Clean Energy Fuels Corp. Q1 2010 Earnings Call Transcript

| About: Clean Energy (CLNE)

Clean Energy Fuels Corp. (NASDAQ:CLNE)

Q1 2010 Earnings Call

May 06, 2010 04:30 pm ET

Executives

Ina McGuinness - Integrated Corporate Relations

Andrew Littlefair - President and CEO

Rick Wheeler - CFO

Analysts

Rob Brown - Craig-Hallum

Graham Mattison - Lazard Capital Markets

John Roy - Janney Montgomery Scott

Steve Milunovich - Merrill Lynch

Eric Stein - Northland Securities

Pearce Hammond - Simmons & Company

Operator

Greetings and welcome to the Clean Energy Fuels first quarter fiscal 2010 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 Integrated Corporate Relations. Thank you, Ms. McGuinness. You may now begin.

Ina McGuinness

Thank you operator. Earlier this afternoon, Clean Energy released financial results for the first quarter ended March 31, 2010. If you did not receive the press release, it’s 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 website 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 contains forward-looking statements that involve risks, uncertainties and assumptions that is difficult to predict. Words and expressions reflect the 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 that 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 Clean Energy’s Form 10-K filed on March 10, 2010 and its 10-Q that will be filed later today.

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 circumstances after the date of this release.

The company’s non-GAAP EPS and adjusted EBITDA, which will be reviewed on this call excludes 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 the results prepared in accordance with GAAP and should not be considered as a substitute for or superior to GAAP results.

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

Participating on the call from the company are President and Chief Executive Officer, Andrew Littlefair and Chief Financial Officer, Rick Wheeler.

And with that I will turn the call over to Andrew.

Andrew Littlefair

Thank you, Ina, and welcome everyone joining us this afternoon. It’s a hell of a day for an earnings call. So we appreciate you being on.

Today we reported another good growth quarter year-after-year. Our volumes and revenues are up and we had a contract during the period and our construction activity continues to be robust. As you recall, in 2009 we completed the construction projects for 29 new or upgraded stations.

Today we have 59 construction projects currently underway. These are projects either in the design, permitting or construction phase. In addition we have about a 160 projects that are in our pipeline. These are projects that have been initially screened by our sales, engineering and finance groups. So I am pleased with station construction expansion that has shown an increase of 100% so far this year overall 2009. This expansion of our market opportunity is due in part to the investment we’ve made in expanding our sales force, engineering and construction groups in order to increase our presence in key markets, particularly refuse airports and regional trucking. We see a tremendous number of opportunities coming and we have the right team in place to ensure we capitalize on them.

Now let me review some of our new deals by segment. First in the refuse market, Republic recently announced the 20% of their new purchases in 2010 will be natural gas which will bring the total number of Republic's natural gas trucks to more than 450. We are now working on seven stations for Republic for this year. As the second largest refuse company Republic represents a huge opportunity for us. Obviously we like the fact that another major natural fleet has made a significant commitment to natural gas. We are seeing an ever-expanding list of opportunities in the refuse sector. Let me give you some color on our progress in this segment by highlighting a few other deals that we haven’t talked about before.

This quarter we signed a 20 year deal with Los Angeles county sanitation to operate two stations at the Puente Hills landfill. Puente Hills is probably the largest municipally owned landfill in the country. We also recently signed a three year LNG supply extension with Harrison Industries of (inaudible). Harrison currently operates 30 LNG trucks and we hope to penetrate their 150 truck fleet with more. We have a new deal with Alpine Waste which is the largest independent hauler in the Denver Metro area; the station will start with 26 trucks.

In Maryland, Unity Disposal just began filling 20 trucks at the Clean Energy station in Montgomery County. And in Texas, Royal Disposal, the first private all over in Texas to go CNG, has taken delivery of eight trucks and is fueling an existing Clean Energy stations. Also for the city of Dallas, we are now fueling 26 of their trash trucks.

Finally IESI, the third largest hauler in the United States, headquartered in Fort Worth is in the testing phase for natural gas trucks. In New York, our new Huntington CNG station already is fueling 35 trucks a day and there are five additional trucks on the way. In California, we recently signed a 10-year station deal near with Livermore Sanitation for 32 CNG trucks and missing trail waste systems of Santa Clara which is for 35 CNG trucks.

Just yesterday the huge National Solid Waste Association commenced and wrapped up in Atlanta, Georgia. Every truck body maker and supplier is offering natural gas trucks and product. Six natural gas trucks were on display on the [indiscernible] floor. Our team met with hundreds of fleet operators. [Indiscernible] is really now a believer, they know it works, it’s clean and they save money. We now do business with 61 different refuse companies.

Turning our progress at key transportation hubs, we just announced a deal with SuperShuttle which operates at 33 airports and by the way each of their vans use over 8,000 gallons of fuel a year. Included in the announcement was SuperShuttle’s deployment of 40 CNG vans in San Francisco. We look forward to additional deployments in the future.

At the Dallas Fort Worth Airport, we were awarded a 10-year contract to build and operate a new CNG fueling station to support the Airport’s Rental Car Center which will have a new fleet of 46 CNG buses. In addition, our contract for DFW’s onsite CNG station was extended through June of 2020.

When we complete our three stations in DFW that will allow us expand our service to airport shuttles and buses. But it’ll also allow us to continue to expand our relationship with the cab operators at the airports, such as Cowboy Cab and Executive Taxi who have deployed 35 units in recent months. As an example of our expanding airport business, Parking Spot has been a good national customer and partner for us. We started with them with a handful of vans in one airport and now they are operating at seven of our airport locations. In addition we have also leased property from them on their off airport parking facilities to build stations in strategic locations, such as at Houston Intercontinental Airport and DFW.

We recently announced that we are constructing a CNG station at Newark's Liberty International Airport. It will also be available 24/7 for public access and is scheduled to open in July. And under an agreement with the Utility National Grid, we have assumed operational responsibilities for thirteen stations and the North East part of the United States, four of which are in New York City proper.

As per the New York stations, we're also building a CNG fuelling station in Queens, which is where most taxis that operate in Manhattan are based. This property is owned by New York City’s largest taxi fleet owner. So, in looking at the New York area our station network is coming together for taxis as it now encompasses La Guardia, JFK, Newark and other locations around the city.

Finally, in conjunction with Valley Park we were recently awarded a $1 million grant to install a fuelling station, employ 20 shuttle buses at the Philadelphia International Airport. This station will allow us to capitalize on the significant number of cab, and off airport parking operators in this market and expand our footprint in the North East part of the country.

On the municipal transit front, Clean Energy secured a contract totaling $8.4 million to upgrade the four LAMTA, CNG bus fueling stations that we currently operate. The LAMTA operates America’s largest natural gas transit and bus fleet with 2,506 CNG buses comprising 95% of its overall fleet. Last week, we signed Elk Grove transit in the Sacramento area. The station will be built by year end and at that time they should have 41 buses and eventually 68.

Finally, two weeks ago we opened the city of Glendale station which we own. Station will serve 39 transit buses and 30 refuse trucks. We anticipate this station to spend 600,000 gallons annually. At the ports, there were a couple of hundred more LNG trucks that have been put into service since the last time we talked. In fact, just last Friday 15 new LNG trucks were delivered. We estimate that there are more than 700 trucks fueling daily. Another 200 or so will be delivered in the near term and an additional 165 have been recently ordered and they will be deployed later in the summer. Our LNG volumes have picked up nicely from an average of 6,000 gallons per day to about 18,000 gallons per day and we expect this will continue to grow over the next few months. We are also expanding our LNG infrastructure which will allow regional trucks to travel from Central California to San Diego all the way to Las Vegas.

We are pleased about the announcement we made on April 22, that DAF will be converting 501 new Ford vans for Verizon. These vans are scheduled for deployment later this year and we believe a significant number of the vans will be fueling at our network stations. And let's not forget that AT&T continues to be a national leader in deploying natural gas vehicles in their fleet. Their progress is really notable. DAF has now secured purchase orders for 1,850 vehicles being delivered this year for AT&T. Currently they are deploying these vehicles in areas where we have a good network of retail CNG fueling stations. AT&T has also given us the right of first refuse on the construction of any stations they decide to build. We anticipate we'll be billing some stations for them in the near future.

Now turning to a legislative update. Major portions of the NAT GAS Act were contained in the Kerry-Graham-Lieberman Energy Bill which as you know was recently sidelined due to an unrelated issue that about the prospects of an immigration bill. That not withstanding, we are very pleased to be in the bill. I believe it was a good sign that earlier this week centers Kerry and Lieberman sent the bill to EPA for an environmental scoring. The situation is fluid. We have information that suggests that Senator Kerry says the bill may now be introduced very soon. We're very involved so we're keeping our eye on it so stay tuned.

These act as you know was part of a deck sustainer bills passed by the House in Senate. Currently the bills are in an informal conference between the House Ways and Means Committee and the Senate Finance Committee. Chairman (inaudible) and Chairman Backus are involved in the conference personally and say it is their top priority and expect it to be on the President's desk by Memorial Day. We are told the VTAC will be retroactive to January 1, 2010. Assuming it is in the presence signs which we believe he will, he will add about $3.8 million to our first quarter. Due to the timing however, we were record it in the second quarter. We'll keep a close eye on it.

Lastly let me touch on the price spread between oil and natural gas and some industry data that indicate a continuing long-term favorable commodity trend for natural gas. Right now we are seeing historically wide spreads between oil and natural gas. As of now it's about what 19 to 20 to 21 range. Further supporting the long-term value proposition of natural gas for vehicles a report put out few weeks ago by PIRA which is a leading energy consulting firm predicts the gap between oil and gas prices will remain wide into the future, therefore gas and spreads out to 2017 of about 15 to 1 which is obviously very good for us.

Now let me turn the call over to Rick.

Rick Wheeler

Thanks Andrew, before I review our financial results I would like to point out that all of my references to our results will be comparing the first quarter of 2010 to the first quarter of 2009 unless otherwise specified. Volumes during the quarter rose 56% from a year ago to 28.6 million gallon. The increase in volume was a large part due to our increased volumes from the four transit properties we acquired from Exterran in May and June of 2009, our increased sales of our landfill gas project in Dallas and our increased port volumes. We also saw increased volume in the quarter from the additional piece of the Phoenix LNG supply contract that commenced on July 1st of last year. We lost $0.07 per share on a non-GAAP basis in the first quarter of 2010, this compares with the non-GAAP loss of $0.06 for the first quarter last year.

One thing to keep in mind when assessing our results this quarter is we do not have any VTAC revenue in our numbers for the first quarter of 2010 as VTAC expired on December 31st, 2009. This impacts all of our financial numbers for the quarter. For purposes of comparison VTAC revenue for the first quarter of 2009 was $4.1 million and would have been $3.8 million in 2010 had the legislation been effective. Legislators are currently conferencing the bill, but what extend VTAC for 2010 and make a retroactive to January 1st, 2010 but they have not been passed as of today.

Our net loss on a GAAP basis for the first quarter was $24.4 million or $0.14 per share. This compares to a net loss of $6.5 million or $0.13 per share. The increase in the net loss on a GAAP basis is primarily related to the non-cash charge of $18.6 million we recorded in the first quarter of 2010 related to valuing our Series I Warrants, which is required under certain accounting requirements. We recorded a non-cash charge of $200,000 in the first quarter of 2009 for these warrants.

Before I move on, I would like to emphasize that the Series I Warrant adjustment is not a cash liability of the company, but rather a required exercise we must do under the accounting rules to mark-to-market the warrants each period due to certain anti-dilution provisions in the warrants. The non-cash charge increases or decreases each period based primarily on the increase or decrease in our stock price during the period which is why the first quarter charges are large as our stock price increased significantly during the period.

We will need to continue to value the warrants each period and record a non-cash gain or loss until they are exercised or they expire which is about six years from now.

Adjusted EBITDA in the first quarter of the 2010 was $1 million which compares to $900,000 in the first quarter of 2009. Again please keep in mind there is no VTAC revenue in our 2010 number. Adjusted EBITDA is the financial measure we developed to highlight our operating results excluding certain large non-cash or non-recurring charges that are not core to our business including the amounts we are incurring for the Series I Warrant valuation and our stock based compensation charges for our options. Adjusted EBITDA is described in more detail on the press release we issued earlier today.

From a margin perspective, our gross margin this quarter without VTAC increased $2.8 million from the prior quarter. The majority of this increase was generated by BAF which we acquired on October 1st. Our margin per gallon on our fuel sales were $0.31 for the quarter which compares with $0.46 in the fourth quarter of 2009. This decrease was primarily attributable to not recording any VTAC revenue in the first quarter of 2010.

For the quarter our revenues were $39 million which is up from $30.2 million. At March 31st, 2010 we have $66.3 million in cash and $20 million unavailable under our line of credit with PlainsCapital Bank. One interesting item as it relates to cash is we generated $9.2 million of cash for the exercise of options during the quarter. This is cash we did not plan for at the beginning of the year that will help our capital needs as we move forward.

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

Question-and-Answer Session

Operator

Thank you. We'll now be conducting a question-and-answer session. (Operator Instructions) Our first question comes from Rob Brown from Craig-Hallum.

Rob Brown - Craig-Hallum

Could you frame little more color on BAF. What kind of the revenue level was in the quarter and maybe some contribution that you got from them?

Rick Wheeler

Absolutely BAF generated $9 million of revenue during the quarter. They did about a 100 vehicles on top of the 460 or so AT&T vehicles that they did during the quarter. And the gross margin contribution was about $2.6 million on those vehicles.

Rob Brown - Craig-Hallum

And the Andrew you talked a lot about the pipeline and the refuse contracts building. Can you give us an update on sort of the regional trucking side of that pipeline? How is that coming along and is that maybe more depended on the legislation or is that not a hold up?

Andrew Littlefair

Well I think Rob as we talked before you know the regional trucking is a little different of refuse because the incremental cost is more and so certainly those fleet operators keep a pretty keen eye on the legislation, if those incentives were sweetened, it would help them now. As I have mentioned before, I like the fact that many fleet operators at least in the testing phase and beginning to work on kind of initial deployments. We are seeing UPS going forward with the project Trimac is a regional hauler and they are starting a project in Texas to haul goods 14 trucks up. US Food Service is beginning they are scheduling the demo for their truck. Central freight which you know is very huge trucking fleet has put in for a 100 truck grand. Pepsi, Feedaway, (inaudible) and the others just to name a few are all working.

Our gentlemen that are working in this area are really very busy. I think though it's safe to say Rob that, they do have their eye on the legislation because it really brings the payout in very close and makes it a no brainier. Otherwise its a little bit more difficult right now, stretches out the pay out. While we're seeing literally dozens of different, in fact let me give you this metric which I thought was interesting. Kenworth has 1,300 requests, 1,300 truck bid out on 1,300 trucks, that is they’ve been asked your RP’s you know for 1,300 vehicles and Peter Built 260. So that doesn’t mean all those are going to hit the roads anytime soon but that gives you an indication there’s interest out there.

Operator

Thank you. Our next question comes from the Graham Mattison from Lazard Capital Markets.

Graham Mattison - Lazard Capital Markets

Great, thanks guys. Just wondering if you could update us on the Clean Cities awards, I know they are a lot of particularly related to the awards in last summer. Are they still station opportunities or station if you’re looking to get under that sort of hunting license?

Andrew Littlefair

Yeah, Graham hi. You know that, as we mentioned I think in last call, the good news/bad news I mean the process to DOE's been slow. But of the stations that we talked about receiving is part of what our partners in that. Almost all of those contracts have now been left and signed by our partners and some by us and by the Energy officers and by the DOE. They're not all done but most of them are. We finished one station, about 75 vehicles have been delivered, there're several hundred more in the pipeline now, so we’re just beginning to see all those projects come to, I wouldn’t say fruition but all of them coming along.

Many of the projects now are in permitting to build the stations and a lot of the vehicles now have been ordered since people have contract. So it’s been somewhat slow, it’s kind of proceeding the way we thought it would. In terms of the hunting license, there’s about three or four, five that I’m aware of projects that kind of went back to the DOE that now we are in the middle of that will be incremental to what we announced about a year ago. So that’s going to be an pickup of stations and eventually a pickup of 800 vehicles operating those stations and we’ll add some more to it.

Graham Mattison - Lazard Capital Markets

And then on the port, can you just go over the volumes again that comparing the fourth quarter to this quarter and then in terms of your outlook for that with the additional trucks going on and then potentially as well with the additional competition coming in that area? How should we think about that?

Andrew Littlefair

Well, I was referring to last quarter, right. And we've seen the volume at the ports on a daily basis about triple since last time we talked. I guess it averaged 6,000 gallons a couple months ago, now we're closer to 20,000 gallons. About 200 and some of it that you recall, last time we visited I think there were about 500 trucks, 480 or so trucks in the mix, that number is now touched over 700. Some of them are just now beginning to work literally in the last few days of the week. There’s about 200 more that have already been awarded, and contracts done, and trucks delivered, and those trucks being brought to the dealership and sent out to the fleets. So those will come on board, as will, will another 165 that are a couple of months behind.

So we're coming up to that magic sort of thousand number, little over a thousand number that should be operating here later this summer. And you know, I’d look for our volumes to grow significantly again from where they were right now. That makes sense?

Graham Mattison - Lazard Capital Markets

So as those come on, will there be a needs to expand your Anaheim station? And then any comment to the additional stations coming on in the area, have that much time.

Andrew Littlefair

Well, we've done some additional things we haven’t necessarily talked about. We’ve added another fuelling node if you will, station dispenser at our plant out in Boron which is now servicing a hauler that hauls from the Boron mine to the port and that’s routinely now doing a 1000 gallons a day. The NIM street station in (inaudible) is a really big station and it can handle significantly more volume than we're running through it now, but we are bringing on more stations where we have six more station that we talked about in the corridor that will all be in the port and I don’t think they are necessary there but they are in the areas and one of them is over the rail head and one of them is up closer to the path going into the valley. Some of them are on the way to the OLM Empire and this will augment the fuel available for those fleets and help them as they begin to spread out throughout Southern California.

Operator

Thank you, our next question comes from John Roy from Janney Montgomery Scott.

John Roy - Janney Montgomery Scott

Hi, Rick. I got a real simple question. LNG, CNG, bio can you give us gallons there?

Rick Wheeler

For the quarter?

John Roy - Janney Montgomery Scott

Yes.

Rick Wheeler

CNG was 19.2, bio was 1.9, and LNG was 7.5 to get you to the 28.6.

John Roy - Janney Montgomery Scott

Okay. And a real quick, it's kind of been flat in the last few quarters. Do you think people are really waiting for (inaudible) factor? What’s take on the volume there?

Rick Wheeler

Well, the volumes in the first quarter was down to tick, but part of that is because a little bit of weather, some of it is due to LAMTA was down and we don’t really know exactly why but it's down pretty significantly. I think it could have been financial reasons and because of February I mean it sounds funny but that’s the reason for 2% of it of the 3% dip.

You know typically John we see the volumes, we added about 29 stations, most of them in the last part, just at the end of last year and we have a bunch more coming on now as I mentioned. You'll see that growth move up just like we did the year before. It will come on up in the second half.

Operator

Thank you, our next question comes from Steve Milunovich from Merrill Lynch.

Steve Milunovich - Merrill Lynch

Good thank you what were thinking on capital spending right now and you know what it might be going forward what you might have to do in terms of financing.

Andrew Littlefair

Sure weekly. In the queue we are going to file later that you will see we think we are going to spend about $76 million for the rest of the year from April to December in theory well we have $66 million of cash in the bank. Right now and 20 million available under our plains of credit so in theory we got that covered for the rest of the year which is cash we have. Then obviously you know depends upon how this net gas act shakes out or you know just the other opportunity even without it shake out from the timing perspective obviously you know we are going to be looking at you know raise in capital in some point just obviously fund our anticipated growth which we, we think is going to you know continue and we are going need to do.

Obviously we are going as we talked about before plus you get opportunity before trying to go back to the equity market and you know we will just have to kind of see how that you know progresses as we as we go through the year here but, we are stake we are kind in that same possession we’ve always been and that you know we can get us lot of opportunity out there we are going to need to capital to grow this business and we are going to do what we need to raise money, to fund that growth and we are certainly going to try and new get before we get to the equity world again.

Steve Milunovich - Merrill Lynch

Okay and how are your talks with some of the trucks top operators progressing.

Andrew Littlefair

We are doing that, I am not going to talk about that too much. We do have about three truck stop LNG stations kind of in process let's put it that way. And we are working with the couple of vendors to do larger projects and I would characterize those as ongoing and feel very optimistic about it.

Steve Milunovich - Merrill Lynch

Okay and finally can you just review for us kind of current levels, what your cost per gallon is, when you lay around your cost and get net add margin and get to your current price per gallon versus diesel, kind of update us on that.

Andrew Littlefair

Okay, if you look at on a diesel gallon equivalent so you have about seven diesel gallons, you got natural gas sitting here today at 390 so your commodity per gallon is about $0.57 then LNG is a little different than might typically when I run through this, so I talk about it compressed natural gas but I think it's safe to say you are around $0.80 or so a gallon of cost of making the product cold and delivering it to the station and so, you're in there at the station at about $1.50 and today in the port, the prices come up, diesel for port of LA yesterday, I don't know about how it is today but it was $3.23. So we're able to offer a very nice discount for our customer and have a nice margin on that commercial retail type LNG business.

Steve Milunovich - Merrill Lynch

Now that's big difference, can you just run over the net gas, obviously the tax incentives are very attractive but we're all kind of assuming that regional truckers are going to switch over in mass and is it that much of a no brainier for them or how confident are you, that that’s going to happen, I guess it’s the active test.

Andrew Littlefair

Its interesting and one of the reasons I remain very confident on is you are seeing more engine announcements all the time about the breadth of availability so the reason you are seeing engine manufacturers do that because they are aiming for the customer. That’s step number one, but when we look at the refuse market, with the current tax incentive in place, the trash truck, the payout on the incremental investment is about a year, a little less than a year and they are keeping that truck about 10 years and so that really makes it attractive to them. Now in the case of a class A and the trucks that we believe will go for this first, it will be the trucks that use the more fuel, right. So a class A truck and many of them do, I mean 100s of 1000s of the 3 million universe use 20,000 gallons a year.

So let's say we can save them at $1 a gallon, that’s $20,000 a year, the net gas act increases the incentives to where now you are really looking paying off the incremental in a year. We keep those trucks, some of these guys turn them over two years, three years and so it’s a nice payback. They save $20,000 in the next year and it really brings it in to be a no brainier for them. So little bit tougher if you don’t have any incentives, it still works out but it’s a little bit tougher.

The other thing I think is important to note. When we ruled out those first four trucks, those heavy duty port trucks class A, the incremental are $106,000 and today the incremental cost for those Class As heavy duty trucks, the biggest ones of 15 liters is closer to $70,000. The ISLGs which is the nine liter trucks that are a little bit smaller that are being really people are really liking those, the incremental cost of those now is coming down to $40,000. Now you're really beginning to bring the cost down which we knew would happen and it will happen some more. So with increased product, and if we get a little bit of help in incentives to boost up the production you'll see those cost come down and then I really do believe, it’s something that these guys will do.

Operator

Thank you. (Operator Instructions) Our next question comes from Eric Stein from Northland Securities.

Eric Stein - Northland Securities

That was good info that you gave on the number of refuse fleets that you are feeling the 61, can you just give us some context on how that compares to last year?

Andrew Littlefair

I don’t know. Probably if we go back six or eight or three or four calls ago I think I said it. I think a year ago we were dealing with about 20 somewhat companies. So it's really growing. When you go back a year and a half ago we had refuse projects deals with refuse companies in three states now we are in 11 states. I’ve talked to our head Ray maker for refuse. Ray Burke who is one of our Vice President (is in charge of the refuse sector. He spent a career with waste management. He called me from Atlanta and Ray is a tough operator and rent an $800 million piece of business for waste management. He is one of the first guys in the country to take trash trucks and frankly it was a hard sell even with this for three years and he said Andrew we’ve broken over. This thing sells itself, so they understand it, they know it's clean, they know they're saving money, they know they don’t have afford diesel going forward. He said now he's just making sure that we're out there educating the customer and getting the deals.

So the refuse market is I've said often is going to follow the transit and be faster than transit penetration, because it really does work.

Eric Stein - Northland Securities

Okay and then is it fair to say that not only expanding number of fleets but penetration within those fleets right now is pretty small, so you've got room to grow there too.

Andrew Littlefair

Absolutely you know I think if you go back and look at the republic for instance they were fooling with this for few years they had through a couple of their acquisitions, I think they had a couple of fleets that were LNG, but it was things, it was through acquisition that they inherited. Their announcement that this year, that they will be at 20% I mean you're really going from a standing start and then this year 20% of the purchase of that, that’s pretty good. Next year we've seen it will quite bit more than that. That to me, that’s a testament to somebody that’s taking this very seriously. It's not just a one-off test thing.

Eric Stein - Northland Securities

Right that's good to hear, then maybe just turn to BAF, last call you talked about the 1850 or so trucks for AT&T and then beyond that you were thinking kind of in the 1000 number. Is that still your thinking and did that number include Verizon or should we think that’s incremental?

Andrew Littlefair

That's still my thinking. We believe that the AT&T team was on track, the feedback has been very positive from AT&T. And that’s going nicely. I thought we do another thousand vehicles, I always hope we do a little more than that, so I'll make my guys nervous, but so I said I thought we'd see another thousand, so you should of that thousand sand AT&T and add Verizon into that and I think we’ll do that thousand and may be we’ll do a little better than that.

Eric Stein - Northland Securities

Okay, so Verizon is the net number though, I mean that was in your thinking. Okay. And can you just remind me, AT&T are they committed to be a, yes is it through 2011 or it’s just something they up every quarter but is there a long-term commitment there?

Andrew Littlefair

I don’t think there is technically there’s any long-term commitment it’s really quarter-by-quarter. We get out a few quarters ahead like we have already secured the purchase orders throughout this year already. So we know we’re done for 2010 and we’re working on 2011 but we don’t have anything that would necessarily commit then thus. We feel pretty good about where we are.

Eric Stein - Northland Securities

Right, given what you’ve done in the…

Andrew Littlefair

Right.

Eric Stein - Northland Securities

The fact that you're preferred station provider.

Andrew Littlefair

Right. And the experience has been good. AT&T has been pleased.

Eric Stein - Northland Securities

Okay, that’s great. And then just last question, any change in the competitive environment?

Andrew Littlefair

Well, I think there are more competitors out there, they’re new. The report was from Atlanta, there were two or three small companies that provide environmental services and natural gas filling that we never heard it before. I am not sure they're building new stations but you know, with increased station activity, you’ll see other contractors and other people that believe that they can do this. We’ve heard of a scattered station here and there being built. I'm not sure there's anybody in the business quite like us yet, but as I’ve longed said that you’ll have more competition as the volume comes up.

And you know, we’ve seen little bits of it, most of it is from contractors that were looking for new areas where they can do some business in the downturn, and they figured they could build a station. And you know, so we've seen some of that but we're still doing pretty well.

Eric Stein - Northland Securities

And your win rates, still pretty good?

Andrew Littlefair

Yes.

Operator

Thank you. Our final question comes from Pearce Hammond from Simmons & Company.

Pearce Hammond - Simmons & Company

It is as you say hell of a day for a conference call. Can you provide an update on McCommas Bluff and other opportunities that you see similar to that one?

Andrew Littlefair

Sure, you know McCommas Bluff is operating pretty well. We've done work on it, we are in the middle of upgrading McCommas Bluff really stage one to do some fixes on that compressor station, and then later this year we’ll do, and that will increase production about 20%. And then the next stage of the upgrade will be taking the compressors and electrifying them, and doing different things, and changing of the capacity, and re-plumbing the well field a little bit. And next I would say that the McCommas volume could be up as much as 50% or a little more.

Harrison Clay who is our General Counsel also has the responsibility for the biomethane projects, has really seen a lot of interest. We have to stay pretty focused here, but we've had some significant players in the landfill business turn to us and ask for us to look at some of their landfills and begin to give them quotes for doing some different projects. These things take a little while, they're complicated and you have to analyze the landfill and the production curves that the landfill will generate overtime. But we're in this business now and we hope to have a couple of announcements. I hope soon on other projects.

Pearce Hammond - Simmons & Company

Great and then on the NAT Gas Act obviously gas producers have a lot of interest there but have you noticed any other new interest from some of the gas production community, some of the E&P companies and what Clean Energy is trying to do?

Andrew Littlefair

Well they are and we have been very supportive of that and a lot of this comes back to boon sort of sharing the vision with a lot of the gentlemen that run those companies about (inaudible) transportation could be an important new market for them. And I think they do believe that now. So we've seen Aubrey and Hackett and all those in Canada. We've seen those companies beginning to do some of the right things push for local policy, change some of their fleets, add a few occasional fueling stations out where they operate.

I think most of them want to be supportive and we are talking with most of them about how we might work with them on LNG in the future, how we might work with them on fueling stations. They want to be supportive, they see it not as their core business though and because of the way they are structured, some of them would have a hard time because of the way their tax situation is being in a position to retail fuel but they want to do things to prove out that this works and works for their fleets and so we're working with them with all those companies that I have mentioned and I think we’ll have a good relationship with them in the future. My guess is that you won't see most of them in the station business. But rather looking for ways to create LNG as the market requires it for this heavy duty trucking business and we hope to work closely with them as we bring that online.

Operator

Thank you. I would now like to turn the call back over to the speakers for any closing comments.

Andrew Littlefair

Thank you operator. I know many of you have been on this journey with us for a few years now. So, you’ll know what I’m referring to when I say, we've gone from being a small company with a big idea to, I think a major force for delivering cleaner domestic cheaper fuel. It wasn’t long ago that we used to have to explain what natural gas was. Just in the last two weeks there have been articles in the Wall Street Journal, the New York Times and dozens of other publication talk about how natural gas can be a big part of solving our energy problem. In fact even the tragedy in the Gulf has focused more attention on natural gas. We’ve seen a tremendous increase in the awareness of natural gas and its availability for using transportation and today many executives and other decision markers are well versed on natural gases benefits as the transportation fuel and that makes our solutions much easier to discuss with them.

We're building national infrastructure for natural gas for transportation in the United States. As of today, we have 214 stations in operation and we're building more. We expect to see further market moving shifts in our direction over the course of the coming months and years. So, let me thank you for your interest in Clean Energy and we look forward to discussing our projects with you again next quarter. Thank you.

Operator

Thank you. This does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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