the extent demand for RNG continues to increase, we expect our joint venture(s) with TotalEnergies and bp and our expanded supply agreements to increase our volume-related product revenue due to increased volumes of RNG vehicle fuel sold and increased generation of RINs and LCFS Credits. In addition, such an increase in RNG demand could also result in more robust competition for supplies of RNG, including from other vehicle fuel providers, gas utilities (which may have distinct advantages in accessing RNG supply, including potential use of ratepayer funds to fund RNG purchases if approved by a utility’s regulatory commission) and other users and providers. We expect to invest in production projects to help ensure that we have adequate supply of RNG, and we are pursuing development and ownership of livestock waste ADG projects on our own and with partners including TotalEnergies and bp.

Environmental Credits. When we sell RNG and conventional natural gas for use as a vehicle fuel, we are eligible to generate RINs and LCFS Credits, which we then seek to sell to third parties.

The markets for RINs and LCFS Credits have been volatile and unpredictable in recent periods, and the prices for these credits have been subject to significant fluctuations. For example, in 2022, market prices for RINs have been as high as $3.56 and as low as $2.47. Additionally, the value of RINs and LCFS Credits, and consequently the revenue levels we may receive from our sale of these credits, may be adversely affected by changes to the federal and state programs under which these credits are generated and sold, prices for and use of oil, diesel or gasoline, the inclusion of additional qualifying fuels in the programs, increased production levels of other fuels in the programs, or other conditions. Further, our ability to generate revenue from sales of these credits depends on our strict compliance with these federal and state programs, which are complex and can involve a significant degree of judgment. If the agencies that administer and enforce these programs disagree with our judgments, otherwise determine we are not in compliance, conduct reviews of our activities or make changes to the programs, then our ability to generate or sell these credits could be temporarily restricted pending completion of reviews or as a penalty, permanently limited or lost entirely, and we could be subject to fines or other sanctions. Any of these outcomes could force us to purchase credits in the open market to cover any credits we have

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contracted to sell, retire credits we may have generated but not yet sold, reduce or eliminate a significant revenue stream or incur substantial additional and unplanned expenses.

Risk Management Activities

From time to time, we enter into fuel sales contracts that require us to sell CNG or LNG to our customers at a fixed price. These contracts expose us to the risk that the price of natural gas commodity may increase above the natural gas commodity cost component included in the price at which we are committed to sell the natural gas to our customers.

In an effort to mitigate the volatility of our earnings related to any futures contracts and to reduce our risk related to our fixed price sales contracts, we operate under a hedging policy pursuant to which we purchase futures contracts to hedge our exposure to variability in expected future cash flows related to a particular fixed price contract or bid. Subject to the conditions set forth in the policy, we purchase futures contracts in quantities reasonably expected to effectively hedge our exposure to cash flow variability related to fixed price sales contracts entered into after the date of the policy. Unless otherwise agreed in advance by our Board of Directors and the derivatives committee thereof, we will conduct our futures contract activities and enter into fixed price sales contracts only in accordance with our hedging policy.

Due to the restrictions of our hedging policy, we expect to offer few fixed price sales contracts to our customers. If we do offer a fixed price sales contract, we anticipate including a price component that would cover our estimated cash requirements over the duration of the underlying futures contracts. The amount of this price component will vary based on the anticipated volume and the natural gas price component to be covered under the fixed price sales contract.

In October 2018, in support of our Zero Now truck financing program, we executed two commodity swap contracts with TotalEnergies Gas & Power North America, an affiliate of TotalEnergies and THUSA, for a total of five million diesel gallons annually from April 1, 2019 to June 30, 2024. These commodity swap contracts are intended to manage risks related to the diesel-to-natural gas price spread in connection with the natural gas fuel supply commitments we have made and expect to make in our current and anticipated fueling agreements with fleet operators that participate in the Zero Now program.

Critical Accounting Policies and Estimates

This discussion is based upon our consolidated financial statements included in this report, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates and may result in material effects on our operating results and financial position.

We believe the critical accounting policies discussed below affect our more significant estimates made in preparing our consolidated financial statements. See Notes 1 and 2 for more information about these and our other significant accounting policies.

Revenue Recognition

In general, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration to which we expect to be entitled in exchange for the goods or services. To achieve that core principle, a five-step approach is applied: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue allocated to each performance obligation when we satisfy the performance obligation. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account for revenue recognition.

We recognize revenue on various products and services.

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Our volume-related product revenue consists of sales of RNG and conventional natural gas, in the form of CNG and LNG, AFTC incentives, and sales of RINs and LCFS Credits in addition to Amazon Warrant Charges and changes in fair value of our derivative instruments.

RNG and conventional natural gas are sold pursuant to contractual commitments over defined delivery periods. These contracts typically include a stand-ready obligation to supply natural gas. We recognize fuel revenue in the amount to which we have the right to invoice. We have a right to consideration based on the amount of GGEs of fuel dispensed by the customer and current pricing conditions. Customers are typically billed on a monthly basis. Since payment terms are less than a year, we have elected the practical expedient which allows us to not assess whether a customer contract has a significant financing component.

Our service revenue consists of sales of O&M and other services. O&M and other services are sold pursuant to contractual commitments over defined performance periods. These contracts typically include a stand-ready obligation to provide O&M and/or other services based on a committed and agreed upon routine maintenance schedule or when and if called upon by the customer.

We recognize O&M and other services revenue in the amount to which we have the right to invoice. We have a right to consideration based on services rendered or on the amount of GGEs of fuel dispensed by the customer multiplied by an agreed-upon rate. Customers are typically billed on a monthly basis. Since payment terms are less than a year, we have elected the practical expedient which allows us to not assess whether a customer contract has a significant financing component.

We sell RIN Credits and LCFS Credits to third parties that need the credits to comply with federal and state requirements. Revenue is recognized on these credits when there is an agreement in place to monetize the credits at a determinable price and the RNG fuel has been sold. The sales price for some environmental credit transactions may not be determinable in the period during which the RNG was sold as pricing is established in the quarter after the RNG was sold. In these circumstances, revenue from RIN and LCFS credits is recognized once the sales price has been established and therefore is considered determinable.

Changes in fair value of derivative instruments relates to our commodity swap and certain customer fueling contracts under our Zero Now truck financing program. The contracts are measured at fair value with changes in the fair value recorded in our consolidated statements of operations in the period incurred. The amounts are classified as revenue because our commodity swap contracts are used to economically offset the risk associated with the diesel-to-natural gas price spread resulting from existing and anticipated customer fueling contracts under our Zero Now truck financing program.

Amazon Warrant Charges are determined based on the grant date fair value of the award, and the associated non-cash stock-based sales incentive charges, which are recorded as a reduction of revenue, are recognized as the customer purchases fuel and vesting conditions become probable of being achieved. See Note 1 for additional information.

Station construction contracts are generally short-term, except for certain larger and more complex stations, which can take up to 24 months to complete. For most of our station construction contracts, the customer contracts with us to provide a significant service of integrating a complex set of tasks and components into a single station. Hence, the entire contract is accounted for as one performance obligation.

We recognize station construction revenue over time as we perform under these contracts because of the continual transfer of control of the goods to the customer, who typically controls the work in process. Revenue is recognized based on the extent of progress towards completion of the performance obligation and is recorded proportionally as costs are incurred. Costs to fulfill our obligations under these contracts typically include labor, materials and subcontractors’ costs, other direct costs and an allocation of indirect costs.

Refinements of estimates to account for changing conditions and new developments are continuous and characteristic of the process. Many factors that can affect contract profitability may change during the performance period of the contract, including differing site conditions, the availability of skilled contract labor, the performance of major suppliers and subcontractors, and unexpected changes in material costs. Because a significant change in one or more of these estimates

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could affect the profitability of these contracts, the contract price and cost estimates are reviewed periodically as work progresses and adjustments proportionate to the cost-to-cost measure of progress are reflected in contract revenues in the reporting period when such estimates are revised as discussed above. Provisions for estimated losses on uncompleted contracts are recorded in the period in which the losses become known.

In certain contracts with our customers, we agree to provide multiple goods or services, including construction of and sale of a station, O&M services, and sale of fuel to the customer. These contracts have multiple performance obligations because the promise to transfer each separate good or service is separately identifiable and distinct. This evaluation requires significant judgment and the decision to combine a group of contracts or separate the combined or single contract into multiple performance obligations could change the amount of revenue recognized in one or more periods.

We allocate the contract price to each performance obligation using best estimates of the standalone selling price of each distinct good or service in the contract. The primary method used to estimate the standalone selling price for fuel and O&M services is observable standalone sales, and the primary method used to estimate the standalone selling price for station construction sales is the expected cost plus a margin approach because we sell customized customer-specific solutions. Under this approach, we forecast expected costs of satisfying a performance obligation and then add an appropriate margin for the good or service.

AFTC is considered variable consideration because it can either increase or decrease the transaction price based on volumes of vehicle fuel sold. Additionally, AFTC is not recognized as revenue until it is authorized through federal legislation, which also provides a determinable price. We recognize revenue in the period the credit is authorized through federal legislation.

We collect and remit taxes assessed by various governmental authorities that are imposed on and concurrent with revenue-producing transactions between us and our customers. These taxes may include, among others, fuel, sales and value-added taxes. We report the collection of these taxes on a net basis and they are excluded from revenue and cost of sales.

Income Taxes

Income taxes are computed using the asset and liability method. Under this method, deferred income taxes are recognized by applying enacted statutory tax rates applicable to future years to differences between the tax bases and financial carrying amounts of existing assets and liabilities. The impact on deferred taxes of changes in tax rates and laws, if any, are applied to the years during which temporary differences are expected to be settled and are reflected in the consolidated financial statements in the period of enactment. Valuation allowances are established when management determines it is more likely than not that deferred tax assets will not be realized. When evaluating the need for a valuation analysis, we use estimates involving a high degree of judgment including projected future U.S. GAAP income and the amounts and estimated timing of the reversal of any deferred tax assets and liabilities.

We have a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not sustainable upon examination by taxing authorities based on the technical merits of the position. The amount recognized is measured as the largest amount of benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. We recognize potential accrued interest and penalties related to unrecognized tax benefit in income tax expense.

We operate within multiple domestic and foreign taxing jurisdictions and are subject to audit in these jurisdictions. These audits can involve complex issues, which may require an extended period of time to resolve. Although we believe that adequate consideration has been given to these issues, it is possible that the ultimate resolution of these issues could be significantly different than originally estimated.

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Fair Value Measurements

We have established a framework that follows the authoritative guidance for fair value measurements with respect to assets and liabilities that are measured at fair value on a recurring basis and non-recurring basis. Under the framework, fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, as of the measurement date. The framework also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of our Company. Unobservable inputs are inputs that reflect our assumptions about the factors market participants would use in valuing the asset or liability and are developed based upon the best information available in the circumstances. The hierarchy consists of the following three levels: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly; Level 3 inputs are unobservable inputs for the asset or liability. Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Our significant uses of fair value measurements include the valuation of commodity swaps, customer contracts, and available-for-sale debt securities, all of which require significant judgment.

Recently Adopted Accounting Pronoucements and Recently Issued Accounting Pronouncements.

See Note 1 for information about recently adopted accounting pronouncements and recently issued accounting pronouncements.

Results of Operations

The discussions below compare our results of operations in 2022 and 2021. Historical results are not indicative of the results to be expected in the current period or any future period.

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2022 Compared to 2021

The table below presents, for each period, each line item of our statement of operations as a percentage of our total revenue for the period. The narrative that follows provides a comparative discussion of certain of these line items between periods.

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

​

Product revenue. Product revenue for 2022 increased by $159.9 million to $373.0 million, representing 88.8% of total revenue, compared to $213.1 million, representing 83.4% of total revenue, for 2021. The increase was due to (1) higher prices of fuel sold and an increase in total GGEs of fuel sold, resulting in $90.9 million increase in product revenue from 2021 to 2022, (2) a $59.3 million decrease in non-cash stock-based sales incentive contra-revenue charges related to the Amazon Warrant, (3) an increase in RIN revenue of $2.9 million resulting from higher GGEs of RNG sold and higher average RIN prices in 2022 compared to those in 2021, (4) an increase in AFTC revenue of $1.1 million from 2021 to 2022, (5) an increase in station construction sales of $5.9 million due to increased construction activities, and (6) a change in fair value of our commodity swap and customer contracts entered into in connection with our Zero Now truck financing program, as we recognized an unrealized gain of $0.5 million in 2022 compared to an unrealized loss of $3.5 million in 2021. The increase in product revenue between periods was partially offset by a decrease in LCFS revenue of $4.2 million resulting from lower average LCFS prices in 2022 compared to those in 2021.

Service revenue. Service revenue for 2022 increased $4.7 million to $47.2 million, representing 11.2% of total revenue, compared to $42.5 million, representing 16.6% of total revenue, for 2021. The increase was primarily due to an increase in GGEs serviced in 2022 as compared to that in 2021.

Product cost of sales. Product cost of sales for 2022 increased by $90.1 million to $279.7 million, representing 66.6% of total revenue, from $189.6 million, representing 74.2% of total revenue, in 2021. The increase was primarily due to an increase in GGEs of fuel sold, an increase in natural gas prices, and a $4.4 million increase in the cost of station construction activities.

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Service cost of sales. Service cost of sales for 2022 increased by $2.0 million to $28.0 million, representing 6.7% of total revenue, from $26.0 million, representing 10.2% of total revenue, in 2021. The increase was primarily due to an increase in GGEs serviced in 2022 as compared to that in 2021.

Selling, general and administrative. Selling, general and administrative expenses increased by $19.6 million to $109.5 million in 2022, from $89.9 million in 2021. The increase was primarily driven by (1) a $11.5 million increase in stock-based compensation expense due to a full year of expense recognized in 2022 relating to equity awards granted in 2021, (2) a $5.7 million increase in salaries and benefits, and (3) a $2.3 million increase in legal, consulting and other professional fees.

Depreciation and amortization. Depreciation and amortization increased by $9.5 million to $54.7 million in 2022, from $45.2 million in 2021. The increase was primarily due to the recognition of accelerated depreciation expense and asset retirement obligation charges relating to the Pilot fueling station decommission and removal that began in the third quarter of 2022. The increase in depreciation expense was partially offset by a lower amount of depreciable assets.

Interest expense. Interest expense increased by $1.9 million to $6.3 million in 2022, from $4.4 million in 2021. The increase was primarily due to a $3.4 million loss from extinguishment of debt relating to the full repayment of outstanding debt under the Berkshire ALA and the second amendment to the Berkshire ALA (see Note 12) and certain financing obligations of NG Advantage. The increase was partially offset by lower average outstanding indebtedness between periods.

Other income, net. Other income, net decreased by $0.8 million to $0.1 million in 2022, from $0.9 million in 2021, primarily due to certain other fees earned in the prior year period.

Loss from equity method investments. Loss from equity method investments increased by $4.4 million to $4.8 million in 2022, from $0.4 million in 2021, primarily due to the operating results of SAFE&CEC S.r.l. and our joint venture(s) with TotalEnergies and bp.

Gain from sale of certain assets of subsidiary. No gain was recognized in 2022 as compared to a gain of $3.9 million recognized in 2021. The gain recorded in prior year was a result of the satisfaction of specified performance criteria in 2021 (the final year of the earnout) related to the assets sold in the bp Transaction (as defined in Note 3) in accordance with the related Amended APA (as defined in Note 3).

Income tax expense. Income tax expense increased by $0.1 million to $0.2 million in 2022, from $0.1 million in 2021, primarily due to an increase in deferred taxes associated with goodwill.

Loss attributable to noncontrolling interest. In 2022 and 2021, we recorded a gain of $0.9 million and $1.0 million, respectively, for the noncontrolling interest in the net loss of NG Advantage. The noncontrolling interest in NG Advantage represents a 6.7% minority interest that was held by third parties during both the 2022 and 2021 periods.

Seasonality and Inflation

To some extent, we experience seasonality in our results of operations. Some of our customers tend to consume more of our vehicle fuels in the summer months, when buses and other fleet vehicles use more fuel to power their air conditioning systems, which typically translate to an increased volume of fuel sold in the summer months. In addition, natural gas commodity prices tend to be higher in the fall and winter months, due to increased overall demand for natural gas for heating during these periods.

Historically, inflation has not significantly affected our operating results; however, costs for construction, repairs, maintenance, electricity and insurance are all subject to inflationary pressures, which could affect our ability to maintain our stations adequately, build new stations, expand our existing facilities or pursue additional facilities, and could materially impact our operating costs.

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Liquidity and Capital Resources

Liquidity

Liquidity is the ability to meet present and future financial obligations through operating cash flows, the sale or maturity of investments or the acquisition of additional funds through capital management. Our financial position and liquidity are, and will continue to be, influenced by a variety of factors, including the level of our outstanding indebtedness and the principal and interest we are obligated to pay on our indebtedness; the amount and timing of any capital calls related to the joint venture(s) with TotalEnergies and/or bp, or any other joint venture we may enter into in the future; the amount and timing of any additional debt or equity financing we may pursue; our capital expenditure requirements; any merger, divestiture or acquisition activity; and our ability to generate cash flows from our operations. We expect cash provided by our operating activities to fluctuate as a result of a number of factors, including our operating results and the factors that affect these results, including the amount and timing of our vehicle fuel sales, station construction sales, sales of RINs and LCFS Credits and recognition of government credits, the continuing direct and indirect effects of the COVID-19 pandemic, grants and incentives, if any; fluctuations in commodity, station construction and labor costs; environmental credit prices; variations in the fair value of certain of our derivative instruments that are recorded in revenue; and the amount and timing of our billing, collections and liability payments.

Cash Flows

Operating Activities. Cash provided by operating activities was $66.7 million in 2022, compared to cash provided by operating activities of $41.3 million in 2021. The increase in cash provided by operating activities in 2022 was primarily attributable to the collection of AFTC receivables in 2022 relating to 2021 and 2022 fuel volumes and changes in working capital resulting from the timing of receipts, accruals, billings and payments of cash.

Investing Activities. Cash used in investing activities was $148.5 million in 2022, compared to cash used in investing activities of $207.7 million in 2021. The decrease in cash used in investing activities in 2022 was primarily attributable to $8.4 million in net purchases of short-term investments in 2022, compared to $100.2 million in net purchases of short-term investments in 2021, a $3.0 million increase in net earnout proceeds received in connection with the bp Transaction, partially offset by a $21.4 million increase in capital expenditures in 2022, higher investments in other entities, including our $89.7 million contribution to the bpJV, and a $2.6 million decrease in proceeds from property and equipment disposals.

Financing Activities. Cash provided by financing activities was $101.6 million in 2022, compared to $152.8 million provided by financing activities in 2021. The decrease in cash provided by financing activities in 2022 was primarily attributable to the net proceeds received from the issuance of common stock in connection with our ATM Programs in 2021 (there were no ATM program activities in 2022), a $3.2 million increase in common stock repurchases, higher payment of debt extinguishment costs of $3.2 million, and a $4.4 million decrease in reimbursement proceeds relating to the Adopt-A-Port Program, partially offset by $155.5 million increase in proceeds received from the issuance of debt.

Capital Expenditures, Indebtedness and Other Uses of Cash

We require cash to fund our capital expenditures, operating expenses and working capital and other requirements, including costs associated with fuel sales; outlays for the design and construction of new fueling stations; additions or other modifications to existing fueling stations; RNG production facilities; debt repayments and repurchases; repurchases of common stock; purchases of heavy-duty trucks that use our fuels; additions or modifications of LNG production facilities; supporting our operations, including maintenance and improvements of our infrastructure; supporting our sales and marketing activities, including support of legislative and regulatory initiatives; financing vehicles for our customers; any investments in other entities; any mergers or acquisitions, including acquisitions to expand our RNG production capacity; pursuing market expansion as opportunities arise, including geographically and to new customer markets; and to fund other activities or pursuits and for other general corporate purposes.

Our business plan calls for approximately $90.0 million in capital expenditures in 2023. These capital expenditures primarily relate to the construction of fueling stations, IT software and equipment and LNG plant costs, and we expect to fund these expenditures primarily through cash on hand and cash generated from operations. Further, in 2023, we anticipate

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deploying up to approximately $40.0 million to develop ADG RNG production facilities. In 2022, we contributed $89.7 million to the bpJV. As of December 31, 2022, we have contributed $178.0 million into developing ADG RNG production facilities.

We had total indebtedness, consisting of our debt and finance leases, of approximately $153.1 million in principal amount as of December 31, 2022, of which approximately $1.0 million, $1.4 million, $0.6 million, and $150.1 million is expected to become due in 2023, 2024, 2025, and 2026, respectively. Based on our outstanding indebtedness and applicable interest rates as of December 31, 2022, we expect our total interest payment obligations relating to our indebtedness to be approximately $16.8 million for the year ending December 31, 2023. We plan to and believe we are able to make all expected principal and interest payments in the next 12 months.

We also have indebtedness, including the amount representing interest, from our operating leases of approximately $84.0 million as of December 31, 2022, of which approximately $8.1 million, $8.1 million, $8.1 million, $8.0 million, $7.9 million and $43.8 million is expected to become due in 2023, 2024, 2025, 2026, 2027 and thereafter, respectively.

We intend to make payments under our various debt instruments when due and pursue opportunities for earlier repayment and/or refinancing if and when these opportunities arise. Although we believe we have sufficient liquidity and capital resources to repay our debt coming due in the next 12 months, we may elect to suspend, or limit repurchases under, our share repurchase program or pursue alternatives, such as refinancing, or debt or equity offerings, to increase our cash management flexibility.

Sources of Cash

Historically, our principal sources of liquidity have consisted of cash on hand, cash provided by our operations, including, if available, AFTC and other government credits, grants and incentives, cash provided by financing activities, and sales of assets. In August 2022, AFTC was reinstated and extended and applies retroactively to vehicle fuel sales made beginning January 1, 2022. For the year ended December 31, 2022, we recognized $21.8 million in AFTC revenue, and, as of December 31, 2022, excluding current portion of restricted cash, we had total cash and cash equivalents and short-term investments of $263.5 million, compared to $229.2 million as of December 31, 2021.

We expect cash provided by our operating activities to fluctuate depending on our operating results, which can be affected by the factors described above, as well as the other factors described in this MD&A and Item 1A. “Risk Factors” of this report.

Subject to the following paragraph, we believe our cash and cash equivalents and short-term investments and anticipated cash provided by our operating and financing activities will satisfy our business requirements for at least the 12 months following the date of this report. Subsequent to that period, we may need to raise additional capital to fund any planned or unanticipated capital expenditures, investments, debt repayments, share repurchases or other expenses that we cannot fund through cash on-hand, cash provided by our operations or other sources. Moreover, we may use our cash resources faster than we predict due to unexpected expenditures, the direct and indirect impacts of the COVID-19 pandemic, or higher-than-expected expenses, in which case we may need to seek capital from alternative sources sooner than we anticipate. The timing and necessity of any future capital raise would depend on various factors, including our rate and volume of, and prices for, natural gas fuel sales and other volume-related activity, the direct and indirect impacts of the COVID-19 pandemic, new station construction, debt repayments (either before or at maturity) and any potential mergers, acquisitions, investments, divestitures or other strategic relationships we may pursue, as well as the other factors that affect our revenue and expense levels as described in this MD&A and elsewhere in this report.

If we deploy additional capital to develop ADG RNG production facilities and fueling stations to support contracted RNG fueling volume, we could be required to raise additional capital.

We may raise additional capital through one or more sources, including, among others, obtaining equity capital, including through offerings of our common stock or other securities, obtaining new or restructuring existing debt, selling assets, or any combination of these or other potential sources of capital. We may not be able to raise capital when needed, on terms that are favorable to us or our stockholders or at all. Any inability to raise necessary capital may impair our ability

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to develop and maintain fueling infrastructure, invest in strategic transactions or acquisitions or repay our outstanding indebtedness and may reduce our ability to support and build our business and generate sustained or increased revenue.

Material Cash Requirements

The table below represents our material cash requirements, including the scheduled maturities of our contractual obligations and our commitments for capital expenditures as of December 31, 2022. This table excludes certain potential cash requirements because they may involve future cash payments that are considered uncertain and cannot be estimated because they vary based upon future conditions; however, the exclusion of these obligations should not be construed as an implication that they are immaterial, as they could significantly affect our short- and long-term liquidity and capital resource needs depending on a variety of future events, facts and conditions.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Payments Due by Period"],["\u200b","\u200b","\u200b","\u200b","Less than","\u200b","\u200b","\u200b","\u200b","\u200b","More than"],["Contractual Obligations: (in thousands)","","Total","","1 year","","1 - 3 years","","3 - 5 years","","5 years"],["Long-term debt (1)","\u200b","$","216,117","\u200b","$","16,702","\u200b","$","33,262","\u200b","$","166,153","\u200b","$","\u2014"],["Finance lease obligations (2)","\u200b","\u200b","3,349","\u200b","\u200b","1,095","\u200b","","2,124","\u200b","","130","\u200b","","\u2014"],["Operating lease commitments (3)","\u200b","","84,119","\u200b","","8,129","\u200b","\u200b","16,275","\u200b","\u200b","15,882","\u200b","\u200b","43,833"],["Long-term take-or-pay contracts (4)","\u200b","","5,178","\u200b","","3,223","\u200b","","1,955","\u200b","","\u2014","\u200b","","\u2014"],["Construction contracts (5)","\u200b","","69,801","\u200b","","69,801","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014"],["Capital expenditure for RNG project (6)","\u200b","\u200b","22,237","\u200b","\u200b","22,237","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Total","\u200b","$","400,801","\u200b","$","121,187","\u200b","$","53,616","\u200b","$","182,165","\u200b","$","43,833"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","Consists of long-term debt, including future interest payments, to finance acquisitions, equipment purchases and development of RNG production projects. For our variable-rate debt (which consists of the Term Loan, see Note 12), we have assumed an interest rate of 10.92% (Adjusted Term SOFR plus Applicable Margin) as of December 31, 2022."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","Consist of finance lease obligations, including future interest payments, to finance equipment purchases."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(3)","Represent various leases including ground leases for our Boron Plant and fueling stations, property leases relating to our office spaces, and leases for equipment."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(4)","Represent estimates of our long-term, quarterly natural gas purchase contracts with a take-or-pay commitment."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(5)","Consist of our obligations to fund various fueling station construction projects, net of amounts funded through December 31, 2022 and excluding contractual commitments related to station sales contracts."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(6)","Represents our capital expenditure commitment to fund the development and construction of an ADG RNG project, net of amounts funded through December 31, 2022. The project is expected to be substantially complete in the second quarter of 2024."]]
[[/GREPCENT_TABLE]]

Off-Balance Sheet Arrangements

As of December 31, 2022, we had the following off-balance sheet arrangements that have had, or are reasonably likely to have, a material current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources:

[[GREPCENT_TABLE]]
[["","\u25cf","Outstanding surety bonds for construction contracts and general corporate purposes totaling $50.2 million;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","An outstanding loan commitment to an equity method investee;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Quarterly fixed-price natural gas purchase contracts with take-or-pay commitments, the amount of which is shown under \u201cContractual Obligations\u201d above;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","One long-term natural gas sale contract with a fixed supply commitment."]]
[[/GREPCENT_TABLE]]

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We provide surety bonds primarily for construction contracts in the ordinary course of our business, as a form of guarantee. No liability has been recorded in connection with our surety bonds because, based on historical experience and available information, we do not believe it is probable that any amounts will be required to be paid under these arrangements for which we will not be reimbursed.

In November 2022, we entered into an agreement with one of our equity method investees pursuant to which we committed to make available up to $5.5 million in delayed draw loans to support the equity method investee’s working capital requirements.

As of December 31, 2022, we had quarterly fixed-price natural gas purchase contracts with take-or-pay commitments extending through June 2024.

In addition, as of December 31, 2022, we had a fixed supply arrangement with UPS for the supply and sale of 170.0 million GGEs of RNG through March 2026.