Clean Energy Fuels CEO Discusses Q1 2012 Results - Earnings Call Transcript

| About: Clean Energy (CLNE)

Clean Energy Fuels Corporation (NASDAQ:CLNE)

Q12012 Earnings Call

May 07, 2012 4:30 pm ET


Tony Kritzer - Director of Investor Relations

Andrew Littlefair - President and Chief Executive Officer

Richard Wheeler - Chief Financial Officer


Rob Brown - Craig-Hallum

Graham Mattison – Lazard Capital Markets

Eric Stine - Northland Capital Markets

Matthew Blair - Macquarie Capital

Brian Gamble - Simmons & Company


Greetings and welcome to the Clean Energy Fuels First Quarter Fiscal 2012 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Tony Kritzer. Thank you, sir. You may begin.

Tony Kritzer

Thank you, operator. Earlier this afternoon, Clean Energy had released financial results for the first quarter ended March 31, 2012. If you did not receive the release, it is available on the Investor Relations section of the company's website at This call is being webcast with accompanying slides available on the Investor Relations section of the company's website and a 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 news release and on this conference call contains forward-looking statements that involve risks, uncertainties and assumptions that are difficult to predict. Words of expression reflecting optimism, satisfaction with current prospects, as well as words such as “believe”, “intend”, “expect”, “plan”, “anticipate”, and similar variations identify forward-looking statements, but their absence does not mean that the statement is not forward-looking.

Such forward-looking statements are not a guarantee of performance and the company's actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail, in the Risk Factors section of Clean Energy's Form 10-Q filed today.

These forward-looking statements speak only as of the date of this release and the company undertakes no obligation to publicly update any forward-looking statements or supply new information regarding 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 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, and good afternoon everyone and thank you for joining us. Clean Energy reported first quarter gallons of 43.7 million, up 23% from 35.5 million in the first quarter of 2011. We generated $73.6 million of revenue during the first quarter, up from $65.3 million a year ago.

It's remarkable to look back since the first quarter last year and realize how the awareness about natural gas has increased. Much of this awareness comes from the high price of gasoline and diesel at the pump, coupled with the value proposition that natural gas can offer.

This awareness resonates from our customers to investors, to accumulated leaders, including the President who has mentioned natural gas is one of the solutions for energy dependence in the United States. We're growing the infrastructure necessary to reduce our dependence on oil by offering a cleaner, cheaper, abundant supply of domestic fuel.

The abundance of new expensive natural gas in the United States is triggering a manufacturing renaissance to borrow the trunk from the April New York Times article on that topic and we are integral part of that process.

The economic disparity between natural gas and oil and the cost savings per gallon for fleet operators has attracted the attention of the commercial fleet industry. This transformation was on display recently at this year's Mid-American truck show in March, which is the world's largest annual trucking showcase.

Every major OEM, including Navistar, Cummins, Freightliner, Kenworth, Peterbilt and Volvo, all had natural gas offerings strongly featured in their exhibits at the show. As we have said, we believe our announcement last year to build out America's Natural Gas Highway and strategically co-locating the stations and pilot flying adjacent to truck stops and others with a critical catalyst for our trucking customers and the manufacturers to commit the natural gas for transportation.

Now with the construction of our highway stations well underway, we are pleased to see that the shippers, freight haulers, the engine makers and the truck OEMs are all joining our effort in helping the shift toward natural gas goods movement in America.

We are proud of our strategic fueling and marketing agreement with Navistar that we announced at the beginning of this quarter. Our sales team has been busy working with Navistar's dealers, providing them training and participating with them on sales calls with potential fleet customers.

Navistar is an important partner, because they are fully integrated OEM, holding a number one or number two positions in key truck market segments and they are committed to providing eight different natural gas truck models by the end of 2013. We also now offer what I call wet lease with Navistar dealers, which incorporates natural gas and offsets the incremental cost of the natural gas engine and still provide significant savings as compared to diesel.

Now, I would like to turn into America's Natural Gas Highway. In last January, we laid out the plan for 150 new natural gas fueling stations and identify the first 98 locations in 33 states. The goal is that 70 of these stations opened by the end of 2012, because about 85% of trucking is regional in nature, we are strategically constructing some of these stations in corridor installments, and we're on pace to have our first corridor, the Texas triangle with stations in Dallas, San Antonio and Houston completed by the end of May.

In the third quarter of this year, we expect to have the Los Angeles, Dallas, Atlanta corridor, the Chicago to Dallas corridor and the Chicago to Atlanta corridors open. In the fourth quarter, we anticipate opening additional corridors in the Midwest, Southeast and Northeast regions of the country. And by the end of 2012, our network of completed natural gas stations will allow the movement of goods across the country from coast-to-coast and border-to-border.

We previously discussed, we anticipate that most of the fueling stations will be co-located and Pilot-Flying J Travel Centers through our exclusive agreement with them, which will allow truckers to continue to use their normal fueling locations and provide them the same convenience that use to which they are accustomed.

We are also working with other regional fuel providers to fuel on our network of stations. To give you an idea of how our existing stations have been operating our station in Los Vegas, which opened in January of this year, currently fuels 48 UPS trucks and five trucks from CR England. We expect these 53 trucks will consume over 1 million gallons per year, which is a powerful start. In our stations in Seville, Ohio, Dillon Transportation is fueling 14 trucks is they all for Orange County. Those trucks consumed between 30,000 and 35,000 gallons per year each.

Let's now turn to our core markets. Overall, our American Natural Gas Highway LNG stations are high profile and an important focus our core CNG markets have continued to perform well. In the refuse sector, we are currently working with 71 customers in 140 locations and have opened 50 new stations to-date this year.

Here are some of our refuse market highlights from the first quarter. We completed construction on our first refuse station in Las Vegas, which will soon fuel over 100 trucks for public services. We just recently signed the contract with Waste Pro USA to build, operate and maintain the new CNG fueling station on their property in Peters, Florida, which is targeted to fuel the company's new expected fleet of 158 CNG private trash trucks. We also just completed two private stations for the city of Dallas, where we will fuel 26 refuse trucks that will consume over 200,000 gallons per year at each site.

For Illinois, we opened a public/private refuse station for Peoria Waste, where we will provide operational and maintenance service for five years. I believe we are on track to do two or three more with them. Virtually all the refuse customers around the country continue to expand the number of synergy vehicles in their fleet. We expect that the refuse industry allowed over 3,000 natural gas trucks this year.

Our refuse team just got back from WASTECON show last week in Vegas, and there were 29 natural gas refuse trucks on display which was pretty impressive considering there were 10 on display last year and about three year before that.

In our transit market, we completed a public/private station for Stark area transit authority Kent, Ohio. Private station will start out fueling 19 buses and the public station will also fuel AT&T vans, refuse trucks, school buses and other light-duty vehicles.

In Los Angeles, we began fueling nearly 100 CNG commuter coach buses in our public infrastructure. These buses are owned by Los Angeles Department of Transportation. We've also seen additional full-sized buses being added to fleet, transit fleets in Elk Grove and Santa Cruz and Northern California as well as in Akron, Ohio and Tulsa, Oklahoma.

Every major transit agencies around the country have seen an increase in demand in their paratransit for non-relied service. The new factory built CNG MV-1 vehicle addresses this market quite well. So we saw the first of those vehicles being placed and serviced in the New York City, Long Island, Hartford in Chicago over the past few months.

In our Tennessee airport and shuttle markets, we are currently working in 35 major airports around the country. We just opened a public CNG station at the airport in New Orleans in March.

Our sales team has been busy working with our taxi and shuttle customers to expand their CNG fleets and in the first quarter additional shells have been ordered or deployed around airports in Connecticut, Seattle, Orange County, San Francisco, Las Vegas, Chicago and Dallas, where we currently operate 14 stations throughout the entire Dallas metropolis.

Let me talk for a second about BAF, our conversion business. Just this past April, we celebrated the opening of a new 91,000 square foot headquarters and operations facility in Dallas, Texas for BAF, and the completion of our 20,000 CNG vehicle conversion. In the first quarter, we finished up 600 vans for AT&T.

Our sales and marketing team for natural trucking effort has been relentless in pursuing the aligning shippers and private places of oil and natural gas vehicles for their fleets. The shippers are strongly encouraging their four higher carriers to move away from diesel in favor of natural gas, because they understand the cheaper, cleaner, abundant and domestic benefits that we offer to them.

Here are some of our recent wins. In March, we signed a 10-year strategic partnership agreement with Saddle Creek Corporation, a leading logistics' services provider to build natural gas fueling stations at existing Saddle Creek distribution centers in support of their expanding natural gas powered truck fleet.

In January, the first station opened at the company's headquarters, Lakeland, Florida, where it is designed to fuel up to 120 CNG trucks per day. But this was significant because Saddle Creek trialed just one CNG truck last year and after realizing the significant economic benefits natural gas could offer they just decided to expand the fleet and some of their customers include likes and QuickRoots, Ocean Spray and Publix.

NFI, one of those contract carriers is deploying nine liter CNG trucks in the Port of Long Beach. We've provided them a five-year national fuel contract to fuel at our American natural gas highway stations and anticipate them to deploy natural gas trucks elsewhere to support their growing customer base.

(Inaudible) agreed to deploy several CNG day cabs in Southern California. (Inaudible) is another fine example of a large fleet testing natural gas fueling. And it does get comfortable with the operation and performance, we anticipate they'll increase the orders of natural gas trucks in the future.

We are working with them, we encourage our contract carriers who use natural gas trucks when hauling from the breweries to the warehouses. (Inaudible) committed to deploy 30 trucks between Dallas, Oakland and Los Angeles by year end. And finally, DART transit committed to deploy a fleet of CNG tractors in Dallas to support those corn, the trucks will fuel on our stations.

Our Americas natural gas highway station construction carpet it includes 100 active projects with 20 sites currently in construction. 24 sites in design and permitting, including six sites under site investigation. We are on track to have 31 new sites completed by the end of the second quarter and have approximately 70 stations completed by the end of this year.

Additionally, we have 21 other station projects in construction and 58 projects in design and permitting in our other core markets, so we are still on track to nearly double our construction volume from last year.

Our project pipeline during the first quarter includes 545 deals, in various stages of validation, qualification and negotiations. This number, the 545 does not include America's Natural Gas Highway projects.

With respect to biomethane, we are realizing the return on our investment in upgrading and expanding our Landfill gas plant in the Thomas Block, where we set a record for production during the first quarter and completed the second phase of our expansion project. We have hit records for single day production in 2012 exceeding 40,000 gallons in a single day.

Once our expansion is complete this summer the capacity of the plant will be increased to an estimated 60,000 gallons a day. We also recently amended our gas field agreement with Shell, to increase the volume and we can sell them under this agreement, which we believe we weren't sure that this project is financially sound for many years to come.

Our Michigan project remains on track commissioning this summer. And in March, we entered into a ten-year contract with the sale of more than 50% of the gas we were producing on that site. That sale agreement is pending certification about the California energy commission, which we were optimistic will take place this summer.

Any volumes from the Michigan site if we don't sell under the contract in March, where we marketed and sold directly from our vehicle fuel infrastructure as a fully sustainable low carbon vehicle fuel.

And with that, I'll turn the call over to Rick.

Richard Wheeler

Thanks, Andrew. Before I review our financial results, I would like to point out that all my references to our results will be comparing the first quarter of 2011 to the first quarter of 2011 unless otherwise noted.

Volumes during the quarter rose to 43.7 million gallons, which is up from 23% from 35.5 million gallons. For the quarter, biomethane was 2.1 million gallons, CNG was 29 million gallons and LNG was 12.6 million gallons. For the quarter, our revenues were $73.6 million, up from $65.3 million.

Adjusted EBITDA in the first quarter of 2011 was minus $2 million which compares to $3.9 million in the first quarter of 2011. As a reminder, VTEC revenue was zero in the first quarter of 2012 as the credit expired on December 31, 2011 and was 4.2 million in the first quarter of 2011.

Adjusted EBITDA as 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 and are described in more detail in the press release we issued earlier today.

Our gross margin this quarter was $17.7 million, and was $18.3 million in the prior period, which includes an additional 4.2 million of VTEC revenue.

We had a loss of $0.16 per share on a non-GAAP basis in the first quarter of 2012, which compares with the non-GAAP loss of $0.05 per share in the first quarter of last year.

Non-GAAP loss per share is described in more detail in the press release we issued earlier today. Our net loss on a GAAP basis for the first quarter was $31.9 million, or $0.37 per share. This compares to a net loss of $9.8 million, or $0.14 per share. The change between periods was impacted we recorded for valuing our Series 1 warrants between period.

We recorded a non-cash charge of $13.5 million in the first quarter and the non-cash charge of only 3.3 million in the first quarter of 2011. Our SG&A expense have also increased between periods, primarily as a result of hiring more as we ramp up to support our anticipated growth on Phase 1 of America's Natural Gas Highway just complete. And our expense is also up between period due to the interest charges we are incurring on the 200 million of convertible notes we issued in the back half of last year.

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

Question-and-Answer Session


(Operator Instructions). Thank you. Our first question comes from the line of Rob Brown with Craig-Hallum. Please proceed with your question.

Rob Brown - Craig-Hallum

On your corridors that you're starting to build out in your Natural Gas Highway stations are you at a point where you're starting to see increased interest because of stations you're getting out there, or maybe just give us an update on how the flow through for businesses coming as stations rollout.

Andrew Littlefair

Right. Rob, it's a good point as one of the reasons we did those -- or we're getting in kind of rollout of those corridors or slides like you saw today, because we need to let the market know when these stations are opened and when these corridors are going to be opened. The markets really wanting that, we were talking with Cummings Westport for about 70 truck Friday, and so our salesmen now are out there with those corridor maps and I think it's important to get that information out, because it takes while to order these trucks and it takes a while to get the stations up and operating, and so it helps them plant and we found it to be pretty compelling for the market.

Now, our job as we discussed before is making sure that when these stations get opened. We have trucks fueling there and that's job one for our national truck team and there are on it -- we also know that some of the product that we're waiting for will be until 2013, which is 11.9 with some of the other product, and that's okay, because we'll have these stations ready. Well, they are, but working hard, have plants in Kenworth and Peterbilt, Freightliner and our friends in Westport, Cummings Westport to make sure that we can do the 9 liters and the 15 liters to bring product to the stations and we'll be getting to blow them up, we will just add more trucks down to the new station that’s on the Mexican border in California and so that's what we're doing and as these stations begin to open, you'll see more and more trucks fuelling up.

Rob Brown - Craig-Hallum

Okay. Great. And then on the station construction revenue that you've been running. You've been about $10 million to $15 million a quarter, just wondering if that's kind of a sustainable run rate now, or should that continue to be lumpy?

Richard Wheeler

It's lumpy, Rob. It's all predicated on just when we happen to A, have stations, we are selling to the customers from our own account or B, when we physically get them done. Unfortunately that's lumpy and hard to predict and make sure guys are challenging and they figure out when those are all going to hit. I guess that's why you guys get top dollar.

Andrew Littlefair

Some of our customers are different right in the refuse sector, could you do construction for some of our big customers. The way their budget works, it seems like in the middle we end up finishing off a lot of it at the very end of the year for the beginning, so it's just kind of hard to predict. That seems to be the case with the refuse guys.

Rob Brown - Craig-Hallum

Okay. Great. Thank you.


Our next question comes from the line of Graham Mattison with Lazard Capital Markets. Please proceed with your question.

Graham Mattison – Lazard Capital Markets

Just quick question. I'm sorry if I missed it. Rick, could you give a gross margin per gallon in your comments?

Richard Wheeler

I didn't, but the good news is it's actually up this quarter at $0.26 a gallon, which we think is indicative of the fact what we've said before that as we add on these new gallons and new projects, the more into our commercial retail markets, which obviously is pulling that number up. I'm sorry. I think I gave you the wrong, $0.28. It was $0.26 last quarter.

Graham Mattison – Lazard Capital Markets

In the fourth quarter?

Richard Wheeler


Graham Mattison – Lazard Capital Markets

All right. And then on the SG&A number. Were there any one-time items in this, or is this a good run rate to go forward with. And, I think on the last call you talked about SG&A running around 30% of revenues for the time being.

Richard Wheeler

Yes. We may be low on top of that right now. It's good revenue numbers little behind where we thought. Yeah. The one thing that was unique in there is, we reversed about 2.6 million on the IMW consideration, we anticipate we're going to have to pay. That's helping us on a one-time basis.

If you put that back and you are probably going to get close or closer to a more normalized number as we go forward.

Graham Mattison – Lazard Capital Markets

All right. Great. And then just last question going quickly to the 10-Q on the balance sheet. Your outlook for spending for the rest of the year is about $190 million which is just about your cash balance. How should we think about this in terms of as you ramp up for next year, I mean, I know you have additional cash coming in from the Chesapeake bonds this summer?

Richard Wheeler

Yeah. Keep in mind that the short-term investment number is really cash. It's on different line, because it's not a cash and cash equivalent. It's actual investments, but that counts toward the pie. The other piece in there is restricted cash. Chunk of the Chesapeake money that came at originally with the $50 million is in the long-term restricted cash number. That counts. By the time we add all that up, really that was up $250 million of cash on hand to fund the 180. And then you're right, we got another 50 coming from Chesapeake in June then another 50 come in the following June as well.

Andrew Littlefair

Graham, the way I think of what I have been saying is that we got this year more than covered and you got to cover because you have a similar capital program if not more next year. You can be pretty well covered up through 2013 as well.


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

Eric Stine – Northland Capital Markets

Hi, Andrew. Hi, Rick. And, just a bookkeeping, I'd just get it out of the way. Could you just go through quick revenue for Navistar, BAF and IMW and also gross profit for each?

Richard Wheeler

BAF revenue was 8.3. IMW was 13.5, Navistar 2.1. Margins on those, BAF was 2.8, IMW 2.0, and Navistar 0.4 to keep in mind, and we were pulling them back from third-party sales that show up in external revenues and just using those guys to build our natural gas highway stations.

So, I would anticipate their numbers are going to continue to diminish from what they are showing up externally as obviously we are building these 150 stations. They are going to be pretty busy working on projects for us that don't show up on our external financials, FYI.

Eric Stine - Northland Capital Markets

Maybe just a quick on BAF. Did any volumes slip for AT&T in the quarter? I think, 600 was a little bit less than maybe you had indicated or thoughts on the last quarter and then just wondering if there is visibility into the next order from AT&T?

Richard Wheeler

I think about 60 or 70 of them slid a little bit, slightly dip between 670 and 600. As far as the next order, we are working with them on that, talking to them. And, I think Andrew said, we had lunch with their Chairman or somebody a month or so ago. So we are working through all that and working with them and trying to obviously get in-house as soon as we can but.

Andrew Littlefair

Eric, obviously it's an important customer and we have been asked recently, we've been kind of asked the way we are operating with them couple of years ago, we were quarter-by-quarter we got 500 at a time or whatever it was.

We believe that there is a couple thousand more that they will do this year. We think that’s back-loaded. Obviously with compete board with the Chevrolet and with others. We like to think we are going to do well, because our track record is good with them.

We also interestingly in AT&T, in meeting with their man in charge of their fleet, they look at their fuel savings all-in, their cost of operations. Even with the increased cost, they believe they are saving 30% on those vehicles as compared to regular gas plain vehicles, it's kind of impressive.

So the hope is that in the future they are going to need more. They had an 8,000 commitment. We hope you might see them ramp that number up. So we are working with them as closely as we can and think we have a pretty good relationship with them.

Eric Stine - Northland Capital Markets

Okay. My next question, I guess is beyond AT&T. Can you just talk about some of the other fleets? Maybe how the pipeline has gown? Number of customers has grown?

Andrew Littlefair

Yeah. Eric, it adds, I wish you could have been down there and seen our new facility, because you do get a sense of the breadth of our customer base has grown. It's four dealers now ordering a month's spec in New York City and in Los Angeles, and it's 35 units large buses show up in from El Paso. 50 new transit connects in for taxicabs.

So, I don’t have a number for you, but we can't just rely on the big AT&T order. So we happen to grow the base. We think that we will be closer to 4,000 units this year which is good, but it comes from an expanded base of.

It's funny. It took us 20 years to get to 20,000 conversions, to do 20,000 conversions and this year, we'll add 4,000 to 5,000 more. So the business continues to do well, but it takes a lot of work.

Eric Stine - Northland Capital Markets

Okay, understood and maybe just one last on IMW. If I heard you right, Rick, did you say $13.5 million in revenues.

Richard Wheeler


Eric Stine - Northland Capital Markets

Okay, just curious how we should we think of the remainder of the year from that business? And maybe some details just about the first quarter? Thanks a lot.

Richard Wheeler

Well, they had a huge fourth quarter last year. They did $22.6 million fourth quarter. So they were pushing hard to get a lot of orders out the door by the end of the year. Obviously, because of that, it dropped off a little bit the first quarter.

IMW, they were out chasing a lot of big orders, China, Nigeria, other places all over the world as well as working with us to help supply the compressors we need for our trash business to the extent we are selling the unit to, outside customers where they show up in our financials.

So, they are chasing a lot stuff and big stuff. It's just matter of landing it and getting it and the timing and all that stuff, when and how fast that comes and when all that happens. Unfortunately, it's just a little hard to predict. So I don't really have a good answer. I guess, we don't do guidance anyways, so I couldn’t tell you even if I did, but they are pushing hard and chasing a lot of good things and hopefully some of them will start landing.


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

Matthew Blair - Macquarie Capital

Hi. Thanks for taking my questions here. First one, we saw very low natural gas prices in the first quarter and I was hoping you could give us some sort sensitivity between natural gas prices and the CNG and LNG prices that your customers pay. For example, if natural gas prices doubled from today's levels, how much of an affect would that have on the CNG and LNG prices charged to your customers? Thanks.

Andrew Littlefair

Right. So, Matthew, this is something I talk about a lot and you probably are aware, but I think it is always good to go over. We have got eight gallons of gasoline equivalent per MCF of gas. So you literally divide eight into, I guess, use that $2.40, so that's your commodity per gallon. So with that's $0.30. So the sensitivity is, every dollar on MCF that the price of gas goes up, so it goes from $2.40 to $3.40, it figures another $0.12 per gallon.

So, the good news is that there is just an awful lot of room when you look at the price of that commodity per gallon on what our cost is at the nozzle tip and the price of gasoline and you can really see natural gas price go up significantly from where you are. And if it tripled, you would still have a couple of dollars of whirlwind between the cost of natural gas at the pump and gasoline.

So that hasn’t always been the case, but today we are sitting at about 40 to one on the spread. It's probably even higher than that if you look at the refined product. We don’t need 40 to one. It’s come back. It was 51 to one a little bit ago, but there is just the economic advantage here is so big that it provides a lot of flexibility for us and on the pricing of the fuel.

Matthew Blair - Macquarie Capital

Then just thinking about this whole natural gas transportation economy and thinking about the choke points here. Are you ever held up due to delays on the engine side of things or do you find that your customers are generally okay on the engines but typically have to wait for the natural gas refueling infrastructure? Any comments on that will be helpful. Thanks.

Andrew Littlefair

Sure. You expect that the infrastructure guy would say, well, it's the engines but it takes both obviously. As we think about the heavy duty business in America and the great opportunity that we have, up until recently, we didn’t really have the engines.

And I take you back to 2008 or so working without friends at Cummins Westport, we had to go out and buy the first 100 engines to convince Kenworth to put them to hand build those and put them on the road. I mean, other than a couple of test fleets, we really didn't have any trucks on the road. So we have come a long way from there to now having every OEM in the world announce their heavy duty product.

Having said that, we don’t have them all here yet, we don’t have all the engines we need. The 11.9, that will be out towards the beginning of 2013. I think it is going to be critical. That's what the old road Class 8 guys want. They want the 13 liters that is a little bit behind that. So, yeah, we are kind of waiting for engine products and we have taken the bull by the horns to develop the skeletal network which those stations will be there at about the same time that those engines will arrive to markets. We think the timing is pretty good.

We wouldn’t want to build these stations five years ago waiting around for the engines, but now all the things have come into play. So it is a little of each. It’s infrastructure, but I's also making sure you have the right engine product that the customer really wants and the good news on that is they are coming. At least coming to into market.


Our next question comes from the line of Brian Gamble with Simmons & Company. Please proceed with your question.

Brian Gamble - Simmons & Company

Andrew, I was hoping you go through the rest of that formula that you started with the fuel cost. I don’t want to get into too much detail but maybe you can give us some sense of differential cost to you guys of LNG within the corridor. I am assuming that a plant or station rather in, just out of Alabama has a different ultimate cost for you than a gallon does in Dallas. Can you walk through what the variances are there or just magnitude of Delta?

Andrew Littlefair

Yeah. I am going to give, Brian, I am going to be a little careful here now, because now we are talking about our pricing and we have to be a little careful. But you know what's interesting? Liquefaction cost, liquefaction process is the biggest component to the LNG and really, when you get right down to it, an LNG plant, like ours in California, it's not the liquefaction cost is not that more to sell.

It sure could be more but when you really shake it out it's the pricing of it is pretty consistent and that can range from $0.25 to $0.35 or $0.40. That's on LNG gallon.

So it's not a showstopper, and here’s really the probably the one most important thing. It's how far away the LNG is. So, really when you look at it you want that LNG supply, we just hired a new Vice President, Senior VP of LNG supply because this is very important to this whole business, important for all of us because we are targeting all this LNG that is out there now.

About, you don't want to haul that LNG much over 205 miles. It’s kind of where you get down to it. Now, we have done it. We, for years, we hauled it 800 miles each way but you don’t want to. So if you can keep the transportation down to a couple of hundred miles, you will find that the liquefaction cost with gas is sort of an of an index pass-through That’s kind of where the business is.

Brian Gamble - Simmons & Company

So you are saying that $0.25 to $0.35 includes the transport?

Richard Wheeler


Richard Wheeler No, that’s just the cost to liquefy the gas.

Brian Gamble - Simmons & Company

Yeah. Just looking to, could you give the same range perhaps for the transport? I know that is kind of a dotted line that you don’t want to cross, but if you are five miles versus if you are 250 miles, could you give us a delta today you are seeing on the transport side?

Richard Wheeler

Yes. And Andrew is right. It depends on the proximity to your plant. It could be anywhere from $0.07 a gallon up to $0.10, $0.12, $0.14, $0.15 a gallon just depending upon how close you are to your customer or to your station.

Brian Gamble - Simmons & Company

Perfect, and then, Andrew, anything you want to say on the legislation side? I know there is just, on performance, is there anything you want to tell us.

Andrew Littlefair

I can't tell you all my secrets. Well, as you know, we emphasize that because we have such good economics and you also know that we always thought that if pass, it would be good for the country and it would spur the growth of the business because of the business mix. To mix these one year paybacks now that we have even faster than that and I think that it would be good for all involved and certainly for the trucking and those that are adopting.

We haven't give up, as you would suspect we haven't and we are looking for different bills through the Senate. We are working with our key supporters in the Senate. We think we actually, you remember, we have 54 votes and frankly we had 57 and then some backed off and then we thought we cannot hit the 60, so we know we have some support and we are kind of looking for the right vehicle and maybe try one more time but that sort of self contained effort that we have got going on up there.

Our experts in Washington, and we are working with other industry leaders to push on that. So I'd say, stay tuned but you could, Brian, you know what's going on in Washington as well as I do. Not much. And they are getting ready to take a summer vacation here, pretty soon the 4th July recess and then I think it gets very difficult until after the election.

Brian Gamble - Simmons & Company

Sometimes it's fortunate they are not doing anything and other times it's not, but appreciate the color.


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

Andrew Littlefair

Well, to me, it's kind of boiled down to its execution for 2012, and keeping a close relationship between the watching, as we talked about on this call, between the engine manufacturers, the OEMs, the shipper customers to be ready as our stations come online in late 2012 or 2013. We believe that everything is on track and we like the fact we doubled up on our construction effort even from last year which was happier than the year before.

We believe the shift to using natural gas for transportation fuel is at an inflection point. So we are working hard to maximize our lead and prepare ourselves for significant volume expansion in 2013 and beyond. So, we thank you for your continued support. I look forward to reporting you next quarter on our progress. Thank you.


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

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