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Executives

Tony Kritzer – Director of Investor Relations

Andrew J. Littlefair – President, Chief Executive Officer & Director

Richard R. Wheeler – Chief Financial Officer

Analyst

Brian Gamble – Simmons & Company International

Steven Milunovich – Bank of America Merrill Lynch

Robert Brown – Craig-Hallum Capital

Graham Mattison – Lazard Capital Markets

Eric Stine – Northland Capital Markets

Pavel Molchanov – Raymond James & Associates

Peter Christiansen – Merrill Lynch

Clean Energy Fuels Corp. (CLNE) Q4 2011 & Year End Earnings Call March 12, 2011 4:30 PM ET

Operator

Welcome to the Clean Energy Fuels fourth quarter fiscal 2011 earnings conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tony Kritzer, Director of Investor Communications.

Tony Kritzer

Earlier this afternoon Clean Energy released financial results for the fourth quarter ended December 31, 2011. If you did not receive the release it is available on the investor relations’ section of the company’s website at www.CleanEnergyFuels.com. This call is being webcast and the replay will be 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 or expressions 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 this 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 10K filed today. These forward-looking statements speak only as of the date of this release and the company undertakes no obligation to publically 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 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 results prepared in accordance with GAAP and should not be considered as a substitute for or superior to GAAP results.

The direct 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 8K today.

Participating on today’s call from the company is President and Chief Executive Officer Andrew Littlefair and Chief Financial Officer Rick Wheeler. With that, I’ll turn the call over to Andrew.

Andrew J. Littlefair

First I want to thank Ina McGuinness who has been our investor relations consultant for her steady hand over the last four years. Tony is our new in-house investor communication director. So thank you Ina for all your good work.

I’m pleased to have the opportunity to review our 2011 operating and financial results. Briefly, on our financial results our revenue in the fourth quarter 2011 rose to $86.2 million and for the full year 2011 revenue totaled $292.7 million which is an increase of 38% from 2010. Volumes for the year were ahead of plan and up 27% to 155.6 million gallons.

As you probably know, we undertook a major initiative with substantial investment to build a nationwide network of stations to coincide with the arrival of new heavy duty natural gas engines at the end of this year and 2013. We recognize by making this investment we put pressure on cash flow in the second half of the year. However, we believe this was absolutely the right business decision and we strongly believe that this will allow us to further capitalize on a larger opportunity. The more stations we build the more entrenched and the further ahead we become and the more valuable we are.

2011 was a year of enormous change and on in which we saw many components of our plan coming together. Most importantly, our efforts have fundamentally shifted a dialog on alternative transportation fuels and established natural gas as the primary alternative fuel for heavy duty trucking.

Our consistent marketing and sales efforts across all of our target segments have driven substantial customer growth and generated a whole new level of prospects for our products and services. The awareness has spread from our customers to other leaders in the energy industry. From the independent natural gas exploration and production companies with leaders like Chesapeake and to other significant companies like GE, GM, and Shell.

After customers in the energy industry, awareness kept spreading to the broader investment community no longer do we have to explain that trucks can actually run on natural gas. In 2011 we saw increased understanding from the investor community at large including money managers and sell side analysts and the financial press. All recognized the opportunity we have created by building the infrastructure for natural gas fueling.

Finally, it’s very gratifying to see the general public understands our value proposition, that we can replace imported oil with domestic fuel that is abundant, clean, and less expensive. This greater awareness across the board cumulated in President Obama’s speech at our L&G Fueling Depot at the UPS facility in which he reaffirmed his commitment to natural gas development in this country.

The President discussed natural gas for transportation three times in the last five weeks and in fact, 45 minutes ago Senator Richard Burr of North Carolina took to the senate floor to discuss his support for the Reid-Menendez-Burr Amendment, or what we all refer to as the Nat Gas Act that could be voted on tomorrow. So, we’ve come a long way.

However, the key driver of our growth continues to be economics. With the high price of diesel and gasoline continue unabated in 2011 and the oil and natural gas spread favoring natural gas, today I think it must be historic levels of 47:1, we knew that the time was right to make our commitment to build out a nationwide network of natural gas fueling stations and in July we announced the creation of America’s Natural Gas Highway.

With the commitment from Chesapeake Energy for $150 million earmarked specifically to help fund what we call ANGH, America’s Natural Gas Highway, coupled with $150 million we received from investors Temasek and RRJ, we have $300 million in funds to build out the initial phase of the network and in December, we received an additional $150 million from our founder and largest shareholder Boone Pickens and others when the exercise warrants. This brings the total to $450 million of committed capital to fund our expansion.

We believe our cash on hand, our major commitment to build stations coast-to-coast and border-to-border has given our current and future customers the assurance they need to commit to natural gas for transportation. It also gave the truck manufacturers the signal they needed to step up their commitment to develop and support right sized natural gas engines in the Class 8 market.

Last year we saw Westport, Cummings, Volvo and Navistar all announce plans to deliver nine liter, 12 liter, and 13 liter engines by later this year and in early 2013 as well.

So today, all the major OEMs which includes International, Frightliner, Kenworth, Peterbilt, Mack, Ford, GM, Autocar and Capacity have plans to manufacture natural gas engines. This commitment coupled with increased demand has already brought the incremental cost of these engines down considerably. Today it’s in the range of $30,000 to $35,000 and in fact, just a few days ago there’s been a recent sale for a large number of trucks where the incremental cost was in the mid $20,000. We anticipate the incremental cost will continue to decrease in the future as volumes and efficiencies increase. With today’s fuel savings, customers are experiencing one year pay backs on the incremental cost of the natural gas truck.

In late January, we announced a joint marketing and fuel agreement with Navistar International Corp. Navistar is bringing to market the broadest truck and engine offering in Class 6 through Class 8 categories. This program also rolls out a fuel and lease product with their ideal lease which is owned by Navistar dealers in which a truck driver enters a lease for a new natural gas truck from Navistar and enter into a fueling agreement with us. The fueling agreement makes lease payment of the natural gas truck the same as a diesel truck and in addition, the customer still saves another $0.60 per gallon below diesel so we believe this is a real winner for the fleet operator.

Detroit automakers are also getting on board. Both General Motors and Chrysler Group announced last week they would offer factory pick up trucks that can run on natural gas and of course, as you know, Honda already makes a CNG powered version of its Civic and they announced they would make it available in all 50 states for the first time this year.

So let’s talk a little bit about the America Natural Gas Highway. In mid January 2012, we unveiled our backbone network for plans for America’s Natural Gas Highway or ANGH. We laid out the route plan for 150 new natural gas fueling stations and identified the first 98 locations in 33 states. A goal is to have as many as 75 of these stations open by the end of 2012 and 150 stations or more built by the end of 2013.

By the end of 2012 we expect to have built a network of stations spanning the country. This will encompass building stations covering major interstates including I40, I10, I95, I55, I80 and the I5 that will allow for the movement of goods around the country using natural gas. As we have previously discussed, we anticipate that most of the fueling stations will be co-located at Pilot Flying J Travel Centers through our exclusive agreement with them and this will allow trucks to continue to use their normal fueling locations. We also are working with regional fuel providers to fill in our national network because, as you know, about 85% of trucking is regional in nature.

Now I want to move to our core markets and let’s start refuse. We’ll spend a few minutes updating you on our progress in penetrating this market. For many of these markets refuse, in particular, we see natural gas becoming a normal rather than the exception. Four years ago only 3% of the trash trucks purchased were natural gas and this year we expect that number to be north of 40%. Now, that’s pretty impressive.

Our friends in Republic Services have fully embraced this shift with their commitment to purchase 65% of their new trucks on natural gas and they anticipate 40% of their 14,000 plus vehicle fleet will be CNG within five years. We’re building all of Republic stations and we’re also working with Republic to build biomethane on their landfills and we plan to get that biomethane into the refuse truck fleets.

Also we recently announced a national agreement with Waste Management to provide maintenance and repair services for their CNG fueling stations throughout the United States. Currently Waste Management operates over 1,000 CNG and LNG waste collection and recycling trucks throughout North America every day. Their CEO recently said that 90% of their new vehicle purchases in 2012 will be natural gas.

Our agreement with Waste Management complements our existing relationship with them which includes their use of IMW compressors and equipment at their CNG fueling sites and their broad use of NorthStar LNG and CNG stations and equipment and operations maintenance agreements at 14 existing CNG and LNG sites.

So looking at the refuse space, as of today, we’re doing refuse deals across the country in 19 different states. The shift in this market is being driven by the convergence of broad natural gas availability, significant fuel savings, maturing fueling infrastructure, shrinking incremental cost of the vehicles, and dissatisfaction frankly with the diesel engine performance and the industry is going about it without any incentives or tax credits.

As of February 28th in the refuse sector we are working with 70 refuse companies at 121 locations and we have 27 stations on the construction carpet. Already this year we’ve completed nine stations and could build as many as 32 refuse stations by the end of this year.

[Inaudible] the airport shuttle market, today almost every major airport in the country has natural gas fueling. In the fourth quarter of 2011 we saw additional shuttles deployed around airports in southern California, Atlanta, San Francisco, Dallas, and Austin with more to come in New Orleans and Philadelphia. In addition, we have charged our sales force with focusing on loading these existing stations in addition to adding new stations.

We believe there are numerous untapped fleets around these and our other existing stations that we can convince to go to natural gas with the current station infrastructure in place and the economics of making the switch. Our taxi customers have also expanded their CNG fleets in Las Vegas, Seattle, Dallas, and Chicago. Plus, in Chicago they just approved a new fee structure for various classes of taxis.

Fleet owners of CNG and CNG ADA compliant vehicles can charge more money per shift and can be kept on the road longer. Additionally, New York City recently identified the MV1, and you know we’re an investor in that product, as the ADA compliant vehicle for its taxi fleet. We hope this will be replicated throughout the country.

Now I would like to turn my attention to our national trucking team. Since forming a sales and marketing team focused strictly on shippers and private fleets, we are pleased to find the list of companies who are deploying natural gas vehicles for their fleet is expanding. We’re also hearing of increased pressure by shippers on four or higher fleets to move away from diesel in favor of natural gas. We are now submitting a number of proposals to large carriers to meet the increased demand of the shippers.

Let me give you some idea of the level of activity we are seeing in the sector by talking about some of our recent wins. Owens Corning, the world’s largest manufacturer of fiberglass and building materials has contracted Dylan Transportation to move their products into Ohio and Texas where they are consuming over 40,000 gallons per year per truck. As a result of those successful deployments, Owens Corning is expanding with Dylan into the Southeast in conjunction with the build out of the ANGH network where Dylan fuels exclusively.

Sunny Delight, the beverage company has entered into a five year contract with [Glacier] Transportation to haul their beverage shipments around the southwest using CNG trucks and fueling in our growing network of CNG stations. This will substantially reduce their fuel cost as well as reduce their greenhouse emissions compared with using diesel.

Coca-Cola products have hired CR England, one of America’s largest for hire carriers to transport their shipments from their California distribution center to Las Vegas and back using Peterbilt LNG tractors powered by Westport’s 15 liter HPDI LNG engine. These trucks operate more than 100,000 miles each per year.

Tesco, one of the world’s largest retailers and the world leaders in sustainability has hired Ryder Trucks for their subsidiary Fresh & Easy, a West Coast grocery chain to operate 25 CNG tractors for their shipments. These trucks also operate more than 100,000 miles per year and complement Tesco’s sustainability strategy.

CEVA, which is a global logistics company involved in various aspects of transportation management, they are now transporting parts for America Honda using LNG trucks from their distribution center to dealerships and independent companies throughout the Los Angeles basin. Other carriers that have deployed natural gas trucks include Golden Eagle, Bridgestone, Greatwide, [inaudible] Foods, Staples, Werner and Schneider.

Turning to station construction in 2011, we completed 68 fueling station projects in 16 states including five LNG fueling stations along the natural gas highway. The 68 projects included seven stations serving transit fleets, 18 stations for refuse operations, and 28 stations for airport taxi and shuttle fleets around the country, as well as 15 stations situated to support local and regional trucking and smaller fleets. All told, the number of station projects completed during 2011 increased by 50% over 2010.

As we started fresh in 2012, our project pipeline as of March 5th includes 536 deals in various stages of validation, qualification, and negotiation as well as fleet and vehicle deals that add volume. In addition, our construction and development projects are moving forward aggressively, with 121 station projects underway since the beginning of the year. We’ve completed 10, we have 31 stations in construction, 53 in various stages of development in terms of permitting, and 68 in the permitting phase. These projects also are in various stages of engineering.

With respect to biomethane we are realizing the return on our investment in upgrading and expanding our landfill gas plan in the McCommas Bluff. We have hit records for a single day production in 2012 exceeding 40,000 gallons per day with the average production up 20%. We’re also happy to see Fitch reaffirm the investment grade rating on our tax exempt bonds issued to fund the expansion.

Additionally, in our Michigan Sauk Trail Hills facility, we’ve entered into a 10 year fixed price sales contract for the majority of biomethane that we produce there. This contract will place the project on secure financial footing while allowing us to sell the remainder of the product in vehicle fuel market as fully sustainable renewable natural gas. As our biomethane production volumes increase, we also plan to offer our customers a unique fueling option including a blended fuel product.

Before I turn the call over to Rick, let me say how pleased I am that James O’Connor who was the former Chairman and CEO of Waste Management joined Clean Energy’s board of directors this past September. Based on his long career in the waste industry, Jim’s expertise will help guide us as we expand further in this vital sector. I speak for the entire board and management team when I say we look forward to his contributions.

With that, I’ll turn the call over to Rick.

Richard R. Wheeler

Before I review our financial results I’d like to point out that all my references to our results will be comparing the fourth quarter 2011 to the fourth quarter 2010 and the year ended December 31, 2011 to the year ended December 31, 2010 unless otherwise noted. For the quarter, our revenues were $86.2 million up from $83.2 million.

When looking at the quarterly amounts, keep in mind that during the fourth quarter 2011 we recorded $4.5 million of VETC and we recorded $16 million of VETC revenue in the fourth quarter of 2010. The 2010 amount, which represents the amount of credits earned in all of 2010 was recorded in the fourth quarter of 2010 as the credit was reinstated during the quarter and made retroactive to the beginning of the year. So the fourth quarter of 2010 has $11.5 million more of VETC revenue than the fourth quarter of 2011 based on this timing difference. For all of 2011, revenue totaled $292.7 million which is up 38% from $211.8 million a year ago.

As Andrew mentioned, during 2011 we made a business decision to embark on building America’s Natural Gas Highway. We felt the time was right to build the backbone of the fueling network for medium and heavy duty vehicle operators that move goods across the country based on the economics available for natural gas solutions and engine platforms that are coming to market. We’re getting out in front and leading the way in this 25 billion gallon market.

The impact of this decision on 2011 was that we incurred considerably more SG&A expenses than we anticipated at the beginning of the year. We significantly ramped up our personnel, particularly in the engineering and construction areas to build the stations and in sales to load the stations with vehicle and fuel sales when the stations open. With hiring more people our related ancillary expenses such as marketing, rent, and T&E also increased. Consequently, our SG&A expenses were $23.6 million higher in 2011 versus 2010.

Had we not made this decision we would not be in position to aggressively pursue this market and in fact, this market might not exist at all so we believe it was the right decision for the long term success of the business. Also, from an expense perspective, please keep in mind we now have a significant amortization expense charge related to the intangible assets we acquired with our IMW and NorthStar acquisitions in the third and fourth quarters of 2010 which amounted to $10.3 million in 2011.

We also began incurring interest expense charges in 2011 on the convertible notes we issued during the year which were $5.7 in 2011 and will be $16.9 million in 2012 including the next $50 million Chesapeake convertible note we anticipate issuing this June. So please keep all these items in mind when reviewing our financial results between periods.

Adjusted EBITDA in the fourth quarter of 2011 was -$3.5 million which compares to $20.2 million in the fourth quarter of 2010. Again, Q4 2010 had an extra $11.5 million of VETC revenue. For 2011, adjusted EBITDA was $3.1 million compared with $21.3 million in 2010. Adjusted EBITDA is a non-GAAP 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. Adjusted EBITDA is described in more detail in the press release we issued earlier today.

We had a loss of $0.21 per share on a non-GAAP basis in the fourth quarter 2011 compared with earnings of $0.17 per share on a non-GAAP basis in the fourth quarter of 2010. For 2011 non-GAAP loss per share was $0.47 which compares to a $0.04 loss per share. Non-GAAP EPS is also a 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. Non-GAAP EPS is described in more detail in the press release we issued earlier today.

Our gross margin this quarter was $19.7 million compared with $33 million in the prior period which included the additional $11.5 million of VETC revenue. As we have discussed in prior quarters IMW did not contribute as much to our margin line as we had anticipated. The company as incurred some growing pains and production issues that impacted its cost of sales amounts during the year. We are working with them on several production and efficiency initiatives to get them back on track and we are also working with them on developing some new products that hold promise.

BAF also was down between quarters at 670 AT&T vans we anticipated in the fourth quarter of 2011 slide to the first quarter 2012. Our margin per gallon on our fuel sales of $0.26 in the fourth quarter 2011, which is consistent with the fourth quarter of 2010. Our net loss on a GAAP basis for the fourth quarter was $20.7 million or $0.29 per share. This compares with net income on a GAAP basis in 2010 of $13.8 million or $0.18 per share. In addition to the extra $11.5 million of VETC, the fourth quarter of 2010 also had an additional $4 million of gains related to valuing our Series I Warrants.

For 2011, our net loss was $47.6 million or $0.68 per share. This compared with a net loss of $2.5 million or $0.04 per share for 2010. Volumes during the quarter rose to 40,000,000 gallons up from 31.7 million gallons. For 2011 we delivered 155.6 million gallons which is up 27% from 122.7 million gallons in 2010. From a cash perspective, we had approximately $330 million available at year end to execute our growth plans. We also have another $100 million committed from Chesapeake for additional convertible notes we anticipate issuing in June of this year and June of 2013.

With that operator, please open the call to questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Brian Gamble – Simmons & Company International.

Brian Gamble – Simmons & Company International

A couple of comments you made that I wanted to touch on, you mentioned incremental cost for the vehicle for a particular order in the mid $20,000 range down from seemingly $30,000 to $35,000. I guess in my most recent notes was that strictly due to higher volumes or are those cost out measures that are starting to roll through at the OEM?

Andrew J. Littlefair

I think it’s a little of each. I think it’s a big – I’m not at liberty to tell you who it was but it was a big player so they have purchasing power and I think it’s recognition that you’re beginning to see some of the cost coming out of certain of the components, even the tanks for instance. When you look at the refuse market on that, and we talked about this before, on the nine liter, or Cummings Westport nine liter, as you know today in a trash truck a nine liter natural gas engine is cheaper than the diesel engine.

So on the Class 8 product we haven’t been there as long and to me it’s pretty – I’m very excited about it because when you just roll back two years ago the incremental cost on the nine liter project was $65,000. Last week you got an order in there in about the mid $20,000 so we’ve come a long way there pretty fast and that’s good. At that rate, as you know, you’re using 20,000 to 30,000 gallons you’re in there at a six or seven month pay back.

Brian Gamble – Simmons & Company International

Then you made another comment that some users of traditional fuel trucks were becoming dissatisfied with their diesel engines. Can you clarify that

Andrew J. Littlefair

Look, I’m not picking on all my friends in the diesel engine business but when they had to get to the 20/10 emission standards they had to put a lot of after treatment on these trucks. Frankly, they had to kind of bring that to market sort of fast so I’ve had some of the OEMs say, “This is going to get better overtime.” But the truth is, a lot of people operating diesel trucks, certainly in the refuse market, they are not happy. They’re not happy with Urea, they’re not happy with the traps, they’re not happy with the heat that’s generated, they’re not happy with the efficiency, and so that bubbles up through a lot of guys operating diesel engines.

So not to wish anything bad on my competition but it’s what we used to say a few years ago that the diesel engines would get more expensive and the experience wouldn’t be as good and that’s kind of what’s happened.

Brian Gamble – Simmons & Company International

Volumes down fractionally quarter-on-quarter kind of seemingly flat for the last half of the year, can you kind of walk us through how quickly some of these growth initiatives start to materialize and maybe what sort of volumes we can expect either in the first half of this year or full year ’12?

Richard R. Wheeler

Well, we don’t give guidance but we’re seeing an increase in volume. Last year it was up 27% so I feel like it’s going to be north of that. But, I’d really remind everybody that I think that certainly the volumes that will come from these stations that we’re building – we’re beginning to see it ramp up on all these refuse stations and others that we built last year, the volumes are picking up but for these 100 stations that we’re getting ready to build for the natural gas highway, it’s really a very late 2012, in that particular market, it’s a very late 2012 and really 2013 story because some of the engines won’t be ready to go until the last part or at least the latter part of 2012 and early 2013.

You’ve heard me say this before, nothing I’ve seen, in fact everything that I’ve seen in the last six months has made me more bullish. When I look at the adoption rate on the refuse sector and I lay that on the Class 8 sector you get some serious volume so it’s got me as simulated and as excited about what’s going on out there than I’ve ever been.

Operator

Your next question comes from Steven Milunovich – Bank of America Merrill Lynch.

Steven Milunovich – Bank of America Merrill Lynch

Andrew, could you maybe size the Class 8 market for us? How big it is, how many of those trucks you think are applicable to what you’re doing and just kind of give us a sense looking a couple of years out what kind of gallons that could mean for you?

Andrew J. Littlefair

Let me try. These numbers, I think everybody could come up with a different set of numbers, but I’ve been told by my friends in the trucking industry these are okay. So I believe, and what I think is a pretty good number if you talk to the American Trucking Association, I think there’s about 3.2 million Class 8 trucks so that’s what we think of over the road 18 wheeler. The number of trucks sold into that market every year is a little but under, if you exclude Canada and I don’t know that we should for this, but that’s okay let’s exclude Canada, it’s a little bit under 300,000, it’s about 280,000 or so per year.

Of course, that depends on the economy a few years ago it was 180,000 to 200,00 when we had a real tough economy and guys weren’t buying trucks. But when you look at some of the banks that run models they’re kind of calling it somewhere between 275,000 to 300,000 out for several years to come. So when we look at that and I think I talked to you about this before, but I really think the best way to look at it, because the incremental is coming down much like it did in refuse and because they even use more fuel and the savings is therefore even better, and sure we’ve got some work to do on the infrastructure, that’s our job, I really feel very comfortable laying this adoption rate that we’ve seen in refuse.

We’ve got that first good Cummings Westport engine that really is the workhorse in 2008 and in that year it was 3%, then we went to 2009 and it was 7%, so we’ve really – I think the way to do that is really look at that, figure that these engines really won’t be – you’re going to have a bunch sold into this year which we’re very excited about but most of them are going to be done latter part of this year and the big time in 2013 and 2014 you’ll really get rolling.

But I think that still allows you to look at something of a penetration rate that’s 3%, 6%, 12% and I think it will be very similar, maybe even faster. I may be being conservative. But when you do that, based on the 275,000 to 280,000 trucks, by the time you get to 2016 to 2017 you’re at 3.2 billion gallons a year just on the fact that by late 2016 you’ll have 250,000 over the road trucks using 3.2 billion gallons. Now, it could be bigger than that but let’s start there and I feel pretty good about that. That’s what we think is going to happen as a minimum.

Steven Milunovich – Bank of America Merrill Lynch

What kind of growth do you think you might need in SG&A this year to help make that occur down the road??

Richard R. Wheeler

I think from an SG&A perspective we anticipate that we’ll continue to increase our expenditure this year as we invest in people, and resources, and infrastructure, and all that good stuff. Our goal and effort and what we’re trying to do is kind of keep it as a consistent percentage of revenue for the next couple of years as we really grow this thing. Obviously, as we’ve talked before, we think it’s leverageable and will go down in the future, but if we can keep it in the 30% range of revenue that’s kind of our target.

Steven Milunovich – Bank of America Merrill Lynch

Could you talk about the barriers to entry? I think the world’s starting to believe this is going to happen and that’s likely to bring more folks into it. I think there’s often a perception that the barriers are fairly low here, I assume you disagree with that to some degree, could you enumerate your reasons why not?

Andrew J. Littlefair

A lot of people on the call have talked about this before, can other people be in the fueling business? Sure. But I always like to start out by saying this is different than the passenger car market so let’s at least for the moment take the integrated play, the majors out of this, because they’re not really in this market. They’re not fueling trucks, and they’re not fueling trash trucks, that’s not their market.

If we thought that every passenger car in the United States was going to go to natural gas I think I’d have a harder story that I’m not going to get wiped out by somebody that has 5,000 or 10,000 fueling stations. When you look at the truck market, it’s a little bit different story. The more I’ve gotten to know our partners at Pilot Flying J, the more impressed I am with what an operation they run, but think with me that they have 450 truck stops, Pilot Flying J Truck Stops in the United States that sell somewhere around 8 billion gallons of diesel. They do a million transactions a day and they’re my partner.

So when you asked about the market size, the 3.2 million Class A trucks, those Class A trucks use about 24 to 25 billion gallons of diesel so they got a pretty big piece of the market and they’re our partner and that’s why we’re wheeling out there. I think that was a key strategic move to partner with Pilot Flying J. We’ve announced some others, they don’t get quite the cache but we’ve signed up Coral’s Petroleum people in the mid Atlantic have 180 locations and we have several others that will be announced soon.

We think this is a very key piece of this business which is to have locations under contract, under long term exclusive arrangements so that we can put LNG truck stops in where America’s trucking fleet go. I think in one way that’s probably the most important, and I don’t like barriers to entry, I think that’s one of the most strategic advantages that we have.

The other thing is we have a compressor company, other people can get those I know that, we have one of two LNG fabrication construction companies that we have and we have a nationwide network of construction people building these and we operate now, we have contracts, with 650 of the nation’s largest fleets so we’re already doing business with a lot of these. That doesn’t mean we couldn’t be displaced but we think that’s an advantage.

We have LNG plants, we understand LNG supply, we have an LNG cryogenic tanker fleet. We’ve been in the business, and after all we’ve spent $600, $700, $800 million so it’s not like we’ve just been casual about this, we’re building out and we’re way ahead. No one else – there’s been a handful of LNG fueling stations, no one else has done what we’ve done. I think when you put all of that together we’re pretty far out in front of the crowd. Now, I think we will have competition and we’re starting to see little pieces of it pop up and I think that frankly, is good news. I think that validates the fact that we’ve got a real business.

Operator

Your next question comes from Robert Brown – Craig-Hallum Capital.

Robert Brown – Craig-Hallum Capital

On your pipeline I think you said you have 536 deals you were sort of working on. Could you give us a little more background there? How many of those are natural gas highway related and other stuff?

Andrew J. Littlefair

I’m in Washington DC because I’m up here on this thing and I’m hoping somebody in Seal Beach as that breakdown there. While they’re fumbling around, when you look at the pipeline the highway piece is not in there. Okay, so when we look at the stations construction, that big number, 120 some odd, the highway sort of 2012 station count is in the construction carpet. So if that’s as clear as mud, I don’t know. So the 75 that we believe we’re going to build and we feel comfortable with that we’re going to build in 2012, in that number I’m giving you today, the construction carpet is at 121, 70 some odd or 60 some odd of the America’s Natural Gas Highway are in that 120 number.

Now, when you look at that 536 number that doesn’t have any of the America’s Natural Gas Highway in that number to inflate that. I’m very proud of that. That’s the fact that you’ve got all these salesmen out there now and I think last time we talked Rob that number was closer to 430 and in the last 90 days it’s gone to 530. Now it is because you’ve just got more fleet deals, fueling deals, airport deals, different construction items that are in there.

Robert Brown – Craig-Hallum Capital

Then on your Navistar program that you talked about, the lease program, where are you at on that? I know it’s new but have you seen interest from that yet and when should we look to see that turn into something?

Andrew J. Littlefair

I think you’re going to see some of those announcements, I’m hoping, soon. One of the things I alluded to on that big truck order, that’s a Navistar deal, the thing that I talked about earlier. So we’ll just let them roll that out. We’ve had a really exciting launch to that program. We’ve met with all of their sales folks, we’ve met with many of their dealers, we’ve made presentations, we’ve made dozens of proposals.

I’ll tell you what, the Navistar folks have been very impressive, from their engineering staff and their sales staff run by Jim Hebe, who is a pro, they have really taken this very seriously. They see it as an important piece of their business. Our man Jim Harger, who is our Chief Marketing Officer, is in charge of that relationship. They’ve done a lot together and you’re going to see some of those announcements pop out here pretty soon.

Operator

Your next question comes from Graham Mattison – Lazard Capital Markets.

Graham Mattison – Lazard Capital Markets

Just to follow up on Rob’s question, can you breakdown the stations you have in backlog or in the carpet, what percentage of those you’ll build, what percentage you’ll own and operate, what percentage are just third parties, can you give a sense on that??

Andrew J. Littlefair

I don’t know that I have that handy but let me try to help. Right now as we sit here the carpet is at about – and those of you who have been listening to us for a while, that number is substantially higher than it used to be. At about the middle of the year we thought we were doing good last year when we got to 80 projects in June, so we’re sitting here today at about 121 projects. Of that 31 of those are construction projects that are underway on America’s Natural Gas Highway and there’s another, and I don’t want to get tripped up here, there are another 35 that are America’s Natural Gas Highway that are in sort of permitting and design. Then the others will be built this year but they’re I’d say focused on our core markets.

So now on that, a slug of those, and I want to say it will be closer to 12 or 15 will be refuse stations, we’ll build more than that but we’ll build some of those Republic and some of those Waste and that’s for their account. We won’t own those, we’ll build them and we’ll design them and we’ll use IMW stuff on that. I would say other than the refuse, there are four in Dallas that will be big transit properties, those are for Dart, I would say those remaining stations that other 60 kind of breaks down 30 for customers and 30 for us.

Graham Mattison – Lazard Capital Markets

Then looking at the LNG highway – I guess looking at LNG supply for the stations as you build them out around the country, where are you in terms of locking in supply? Is there a need to build additional liquefaction capacity? Are you working with local liquefiers? Just a little more color on that?

Andrew J. Littlefair

I’m going to be a little careful on this because we see this as an important thing that we have an advantage here because we have an LNG supply group now that’s working on this. I guess I’m pleased that there is a little bit more LNG available in the country than I thought. As you know, some of it’s in the mid Atlantic or the northeast, it’s by utilities and [beak] shavers and then there’s other cryogenic facilities in the southeast and even in the northwest.

We believe, as you kind of shake all that out, there’s probably a billion gallons a year available of LNG supply. Now, we don’t have it all tied up yet because you don’t need it, but if you heard my answer to Steve Milunovich, I think by 2016 in that neighborhood to the back end of that, you better be where you’ve got yourself lined up to have 3.5 billion gallons of LNG. So you’re going to be okay between now and the next few years, two years, but we’re going to need to begin to work with our friends in the gas patch and midstream to begin to make the changes to some cryogenic facilities hatched or truck loading to be able to have more LNG on hand. I’m fully confident that can be done but that’s going to be an important part of this business and I think it’s going to be a strategic piece of it too.

Graham Mattison – Lazard Capital Markets

As you look at the LNG highway you’re building out right now, what percentage of that would you be fueling from your own LNG facilities versus fueling from third party LNG supply?

Andrew J. Littlefair

Let’s put it this way, I don’t know the exact percentage, but let’s just assume we’ve got these things spread out across the United States, really you shouldn’t go much further than 250 miles in a perfect world, to really remain as competitive as you want to be on the transportation. You can push it a little bit, but you ought to think of concentric circles laid on top of our highway for LNG supply as we move around different parts of the country.

You probably in the beginning can do it 300 miles, 500 miles, but you’d rather it be more like 300 to 250. Do you see what I mean? You can do it. Look, for a long time we didn’t have any choice, we hauled it 800 miles to Los Angeles, but that’s not the way to run a railroad.

Graham Mattison – Lazard Capital Markets

One last housekeeping question for Rick, what’s the current share count right now post Warrants? What share count should we be modeling in going forward for 2012?

Richard R. Wheeler

As we sit here today about 85.8 million.

Operator

Your next question comes from Eric Stine – Northland Capital Markets.

Eric Stine – Northland Capital Markets

I was just wondering if we could go back to the Navistar relationship, actually just wondering is there exclusivity with that or are you able to work with other truck OEMs in a similar arrangement?

Andrew J. Littlefair

We have an exclusive strategic relationship with Navistar in that we’ll do joint marketing and joint calls with Navistar sort of corporately, think of it that way, and that is exclusive. There’s a term on that, I don’t know that we’ve disclosed that, so that’s one thing. That does not preclude us from calling on other truck OEMs or hustling a fuel deal with a dealer that wants to sell 50 Peterbilts somewhere. We are not precluded from working with our other friends in the business but we do have sort of an exclusive corporate deal with Navistar at the corporate level and we are not allowed to do that with the others but we are allowed to be called in and do fueling and educate people there but it’s a little different. Does that make sense?

Eric Stine – Northland Capital Markets

So you can work with them but it would not be the same setup where it’s a set lease program, five year contract, that sort of thing but you could certainly help on the fueling side.

Andrew J. Littlefair

That’s right.

Eric Stine – Northland Capital Markets

Maybe we could just turn to BAF, just curious if you could give the revenues and the uptick volumes in the quarter and just talk about what the capacity is in that business on a quarterly basis?

Richard R. Wheeler

Revenue for the quarter was about $5 million. They did 336 units during the quarter and comparably it was down considerably from the fourth quarter of ’10 but keep in mind in the fourth quarter 2010 that was a monster quarter for them. They had a significant chunk of AT&T vehicles they finished during that quarter and unfortunately some orders we thought we were going to get in the fourth quarter of ’11 slide to the first quarter of ’12 so that hurt them a little bit. They just moved into a new facility and they’ve got plenty of capacity and they’ve been working with their dealer network, and up fitting network, we can do all kinds of capacity that’s certainly not the problem.

The good news is their core business, setting the AT&T and Verizon stuff aside for a second, is actually doing very well. Their shuttle vans and the stuff they do for Dart and they’re doing some taxi transit connect type work, they’re working with a lot of the E&P guys trying to get pick up type business in their operation. So all that stuff is going pretty well we just need to get AT&T back on track and we’ve been talking to them and they still seem committed to doing the deal it’s just slow downed a little bit from what we thought it was going to be. But all-in-all they continue to plug along and do well and we’re hoping they get back on track this year.

Andrew J. Littlefair

I just would make a comment, Rick alluded to it, they moved into a new facility which makes them more efficient. They were in, as they were a very small company years ago, they were in five buildings and now they’re in one and it gives them more efficiency and of course, the OEMs like that because it allows them to do stuff with quality better. They’ve got the whole line up of the E and F series now at Ford, most of the dedicated and by fuel and they even come on up to the 550 and 650s which are pretty big engines.

Rick is exactly right, now they’ve trained they’re upwards of 100 Ford dealers. The important thing there is so somebody wants six pickup trucks in Albuquerque. Well we’ve trained the Ford dealer and so it’s pretty seamless now they order it from a Ford dealer, it gets dropped shipped to us, it goes right back there and now the Ford dealer is trained. So yes, we’d like a couple of these other big 500, 1,000 dealers but in the meantime they’ve been growing the breadth of their business nicely. BAF still does more than anybody else does in this business and we hope that it will pick up a little bit this year.

Eric Stine – Northland Capital Markets

And the orders you said that slipped, just to be clear, those are orders that have been placed and that will be first quarter volume?

Andrew J. Littlefair

In fact, most of them are done.

Richard R. Wheeler

A lot of them have already shipped.

Andrew J. Littlefair

They got a big order from AT&T, they are the first ones to certify the transit connect, they got an order for 673 of them that slipped from last quarter into the first quarter. Most of them are done, I don’t know if they’ve all been delivered but almost all of them if not all have been completed.

Eric Stine – Northland Capital Markets

It sounds like a pretty strong start to the year and maybe 2012 is more like 2010 than ’11, would that be a fair comment?

Richard R. Wheeler

Again, we don’t give guidance but we’re hoping that things pick up.

Eric Stine – Northland Capital Markets

Last one for me, I was going to ask you about Coral, you kind of touched on that but in terms of your comment of working with other regional players. I’m just curious your thoughts how that plays out and will the deal be similar to Pilot in most cases?

Andrew J. Littlefair

We have to be a little careful there but all these players are the same but different. You’re using a similar template I would say but it’s a little different. It’s important though because there are some pretty powerful – these are big businesses and it’s pretty powerful groups of 300, 500, 700 regional fueling players. The interstate kind of rural stuff is one thing but then when you get into the more urban environments that’s when you see these other pretty important network fueling providers so we’re working our best to try and line some of them up as well.

Operator

(Operator Instructions) Your next question comes from Pavel Molchanov – Raymond James & Associates.

Pavel Molchanov – Raymond James & Associates

In 2011 LNG shipments were up about 30%, CNG up 25%, I realize you guys don’t give guidance but do you expect LNG to continue to outpace CNG on a percentage basis?

Andrew J. Littlefair

I do. CNG got a big boost because you had those big transit properties, but when we look out to the future, and we’re kind of seeing how that’s playing out right now, but when you look out at that regional trucking and the big interstate trucking market and I don’t know that everybody is convinced what the split will be, but I think it will break 70/30 to LNG. I kind of think it’s going to break that way just because of the LNG properties, the density, and the ability to put in stations for less and all of that. So I think you should see as our business model gets into effect, I think the LNG should probably be bigger than CNG I would think.

Richard R. Wheeler

That will be more pronounced once the highway stations get built.

Pavel Molchanov – Raymond James & Associates

I was going to ask about that, what’s your target for when the highway stations will get to full utilization? In other words, is it something where it takes a year for them to ramp up to full sales capacity? How do you estimate that?

Andrew J. Littlefair

We are being very focused and our board has required it, and we’re very focused on what we call our national trucking team. When that station opens, we want to have a base book of business there. We’ve used different numbers on these calls but we know that you need a minimum of 20 something odd trucks to make that station operate efficiently. Now, you can’t stop there but you need to get it to 100 or so about as quickly as you can.

One of the things that makes me very comfortable, because we throw around these hundreds of thousands of truck numbers and it scares everybody, but when you really break it down to that $1.5 LNG truck stop station you really need 100 of the right trucks there. You don’t need a 1,000 you need 100. So on day one you want to make sure you’ve got 20 or so, and obviously I’d rather have 50, like we had at some of the earlier ones we just opened.

Those stations have somewhere between a 2 million and 2.5 million gallon capacity. Now, you could continue to add to that capacity, you’ll add other lanes and this and that. So to me it’s not so daunting but I don’t think you should think of it as in 12 months every one of those stations will be completely loaded, I think that would be too much to hope for. I think we ought to think about a little bit more of a phased in approach but even so over a couple of years as long as you get 50 of those trucks in there in year one you’re going to be very pleased with the return.

Pavel Molchanov – Raymond James & Associates

Just a quick one, this current quarter are you making an earn out payment for IMW?

Richard R. Wheeler

We will. I think it’s a March to March calculation. I’m not exactly sure what it is at this point but they’re on track to make something for this period.

Operator

Your next question comes from Peter Christiansen – Merrill Lynch.

Peter Christiansen – Merrill Lynch

I was wondering if you could give us a sense for the sentiment for the Amendment? It looks like it’s getting some good attention from both the pros and the opposition on the side of the field. What are you seeing and what’s your feelings right now?

Andrew J. Littlefair

This is a kind of a wild and wooly place up here but I’m glad you asked the question because I think we should keep in mind how far we’ve come. I don’t know if you saw it earlier today and I mentioned it, but Senator Richard Burr he was great. He went to the floor, and of course there weren’t a whole lot of senators there, but he went to the floor and I thought he did a really great job over 45 minutes talking about why he thought this was a game changer and that there was really no downside in doing it.

I don’t really think that we should worry tomorrow so much about a yes or no vote as much as I think we’ve already done – we’ve made our points. There is no one here that thinks we shouldn’t use natural gas for transportation. There’s some disagreement over the form of what that should take and the process. I can’t predict if this will pass tomorrow or not. There’s a whole bunch of amendments, it will go rapid fire I think tomorrow morning. I don’t know. I’m not sure this is the end of it but as I’ve said before, look we’re busy and the industry is coming our way, and the commercial businesses are coming our way, so this thing is going to happen regardless.

I think Senator Burr said it right, this will just make it go a lot faster and it will be better for the country. But, a couple three years ago people got all hung up that we needed this to make our business case and we don’t need it to make the business case. It would be good for the country if it would happen. My guess is it will be tight tomorrow and we’ll just have to see how many democrats show up and if we can get the 15 or so republicans that we need.

Peter Christiansen – Merrill Lynch

I was just wondering if you could give us some color, it looks like the converts are likely in the money right now that were issued last summer. Would that preclude some change in the share count going forward?

Richard R. Wheeler

Obviously, if they do convert it’s going to change. Actually, we after two years, can force conversion if the stock trades at 40% above their conversion price. They certainly obviously can convert at any time so to the extent that happens you’re looking at another 9.8 million shares or something like that coming in.

Peter Christiansen – Merrill Lynch

It’s after two to 2.5 years until you can force conversion?

Richard R. Wheeler

Well we can if the stock is trading high enough.

Peter Christiansen – Merrill Lynch

Finally, on the development of the initial stations, what’s dictating the build out strategically? Is it topography, before the largest displacement engines come on, or is it customers, or a bit of both? If you could just talk about how the first couple of stations are going to roll out and what’s the selection process there?

Andrew J. Littlefair

You’ve paid close attention to us and you’re exactly right, here in this period when we have literally dozens now of carriers or shippers beginning to kind of put some of these into their fleet which I think is a very positive sign, we don’t have the 12 liter, we don’t have the 11.9 and we don’t have the 13 so our sales people have been really focusing on flat topography so that drove some of the early stations in the Midwest and some of these other areas and so that’s working well. But we’re also taking the information that we’ve learned from these customers and we’ve put it into our database and we’re overlying that on the Pilot information and so it helps us make sure that we get the right stations, the first ones in, first.

But on the other hand, we feel it is important by the end of this year to have a workable network. It doesn’t do you a lot of good having something going across the country and have a big 500 mile gap in it so we think that’s important. That’s what we said we’re going to do and that’s what we’re going to do. So we’re doing two things, you’re right flat topography and also laying the lane data information to make sure we build the right ones first and it seems to be working pretty well.

Richard R. Wheeler

Just to be clear, the convertible notes converted into 13.2 million shares. I’d only given you a piece of them before and that includes all of the investors.

Operator

There are no further questions at this time. I’d like to turn the floor back over to management for closing comments.

Andrew J. Littlefair

Our efforts in 2011 kept us in a leading position for capturing the shift to natural gas for transportation use in the future. The news flow, awareness, and acceptance has validated what we saw coming and as we look to 2012 we plan to execute on our aggressive build out plan in anticipation of dramatic growth in 2013 and 2014. In closing, we are continually and proactively looking for opportunities to expand our lead this requires investment, long term planning, and persistence. Every indication we have convinces us that we are on the right path and every day we are reinvigorated about what we are doing for our communities, our country, and our shareholders so thank you for being on the call today.

Operator

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

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