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Clean Energy Fuels Corp. (NASDAQ:CLNE)

Q1 2009 Earnings Call Transcript

May 7, 2009 5:00 pm ET

Executives

Ina McGuinness – IR, ICR

Andrew Littlefair – President and CEO

Rick Wheeler – CFO

Analysts

Rob Brown – Craig-Hallum Capital Group

Graham Mattison – Lazard Capital Markets

Pearce Hammond – Simmons & Company International

Eric Stine – Northland Securities Inc.

David Woodburn – ThinkEquity Partners

Rupert Merer – National Bank Financial

John Roy – Janney Montgomery Scott

Operator

Greetings, ladies and gentlemen, and welcome to the Clean Energy Fuels First Quarter 2009 Earnings Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator instructions).

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Ina McGuinness of ICR. Thank you, Ms. McGuinness. You may begin.

Ina McGuinness

Thank you operator. Earlier this afternoon, Clean Energy released financial results for the first quarter ended March 31, 2009. If you did not receive the press release, it is available on the Investor Relations section of the company's website at www.cleanenergyfuels.com. This call is being webcast and a replay will be available on the company's web site for 30 days.

Before we begin, we would like to remind you that some of the information contained in the news release and on this conference call will contain forward-looking statements that involve risks, uncertainties and assumptions that are difficult to predict. Words and expressions reflecting optimism, satisfaction with current projections, as well as words such as believe, intend, expect, plan, anticipate and similar variations identify forward-looking statements, but their absence does not mean that a statement is not forward-looking.

Such forward-looking statements are not a guarantee of performance and the company's actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in the risk factor section of the Clean Energy Form 10-K filed with the SEC on March 16, 2009 and subsequent filings. These forward-looking statements speak only as of the date of this release and the company undertakes no obligation to publicly update any forward-looking statements, supply new information, events or circumstances after the date of this release.

Participating on today's call from the company are President and Chief Executive Officer, Andrew Littlefair, and Chief Financial Officer, Rick Wheeler. And with that, I would like to turn the call over to Andrew.

Andrew Littlefair

Thank you, Ina, and good afternoon everyone.

We have much to be encouraged about on this call as we discuss our first quarter 2009 results. Our revenues are up, our volumes are up, and our gross margins are up from the first quarter of 2008. I will let Rick give you some more detail on the numbers later, but we like how we are starting 2009 from a financial perspective.

In addition to the positive financial results, we are also seeing positive momentum for the company and for the industry, despite the challenging macroeconomic environment. We continue to win more contracts, the natural gas message is being embraced more and more by fleet operators, and we are seeing government officials on both the state and federal levels take action regarding green legislation and incentives and for natural gas in particular.

So, let me jump right in with the port update. While the economy is impacting the ports, we are seeing more positive momentum toward the deployment of alternative fuel trucks for this year. To accelerate the deployment of alternative fuel trucks, the Port of Los Angeles recently announced a program to assist in deploying 900 natural gas trucks.

The Port of LA announced an initial round of incentives using in excess of $45 million of their own funds to provide up to $80,000 of financial incentives for each of 450 natural gas trucks. The balance is expected to come from funds generated by the container fees being charged to shippers that were implemented in mid February. And you know, tonight, they will formally vote and adopt this program.

In addition to these trucks at the Port of LA, the Port of Long Beach has announced that they will be able to fund another 300 trucks. They have an attractive incentive program and have received applications from trucking operators for several hundred trucks, which they are processing at this time. In fact, just yesterday, 25 LNG trucks made it through the process and were delivered to the customer.

They also modified their programs and the natural gas trucks would be exempt from the container fees, which is a significant development. Right now, more than 190 trucks are on dealer’s lots, so the deployment of trucks, as these new programs take effect, should happen quickly. Both ports also stand to benefit from California and federal legislation promoting the use of alternative fuels and low carbon fuels, which I will discuss later in my remarks.

Our next port station for fuelling both LNG and CNG port trucks is expected to be operational later this month. With six fuelling lanes and 50,000 gallons of LNG stored, this will be the world’s largest LNG truck stop. Most importantly, this station serves as the visible testimony to our commitment to build the necessary infrastructure to support the ports' Clean Truck Program.

When the LNG demand at the port ramps up and it is beginning to, we are ready to provide the LNG to fuel the vehicles. Our California LNG plant is fully operational and our production has averaged approximately 1.3 million gallons per month.

Now let me take a moment to talk about the McCommas Bluff landfill in Dallas. Last month, we entered into a 15 year agreement for the sale of renewable biomethane produced at McCommas. The agreement calls for the sale of up to 4,500 MMBtus per day of biomethane from April 2009 through September 2010 and between 5,000 to 6,000 MMBtus per day through 2024. Just to put this in a gallon perspective, 4,500 MMBtus is about 32,000 gallons a day.

Shell Energy North America is the purchaser and will supply the biomethane to the end user. In addition to providing us with a sound long-term revenue stream, this agreement is extremely important for us, as it validates the selling of renewable natural gas as a valuable ultra-low carbon fuel.

Many of our customers are showing interest in biomethane for their fleet vehicles and it is the best available alternate fuel to meet the new low carbon fuel standard. This standard is coming in California and we believe it will be embraced by other states and ultimately the nation. The success in renewable aspects of our McCommas Bluff landfill has also generated interest from refuse companies seeking to develop other landfills, which should help us continue our leadership position in the refuse sector.

In addition, we have built a significant expertise internally at Clean Energy in the area of low and ultra-low carbon fuels and the emerging market of carbon credits, particularly those associated with the capture and use of methane from landfills. With this expertise, we expect to be on the leading edge in the U.S. of understanding the carbon credit landscape and capitalizing on these credits and we expect to do more in this area.

Let me highlight a few of the key contracts that we won in the first quarter of 2009. We were awarded a contract to build and operate a CNG time-fill station by Republic Services. Republic is the second largest solid waste management company in the United States and is the City of Boise's waste and recycling contractor.

Republic provides solid waste and recycling services to more than 68,000 residential and commercial customers in the greater Boise area. This station will support the plant deployment of the new CNG rough use truck fleet that will be the first in Idaho, but as a result of this win, we are in discussions with Republic about additional opportunities going forward and this is existing.

We have been recommended by the staff of the City of Phoenix for a new three year LNG supply contract that is to begin July 1st. This is nearly $8 million gasoline gallons equivalent per year. We were a low bidder in the process and should have an official word from the city in the next – I don't know – six to eight weeks, and we were hopeful we are in a good position to win this supply contract back for this large customer.

In the stimulus package, there was about $300 million allocated nationally to the Queen City’s program. This program will be administered through DOE, but in concert with local granting agencies. Generally the grants require partnerships between cities, fleet owners and the private sector to obtain these matching funds.

Most of these grants are to be submitted by the end of May. So, our grant department is preparing submissions in 12 states on upwards of 60 projects, involving more than 4,500 natural gas vehicles. We of course won't win them all, but if history is any guide, we should do well. This is very exiting.

To give you an idea of what sort of new station activity you can expect to see going forward, as of today, we have 15 projects in various stages of development and construction with many more in the pipeline. As you recall, last year, we completed 28 station projects, which was up from 2007, and we are on track for station growth in 2009, which we are very proud of, given the economy. Another growth driver will be increasing volumes at key existing contracts. I guess you'd say this is sort of a same-store sales metrics.

The San Diego MTS grew its fleet by 60 buses during the last two quarters and will take delivery of another 75 buses by year end. Las Vegas RTC took delivery of 45 buses this past quarter and ordered 20 more that will be delivered by the first quarter of 2010.

Foothill Transit will take delivery of 30 buses during the second quarter of this year and LAMTA began fueling 20 buses in our Santa Monica station this past quarter. MTA will take delivery of an additional 30 buses that will be in service by the end of the second quarter, adding an incremental 2,500 gallons a day to our volume totals. You know, a good way to think about this growth is that about on average every 60 buses equates to about a million gallons a year.

Looking at our operations outside the U.S., we saw improvement in our Peruvian operation. We have recently added industrial customers that are being serviced by our station in Lima, thereby increasing our volumes threefold. We are looking at adding other stations in other highly populated traffic and taxi areas in Lima.

Before I move on to provide a legislative update, I want to highlight a very exciting announcement about the industry that was made this quarter, when AT&T Chairman and CEO Randall Stephenson announced AT&T’s major commitment to natural gas vehicles in its nationwide fleet. And some of you may have seen – maybe seeing their new TV ads touting natural gas.

AT&T plans to invest up to $350 million to purchase about 8,000 CNG vehicles over the next five years. This represents the largest corporate commitment to CNG vehicles in our nation’s history and the Clean Energy team is working to ensure that we are well positioned to capitalize on this opportunity.

Now turning to federal legislative activity, as you know, on April 2nd, a bipartisan group of representatives introduced HR 1835. It’s got a duty [ph] of a title, The New Alternative Transportation To Give American Solution Act, or we say for short is the NAT GAS Act.

The group was lead by Dan Boren, John Larsen and John Sullivan, and currently I think there is 35 cosponsors on the bill. The goal is to reduce imported oil by accelerating the production and use of natural gas vehicles. Key elements include a doubling of the current per vehicle tax credit, an 18 year extension to the current $0.50 per gallon tax credit, a new credit of up to $4,000 for vehicle manufacturers of natural gas vehicles, a new requirement that at least 50% of the vehicles purchased by the federal government being natural gas fueled, and finally an increase in the tax credit for natural gas fueling stations to $100,000 from the current $50,000.

We will keep you posted on the developments related to this bill, but our great deal of credit for this bill goes to Boone for his tireless efforts to educate our legislators on the benefits of cleaner, domestic and abundant natural gas as a vehicle fuel. This includes the 4.6 million supporters of his Pickens Plan, who are letting our legislative representatives know that they expect a decisive actions related to the passing of an energy bill.

In California, Governor Schwarzenegger's Low Carbon Fuel Standard was formally adopted on April 24th, establishing a national model. When fully phased in, the regulations require a 10% reduction in the carbon content of transportation fuels by the year 2020.

Domestic natural gas and biomethane are two of the four fuels that are compliant with these new requirements. The other two are electricity and hydrogen. Natural gas and biomethane will fare well under the new regulations as both fuels far exceed the standard. Under the regulation, regulated parties can comply by producing low carbon fuels, using bank credits or acquiring credits from other regulated parties.

It's our expectation that we will be in a commanding position to earn a significant amount of credits, throughout the entire rules implementation. The regulation will take effect in 2010 with credit generation ramping up in 2011 and the initial sale credit starting in 2012. So, watch this.

The new program is likely to have national significance since 22 other states have expressed the desire to adopt similar requirements under our regional cap-and-trade market and the EPA is compelled to consider adopting a natural standard.

Well, I think that wraps up my report, and I would like to turn it over to Rick.

Rick Wheeler

Thanks, Andrew.

Our revenues for the quarter ended March 31, 2009 were $30.2 million, which is up from $29.9 million in the first quarter last year. Gallons delivered in the first quarter of 2009 increased to 18.3 million gallons, which is up from the 17.6 million gallons we delivered in the first quarter of 2008.

Gross margins improved to $8.6 million during the quarter, up from $7.5 million a year ago. On a GAAP basis, our net loss for the first quarter was $6.5 million or $0.13 per share, which compared with the net loss of $5.4 million or $0.12 per share for the first quarter of 2008.

One number we look at when managing our business is our non-GAAP loss per share. For the first quarter of 2009, this metric was $2.8 million or a loss of $0.06 per share, which compares to a non-GAAP loss of $2.9 million or $0.07 per share in the first quarter of 2008.

This measure excludes employee related stock-based compensation charges and in the first quarter of 2009, the mark-to-market loss on our Series I warrants, which we are now required to do each period beginning January 1, 2009.

Looking at our margins, one thing I would like to discuss is the impact of our McCommas landfill operations on the numbers. In the first quarter of 2009, natural gas prices were depressed, which negatively impacted the McCommas revenues, which were priced off of local gas index during the period. Consequently, the McCommas operations negatively impacted our margins by approximately $700,000 during the quarter.

With the new Shell deal starting in early April, Andrew mentioned earlier, whereby the gas produced at the landfill will be sold at a price that is at a premium to the current market price of natural gas, we anticipate this trend will reverse itself over the remainder of the year, and McCommas will make positive contributions to our margins beginning in April.

Another thing you will notice about our margins this quarter is there is not an adjusted margin figure as in the past. This is because we are now out from under our unhedged legacy fixed price contracts that created the need for the adjusted margin measure. As you can see, our margin per gallon was 47 tons per gallon in the first quarter of 2009, even after the negative margin impact of the McCommas operations I just mentioned.

Turning to our SG&A expenditures, you can see they were relatively flat between periods. However, if you look at our expenses excluding stock-based compensation charges, our cash SG&A expenditures, if you will, they actually decreased by approximately 10% or $1 million between periods. We believe this demonstrates that the cost savings initiatives we implemented for 2009 are taking effect.

At March 31, 2009, we had cash and cash equivalents totaling $30.9 million. Based on our current business plan for the remainder of the year, we believe we have sufficient cash to meet our needs over this period. However, we are constantly looking at ways to expand and grow our business and we also anticipate, we will need growth capital to fund our 2010 capital plans to capitalize on future station opportunity.

As such, we anticipate we will be looking to raise the money between now and the end of the year. We will first pursue debt opportunities to fund our cash need and then we will pursue equity opportunities to fund any additional needs we have. We do not know the magnitude or timing of the capital need at this time, but we do believe we will need more capital at some point to continue to grow our business.

Finally in April, we purchased futures contracts covering approximately 24.5 million GGE of fuel to hedge our risk related to two LNG fixed-price supply contracts that we bid on. One of these contracts is the Phoenix LNG supply contract that we lost a portion of last year. We believe we are the low bidder on the contract and the staff reviewing the bids has recommended us for the award. We hope to receive official word soon from the city and we are excited about hopefully having this large customer back in the fold for the next three years beginning July 1st.

With that operator, please open the call to questions.

Question-and-Answer Sessions

Operator

Thank you. (Operator instructions). Our first question comes from the line of Rob Brown with Craig-Hallum Capital Group. Your line is now open, you may proceed.

Rob Brown – Craig-Hallum Capital Group

Good afternoon. Just curious on the Republic contract you announced, how many trucks does Republic run in total and what's sort of the I guess method where you can win other cities within Republic?

Andrew Littlefair

Rob, good afternoon. Republic merged with Allied; they're the second largest. Now they have 17,000 trucks system wide. That compares to about 22,000 collection trucks. When I say 17,000, that's collection trucks; they have other roll offs and other kinds of trucks and fleet vehicles. And of course as you probably know, they're scattered all over the United States. So, without saying too much here, we are talking to Republic about expanding our presence with them and we are excited about that.

Rob Brown – Craig-Hallum Capital Group

Okay, great. Thank you. And then at the ports right now, how many ports trucks do you have running and when do you think these new trucks you talked the port implementing, how does that roll out through the rest of the year?

Andrew Littlefair

Currently there is about 300 trucks at the port that are in operation and that probably doesn’t count those 25 that got delivered yesterday that are having this stickers put on them today or something. There are another 200 that are, as I said, at dealer lots. In fact, my number was 190 on the sheet, I was subsequently told it is about 210 on dealer’s lots in Southern California. Tonight, it's expected – it's already been announced, but expected that a vote will go ahead and put in motion 450 trucks, a funding mechanism for 450 trucks. Long Beach is already really underway with that kind of a similar program, and so, you know my record on this, we've always missed a lit bit on projecting when these are going to come along.

It’s LA's intention that by the end of the year that they get at least another 900 on the road and I think Long Beach would like to see 300. So, we are talking about between now and end of the year potentially as many as 1,200. I think the if you think of 450 trucks and the 300 in Long Beach, those 750 probably could find their way on to the roads in the next, I don't know, five months, six months, and then you will have a bigger piece at the end of the year to kind of round that up over a 1,000. So, it’s kind of going the way, I said it might, Rob, which is this kind of 100 a month pattern. And I’m pleased, because remember, those trucks are using anywhere between 10 and 15, some more, thousand gallons per trucks. So, it is what we need and it’s going to be very important for us for the reminder of 2009.

Rob Brown – Craig-Hallum Capital Group

Okay, good. Thank you.

Operator

Thank you. Our next question comes from the line of Graham Mattison with Lazard Capital Markets. Your line is open, you may proceed.

Graham Mattison – Lazard Capital Markets

Hi, good afternoon guys.

Andrew Littlefair

Hey, Graham.

Graham Mattison – Lazard Capital Markets

Just a question in terms of the recent awards that you guys have won, particularly in the later part of 2008, and also in the beginning of 2009, when do you see the gallon sort of kicking in there, I mean if that will first half or will that be more sort of weighted towards the back half for those contracts to ramp up?

Andrew Littlefair

You know, back half, when you say back half, you mean of 2009?

Graham Mattison – Lazard Capital Markets

Yes, sir.

Andrew Littlefair

Yes, you are going to see a lot of volume growth here in the latter half of 2009, I’m happy to say, without projecting it, I mean, and giving specifics. But when you start adding in those buses I just talked about and you add in half year of 8 million gallons for Phoenix and some other things that we've talked about, you should see some pretty good growth in the back half of '09.

Graham Mattison – Lazard Capital Markets

Okay. And then on the Phoenix contract, do you expect to hear something, a formal word on that probably around July 1st, similar to last year?

Andrew Littlefair

It's suppose to, if I got my numbers right, it is supposed to be in effect by July 1st and it has to go through the City Council and through the staff. The staff, as you know, has already recommended it to the City Council. So, knock on wood, I think we should hear something here in the next four weeks to six weeks.

Graham Mattison – Lazard Capital Markets

Okay. And then…

Andrew Littlefair

We are ready to serve them today. We've got the capability and the fleet in place to it. If we could get a call tomorrow, we would be ready to go.

Graham Mattison – Lazard Capital Markets

Okay, great. Just last question for Rick, on SG&A, it's pretty meaningful reduction on that. Is this a good run rate to go forward with, what you guys did this quarter for the rest of the year, or will there be any sort of meaningful ramp up in that?

Rick Wheeler

Good question. As you know, we don’t provide guidance, I need to be a little careful here, but we always throw the caveat out there that to the extent there are legislative initiatives or marketing efforts that we think will benefit the business long-term, we certainly will invest in those. I’d also add, we are focused on our SG&A, and the cost cuts that we did coming into the year, looked like they are starting to take effect, and we'll get some good reductions. So, we will look for those to continue. So kind of we are watching it with the caveat that we're always subject to doing what's right for the business going forward. That number, there is nothing I know about right now that would make it out of whack going forward.

Graham Mattison – Lazard Capital Markets

All right. Got it, great. Thank you very much, guys.

Operator

Thank you. Our next question comes from the line of Pearce Hammond with Simmons & Company International. Your line is now open.

Pearce Hammond – Simmons & Company International

Good afternoon.

Andrew Littlefair

Hey, Pearce.

Rick Wheeler

Hi, Pearce.

Pearce Hammond – Simmons & Company International

In the prepared remarks, when you're talking about McCommas, Andrew, so the McCommas volumes would equate to roughly, did you say 13 million gallons a year?

Andrew Littlefair

I think the numbers I used was 32,000 gallons a day.

Pearce Hammond – Simmons & Company International

Okay.

Andrew Littlefair

It's that 13 million a year? It is less than that.

Pearce Hammond – Simmons & Company International

Okay, and so if we're going to…

Andrew Littlefair

That's at current – that's at that current 4,500 MMBtus.

Pearce Hammond – Simmons & Company International

Okay. And so…

Rick Wheeler

FYI, that doesn't run all the time. I mean it has maintenance and issues and stuff like that, so just don't multiply by 360.

Pearce Hammond – Simmons & Company International

Sure. So, if it's going to be in the volumes, would that mean that the gross margin per gallon would become and down a little bit just because of the gross margin of those gallons being less. Is that correct or not?

Rick Wheeler

That's kind of hard to say. The good news is that the price that we're going to be charging is in excess of what the current natural gas prices are today. So, we don’t see a significant bump on the revenue line. The question is just what they’re going to look like from an operating perspective. You know, there is just a lot of work out there, the guys do that somewhat outside our control. I know it’s probably hard to believe, but apparently the guys who run the landfill aren't the most careful guys out there, and have a tendency to run over a well, or hit some of our equipment, that type of thing. So, it's not a real steady state from an operating perspective. But all in all, I’d certainly say or give you the indication, it's going to be less than typically what we do from a retail gasoline perspective, but it will still be pretty good.

Pearce Hammond – Simmons & Company International

But should we see those start to flow through in a meaningful way, say in Q2?

Rick Wheeler

Yes. We did some capital improvements actually during the month of March. McCommas was basically down all month while they were doing the capital upgrade and it's been running real well during April. And the expectation is, with those capital upgrades, they will continue to run well. And if we start in early April with a new pricing and a new contract, it should start kicking in meaningfully to our result.

Pearce Hammond – Simmons & Company International

Great. And then Andrew on the AT&T, the 8,000 trucks, if those trucks were say 10,000 gallons a year, that's 80 million gallons. So, it's really sizable. What can you share as far as AT&T’s plans for who they want to buy the fuel from and your potential relationship with them?

Andrew Littlefair

Right. Well, no – it’s a good question. And first off, AT&T, these are typically vans, okay. So, picture a GM van or a Ford van, and they use more like 1,000 gallons a day, not 10,000. So, these aren't heavy duty trucks. So, you have to take your number down there a bit.

Pearce Hammond – Simmons & Company International

Okay.

Andrew Littlefair

It’s still significant. So, if you got 8,000, what’s that, that’s 8 million gallon. They are going to roll those out over about three years. We are in conversations with the first set of stations with them and negotiations with them. I don’t want to get too far ahead of myself. I think we have to get those first stations under our belt with them and with us and then we'll kind of move to the next phase. They have put out an RFP for the first – I don’t know, 600 or 800 of those vans and (inaudible), those vehicles are beginning to be put into play.

What's exciting though to me, is this leadership that they’ve showed, has kind of caught on. And other large national fleets, in fact there is a consortium of about 10 or 13 very large businesses that are making a little pilgrimage to Detroit to talk to our original equipment manufacturers that have right sized fleets as AT&T. And what's important about what AT&T did, kind of got the ball rolling and captured the attention of Ford, who really wasn’t interested to do that right now. And they have now made a commitment, they are going to help AT&T, and I hope they do with these other national fleets. So, it's a nice bellwether for I think what might happen with some of these other big national fleets.

Pearce Hammond – Simmons & Company International

And then, in your prepared remarks, I may have missed this, but just curious, your comments on U.S. District Judge Christina Snyder's injunction?

Andrew Littlefair

Well, I didn’t mention that, but we – you're talking about the port?

Pearce Hammond – Simmons & Company International

Right.

Andrew Littlefair

We've sort of gotten through, the way I understand it. We've kind of gotten through the legal challenges there, and I think that’s probably why tonight the LA is moving forward on this. I imagine there'll be other legal challenges as we go, but you know what's interesting to me there is, even those that have brought those suits haven’t – the squabbling hasn’t been over whether or not there should be clean trucks or should there be LNG trucks or if they should try to modernize the fleet. It's been about some other parts of the concession agreements, about where they can park the trucks and this sort of thing. And so an employee driver certainly is an issue, but I'm under the impression that these issues are getting cleared away. And as it relates to clean trucks, we're in the clear.

Pearce Hammond – Simmons & Company International

Alright, well, thank you very much.

Andrew Littlefair

Thank you.

Operator

Thank you. Our next question comes from the line of Eric Stine with Northland Securities Inc. Your line is now open, you may proceed.

Eric Stine – Northland Securities Inc.

Hey guys, thanks for taking the call.

Andrew Littlefair

Hey how're you doing?

Rick Wheeler

Hey, Eric.

Eric Stine – Northland Securities Inc.

Not too bad. I wanted just a bookkeeping item, did you break out CNG?

Andrew Littlefair

Eric, before you even start, ammonia.

Eric Stine – Northland Securities Inc.

You are good. You knew I was going to ask.

Rick Wheeler

You bet. Last quarter, our Q1 '08 CNG 11.6, biomethane hasn't started yet because we haven't done the acquisition, and LNG was 6.0 to get you to 17.6. And current quarter is 12.1 for CNG, 0.9 for biomethane, and 5.3 for LNG, which gets you to a total of 18.3.

Eric Stine – Northland Securities Inc.

Okay. Do you have a port volume number?

Rick Wheeler

No, not exactly, but I think they've been running at what, 6,000, 7,000, 8,000 gallons a day down there recently.

Andrew Littlefair

Sometimes more.

Rick Wheeler

Sometimes more, so it's kind of in that magnitude right now.

Eric Stine – Northland Securities Inc.

Okay. And did I understand correctly that so McCommas was down for a month because I know that 0.9 million TGEs [ph] is down a bit from last quarter, is that correct?

Rick Wheeler

In essence it was down all of March. I think it operated for a few days in March or a week maybe, but after that it was down, they were doing all the capital improvements.

Eric Stine – Northland Securities Inc.

Okay. Well, so we should well obviously expect that to kick back up to where it was last quarter or a little bit more if you see some improvement there?

Rick Wheeler

(inaudible) capital improvement, we have expanded the capacity and it should in theory pickup.

Eric Stine – Northland Securities Inc.

Okay. And just sticking with McCommas, the utility customer who is taking the volumes, I mean should we expect that basically all your volumes are going to that customer?

Rick Wheeler

For now I think that’s right. And then as we continue to expand the plant capacity, we will have extra gas to sell to other customers or other vehicle application. We do have the ability to pull 500 MMBtus a day out of there per vehicle application like we (inaudible) City of Dallas or some other refuse hauler in the area.

Eric Stine – Northland Securities Inc.

Okay. And you are obviously okay with that given that the economics are pretty favorable?

Rick Wheeler

You bet.

Eric Stine – Northland Securities Inc.

Okay. Just kind of switching gears a little bit, just the construction revenues, I know you don’t talk about that a whole lot, but it looked like I mean that was a pretty significant number in the quarter, is there any thing I should read into that?

Rick Wheeler

No, just – you know obviously that’s kind of lumpy and sporadic just depending on when thing get done. In this particular case, there was a big station we did for the Orange County Transit Authority out here in California that we got done during the quarter and now was the bulk of it. This is a nice old project for us and we also have ongoing O&M with them.

Eric Stine – Northland Securities Inc.

Okay, I see. I guess this is more of a long-term question, but I know of something I’m have been reading about at the ports, the potential rule that they may have ships coming in use LNG as opposed to bunker fuel and now that's – right now it is voluntary. If that is made mandatory, is that something that you would potentially be involved in?

Andrew Littlefair

We played with this – we played with this some, and it’s called cold-ironing. I don’t know if that’s what you are reading about there. It’s where you don’t use the APUs and the bunker fuel as the ship idles, while it’s offloading or loading. We have actually worked with the company that has a way to use liquefied natural gas to run a compressor and then to power the ship. That’s been tested in Oakland. Electrification, that is putting big power lines up to the ship is pretty expensive and it is pretty awkward. And so we looked at this cold-ironing, we think it's kind of neat. We certainly have the LNG available. We think it can make some sense, and so we are monitoring that. We have a guy here that's gotten to be pretty seasoned on that. So, we will see how it goes.

I think we are little ways out on that, but it wouldn't surprise me that you will start to see ports and other places look at cold-ironing. Because when you look at the port, and the problem at the port, you've got the trucks, you've got the rail, and you've got ships. And I don't know exactly the breakdown, but those ships certainly account for about a third of it, and it's really from them while they are idling near port in the harbor.

Eric Stine – Northland Securities Inc.

Okay. That's definitely like you said, that's ways out, but a potential opportunity.

Andrew Littlefair

It’s ways out, but it's one of these things where it's in the – the regulators are looking at it, and I don’t know when it all happens. We've looked at it, we have actually even been party to a test of it, and so we are keeping – we are monitoring.

Rick Wheeler

It's actually pretty economic. So, we are hopeful obviously it does take some root and get going.

Eric Stine – Northland Securities Inc.

Okay, thanks a lot. I will jump back into the line.

Rick Wheeler

Thank you.

Operator

Thank you. Our next question comes from the line of David Woodburn with ThinkEquity Partners. Your line is now open, you may proceed.

David Woodburn – ThinkEquity Partners

Hi, thanks for taking the question. Rick, can you give us an update on the CapEx plan for 2009. Does that still include about 35 stations? Or is that not necessarily a calendar plan?

Rick Wheeler

(inaudible) project and that might be a little high. We look at things more from a dollar perspective. And right now I think the remainder of the year, we are on tap for about another $20 million or so of CapEx as part of our plan, that's kind of the magnitude of where we are at.

David Woodburn – ThinkEquity Partners

Okay. And then, Andrew, a more qualitative question, when – I mean obviously with the change in natural gas prices relative to diesel and things, are the conversations, you know the initial meetings that your sales teams are having, are they getting more meetings, I guess as a share from municipalities that are looking at both the green and the economical aspect, or is it with AT&T signing on or private fleets just as a strong component of their potential pipeline?

Andrew Littlefair

Well, you know, it’s both. It’s evenly spilt. I actually think that we – you know the climate has been very interesting. I mean on one hand, you've had the price of the pressure come off a bit, as you got the price of oil come down and diesel and gasoline have come down. But the policy impetus for green and green jobs and low carbon, that's put more pressure on. And so we are actually in many ways seeing more private fleets look to fuel diversity. They are, as I've said before in these calls, they do believe that eventually when the world economy kicks back into gear, that they're going to be faced with more expensive fuel. And so – and they're also monitoring this move, this green movement. So, we are working with lots of private fleets. Yet on the other hand, you're seeing a lot of with the municipalities. So, I don’t know if its 50-50 or what, but there is plenty in both categories.

David Woodburn – ThinkEquity Partners

Can we use the Boise contract, the Republic contract is an example. What was the start to finish timeframe of that?

Andrew Littlefair

As you know, our businesses is a long lead time business. And by the time that we talk to them, or by the time that the city is thinking about going out to bid, in this case, refuse, it can take six to eight or nine months, a year. And it takes them six months to get trucks, takes us six months to build it. So, I don't know off the top of my head, but it wouldn't surprise me if early negotiations and discussions with our friends at Republic started a year and half ago on this very project. That's why, as you probably know, we beefed up our marketing department and opened up other offices, because we really believe that we need as many projects in the pipeline because it will take a while to fruition. So, we've got a lot of projects in the pipeline, but they'll take a while.

David Woodburn – ThinkEquity Partners

All right. We will take the big number then. Thank you.

Operator

Thank you. Our next question comes from Rupert Merer with National Bank Financial. Your line is now open, you may proceed.

Rupert Merer – National Bank Financial

Thank you. Good afternoon, gentlemen.

Andrew Littlefair

Hi, Rupert.

Rupert Merer – National Bank Financial

Just one high level question, the low carbon fuel standard obviously, it looks like a great opportunity for natural gas fuel, the ARP’s carbon dioxide calculation seem very favorable for CNG, the fuel is available here and now. But then I look at the ARB scenario now, they don't look that bullish on CNG. It looks like they're only looking for 2% penetration for natural gas by 2020 and only as a diesel replacement, why is that they are not more positive? How important is their analysis and how do you think we can change their view point?

Andrew Littlefair

Well, I don't know about their analysis. We have had to bring them a long way. When you look at what CARB and I have to applaud their leadership with low carbon fuel standard and what they've done, as I've looked at the different fuels, so give them – let's give them a lot of credit. I mean they did come up with poor fuels and if you go back nine or ten months ago, natural gas wasn't really in the list. So, here as we come to the final rule, we've got natural gas and biomethane out of the four that are contributors. So, they've come a long way. Their staff analysis has always had a hard time getting their arms around how natural gas will compete with liquid fuels and you know when you go back and look at some of the history of CARB, they focused always on liquid fuels. They didn't see time. Sure, they looked at electricity a little bit, but they really always focused on what is that they do to liquid fuels. So, they used to focus, Rupert, on cleaning up diesel and diesel trash, because they really they are – and maybe it is the right way to look at. They figured we have all this liquid fuel that's going to be in the market, how do we clean it up? So, their staff has been slow to get their arms around the market size, the market potential. We’ll continue to work with them and bring them along like we did on here recently. So I wouldn’t put too much in their analysis of what the penetration is.

Rupert Merer – National Bank Financial

Okay. And it appears as though they are doing a review on the potential for LNG fuel. Right now, imagine you’re working with them on that, do you expect that they might start looking at some scenarios with greater LNG penetration?

Andrew Littlefair

Well, we are. We are working closely. We have two people, staff members here that work very closely with them, have a good relationship with CARB. They are working on a few other areas of the rule. You know the rule will get sort of finalized and put in place here over the next six months. So we’re working with them. They will look at the analysis of how much LNG will go in. When we talked though, when you and I are right now talking about LNG, it’s not that it’s imported LNG. It’s just LNG as it relates to a vehicle fuel versus compressed natural gas.

Rupert Merer – National Bank Financial

Okay. And just finally do you have any view on what the credits might look like that you’ll generate from selling the CNG and LNG starting in 2011?

Andrew Littlefair

Well, we’re getting our arms around that. What we know is that, we will generate credits, and we also know that the way the low carbon fuel standard goes into effect, that in the early years, the ramp, if you will, for the oil, the refiners, and it’s general in the beginning and that it really picks up speed in the out years. But when you look to, I think it’s 2012, 2013, 2014, we’re starting to talk about having to make reductions on billions of gallons. So, it gets to be pretty big numbers. And so I'm not going to sit here and tell that I know what it is per ton and how they are going to get traded and what they're going to be valued like. But we know that you're going to see a market and it looks to us like it's going to be pretty interesting starting in about 2012.

Rupert Merer – National Bank Financial

Okay, great. Well, thanks very much.

Andrew Littlefair

It may start even earlier than that, 2011. We are going to be able to start banking them before that.

Operator

Thank you. (Operator instructions). Our next question comes for the line of John Roy with Janney Montgomery Scott. Your line is now open.

John Roy – Janney Montgomery Scott

Hi, it's John Roy. I don't know how you got the name wrong. Hey guys, one quick question. On the VTAC [ph] capture rate, I noticed that it dropped pretty good this quarter unless my math was wrong at $0.22. Was there something particular that was going on there or r is that --?

Rick Wheeler

Hi, John. The biggest thing here is, one of our customers switched from a gas deal to an O&M deal that was pretty large.

John Roy – Janney Montgomery Scott

Okay.

Rick Wheeler

No longer qualified to get the credit anymore.

John Roy – Janney Montgomery Scott

All right.

Rick Wheeler

And so you are seeing a dip.

John Roy – Janney Montgomery Scott

All right. Should we kind of model like growing in the future as you continue because that's been the kind of thinking in the past. So, should we still continue to model that?

Rick Wheeler

Yes, I think we believe that's right. All the four trucks that are going to be fueling the LNG to our station down there will get VTAC on that, certainly additional retail opportunities, buses – well, not certainly buses, but expanding vehicles and such at our infrastructure will qualify for VTAC. So certainly our goal is to move that number up.

John Roy – Janney Montgomery Scott

So one last question on this, when that customer changes their situation, does that negatively impact your gross profit per DGE, the way you calculate it, or is there some other way you get that back?

Rick Wheeler

From a dollar perspective, it's the same. It's just instead of charging for the commodity, we won't be doing that anymore.

John Roy – Janney Montgomery Scott

Okay.

Andrew Littlefair

Have an index plus deal, if you will, whereby the index went away.

John Roy – Janney Montgomery Scott

Got it, got it. That's what I kind of figured. Okay, thanks.

Andrew Littlefair

You bet.

Operator

Thank you. At this time, there are no more questions in queue. I would like to turn the call back over to management for any closing comments.

Andrew Littlefair

Well, thank you everybody for participating. And just briefly in closing, as you can see, we are making good progress on our goals to expand our base. We are adding some new geographies and we are readying ourselves for the benefits of the progress reports. The low carbon fuel regulations that are passed and the federal legislation that is pending will play a significant role in our ability to expand our mission.

As many of you know, next Tuesday, May 12, is our Annual Meeting where we will have on display the prototype of the CNG fuel paratransit and taxi panel van that we are probably funding and which will be available for sale in the first half of next year. So, we look forward to seeing some of you at the annual meeting. In the mean time, we appreciate your continued interest in supporting Clean Energy. Thank you very much.

Operator

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you very much for your participation. Have a wonderful evening.

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Source: Clean Energy Fuels Corp. Q1 2009 Earnings Call Transcript
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