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Clean Energy Fuels Corp. (NASDAQ:CLNE)

Q4 2013 Results Earnings Conference Call

February 27, 2014 4:30 PM ET

Executives

Tony Kritzer - Director, Investor Communications

Andrew Littlefair - President and CEO

Rick Wheeler - CFO

Analysts

Aaron Spychalla - Craig-Hallum

Rob Brown - Lake Street Capital Markets

Laurence Alexander - Jefferies

Carter Driscoll - Ascendiant Capital

Colin Rusch – Northland Capital Markets

Matthew Blair - Macquarie

Rob Bennett - Dougherty & Company

Chris McDougall – Westlake Securities

Operator

Greetings, and welcome to the Clean Energy Fuels Fourth Quarter 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Tony Kritzer, Director of Investor Relations. Thank you. You may begin.

Tony Kritzer

Thank you, operator. Earlier this afternoon, Clean Energy released financial results for the fourth quarter and full year ending December 31, 2013. If you did not receive the release, it’s 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-K filed February 27, 2014. 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 the 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 Littlefair

Thank you, Tony. Good afternoon everyone and thank you for joining us. I’m pleased to review our 2013 operating and financial results. Today we reported fourth quarter revenue of $85 million. Revenue for the fourth quarter 2012 was $99.1 million, but this included $22.7 million of a one-time construction revenue related to two large CNG stations for one transit customer and $6 million of revenue related to BAF which we sold in June 2013.

For the full year 2013 revenue totalled $352 million up from $334 million a year ago. Gallons delivered for the fourth quarter 2013 were 55.5 million compared to 51.7 million gallons delivered in the same period a year ago. Gallons delivered went up 13% in the fourth quarter of 2013 when excluding 2.5 million gallons delivered in the fourth quarter of 2012 by the company’s Peruvian joint venture which was sold in March of 2013. For the full year 2013 we delivered 214.4 million gallons compared to 194.9 million gallons delivered in 2012. Clean Energy now proudly fuels 35,000 vehicles daily from about 800 different commercial fleets.

2013 was an important year for both Clean Energy and natural gas for transportation industry as a whole. The awareness of the environmental and economic benefits of natural gas fuel is becoming more mainstream.

Now there are -- there are now several big markets like refuse and municipal transit which could be described as established and they have been successfully fueling with natural gas for years.

It is important to note that the percentage of new natural gas refuse trucks, busses continue to increase year-over-year. I am very pleased to say that Clean Energy’s customer base and volume in these markets continue to grow and strengthen in 2013.

And as we are talking about it for longer than we had hoped we can celebrate that the heavy-duty trucking industry began to make its transition in natural gas in a meaningful way in 2013 with the introduction of the Cummins Westport 12 liter engine.

It's still in its infancy but with all of the necessary pieces now in place and with the encouragement of outside forces like shippers looking to achieve their sustainability goals and by the President who once again mentioned natural gas trucks in his recent State of the Union address trucking companies all over the country are placing orders ranging from a few test natural gas heavy-duty trucks to several hundred trucks like market leader UPS.

I am going to do something little different today and begin my report of our business segment with IMW, our CNG compressor manufacturing company. We purchased IMW in 2010 in anticipation of the significant increase in the demand for CNG fueling and we have been proven right. After acquiring IMW which we believe has been -- has the best CNG compressor technology we have made comprehensive managerial and structural changes, developed new product offerings and beefed up the sales force.

While we still dealt with some challenge at various times throughout 2013 we are pleased with the progress that has been made. As you might know, NGV penetration in other parts of the world is much greater than U.S. and there is a pent-up demand for quality made compressors.

Two of the biggest developments over the last six months with IMW were securing deals with the right foreign partners in the fast growing NGV markets of China and Russia. Additionally, IMW has made sales in Australia, Vietnam, Turkey, Israel and Mexico to name a few and it’s currently enjoying the strongest sales quarter ever.

We also see 34% of IMW’s 2013 sales going to the U.S. market which includes Clean Energy [owned accounts] [ph]. We are very pleased with how IMW has gotten back on track and we are looking forward to their further growth.

Moving on we continue to see strong growth of our core markets of transit, refuse, airports and fleet services. I will quickly touch on a few 2013 highlights of each of these markets.

In transit, our customer, the Southern Nevada Regional Transit Commission of Las Vegas added 125 CNG busses and 35 CNG para-transit vehicles last year and volumes jumped by over 25% year-over-year to 2 million gallons a year run rate. We have also recently been awarded the contract to expand and upgrade two stations for them which will provide additional capacity to serve their growing fleet.

We completed a new station for a long time customer LA Metro Transit which operates over 2,200 CNG busses and uses over 35 million gallons annually. Additionally, we signed a new 10-year O&M contract on four of their locations, allowing us to continue operate all 10 of their CNG bus fueling stations for a number of years to come.

We are awarded the operations and maintenance contract for the four CNG stations we built for DART, Dallas Area Rapid Transit. These stations will fuel 500 buses and are expected to use approximately 5 million gallons per year once they are up and running.

We are building three stations to service the expanding fleet of the City of Los Angeles transit buses that are operated by MV Transportation and Veolia. We expect to have those stations completed in 2014.

Also here in California we recently completed the new station for Norwalk transit and were awarded the O&M contract for Long Beach Transit’s new station. In addition we secured O&M contract renewals with Foothill Transit and Orange County Transportation Authority.

And finally, we were awarded design, build and operating contracts for two large transit properties that are transitioning to CNG, one is Hillsborough Area Rapid Transit in Tampa, Florida and the other is for Kansas City Area [Transit] [ph]. Both stations are expected to be operational later in 2014 and these are just some of the transit contracts awarded in 2013.

Our refuse market continues to excel, growing volumes 30% over 2012 and expanding geographically. We were awarded a contract with Lancaster County Solid Waste Authority in Pennsylvania to build and operate a station for their fleet. On Long Island, we are building our fourth station to service refuse trucks in several of their townships. This one will be for the Town of Islip for the 50 refuse trucks that service that community.

Waste management continued on their CNG path by adding over 800 trucks to their fleet in 2013 which will be fuelling the stations we maintain. While Republic Services added 485 new trucks and 9 new CNG stations which we built during the year. Additionally, we built four stations for Progressive Waste, the nation's third largest solid waste company in Dallas, New Orleans, St. Louis and Ontario, Canada. Besides large national players we are building stations for numerous local and regional haulers including waste industries in North Carolina, ABC Disposal outside of Boston, USA Hauling in Hartford, Garden City Sanitation in Santa Clara, CWD in Dallas, South San Francisco Scavenger and Alameda County Industries.

Our fleet services and airports markets continued to grow in 2013. We took over operations in Boston, Logan and Washington Reagan airports. We completed major upgrade to San Francisco International, opened our second station in LAX, which is base loaded with Hertz and we built a new station at JFK airport in New York which brings us to a total of 39 stations at airports across the country.

We’ve also been selected to build stations in Chicago O'Hare, San Jose International and Orlando International airports. I should remind you that these stations also provide a cornerstone for our CNG public access stations in metro areas as they are large enough to fuel a wide variety of commercial vehicles, including delivery vans and shuttle buses.

We are also expanding into new markets like the state of Missouri where we’ve already completed a public/private station in partnership with Lee's Summit School District who recently deployed approximately 140 CNG school buses which we believe is one of the largest single CNG school bus procurements in the nation.

We are building two additional public CNG stations to support the growing municipal fleets in Kansas City and Columbia, Missouri as well as CNG trucks travelling on the Interstate in those areas. And finally, we are proud to continue to support AT&T who is planning on fuelling over 500 new CNG vehicles at Clean Energy stations starting in the first quarter of this year.

Turning to [fourth quarter] [ph], our core markets added 34 new fleet customers representing over 1600 vehicles which will be fuelling at Clean Energy stations. Switching gears to the heavy duty trucking markets transition to natural gas fuelling and as I mentioned on our call a couple of weeks ago, this market is in the early stages of development with fleet’s testing and deploying the new Cummins Westport 12 liter engines and the demand is growing. As I have said almost every quarter, but I think it bears repeating today -- we are the leader in both CNG and LNG and believe that as the trucking market continues to mature both fuels will be widely used. As expected many of these early adopting fleets are deploying CNG trucks which we fully support.

Currently 13 of our highway truck stops have CNG fuelling capabilities, including our six stations in the highly trafficked Texas Triangle. We are working hard to expand our network of both CNG and LNG stations. Both fuelling solutions will work well. It depends on the customer needs and the fleet application. Trucking is not a one size fits all market. As an example, we built the CNG station that proudly supports Saddle Creek Transportation which operates one of the largest CNG heavy duty truck fleets in the country with over 150 trucks. In 2013 they consumed approximately 1.5 million [gallons] [ph]. Other CNG fleets that we are proud to call customers include Central Freight, Frito-Lay, Premier Transportation, [Ron] [ph] logistics, Lily Transportation, Northwest Food Products and Transportation Services and 99 Cent Stores to name a few of our 77 current CNG trucking customers.

Meanwhile our growing list of LNG trucking customers include UPS, Ryder, Modern Transport which hauls materials for Owens Corning, [inaudible] which hauls to Lowe's Home Improvement Centers, Raven Transport which hauls to MillerCoors, Cal Cartage, [Capital] [ph] Transport and Southern Counties Express to name a few of our 183 different LNG customers.

We are extremely focused on expanding our list of trucking customers and shippers and working with them to help provide whatever fuelling solution works best for their particular application. To help support the trucking industry’s transition to natural gas fuelling, last quarter we announced a strategic alliance with GE's transportation finance unit to help potential customers offset the upfront cost of transitioning natural gas trucks by offering a fair market value lease and fuel rebate program.

Our sales team has been engaged with the GE sales folks and has generated significant interest in this initiative. There is a strong pipeline of trucking companies that are working with both GE and us to secure financing and fuel deals as part of this partnership.

We now have completed 85 stations and we currently -- and we recently opened stations in Jacksonville, Florida; London, Ohio; Pontoon Beach, Illinois and Valdosta, Georgia to bring our total of opened truck stop stations to 24 and we have a few others that should open here in this next month.

Our renewable fuel subsidiary, CERF, closed 2013 on a strong note and is poised for even better results in 2014. Our Dallas facility and our Michigan facility both set production records during the fourth quarter and exceeded 64,000 gallons of production in aggregate on a number of days.

And while the severe winter weather has provided certain challenges during the cold snaps in 2014, we're starting to see the benefits of the hard work we have put into these facilities, and anticipate that we will be starting to see the benefits of the hard work we have put into these facilities. And we should be able to set new records for production at both plants in 2014.

Our Memphis, Tennessee facility is also expected to come online in about a month or so, and we'll add to our production numbers as we ramp up over the year. We're very pleased with the response we’ve received to date on our Redeem biomethane vehicle fuel product launch. We sold close to 14 million gallons of Redeem into the vehicle fuel market during 2013 and had contracted with new biomethane supply sources that will come online this year that should enable us to eclipse these numbers in 2014.

We anticipate that our share of the carbon credits and the RINs we generate from the third-party biomethane that is sold as Redeem will provide meaningful contributions to our margins at current prices. Perhaps more importantly, we are confident that the game changing sustainability benefits of fuelling with Redeem, which can achieve as much as 90% reduction in greenhouse gas emissions, is going to be a driver for fuel sales especially for our customers who have their own specific goals to increase the sustainability of their operations. We believe there isn’t an alternate fuel commercially available in the marketplace that can accomplish the kinds of greenhouse gas reductions we can accomplish with Redeem, especially for the price.

And finally as you probably now, we completed the $250 million convertible debt deal in September. At year end, we had cash on hand and short-term investments of roughly $385 million. We are going to be very disciplined with our 2014 CapEx program in order to align our deployment with the pace of the market.

And with that, I will 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 fourth quarter of 2013 to the fourth quarter of 2012, and year ended December 31, 2013 to the year ended December 31, 2012 unless otherwise noted.

Volumes rose to 55.5 million gallons during the quarter, up from 51.7 million gallon a year ago. For the year ended December 31, 2013, volumes increased to $214.4 million gallons, up from $194.9 million gallons. Fourth quarter 2012 and the year ended December 31, 2012 included an incremental 2.5 million and 6.8 million gallons respectively related to our Peruvian joint venture that we sold in March 2013.

For the quarter, our CNG volumes were 37.1 million gallons, our RNG volumes were 3.6 million gallons, and our LNG volumes were 14.8 million gallons. Fourth quarter revenue was $85 million, compared to revenue last year of $99.1 million.

The fourth quarter of 2012 included $22.7 million in construction revenue from the sale of two large CNG stations to an existing transit customer that did not reoccur in the fourth quarter of 2013, and $6 million of revenue related to BAF, which we sold in June of 2013.

For the year ended December 31, 2013, revenue increased to $352.5 million, up from $334 million a year ago. In comparing our numbers between periods, please note that the fourth quarter of 2013 includes $7.3 million of volumetric excise tax credit or VETAC revenue, and the year ended December 31, 2013 includes $45.4 million of VETAC revenue.

We did not record any VTEC revenue in 2012, as the law was not in effect during the year. Also 2012 included $40.3 million in construction revenue from the sale of four large CNG stations to the existing transit customer I spoke of earlier, that did not reoccur in 2013. And BAF revenues were lower in 2013 by $17.3 million, as we essentially owned it for a full year in 2013, as compared to half year in 2012. On a non-GAAP basis for the fourth quarter, we reported a loss of $0.25 per share. This compares with a non-GAAP loss of $0.23 per share in the fourth quarter of 2012. For 2013, our non-GAAP loss per share was $0.44 and was $0.75 per share in the prior year.

Adjusted EBITDA in the fourth quarter of 2013 was minus $1.8 million, compared to adjusted EBITDA of minus $5.7 million in 2012. For the year ended December 31 2013, adjusted EBITDA was $33.6 million, compared to minus $12.3 million in the prior year. Again, please remember the fourth quarter year ended December 31, 2013 include $7.3 million and $45.4 million respectively of VETAC revenue.

In addition, 2013 also includes a $14.1 million gain on the sale of our vehicle conversion subsidiary BAF. Adjusted EBITDA and non-GAAP EPS are financial measures we developed to highlight our operating results excluding certain large non-cash or nonrecurring charges or gains which are not core to our business. Adjusted EBITDA, non-GAAP EPS are described in more details in the press release we issued earlier today.

Our net loss on a GAAP basis for the fourth quarter was $32.3 million or $0.34 per share, which included a non-cash gain of $0.1 million related to valuing our Series I warrants. Non-cash stock-based compensation charges of $5.7 million, a $0.2 million in foreign currency losses related to our IMW purchase notes, a $1.4 million writedown on the [whole] [ph] BAF shares we expect from Westport Innovations related to our sale of BAF and $1.3 million in additional lease exit charges related to our headquarters move. This compares with a net loss of $41.7 million or $0.46 per share in 2012, which included a non-cash gain of $2.3 million related to valuing our Series I warrants, non-cash stock-based compensation charges of $5.6 million, foreign currency losses of $0.1 million on our IMW purchase notes, one time charge of $14.5 million related to the impairment of the company’s investment in BPG, a onetime charge of $2.1 million related to the settlement with the IRS on certain VETAC claims and a one-time charge of $0.6 million related to a settlement with the California Air Resources Board related to certain vehicles.

For 2013, our net loss on a GAAP basis was $67 million, or $0.71 per share, and included a non-cash gain related to valuing the Series I warrants of $0.9 million, non-cash stock-based compensation charges of $23 million, a $0.5 million foreign currency loss on our IMW purchase notes, $1.4 million write down of [whole] [ph] BAF shares we expect from Westport related to our sale of BAF and $1.3 million in additional lease exit charges related to our headquarters move.

For 2012, our net loss on a GAAP basis was $101.3 million or $1.16 per share and included a non-cash gain of $3.4 million related to valuing the Series I warrants, non-cash stock-based compensation charges of $22.1 million, a foreign currency gain of $0.6 million on our IMW purchase notes, a onetime charge of $14.5 million related to the impairment of the company’s investment in VPG, a onetime charge of $2.1 million related to the settlement with the IRS on certain VETAC claims, a one-time charge of $0.6 million related to a settlement with [CAR] [ph] related to certain vehicles.

Our SG&A charges are higher between periods, primarily as a result of continued business growth and costs we are incurring to support our construction and sales efforts to develop and launch America’s Natural Gas highway. Our interest expense is also up between periods primarily due to the interest charges we are incurring on our convertible notes we issued in 2012 and 2013 coupled with the fact we are capitalizing [less interest] [ph] in 2013 related to our construction activities.

Our gross margin this quarter was $27.7 million which compares to $21 million in 2012. For the year ended December 31, 2013 our gross margin was $127.7 million compared to $80.3 million. Gross margin for the fourth quarter and year ended December 31, 2013 includes $7.3 million and $45.4 million of VETAC revenues respectively and the fourth quarter of 2012 includes $1.4 million of margin but is not in the fourth quarter of 2013 as we sold BAF in June of 2013.

Our margin per gallon on our fuel sales this quarter was down $0.04 from last quarter to $0.31 per gallon. As anticipated and discussed on last quarter’s call, the decrease was primarily from the drop in the value of the credits between periods associated with our Redeem RNG sales.

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

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Eric Stine with Craig-Hallum. Please proceed with your question.

Aaron Spychalla - Craig-Hallum

Yeah. Hi. It’s Aaron Spychalla on for Eric Stine. Good afternoon.

Andrew Littlefair

Good afternoon, Aaron.

Aaron Spychalla - Craig-Hallum

You guys provided a lot of great detail on the trucking market a couple of weeks ago here so maybe I’ll start on IMW too? Could you talk about the Russian Machines agreement in a little bit more detail, digging into it, it looks like they are kind of tied in with Gazprom with building outstations over there so could you kind of help us frame this from a size or a timing standpoint maybe?

Andrew Littlefair

Right. We signed that -- we basically signed an agreement with Russian Machines which is an exclusive distribution and service agreement with them. Russian Machines is part of the big conglomerate and they among other things, manufacture automobiles, natural gas trucks, natural gas buses, a lot of industrial equipment, farm equipment, so we really believe they are a really good partner.

The desire by Russian Machines is to begin to develop natural gas fueling in and around major cities in Moscow, working with us to really focus on the important high fuel use customers that they should focus on first such as municipal bus companies.

It’s interesting Aaron, it’s kind of hard to get your arms around everything that goes on there in the Russian Federation. But there was a decree not long ago by President Putin talking about new busses being -- new municipal busses some percentage thereof being natural gas.

They have huge gases reserves as you well know and it looks to us like they are now going to be very serious about trying to develop much like we’ve talked about corridors -- large corridors running from Moscow and through - toward Europe this three major arteries and they would like to do a lot of these on natural gas.

So, this is a beautiful opportunity for IMW. It’s an exclusive arrangement where we think we are partnered with the right people. We heard large numbers of stations - we are going out start out small and begin to ship some stations to focus on very key customers and we will see how it goes.

We are excited about the potential and you are right, we are still looking at all the details but it appears that the two large companies there Gazprom and Rosneft are going to be involved in building these stations and we hope to be a key supplier to both of them as they begin to develop these natural gas fuelling stations.

Aaron Spychalla - Craig-Hallum

Great. Thanks for that. And then you kind of mention, how many stations you guys have built [inaudible] [ph] going to roll out here but as of now how many, do you kind of see yourself opening throughout 2014 as the [top leaders] [ph] roll out?

Andrew Littlefair

As discussed a couple of weeks ago, we will try to open as many as we can and that will be [in places] [ph] we begin to see those trucks roll out. We are going to open a few here in the next really few weeks; we opened a couple here just recently. But over the coming months we will begin to continue to open and we have some coming up in April and some more in May. These trucks are continuing to be produced as we discussed on that last call. It takes a few months then to get to the customers. And so it’s our hope as many - open dozens of them this year and we will see how the truck deployments go. But I think you should keep in mind a lot of those will be, this will be towards the latter part of the year rather than the beginning, but it’s our, certainly our goal to open as many as we can.

Aaron Spychalla - Craig-Hallum

Great. Thanks. And then last question, just looking at LNG volumes this quarter, is there kind of any typical seasonality that was in there, this is down quarter-over-quarter slightly?

Rick Wheeler

Yeah. There is, as we talked about before, we lose some volume during the third quarter and the fourth quarter there is a lot of our transit properties that run in hot areas like Phoenix, spend a lot, burn lot of LNG running air conditioning units and obviously doesn’t reoccur in the fourth quarter, a lot of times [trends in agency] [ph] which we saw this fourth quarter, slide off a little bit, this is - they are running fewer routes around - through the holidays and we also had some one-off sales that were in the third quarter that didn’t reoccur in the fourth quarter. So a little bit of the lumpy side of our business, it was down a bit in the fourth quarter, so kind of a combination of all three of those.

Aaron Spychalla - Craig-Hallum

All right. Thanks. I will hop back in the queue.

Andrew Littlefair

Thank you.

Operator

Thank you. Our next question comes from the line of Rob Brown with Lake Street Capital Markets. Please proceed with your question.

Rob Brown – Lake Street Capital Markets

Could you give us a little more color on your CapEx plans for 2013? What sort of the buckets does that include and how much of that would include the LNG [manufacturing] [ph] capacity you might be adding?

Andrew Littlefair

Right. Let me hit on the big numbers and then Rick can break it down. Because I think it’s in the [inaudible] some of it is; right now, sort of the top number that we’ve got is $135 million is the number from 2014. That’s station, right, so currently as we talked about, we got about $20 million or so for core stations that we figure on building. When I say core, remember Rob, that’s kind of our bread and butter that’s airports and some refuse stations that we would own. We have currently got them on the map, 26 truck stops, stations, those are going to be CNG and LNG, that’s about $40 million. We acquired those CNG In a Box units I talked about on the last call that we’re excited about, it’s about 65 of those. Those are already going to be deployed and that’s about $18 million.

When you look at the LNG projects, so this is about - right now, a placeholder in our CapEx budget, it’s about $25 million or $30 million that would be for the LNG liquefaction plant. So it will be our part of the contribution for those new Greenfield plants that we’ll be building with GE.

Now we’re still working on those. We’re still looking at the need - when we need to pull the trigger when - when and if we need to deploy that capital this year, how much of that we need to put in first. So that’s a number that could go down. And then we have some other trailers and some other IT expense and that rounds up to about $135 million.

Rob Brown – Lake Street Capital Markets

Okay. Great. Thank you.

Operator

Thank you. Ladies and gentlemen, our next question comes from the line of Laurence Alexander from Jefferies. Please proceed with your question.

Laurence Alexander - Jefferies

Good afternoon.

Andrew Littlefair

Good afternoon, Laurence.

Laurence Alexander from Jefferies

First question, on the biogas, can you just reconcile? I think you said that biogas volumes were about $14 million and I think in the 10-K you highlighted RNGs at about 10.5. So is it flowing through the RNG line or is it flowing through - or is some of it being allocated to CNG as well?

Rick Wheeler

Are you talking about for the year?

Laurence Alexander from Jefferies

Yes.

Rick Wheeler

10.5.

Laurence Alexander from Jefferies

It’s this 10.5. Okay. And as you look towards…

Rick Wheeler

[Inaudible] those to our RNG line.

Laurence Alexander from Jefferies

Perfect.

Rick Wheeler

That’s the three plants, one in Dallas, the one we opened in Michigan at the end of last year and then the one we’re about to open in [Tennessee] [ph] about month or so.

Laurence Alexander from Jefferies

Okay. And as you look towards the expansion plans into 2014-2015 in that category, are you seeing any changes and willingness by potential partners to either co-invest with you or to help accelerate the build outs or how your thinking evolved on that?

Andrew Littlefair

Well. That is an excellent question. We have seen other parties in the business approach us to talk about co-investing with us. We got other large industrial gas companies suggested they might front the capital to develop these and so we are looking at all those options.

Laurence Alexander from Jefferies

Would there be a timeline for possibly seeing some material developments on that front?

Andrew Littlefair

We do. One of the things I mentioned in my opening remarks -- this is part of that business, we are securing third-party supplies of RNG that we’re running through our system and that’s a very important business for us and doesn’t require really any personnel to speak of and certainly no capital. We’re uniquely positioned to be able to take this biomethane that’s being produced by others and running through and capture those RINs and in California low carbon fuel credits and we share in those and so that’s a nice revenue stream for us.

Now on building other projects, I’d love to have you sit down sometime and listen and talk to Harrison Clay who runs that business unit for us. He has a million things in his bag of tricks all the time. It’s because of what we have been able to do in bringing this really big with first high-BTU projects to markets successfully. We had to look at many deals and Harrison has got three or four different deals that he is evaluating very closely now. And so yeah, there will be more projects in the pipeline.

Laurence Alexander from Jefferies

And then also, I guess, can you expand on that in terms of given your experience on these particular types of projects and the scale at which you’ve been operating to-date is there a way for you to participate internationally, for example, with the industrial gas players, where you provide sort of some additional skill sets and participate on a small scale in some of their projects, or is there something like that that can develop over time?

Andrew Littlefair

Well, I think it could. We try and - we just finished a Board meeting here in California in the last couple of days. We’re in a terrific market. IMW gets to participate around the world, sell compressor units. That’s how we participate in those markets selling CNG compressors. But when we looked at our fueling business and really the RNG business and we’re in a great market. We’re working now with the major players in U.S., refuse companies that own the landfills, Republic in waste, we’re talking with those companies about doing some high-BTU, more high-BTU projects with them.

So I really kind of feel like we’re in a great sandbox and it’s really difficult for the sides of the surf to begin participate. Though, we’ve had discussions in China and we’ve talked to our friends in Russia. But that just gets a little far afield from us and I’m not so sure at this point in time that we really bring a whole lot to those investors of the gas companies, they’re big companies and they have a lot of capabilities in these other places where we really don’t.

We’re on the cutting edge here in U.S. and a lot of things we’ve done with our biomethane business [we have]. We have really blazed the trail with EPA and certifications and other things. So I think we’re very well positioned here, but I’m not sure that at this point makes sense for us to take (inaudible) and move out around the world.

Laurence Alexander - Jefferies

Okay. Thank you.

Andrew Littlefair

Okay.

Operator

Thank you. Our next question comes from the line of Carter Driscoll with Ascendiant Capital. Please proceed with your question.

Carter Driscoll - Ascendiant Capital

Let me talk maybe IMW for a second. As we’re looking toward -- in the last call you talked about the China gas deal maybe having a small impact in 4Q, just wanted to confirm that you did book something there. And then maybe talk about the progression as you move forward to determine how you expect that to roll out over the next several years and a couple of follow-ups.

Andrew Littlefair

Carter, I was kind of got distracted but I was talking about fell over (inaudible) just to get an update on China gas. We’re pleased. And I think your question was, how we’re doing on China gas deal? The China gas, we signed that deal over time to about a $160 million. The way that works that they have been ordered them and over time, we’ve done business with them now for several years. That’s one thing. There is lot happens going on in China and how they develop other cities, where the revenue put in stations.

And so since we made that announcement few months ago we’ve taken orders for that $160 million deal, we’ve taken. I think we’re in process of about 20 of those stations right and now. And those continue and they begin to ramp up here in this next, in the second quarter. So obviously we always push to try to get those orders in as fast as better for us, but they kind of have their way that they go about.

Carter Driscoll - Ascendiant Capital

And then maybe just switching gears a little to Mansfield, I think you had couple of regional deals with them, could you talk about how that relationship has evolved over the last?

Andrew Littlefair

Yes. Thank you. The Mansfield, we’re still real pleased with the Mansfield relationship. We've spent the last few months improving our sales process and improving communications to the Mansfield sales team and ours. We as you know took over the Mansfield operations and at the last part of this last year we completed 20 of the Mansfield deals that they have got and we got them and built 20 of the Mansfield locations, so we feel good about that.

We’re making joint sales call with them with several large customers. We’re beginning to build our first station in the bulk fuel hauling space with them now, with Mansfield which we’re very excited about, that’s a new vertical for us. And so that we’re pleased with the relationship, it’s growing, it’s growing. We are in very close communication with the senior team in Mansfield. So we have high hopes for how that’s going to develop.

Carter Driscoll - Ascendiant Capital

And then Westport last night you talked about their expectation, maybe looking a little conservatively. They talked about 3% to 5% penetration for 2014 which now would imply somewhere on the order of 6000 to 10,000 magnitude. Your point versus that I know maybe in the last call you’re thinking it to be about 10,000 which there may be a production bottleneck or people were extending the trial periods at all -- decide the LNG and CNG the dates that has been -- but what do you think the uptick is into the back half later this year or are there production bottlenecks that you’re seeing, are there any type of elongation of the process to make a decision or actually dealt from a handful of maybe – just some color there would be helpful, I believe.

Andrew Littlefair

Yes. Well, again lot of questions in there. I’m not aware of any bottlenecks. I think it really is orders and this is new and in these [four weeks] I guess the good news here is we’re seeing an expanding interest from the number of fleets. But I would say the [tangibles] we work with these fleets, they have great numbers of trucks that serve them, there will be big shipper companies. But when we really get down do it, they want to test these and we knew that’s the case and so you’re seeing handfuls not hundreds. I mean obviously UPS has been at it for a long time, they have been in, I think it makes the environmental which was 20 years ago. So back in the old days we sold CNG vans to UPS 1500 and I’m going back 20 years or so. UPS knows natural gas and into this long time. They understand it, they were early testing these trucks and that is probably why they were able to come to the stepping up to buy those, order those close to 1000 LNG trucks. But others haven’t been added as long.

And so they’re going to want to test these and I get, asked the question a lot about how long. And well they put some miles on these, so they want to see these units in service for six months to nine months. So I really think our job obviously is to try to get some of these orders as many as possible, but is to get the breadth and get the experience and get as many fleets testings as possible and that’s really where we are. I don’t think we have any bottlenecks, it’s just orders. No, I don’t know Westport last night, I didn’t see where they mentioned production levels right now. I know at the latter part of last year we were up 500. So I think the number 3% to 5%, -- a good number and that puts them into 6000 to 10,000 number. I’m of course hoping for higher of those.

Carter Driscoll - Ascendiant Capital

Okay. I appreciate that color. I’ll be back in the line. Thanks gentlemen.

Operator

Thank you. Our next question comes from the line of Colin Rusch with Northland Capital Markets. Please proceed with your question.

Colin Rusch – Northland Capital Markets

Thanks so much. Can you talk a little bit about purchasing pattern at individual stations? Have you seen any real material changes at given sites in terms of customer flow and the products (inaudible)?

Andrew Littlefair

Well. We service lots of different products. So if you are talking about refuse, we are seeing new stations and we are seeing them bring refuse, adding refuse trucks at locations that may have started out at 20 and so we see that pick up . We see in our transit which is kind of interesting to me because things are progressing in slow movement but a lot more transit problems are added buses as I mentioned on Las Vegas. Now on the highway, we’re still early, but if you go back and look at what we have said at Las Vegas, we have seen increased trucks deployed for instance at our Las Vegas station. I think that originally started with 40 some odd trucks and now it’s closer to 80. So that’s again here is to open these stations at least for us, if this is an LNG station, we have to tried to open them about 20 trucks and then the opportunities, once you have, let’s say, one or two fleets enable you open a station which is realistic on the way these guys are overgrowing trucks. I say handful, it’s not usually two, it’s often little bit more than that. Couple of fleets gets you to open -- one or two fleets will enable to open station, and then we have a software package, all our salesmen have our assigned stations in the heavy-duty trucking market. We have five-mile radius to go out. Once you have an open station, be it CNG or LNG then it’s easy for somebody to test one or two trucks and build the volume that way until you get a larger purchases.

We saw this in rough use. In 2008, a handful of players by 10 and 20 trucks, 10 trucks to test and it really wasn’t until they had about a year in that you began to see something that looked more like a normal purchase cycle until you got a couple of years in. Then you saw, then really understand it and that’s [one] ways and public really begin to buy a big percentage of what they did.

And we fully expect that will be the case here, but these -- and you have major fleets that (inaudible) Walmart and these others are testing now and they’re buying new trucks and are testing and that’s when these happen. So we’re very excited about that.

Colin Rusch – Northland Capital Markets

Great. And then can you just give us an update on the maturities on the balance sheet with the cycle here. Where you are at with those payments and what should we expect as we go into 2014?

Andrew Littlefair

Well, the nice thing is we just finished our last payment on the IMW acquisition here recently. So that’s all done now. The other nice thing is if we really want lot of debt coming due for a couple of years. Once you get past ‘14, if you look at ‘15, ‘16, and ‘17 and I’ll talk about the convert separately in a second. I mean there is only a couple of million bucks due on some of our bonds that we floated as part of our RG facilities.

So we really don’t have a lot just from an ongoing perspective from the converts, there is $145 million that’s due in 2016. And then there is another $300 million in ‘18 and $100 thereafter so. All of our convertible notes are pretty far, few years out and until we get there, there is really only a few million bucks of debt service from a principal perspective until then.

Colin Rusch – Northland Capital Markets

Okay, perfect. And just one follow-up question, if you look into the first quarter and second quarter, can you just talk about gross margin trajectories, make sure we’ve got that right and given the mix of field that you are seeing out there and cost?

Rick Wheeler

Well, that’s a tough one to answer. We don’t give guidance. I will be a little careful about it. A lot of it’s going to be just predicated on how much the trucking volume gets out there and going and how much ends up in a retail bucket. Now, Dave as we talk about, it not going to be time in the next couple of quarters but hopefully, there will certainly be something than the other thing that it influences just the credit values that we generate from the low carbon fuel standards as well as rent perspective.

As you saw this quarter, it shaped about $0.03 or $0.04 of our margin lines. So I could add that anywhere from, if they stay, kind of where they’re at, $0.00 per gallon up to maybe a couple of penny to gallon. So that’s little bit up in the area. I don’t have a crystal ball to predict what those are going to be. So we’ll just kind of have to wait and see on that.

Colin Rusch – Northland Capital Markets

Okay. Perfect. Thanks guys.

Andrew Littlefair

Thank you.

Operator

Thank you. Our next question comes from the line of Matthew Blair with Macquarie. Please proceed with your question.

Matthew Blair - Macquarie

Hey guys. Good afternoon. Thanks for taking my question. I just wonder if you could quantify the margin uplift from the $14 million redeemed gallons. Actually you reported about $2.5 million in RINs and LCFS credits. So I guess the right way to think about that maybe $0.05 per gallon margin impact in the quarter from your Redeem sales?

Rick Wheeler

I think it’s more like $0.03 or $0.04. When I did the math, it went from $0.35 to $0.31, so it can be $0.05. So that’s what you are looking that but the (inaudible) the impact is about $0.03 a gallon overall.

Matthew Blair - Macquarie

Okay.

Andrew Littlefair

On all the gallons. We are using mapping all your gallons.

Matthew Blair - Macquarie

Right on all gallons. Okay. And then for 2014 are you looking to sell 15 million gallons for the whole year or is that $15 million per quarter.

Andrew Littlefair

Of Redeem?

Matthew Blair - Macquarie

Of Redeem, yes.

Andrew Littlefair

I think it’s more for the year.

Matthew Blair - Macquarie

Okay. And then finally, I think Andrew you said 13 of your highway stations has CNG capacity. Could you talk about how many more highway stations you are looking at compressors too. And I guess is there what the acquisition of CNG In A Box, acquisition was forward to add CNG capability to your stations? Thanks.

Andrew Littlefair

Yes. It’s a combination, Matthew, of both. Some of those are not CNG compressors, some of them are… most of those are LCNG. All of those truck stops can be for about… as I said before for about $600,000 can be – to flow compressed natural gas where we’re taking the LNG and making CNG, so that’s nice. Though you’re making an excellent point which is Mitch Fred [ph] and his team were looking at certain rotation where customers want natural gas -- CNG and the CNG In A Box uses nicely and we also have product [mark value but] that didn’t fit that as well but the CNG In A Box are built and they are ready and couple of CNG In A Box (inaudible) trucks stop given at their space and that sometimes gives you a challenge and given that there is gas pressure, it’s a very nice answer to add CNG quickly based on customer demand at these locations and then we are happy to do that. We are not inclined to go slack in CNG at every single truck stop yet until we see customer demand. First time we see a customer, it essentially is almost the same, 15 or 20 trucks at a location you got CNG there, that is easy to--.

Matthew Blair - Macquarie

Okay. Thanks.

Andrew Littlefair

Okay.

Operator

Thank you. Our next question comes from the line of Rob Bennett with Dougherty & Company. Please proceed with your question.

Rob Bennett - Dougherty & Company

Hi. I’m on for Andrew James. Given that natural gas filling adoptions, you’re showing traction, can you give us some outlook on your profitability schedule or guidance for 2014?

Rick Wheeler

No. We don’t give guidance. So Andrew puts them up with that, is that right Bob?

Andrew Littlefair

Yes. Rob, we don’t give guidance but this is a volume game, right, and so when you heard me – over this and before but volumes can be key loading at the stations and once you get them open and you begin to (inaudible) volumes it just really impacts us quickly, but we haven’t said exactly when we turn the corner and when that’s going to be, but it’s a function of the volume.

Rob Bennett - Dougherty & Company

All right. I appreciate that. Figure’s worth the shot?

Andrew Littlefair

I think it’s good.

Operator

Thank you. Our next question comes from the line of Chris McDougall with Westlake Securities. Please proceed with your question.

Chris McDougall – Westlake Securities

Hello gentlemen. Thanks for taking the question.

Andrew Littlefair

Yes.

Chris McDougall – Westlake Securities

So touching back on the CNG In a Box. Can you… you said you had 65 of those and you had bought them for $18 million. Is that right…

Andrew Littlefair

That’s right. Plus in that we got a couple other stations that…

Rick Wheeler

And lot of them have already been deployed in the station, we got those two stations as well. So technically we got 67.

Chris McDougall – Westlake Securities

Okay. Great. And then so it’s just kind of give me an idea of the potential impact on those, so what sort of if you had a reasonable utilization on them? Could you see out of those units kind of annual --

Andrew Littlefair

It’s a little tricky looking for help here because it all has to do what the -- pressure is and that will determine SCFM. These are 400 horse powers. So if you put one or two of these, you have a relatively large station that can do -- 10 diesel gallons a minute and would be – about a 1000 CFM, so when you do it that way – depending on the -- again that could produce 500 gallons an hour. So there are CNG In A Box. That name sort of sounds quaint and sounds real small, but they are not small, because they have horsepower motors in them. If you put three of those together which would not be unusual, you’d have a robust truck stop. They are well suited for our ready mix market where you might have 13 mixer trucks. They are good or there is an awful lot, many thousands of trash trucks, maybe even thousands of locations where you don’t have a 100 or 200 trash trucks in the given area, but you have 15 or you have 18 CNG In A Box, so the GEC and (inaudible) box will be good for that. It will be nice to put two of those together for kind of a medium size starter kit for behind the gate. It will be -- those will be very well suited for the bull calling that we are going to be doing from Mansfield. So we like the capability, but it’s going to kind of depend on the location and the inlet pressure as well and all CNG depends on that.

Chris McDougall – Westlake Securities

Sure. And then shifting gears dramatically to the marine market, just if you could expand a little bit there on what you see, I mean timing is probably a little ways out, but just your expectations there and how the pricing will be set and such for that?

Andrew Littlefair

Well, I think you’re exactly right, I mean the marine market is exciting. I went to the -- spoke at the World LNG Conference. A lot happening around the world, engine manufacturers, shipbuilders, big companies looking at those big shipping companies, I think you’re going to see this happen and you’re seeing it happen around the world. As you know, we are trying to nail our first deal down in off of Florida that we don’t have that done yet, but that could be the first one.

These are big volumes though. A ship could use half a million gallons a week. And so at these locations where these will be built, you’re going to have to base load these because they require an LNG plant. So you’re not going to go spec marine terminals or LNG plants for ships. The lead time on ships and slots and dry dock is long, but several of the big ship guys have already down and got spots and awarded repowering of ships. And so I think it’s going to happen. I think you’re right that it’s not dissimilar to rail. These are long life assets. Their companies have been around a long time. They are looking at these markets very seriously and I mean all the major rail players, the major locomotive manufacturers are hid deep in this now, but it takes a while to work through the regulations, it takes a while the marine work through the coast guard and all that, but we are cautiously optimistic about the way that market to high -- what we call the high horsepower market will work.

Chris McDougall – Westlake Securities

Okay. Thanks, gentlemen.

Operator

Thank you. There are no further questions at this time. I would like to turn the floor back to management for closing comments.

Andrew Littlefair

Thank you, Operator. Significant progress took place during 2013 in the long haul trucking transition natural gas and we believe we are positioned very nicely to serve these trucking customers. Whether they choose CNG or LNG, our national network of public access stations in metropolitan areas as well as America’s Natural Gas Highway will be available to serve their fueling needs.

The 12 liter natural gas engines are being delivered to the truck manufacturers. Shippers are starting to request that their contract carriers make the switch to natural gas and some of the biggest companies in the business like Lowe's and Procter & Gamble and UPS are announcing their commitment to natural gas trucks. With America’s Natural Gas Highway in place, significant cash resources available, our fueling experience in the established refuse transit and fleet services fueling markets, and our superior capabilities of station construction and operation we believe we are well positioned to take advantage of this historical shift. Thank you for your continued support and I look forward to reporting you on our progress next quarter.

Operator

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

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