Clean Energy Fuels' CEO Discusses Q1 2013 Results - Earnings Call Transcript

May. 8.13 | About: Clean Energy (CLNE)

Clean Energy Fuels Corp. (NASDAQ:CLNE)

Q1 2013 Earnings Conference Call

May 8, 2013 4:30 pm ET

Executives

Tony Kritzer – Director, Investor Relations

Andrew J. Littlefair – President and Chief Executive Officer

Richard R. Wheeler – Chief Financial Officer

Analysts

Steve Dyer – Craig Hallum Capital Group LLC

Robert Brown – Lake Street Capital Markets

Andrea James – Dougherty & Company LLC

Caleb Dorfman – Simmons & Company

Matthew Blair – Macquarie Group

Operator

Greetings and welcome to the Clean Energy Fuels First Quarter 2013 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 Tony Kritzer. Thank you, Mr. Kritzer. You may begin.

Tony Kritzer

Thank you, operator. Earlier this afternoon, Clean Energy released financial results for the first quarter ended March 31, 2013. If you did not receive the release, it is available on the Investor Relations section of the company’s website at www.cleanenergyfuels.com, where the call is also being webcast. There will be a replay available on the website for 30 days.

Before we begin, we’d like to remind you that some of the information contained in the news release and on this conference call contains forward-looking statements that involve risks, uncertainties, and assumptions that are difficult to predict. Words of expression reflecting optimism, satisfaction with current prospects, as well as words such as believe, intend, expect, plan, anticipate, and similar variations identify forward-looking statements, but their absence does not mean that the statement is not forward-looking. Such forward-looking statements are not a guarantee of performance, and the company’s actual results could differ materially from those contained in such statements.

Several factors that could cause or contribute to such differences are described in detail in the Risk Factors section of Clean Energy’s Form 10-Q filed May 8, 2013. 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 or supply new information regarding the circumstances after the date of this release.

The company’s non-GAAP EPS and adjusted EBITDA will be reviewed on this call and exclude certain expenses that the company’s management does not believe are indicative of the company’s core business operating results. Non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP and should not be considered as a substitute for, or superior to, GAAP results. The directly comparable GAAP information, reasons why management uses non-GAAP information, a definition of non-GAAP EPS and adjusted EBITDA, and a reconciliation between these non-GAAP and GAAP figures is provided in company’s press release, which has been furnished to the SEC on Form 8-K today.

Participating on today’s call from the company is President and Chief Executive Officer, Andrew Littlefair; and Chief Financial Officer, Rick Wheeler.

And with that, I’ll turn the call over to Andrew.

Andrew J. Littlefair

Thank you, Tony, and good afternoon, everyone, and thank you for joining us. I am pleased to review our first quarter 2013 operating results. Today, we reported first quarter gallons of 49.9 million, up 14% from 43.7 million in the first quarter of 2012. We generated $93 million of revenue during the first quarter, up 26% from $73.6 million a year ago.

Before I get into our quarterly operating highlights, I want to spend a few moments on the exciting announcement we made yesterday regarding our new strategic partnership with Mansfield Oil. For those of you who aren’t familiar, Mansfield is the largest back lot fueler in the country, providing three billion gallons of diesel a year to over 3,500 fleet customers. Many of those customers are showing interest in transitioning their fleet’s natural gas. Clean Energy will be the exclusive provider of natural gas solutions for Mansfield’s customers. When we combine Mansfield’s excellent back office support sales, marketing and other financial services with Clean Energy’s natural gas experience, we will be the most compelling offer in the marketplace.

As a part of the alliance, Clean Energy has acquired Mansfield’s 43 service contracts and 20 new construction contracts, adding to our existing portfolio of almost 400 natural gas stations. We now have strategic partnerships with the country’s largest private back lot fueling company Mansfield and the country’s largest public network of truck stops Pilot-Flying J, which we believe positions us extremely well to serve truckers in all market segments.

Along with aligning ourselves with the best-in-class fueling providers, we are actively working with Cummins Westport as they roll out their new 12-liter engine. Companies like UPS have already made strong commitments and announced plans to purchase 700 additional LNG trucks over the next year and a half. Any medium sized carriers have made the decision to place orders, putting them in a stronger position to gain market share. This was evident in the recent Request for Proposal for RFP by Proctor & Gamble. The giant packaged goods company, for the first time, included a natural gas requirement for the fleets that transport P&G products.

Having one of the largest shippers make this requirement of their contract carriers is a significant milestone in this transition to natural gas. P&G has announced the transportation awards and Clean Energy is now working with many of the winners on their natural gas fueling needs.

Our friends at Cummins Westport say the production of and orders for the 350 and 400 horsepower 12-liter engines are right on track. Similar to what we saw in refuse market, we knew that the orders this year were going to modest to allow fleet operators to perform their new recycle testing in order to get comfortable with how the engines operate before marking more full fledged commitments.

The first units have already been shipped and everything is going as expected, so far so good. America’s Natural Gas highway is opened and continues to expand. Currently, we have 20 truck stop stations in development with 34 others in contracting and proposal stage. We will be opening stations as trucks are being deployed in certain regions. For example, two weeks ago, we opened our Latta, South Carolina station right on I-95 for Modern Transportation, who hauls roofing supply equipment for Owens Corning between their Sanford, North Carolina and Savannah, Georgia plants. The fleet will complete each 600 mile roundtrip on a single fueling.

Our 2013 station development plan augments the long haul highway corridors and targets clusters of distribution centers intermodal rail ramps and manufacturing facilities. These distribution center clusters attract large number of truck trips that we are targeting for natural gas. The stations have the flexibility to be both LNG and CNG and we’ll be anchored by early adopter customers located in the centers such as Coca-Cola, ConAgra, Covidien, Home Depot, Lowe's, Martin-Brower, Owens Corning, Saddle Creek and Target stores. This strategy also ties in nicely with our Mansfield agreement.

Now, let me turn to our core markets. Our refuse business is on fire. We have ten refuse stations currently in construction and 42 letters of agreement for stations to be build in the future. We recently finalized our master construction agreement are in the final negotiations on master maintenance agreement with Progressive Waste Services, the third largest solid waste company in North America.

Our IMW subsidiary provides virtually all the compressors for waste management and we are building the station for them in Nashville. Waste connection is the fourth largest publicly traded solid waste company has committed to start converting their fleet to natural gas and just awarded Clean Energy their station construction job for Vancouver, Washington.

In our airport, taxi and shuttle market, we currently operate 37 airport stations across the country and continue to see impressive fleet expansion throughout. Clean Energy was recently selected by Chicago O’Hare Airport to build a CNG station. Once completed, this will be our fourth station in Chicago area and we’ll serve the taxi fleet as well as new airport, hotel and rental car vehicles.

We’re also completing station projects at Newark, JFK, Reagan National, Dallas, and Orlando airports. We’re taking over operations for six CNG sites owned by PECO, the large utility in Philadelphia area. We’re working with Lehigh Gas Partners on the PECO stations as well as four other CNG sites in Pennsylvania.

For transit, we have recently renewed supply agreements representing almost 9 million LNG gallons per year between the transit agencies in Dallas and Phoenix. So for our core markets, we have at present about 48 projects in various stages of design, permitting, and construction.

Our renewable fuel subsidiary just closed $30 million financing with Babson Capital, which is a private equity arm of MassMutual. This deal is a great validation in the financial market place of our renewable business and proceeds will be used for new project opportunities and are secured by the McCommas and Sauk Trail plants. The financing is non recourse to Clean Energy and will allow Clean Energy to reduce its capital on the next two renewable projects by a corresponding amount.

Today, we have closed on $2.9 million in low carbon fuel standard credits generated by Clean Energy’s natural gas vehicle fuel sales in California, and an additional $1.9 million in LCFS credit sales is under contract through 2014. As we sit here today, we have our 2013 capital plan funded and our plans do not include raising equity through the rest of 2013. Beyond 2013, we’re considering various debt instruments to help fund our capital needs.

And with that I’ll turn the call over Rick.

Richard R. Wheeler

Thanks Andrew, before I review our financial results, I’d like to point out that all of my references to our results will be comparing the first quarter of 2013 with the first quarter of 2012 unless otherwise noted. Volumes totaled 49.9 million gallons during the first quarter of 2013, up from 43.7 million gallons a year ago. Our CNG, LNG, and RNG totals for the first quarter of 2013 were 34 million, 13.7 million and 2.2 million respectively.

For the quarter, revenue increased to $93 million, up from $73.6 million. When comparing our numbers between periods, please note that quarter ended March 31, 2013, includes $26.2 million of volumetric excise tax credit or VETC revenue, of which $20.8 million related to fuel sales in 2012. We were required to record the 2012 VETC revenue in the first quarter of 2013 as the law reinstating VETC to January 1, 2012, and extending it through 2013 wasn’t signed until January of 2013. We did not record any VETC revenue in the first quarter of 2012 as the law was not in effect at that time.

Offsetting the increased VETC revenue was a decrease in station sales revenue of $12.2 million between periods. We completed nine station projects in the first quarter of 2012 and completed two station sales projects in the first quarter of 2013. We have several station projects in the pipeline and anticipate this piece of our business will pick up over the remainder of the year. We also recently launched a facilities modification unit, which we also hope will land a few projects over the remainder of the year. On a non-GAAP basis for the quarter, we reported earnings of $0.03 per share, this compares with the non-GAAP loss of $0.16 per share in the first quarter of 2012.

Adjusted EBITDA in the first quarter of 2013 was $20 million compared to minus $2 million in 2012. Adjusted EBTIDA and non-GAAP EPS are financial measures we developed to highlight our operating results excluding certain large non-cash or non-recurring charges or gains, which are not core to our business.

These items include the amounts we are incurring for the Series I warrant valuation, our stock-based compensation charges, and foreign currency gains and losses related to our IMW purchase notes.

Adjusted EBITDA and non-GAAP EPS are described in more detail in the press release we issued earlier today. Our net loss on a GAAP basis for the first quarter was $3.9 million or $0.04 per share, which included a non-cash loss of $0.5 million related to valuing our Series I warrants, non-cash stock-based compensation charges of $6.2 million, and $200,000 in foreign currency losses related to our IMW purchase notes. This compares with a net loss for the first quarter of 2012 of $31.9 million or $0.37 per share, which included a non-cash loss of $13.5 million related to valuing our Series I warrants, non-cash stock-based compensation charges of $4.7 million, and $400,000 in foreign currency gains related to our IMW purchase notes.

Our SG&A expenses are higher between periods, primarily as a result of our continued business growth and efforts to support our construction of America’s Natural Gas highway and the anticipated fuel sales that will generate once it starts fueling heavy-duty trucks.

Our gross margin in the first quarter of 2013 was $42.3 million, which compares to $17.7 million in 2012. The gross margin in 2013 included the $26.2 million in VETC revenues recorded during the quarter. Our margin per gallon this quarter was $0.28 per gallon which was down $0.03 from the prior quarter.

During the first quarter of 2013, we sold our ownership interest in our Peruvian joint venture to our JV partner for approximately $6.1 million a recognizing gain of $4.7 million on the transaction.

And with that operator, please open the call to questions.

Question-and-Answer Session

Operator

1350Thank you. (Operator Instructions) Our first question comes from Steve Dyer with Craig Hallum. Please proceed with your question.

Steve Dyer – Craig Hallum Capital Group LLC

Thank you, good afternoon guys. Rick, could you give the segment revenue debt again, I think, I missed it?

Richard R. Wheeler

Which segments are you referring to?

Steve Dyer – Craig Hallum Capital Group LLC

Just generally gas, construction, IMW, BAF, et cetera.

Richard R. Wheeler

Sure, BAF revenue was 4.2, IMW was 17.6, station was 2.9, and then the VETC was 26.2.

Steve Dyer – Craig Hallum Capital Group LLC

Got you, okay, Perfect. And then, just as you look at kind of the pipeline, looking forward, you announced a bunch of stuff. The mix, I guess, of O&M versus supply and maybe if you've seen that change at all dramatically in the last quarter or two?

Andrew J. Littlefair

You know, Steve I don’t think so. I think it’s kind of is -- It sort of depends on what’s hot, obviously, we do some -- a lot of sales when we do some of our refuse business, because we’re selling equipment to two of those large customers. And so, you know, they are using their own capital, and then of course, we do some station maintenance. So on the refuse, it’s similar. We didn’t, as Rick mentioned, we didn’t build as many stations in this quarter, we see that coming, we’ve got more signed deals we’ve ever had before, so that tends to be a little bit lumpy. I would say that, you know, as we begin to open up the highway, which is really as we’ve discussed is really back-end year loaded. That’s going to be more fuel sales and less R&M and less operations and less O&M. It will be more commercial retail. And of course, our airport business is commercial retail. So it’s, -- I don’t think we have seen really much of a shift. I think going forward there will be less O&M because we believe that the fuel sales at our commercial retail and the truck stops and these others will be a larger volume.

Richard R. Wheeler

Let’s say, it’s about the same, it is similar.

Steve Dyer – Craig Hallum Capital Group LLC

Okay. As you think about your station construction revenue throughout this year, I know it's obviously hard to model and think about, but any particular lumps or ramp or just cadence throughout the year from a modeling standpoint?

Andrew J. Littlefair

One of the things, Rick, indulge this one, one of the, remember at the end of last year for instance, we had those big DART projects, which was almost I think in the fourth quarter, it’s $23 million. And so those were real large station sales deals running this year. I don’t see any thing which I know of right now that is like that, but there is more refuse sales deals in the pipeline that we’ve ever had before, so those will begin unless something funny happens. Those should begin to drop into the second, third, and fourth quarters. Rick, do you want to say on that?

Richard R. Wheeler

That’s right, I mean just to keep in mind, there were $43 million or so in DART revenue related to those big stations we built so for them in the third and fourth quarters of last year, and obviously that was kind of a one-time big one. We don’t have another similar project this year. I would say obviously we’re hopeful that the second quarter picks up from the first quarter and typically there is a little bit of a push at times to get projects done in the fourth quarter as trash companies and others trying to use up their budget dollars for the year.

So, you might see a little bit of an uptick in those quarters, but it is tough to predict as you alluded to just because it is kind of predicated on when we get done and obviously some of that’s outside our control, so with those kind of general guidelines, hopefully you can at least kind of get some flavor of what it’s going to look like the rest of the year.

Steve Dyer – Craig Hallum Capital Group LLC

Sure. Okay. Last one, and then I'll hop back in the queue. Gallons delivered in Q1 was down sequentially for the first time in quite a while. Is there something seasonal there that we should think about, because I think generally a simple way that I think about it is the more stations, the more gallons. But they are probably getting big enough now that from a seasonal standpoint, was there anything unusual about Q1?

Richard R. Wheeler

Yeah, there are several things going on there. First thing is we sold Peru midway through March, so obviously there were a few weeks that the Peru gallons were written in the first quarter of 2013 numbers than it was in the full quarter of 2012 that cost us about 300,000 gallons. We had some production issues at a couple -- at our two plants in the renewable natural gas biomethane sectors that cost us about 300,000 gallons. And there were a lot of just one-off kind of differences between the fourth quarter of last year and the first quarter of this year.

And the first one is one of our transit agencies on East Coast in New York. When Hurricane Sandy hit, they were running down there to help out, bus people around, so they incurred about 300,000 gallons more in the fourth quarter of last year as opposed to in the first quarter of this year. The LA MTA for some reason decreased service between the two periods. We have been in touch with them. There’s no cutback in service or anything. So, that may been seasonal, and just for some reason, that that just kind of happened. The other big thing that happened in the fourth quarter of last year, we adjusted all our take or pays and there is lot of them in the transit world to the extent, they don’t hit them. So you’re seeing a lot of revenues show up in gallons in that quarter, then in theory, you are not seeing in the first quarter of this year. I think those are kind of the biggest one-off ones. So, by the time we add all that up, there is a drop off sequentially in the quarters but it’s kind of one-off stuff and seasonal stuff and certainly we don’t think it indicative of how the business is going or where things are going as evidenced by all the projects Andrew just alluded to and all the things we’re working on. Kind of some one-off stuff that just happened, unfortunately hit all the ones.

Andrew J. Littlefair

There are also, Steve I think, we’ll see here coming up here now, there seem to be a bulge -, somehow in the trash truck deliveries, so you’re going to see coupons, and that I think in this quarter another 750 trash trucks role in. So, you know it’s kind of hard to project all these things -- kind of one-off things. But you’re right more stations should be more volume.

Steve Dyer – Craig Hallum

Perfect, that’s helpful. Thanks for the explanation.

Operator

Our next question comes from Rob Brown with Lake Street Capital Markets. Please proceed with your question.

Robert Brown – Lake Street Capital Markets

Good afternoon. On the Natural Gas Highway, could you give us an update on how many stations you have built, but not opened, how many opened, and then how to plan on how those turn on and roll out throughout the year?

Andrew J. Littlefair

Right, sure, Rob. We’ve got 70 that are built. We actually have two that will be completed here any second. We – as we know we’ve all talked about it on these calls before. We got to add of the engines because those engines were somewhat delayed but we need to be really change the – the really the discussion between shippers and between the carriers and so. We have 70 completed. We got 20 more under really construction right now. And another 34 or so behind that and that’s really an anticipation of the truck deployments that are going to happen in the latter part of this year and really in 2014.

We can’t wait and I am going to answer your question but we can’t want until latter part of this year to begin to get the stations built that are going to required for the probably full truck deployments next year. We got to work on that now. We have about 10 or so open and we have another like amount that will open over the next couple of months, but every time we get one of these fleets, we just started another one yesterday that’s taking another battery trucks that allows us open another station. For instance, we are opening station now in Coachella because the fleet down in Southern California they move hay around the region and out of the Port of Los Angeles they just taking more trucks that allows us to open that station and that will open in the next couple of weeks.

And for instance when we got the announcement of couple of weeks ago about UPS, let me kind of use that as an example of what that mean. So, you saw Rob that UPS talked about taking over next year, so 700 trucks gone from a 112 to 800 somewhat number. We’ve just looked at the impact of the trucks that are already on order that are coming right now, which we believe it was about 350.

UPS has asked if it wants to build four new stations and we’ll be involved in couple of those for sure we hope, and that looks to be Memphis and Mesquite. But it allows us right now to begin to prepare to open up four other stations Mesquite, San Antonio, North Houston, Amarillo. So just that one fleet with 350 trucks allows us over these next two months to open four more stations and that’s why this is going grow this year. I don’t have a number for you right now that how many will be opened at the end of the year but it’s going to be backend loaded and we’ll just continue to open as we work with these fleets to bring the trucks onboard.

Robert Brown – Lake Street Capital Markets

Okay, great. Thanks for the color. On your distribution center clustering model, could you give us a sense of how many station – what's the opportunity there for stations, and how much of this market volume is truck stops versus behind the gate or just –?

Andrew J. Littlefair

I think you’re saying, we’re obviously – if we work on the side – last couple of days with Michael Mansfield and that’s a very impressive company, he uses a – kind of a different number than I’ve been familiar with. You’ve heard me talk about that, if you look at sort of long haul and Class A trucks, it sort of looks like, it’s hard to tell the summary, and about 25 billion gallons.

He uses a number – he looks at diesel and gasoline, trucking and more. His part of the world, which haven’t spoke backlog fueling, proprietary behind the gate, which would be very similar to what you see in these distribution centers. He uses the number of something closer to between 35 billion and 37 billion gallon. And so it’s kind of hard to reconcile both of those, but there’s just a big piece of business, 70% of the business, he is behind the gate business. And I think that’s because frankly it takes into account some gasoline, and we’ve always been talking about diesel.

So it’s a very large market, and when you look at what was said in a all day review over the next 54 locations that we’re looking at and these distribution center’s intermodal, it’s really breathtaking Rob to look at it, and we have guys on the ground out there working on it that may bring the material back to us and they use a combination of boots on the ground, and contacts with customers and the customers we already have the NDAs aligned at, with it – also with Google maps.

When you look at the share number in a given location, and they’re all over the United States, so I mean there’s hundreds of warehouse districts, and it’s breathtaking to see the sides of these warehouses, and the numbers of trucks and truck trips, I mean just one brewery in a given area, forget target and all the same is literally hundreds and hundreds of trips a day out at one location. So we like this as the next phase, it’s a little bit harder to build them, that’s why you’ll see the station a little slower, it takes a little bit more (inaudible) run around and put them in the truck stop it’s already pre-prepared. We have to find the right location and so land and other things coming into play. But it is a significant opportunity and it’s a huge volume. So we’d like the idea of as we sort of see it the last few miles from the ANGH highway and it will be though a combination of CNG and LNG and LCNG. So all of these will come into play, but it’s very, it’s a very large piece of the market.

Robert Brown – Lake Street Capital Markets

All right, thank you.

Operator

Our next question comes from Andrea James with Dougherty & Company. Please proceed with your question.

Andrea James – Dougherty & Company LLC

Hi, thanks for taking my questions. Can we zone in on that South Carolina station as an example of how this process works on the natural gas highway? So you open the station up, and Owens Corning is using it. And I guess I'm just curious, what does that look like on the P&L? And then since you opened it, have other people started using it?

Andrew J. Littlefair

All right, now I don’t know the second piece of your question, I don’t, I believe yesterday there is another fleet that’s getting ready, use that station. But we’re going to get back to you maybe when we talk to you later, I can answer that. Obviously, if these are going to be stations that will be open to other customers, Andrea. So, yes, it’s our hope that you’ll have several different customers use these public access stations. In this particular case, modern is the contracted care at Owens Corning, Owens Corning has been very progressive they were an early supporter of the Pickens Plant. They have asked their contracted care used to get with program, modern stepped up.

I believe its 25 trucks for them, there is a press release out on it. And of course that enables us to open that station well. You want these stations to be have a nice volumes, so that they don’t vent and they act like they’re supposed to be the way they’re designed. And so we’ve talked before, it’s kind of a 20 truck threshold, so that means that those trucks are fueling there everyday. And so that’s really in their high volumes, so I would say that’s going to be somewhere between 400,000, 500,000 gallons. And so, it’s a nice base load. That station remember can do 2.5 million gallons, so it’s just beginning. The way we talk about it and we talked about it before I think is we start with the 20, you want to get yourself to about a 100, these trucks typically use 20,000 to 25,000 gallons a year. So they’re really seeing were the margins we have today. They really seeing when you move beyond the initial 20 and you get a relatively a good payback.

So that’s how we start them. The nice thing that I would like about it is something that we’ve done for years as we loaded our stations. It’s not just similar to what we’ve done for many years the trash business, we start with 15 or 20 and we add for years. So we’re experienced in doing that, but the good work idea here is you don’t need 1000s of trucks. I love that 100s, 100s but they would really make a nice economic return when you move from 20 up to 100. And we expect that we would do that over the course of the next year or so.

Andrea James – Dougherty & Company LLC

That is helpful. Thank you. And then the second one, you talked about working with shippers and with PNG. And I'm wondering if you maybe give us some color on if you're seeing pressure on margin per gallon and sort of move your target margin per gallon for both LNG and CNG?

Richard R. Wheeler

I don’t think we were going to give on this call our target margin per gallon, but it was a good try in this respect. But I really do, seriously we going back to look at, there’s a lot of economics on every gallon right now. When you look at the commodity per gallon, somewhere today between $0.50 or $0.60, and then you put our cost on it, you‘re really at the nozzle tip, with lots of room between our delivered fuel and the computing costs. I mean there’s sometimes as much as $2.50. So there is lot of margin for our customers to save $1.50 gallon for us to do well. So add the shippers are working with their contracted carriers, and this has been a very easy thing by the way. I mean I’ve got an ear pulled from some contracted carriers that don’t like me going around, telling people there’s couple of dollars of gallons savings because they don’t want to share all that necessarily, and they know that they have to buy a more expensive truck.

So but what we’ve seen, and we start with Procter & Gamble, as they are working with the contracted carriers, we know what they’re asking them to put new kinds of trucks in their fleet, and a little bit more inconvenient lease today, the infrastructure. And so they are working with them and giving them some of the savings, and they want some savings too. But there really is enough, I think today to go around.

Andrea James – Dougherty & Company LLC

Thank you.

Operator

Our next question comes from Caleb Dorfman with Simmons & Company. Please proceed with your.

Caleb Dorfman – Simmons & Company

Peter, thanks for taking my question, I guess on those stop on the Mansfield deal, it looks like you've been doing a lot of business development work, obviously, in the LNG space. This is the first sort of new, large deal you've done in the CNG space. And do you think, going forth, how do you view the LNG versus CNG businesses strategically, and what type of mix do you think you are looking at over longer run?

Andrew J. Littlefair

We were the biggest in both right so we know that depending on the duty cycle of the vehicle and we believe that so whatever the customers wants, right. And it’s we know that typically return to base fleets, that go less than 200 miles a day are pretty well suited for CNG. So you will have certain drainage trucks, you’ll have certain fleets we have a very good customer down the floor to Saddle Creek where they all have the Cigarettes and like they shoot up their trucks before, they way them out and they do have a distribution work down there, CNG works pretty good for them.

We also know that as you look at over the road trucking and longer requirements range becomes to be very key and we think for that LNG makes a lot of sense, so we see a blend, in fact we got these big fleets right now that understand that I was on the panel the other day with Bill Logue of Federal Express and he is President of the Freight division, he’s got 16,000 trucks and their different division are trying, are testing CNG and LNG their package delivery will probably be CNG, they’re over the road stuff will probably be LNG. So it’s going to depend on the customer, it’s going to depend on the urban environment it’s going to depend on the routes that are run and we’ll do above. So…

Caleb Dorfman – Simmons & Company

This is Joe, how are you Andrew. So I’m more thinking about I guess strategic partnership, do you think we should start being more strategic partnerships on the CNG side versus the LNG side if you put so much development work into the LNG side over the past two years?

Andrew J. Littlefair

Yeah, the Mansfield one is recognition that we knew that it’s the right time behind the proprietary, behind the gate fueling is going to be very important, we think most of that’s going to be CNG and that’s why we do, what we did yesterday and announced that yesterday you will see others come along on that. We were working with Ryder, they have 853 locations across the country, they’re huge operator. Now, we’re working hard to see that we can’t be their fuel provider at the different location a lot of that will be CNG. So it will be both. You’ll see both of them so I’m not trying to be cute. I just think, it’s a recognition that both fields will work, they have given the right application, we’re going to do both.

Caleb Dorfman – Simmons & Company

Okay that's helpful. Then, I guess when we were thinking, obviously now the 1.9-liter engines are in production. I guess they're going to be scaling up production this summer. Obviously, it will take a while for them actually to get on the road. When you look out maybe a year, two years, three years, what type of adoption curve do you think we should actually think about when production for the engines is at full scale?

Andrew J. Littlefair

Well here is what I think and I’ve been saying this, that I haven’t had anybody in the industry that I know, tell me that I need to stop saying as well let me just run through what I use and that as we looked at using the refuse adoption rates and apply that to the over the road trucking, okay, so the Class 8 and what’s different of course is the Class 8 fleets use lot more fuel 20,000 gallons versus refuse of 10, they have lot been about every year. So they are little bit more sensitive to the market and 200,000 Class 8 trucks were sold more or less every year so it’s a much, much larger market. And what we saw Caleb is that starting 2008 when you got the right engine, the 8.9 Cummins Westport engine, you started out in a test year. I believe you’re in that kind of test year this year, up 3% and this year about five years later you were 60%. And so if you just do that and use something that’s kind of a variation of that. We think this year we’re taking Cummins Westport and Cummins at their word that they will be somewhere in the neighborhood of a couple of thousand 11.9’s set the road, that’s the modeling work that we’ve done.

We think in the last quarter, the numbers could get higher in that on the order book, more or less so we get put on the road this year. And so when you do that, you kind of – you do the math on that, it means that it’s like almost a 0.5% of the trucks this year even less, will be these 11.9 of those a couple of hundred thousand trucks sold. And then what we said is okay, then next year use 3%.

And you can use whatever you want, I mean that’s what we’ve seen before, so we think that means 7,500 engines sold next year, that’s 12-liters, but we also know the 13-liters get introduced next year and of course, you have the 9-liters. So I’m not counting those really sort of counting the new engines. And then if you go to 10%, that means in the next year you got 20,000 engines. But to me that’s pretty conservative, because in that year, two years now when you sell 20,000 engines, you still are selling a 180,000 diesel engines.

So I could be conservative. But when you ramp that even in this pretty significant growth year-over-year, you’re doubling and tripling. So that’s important for us. And that’s what we’re preparing for and that’s why we have to build these stations to be ready.

Caleb Dorfman – Simmons & Company

Thanks, Andrew, and very, helpful.

Andrew J. Littlefair

Okay.

Operator

Our next question comes from Matthew Blair with Macquarie Group. Please proceed with your question.

Matthew Blair – Macquarie Group

Hi, thanks for taking my question here. Regarding the fuel margin of $0.28 per gallon, it looks like it’s inline with last year, but down a little bit from the fourth quarter. Could you talk about the moving pieces here, I know natural gas moved up a little bit, but I thought you’re also able to increase your CNG and LNG retail pricing just any colors here would be helpful. Thanks.

Andrew J. Littlefair

Yeah. This is actually more kind of some one-off stuff. As I mentioned earlier in my explanation on kind of the gallon variation between periods, we have to take or pay true-ups at the end of the last year that showed up in the fourth quarter and those are just all of revenue, the drop rates, the margin line, so probably added a sense to last year’s number that’s not in this year’s number. And I also mentioned, we have some issues that our RNG production plans during the first quarter of this year those combined at both plants probably cost us $0.02 per gallon.

So if you factor those two items out of the equation in essence, the fuel margin was consistent between periods which kind of make sense. And then as Andrew alluding to earlier, we’re hopeful then targeting to get that number up over the rest of this year and into the next few years as more and more of our fuel sales business falls into either the highway or other retail applications like in the airport shuttle markets in order to get that number up. So that’s kind of why it looks like it dropped between periods.

Matthew Blair – Macquarie Group

Okay, thanks. And then Rick can you walk us through how you’re thinking about funding for this year? It looks like you’ve cut CapEx by about $25 million. Can you give us a status also on the IMW payment and also the $50 million that’s going to be due from Chesapeake in mid-year? Thanks.

Richard R. Wheeler

Sure. We made the IMW payment in January, so we won’t have another one until next year, for this year. The Chesapeake money, in theory, it’s slated to coming here in the middle of June and we have no reason to believe it won’t show…

Unidentified Company Representative

They actually made a filing the other day that they intended to pay it soon.

Andrew J. Littlefair

Exactly, so that gives us some more starts and thinking that that’s good. If you add up our cash, our restricted cash, our short-term investments, that means we’ve got about $131.5 million in cash at the end of the quarter to apply toward cash and CapEx piece over the last part of the year. We’ve also got the VETC money that will be coming in that we haven’t seen yet, which will be substantial $30 million, $40 million, $50 million in the coming months as predominantly, as we collect that 2012 amount, so that will certainly be helpful.

The financing we just did or CERF subsidiary just did will be helpful and that will alleviate our need for funding CapEx from future or our next couple RNG projects, so that will certainly be helpful. So by the time we add all that up, we feel pretty good that we’ve got the rest of this year covered from a CapEx perspective. And then as we go forward, we’re obviously looking at various debt instruments to help fund kind of our next round of capital needs.

Matthew Blair – Macquarie Group

Great, thanks.

Operator

We have a follow-up from Mr. Steve Dyer with Craig-Hallum. Please proceed with your question.

Steve Dyer – Craig-Hallum

Thanks, I was wondering if you could breakout by the gallons CNG versus LNG, this quarter. And then also maybe how you see that understating that LNG is largely testing year, this year, but maybe kind of how you see growth rates generally in those two segments going forward?

Andrew J. Littlefair

Sure, RNG or renewal natural gas was 2.2 million gallons, CNG was 34 million and LNG was 13.7 million and that all adds up to our 49.9 million. I think we look at the business kind of think as you the LNG market segment started to increase as these highway stations open just due to the magnitudes of the trucks and type of gallons, that in theory, we’re going to be selling over the course of the next several years.

So we certainly see that piece of the business increasing significantly and what the ultimate percentages are whether it flips from 70-30 we are now ends up being little less. I think kind of predicated on how much of the trucking business that kind of ultimately goes towards the CNG side of the equation as well, obviously with this Mansfield partnership, the bulk of that is going to be CNG at our mind and as we talked early and Andrew got started alluding to this.

I mean we’ve always kind of view from a strategic perspective that we knew we were going to start with the LNG over the highways and then ultimately kind of get to a CNG type application in the distribution centers, and those type of places, as those type of applications and these are typically CNG oriented kind of the last couple of miles to get to the ultimate customer distribution center, et cetera, et cetera. So that was always kind of part of the plan, but I would think just its kind of hard to predict, but I would think the short-term there is going to be a pretty big swing to LNG as we open all these highway stations to get these trucks out there and then, you know that percentage may start to slide back, maybe closer to parity as more and more of the additional distribution centers and other kind of intermodal sites and stations kind of open up.

Steve Dyer – Craig-Hallum

Okay, that’s helpful. And then I wonder if you’re willing to share gallons via the pilot deal, maybe you have gone through there.

Andrew J. Littlefair

The stations, where we have highway stations on pilot locations?

Steve Dyer – Craig-Hallum

Right, right yeah.

Andrew J. Littlefair

Don’t know exactly that number it’s not overly huge right now, because we just don’t have a lot of those stations up and running, our biggest highway station is in Las Vegas which is I don’t believe on the pilot side. I believe it’s on the UPS location. So I don’t know that that’s a huge number just yet obviously we think that’s going to grow to bulk of our highway stations we have now. We’re on pilot location. So to the extent we start opening those I guess the odds are that a significant chunk of them will be on pilot location. So that number should grow and we can maybe start kind of watching that and help you as we go forward in those stations do open.

Steve Dyer – Craig-Hallum

Okay perfect thank you.

Operator

Our next question comes from Carter Driscoll with Ascendiant Capital. Please proceed with your question.

Carter Driscoll - Ascendiant Capital

Good afternoon, just a follow up on the last question. If you change the pace of the natural gas highway rollout, do the economics change at all for the Pilot-Flying J stations just say you pushed out or slowed down the ramps for this year and next?

Andrew J. Littlefair

No, they should hold in. It’s all predicated on us getting a return of our capital and obviously that either doesn’t really start until the station open. So the theory of the economics of our relationship with them and the station themselves should be the same, they will just be triggered and kind of start when we open the station.

Carter Driscoll - Ascendiant Capital

Okay. And then shifting gears a little bit not to be that the LNG side but have you given how close you work with Cummins Westport. Can you talk about what the carriers looking at between the 350 and the 400 obviously it’s not 400 is not going to ramp to August and I think you guys prudently slowed down the natural gas highway rollout this quarter and again by doing so. But how closely are you rolling out these stations given that’s the one engine at least this year that most of the fleets are looking for before all of those comes out next year as 14-liter.

Andrew J. Littlefair

Well we’re very close to this and we have very detail as we reviewed with our Board of Directors last couple of days. We know exactly now many trucks have been ordered and how many trucks have been deployed and where and we are all over this. And so we paid very close attention and very close communication with the OEMs and with dealers. And so we have to be because that’s how we know when to open up the station. So we’re paying very close attention to this. You’re right, over the road crowd really running the 400 horsepower. And I think that to Cummins Westport have been prudent as they work on putting out this new product along and start out 350 that tends to be more CNG because it tends to be more a little bit lighter roads in less range. So that’s why a lot of those early orders of CNG and then you begin to see some we plan to LNG as the 400 horsepowers come up.

Carter Driscoll - Ascendiant Capital

And then on the RNG side, could you guys elaborate on what the specific problems were with the use of the plant, then maybe give an update as the progress of the third one on construction that’s still on timeframe for year end?

Andrew J. Littlefair

Sure, let me start. We did a lot of work on the Cummins. We’re proud of what we done there, but this is it’s not all together easy. We really dramatically increased the size of the compression, but we all feel – we really all elements since we took over the Cummins we spend a great deal of money and we really are on our way to moving that volume to actually double 2.5 times of daily volumes.

So we’re just now commissioning the second piece of that we’ve had some problems, we’ve had some meter problems and other things. It’s now almost records of volume today, it’s kind of getting back to where it supposed to be. So I think we’re, the coast beginning to clear there on that one. We’ve had some difficulties at (inaudible) that one opened up and we had some design issues frankly that just didn’t, that wasn’t designed to be a there is a cooling towers weren’t the size of the unit, and that was, it was a real problem there. And so, we’re at about 50% of where we should be right now. That’s being resolved by the contractor and it’s been a little ugly, but we’re getting that done and that should be done here after about in June. These are all kind of custom plans, so we’ll learn as we go. And the next one we’re just in the getting ready to go to final contract with the provider of that equipment for the next plant, we’re couple months behind where we should be on that, but it’s partly because we learned from some what we did at, so we’ll sign that contract here a little bit.

Carter Driscoll - Ascendiant Capital

Yeah appreciate it. Maybe just – maybe lastly is there any update or any pull forward, or any slippage and what else you have to do with GE, is it still mainly at 2014 event may be any colors if you can provide there would be helpful?

Andrew J. Littlefair

Yeah, we’re busy working on design with GE and we’re getting down to picking some locations well that’s what we’re working on right now it’s still pretty much at 2014 you will begin to see latter part of this year, we’ll begin to order some items and we’re making good headway there on design, working with our friends there and really they are busy trying to nail down the location and we’re got it down about three different locations right now.

Carter Driscoll - Ascendiant Capital

Okay, thanks gentlemen.

Operator

At this time, I would like to turn the call back over to the management for closing comments.

Andrew J. Littlefair

Okay, good thank you operator, we think we’ve made significant progress and that, that progress is taking place over the last few months in the long haul truckings transition in natural gas. The new 12 liter natural gas engines are being delivered to the truck manufacturers, shippers are requesting that their contract appears make the switch to natural gas and some of the biggest companies in business like UPS, FedEx and others are announcing large orders of new natural gas trucks.

With Americas Natural Gas highway in place or fueling experience, and the established rough use and transit fueling markets on our superior capability in station construction operation, no other company is well positioned to take advantage of this shift than Clean Energy. So thank you for your continued support and I look forward to reporting to you on our progress next quarter.

Operator

This concludes today’s teleconference. You may disconnect your lines at this time and thank you for your participation.

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Clean Energy (CLNE): Q1 EPS of $0.03 beats by $0.10. Revenue of $93M (+13% Y/Y) misses by $6.1M. (PR).