Clean Energy Fuels Corp (CLNE) 2007 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to the Clean Energy Fuels fourth quarter earnings conference call. At this time, all participants are in a listen only mode. Following today's presentation, instructions will be given for the question and answer session. (OPERATOR INSTRUCTIONS) As a reminder this conference is being recorded Monday, March 17, 2008. I would now like to turn the conference over to Ina McGuinness with ICR. Please go ahead.

Thank you, Operator. Earlier this afternoon Clean Energy released financial results for the fourth quarter and year-ended December 31, 2007. If you've not received a press release it's available on the investor relations section of the Company's website at www.Cleanenergyfuels.Com. This call is being webcast. A replay will be available on the Company's website for 30 days.

Before we begin, we would like to remind you that some of the information contained in the news release and on this conference call consists of forward-looking statements that involve risks, uncertainties, and assumptions that are difficult to predict. Words and expressions reflecting optimism and satisfaction with current prospects as well as words such as believes, intends, expects, plans and anticipates and similar variations identify forward-looking statements but their absence does not mean that a 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 factor section of Clean Energy's quarterly reports on Form 10-Q filed with the SEC on August 14, 2007, and November 13, 2007. 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 to reflect new information, events, or circumstances after the date of this release.

Participating on today's call from the Company are President and Chief Executive Officer Andrew Littlefair, and Chief Financial Officer Richard Wheeler. With that I'd like to turn the call over to Andrew Littlefair. Andrew?

Thank you, Ina and good afternoon, everyone. We're pleased to have you join us as we report on our fourth quarter and year-end financial results and update you on our progress. We had a good first year as a public Company. We grew our customer base across the country, added talented personnel and began to expand our operations internationally. There's a lot changing today with energy, fuels, and goods movement and looking back at 2007, we saw the medium and heavy duty transportation industry go through a significant transition period. During the year, they had to deal with operating challenges and expenses of new diesel engines that had to meet the 2007 Federal Emissions Standards and they saw the overall price of diesel fuel increase significantly. With these changes combined with more stringent 2010 Federal Commissions Standards that are around the corner we believe many fleet operators are beginning to take another look at their use of diesel vehicles. Consequently we see 2008 as a year in which Clean Energy will lay the ground work for improved growth in 2009--. Hello? Hello? I don't know who was trying to dial. So office space wise where we're at is we have too much -- Operator, do you hear this?

Yes, sir, I do. I intend to isolate and eliminate that line, one moment, please.

Time out on the Clean Energy call. We'll be back. This is not our people so we don't know where this is coming from.

One moment please, sir. Okay, sir, I'm afraid I'm showing that is coming off your line there.

We don't have offices where those guys were just talking about having offices.

There may be a crossed line here, sir. One moment, please. Ladies and gentlemen, we are experiencing technical difficulties. One moment, please. Ladies and gentlemen, we do apologize for the technical difficulty. Gentlemen, please continue with your presentation.

Well, sorry about that, everyone. I'm hope you're still with us. That was disconcerting but where I was headed was that there was a lot changing today with energy, fuels, and goods movement and looking back at 2007 we saw the medium and heavy duty transportation industry go through a significant transition period. During the year, they had to deal with operating challenges and expense of new diesel engines that had to meet the 2007 Federal Emissions Standards and they saw the overall price of diesel fuel increase significantly. With these changes combined with a more stringent 2010 Federal Emissions Standards that are just around the corner, we believe that many fleet Operators are beginning to take another look at their use of diesel vehicles. Consequently, we see 2008 as a year in which Clean Energy will lay the ground work for improved growth in 2009 and 2010 as we continue to spread our message of natural gas as a cleaner, cheaper, and domestic alternative to diesel and gasoline.

And as an illustration of our increasing business activity let me highlight the growth in our station construction. In 2007 for the entire year we built or upgraded 20 stations. Yet in the first quarter alone of 2008 we have 20 stations in various stages of construction. So as you can see we're preparing for expected strong future growth. Our station growth is supported by the continued improvement in natural gas economic advantages over gasoline and diesel. We saw this trend continue in 2007 particularly in the latter half and as we all know trends have continued in 2008 as oil has recently touched $110 per barrel. Last time we spoke the average pump price of diesel was $3.50 per gallon and last week, diesel was more than $4 per gallon in many areas around the country and we've seen it as high as $4.59 in California. At the same time, we're selling LNG at our LNG station we recently opened near the ports of LA and Long Beach for $2.99 per gallon. Gasoline in Southern California averaged $3.54 per gallon last week and at the same time the pump prices at Clean Energy CNG stations in the LA area was $2.79 per gallon. With these types of savings, it is possible for our refuse and transit customers to save anywhere between 8,000 to $15,000 a year in each of their vehicles. These economics are very compelling to fleet Operators and will help us expand our customer base in years to come.

Now let me recap some of the key items that we accomplished in 2007. Turning to the progress of the Ports of Los Angeles and Long Beach which are the two largest container ports in the United States, several major milestones were reached. First, the Ports approved a container fee that they estimate will generate approximately $1.6 billion over five years for the replacement of a substantial portion of their current truck fleet. Following that, last month, the Port of Long Beach approved its portion of the Clean Air Action Plan and in this plan they specifically referenced natural gas as they state that they will require "No less than 50% of the drainage trucks be replaced within five years by alternative fuels proved to be cleaner than diesel such as liquefied natural gas". This represents a potential of more than 8,000 LNG trucks. That number is larger than we previously anticipated.

In December, we opened the first major LNG truck fueling station adjacent to the port complex and within the next 18 months we expect to have up to five LNG fueling stations completed to support the fueling needs of the ports and regional haulers. These five stations combined will be able to dispense more than 125,000 LNG gallons per day to 1800 trucks and that's about 45 million gallons per year. Notably one of these five stations will be the largest LNG station ever constructed. An LNG truck stop if you will with 10 lanes. This is important because in February the contracts were approved for the first 158 LNG trucks and will begin replacing the diesel trucks in the ports. We're eager for the next announcements for the ports as to their next round of implementation of clean trucks as they continue to execute on their clean truck program. In short, this is a big opportunity for us.

In order to meet the demand for LNG trucks at the ports we're happy to see that Kenworth announced in January they will begin producing heavy duty, Class A trucks on their factory line. Production of these vehicles will go a long way in assuring an adequate supply of LNG trucks to meet the conversion time frames of the ports.

Now let me give you an update on the construction of our large scale LNG production plant in California. This plant is designed to meet the future fueling demands of the port trucks as well as demand from fleets in the southwestern United States. Construction is well underway at the plant, the 1.8 million gallon storage a tank is nearly completed and the coal boxes are installed and the compressors are on site so we're on track to start commercial production in August, September time frame. In November of 2007, we also signed an LNG sales agreement with Spectrum Energy Services, the agreement allows us to purchase on a take or pay basis over 10 years, 16 million gallons of LNG per year from a plant in Arizona that Spectrum is building. We're bullish on the growing demand for LNG as a fleet fuel and therefore we're ramping up supply to meet the anticipated demand.

Let me mention some of our highlights in our target markets. Imports. At LAX, we're expanding our station to accommodate 67 new 40 foot airport terminal buses. This will at 35% to 40% volume per year to our current business at LAX, and that's over 1 million gallons annually. We've recently been awarded a station that will serve Atlanta's Hartsfield Jackson Airport. The base load for this station includes Atlanta area transit buses as well as shuttles and refuse trucks and they too plan CNG terminal buses and shuttles. We're in negotiations with Ontario Airport which is part of the LA World Airports and they have mandated CNG to fuel shuttles, terminal buses, as well as taxi and shuttle vans.

Taxis, in San Francisco, Mayor Newsome just announced a new taxi program whereby new taxis going into service in San Francisco must either be hybrids or natural gas beginning June 1, of 2008. We expect this will generate up to 300 natural gas taxi additions per year for the next four years. In several markets we're seeing strong interest in the limousine, black car market. Black cars are typically sedans or Lincoln Town Cars, and in the last quarter 25 have been deployed in LA and New York. This is a new market for us but several large financial institutions are interested reducing their carbon footprint and the black car fleet is an opportunity to do so.

Refuse as I have said to many of you, this is an exciting market for us. In 2007 we expanded our sales effort for refuse with compelling and with the compelling economics, it's paying off. We're in discussions with refuse companies in a significant numbers of cities in the United States. Literally, we have proposals in advance negotiations with dozens of companies in more than 20 states. These companies represent tens of thousands of vehicles. These refuse companies replace about 10% of their fleet per year, so it starts out modestly but builds to be very strong. Our job in 2008 as it was in 2007 is to get as many of these fleets started on the program as possible. And we have a targeted sales program under way now for municipalities as well as private haulers. In 2007, and early 2008, we have new refuse fueling relationships with CalMet Services, where disposal, consolidated services, Amador Valley Industries, Athens Disposal, Burrtec Waste and the City of San Antonio.

A recent success story for natural gas refuse trucks would be Seattle. The city recently awarded two private haulers contracts requiring 65% of their fleets to run on CNG. But we have great optimism for this segment of our business. And on a related refuse business note we just signed a contract with Nationwide Environmental Services, one of Southern California's largest private street sweeping contractors, they have deployed 36 new CNG street sweepers for contracted cities in LA and Orange County and by the way street sweepers burn about 6,000 to 7,000 gallons of fuel per year. Finally, transit, we were awarded a CNG station contract for up to 200 shuttles by Orange County Transportation Authority. And in the greater Phoenix area we expect more than 70 new additions and at least 50 in San Diego and 50 in El Paso. And on average these transit buses used about 16500 gallons of fuel per year, so these three transit properties alone are expected to burn about 3 million gallons of CNG once they are fully implemented.

On the international front we have our Peruvian joint venture that I mentioned on our last call. Gas is now flowing at our first CNG station in the joint venture and it's about to open as it is in the final commissioning stages. This station, which we believe is the largest in the world with 32 fueling hoses will cater to taxi fleets and transit buses. We estimate demand for CNG at this station will eventually reach more than 5 million gallons per year as the Peruvian government continues to support natural gas as a transportation fuel in their country and we're now working on other station opportunities in Lima.

In the last year, 2 million NGV's have been added worldwide so we continue to look at other international opportunities to supplement our domestic initiatives, in key regions around-the-world. One of our Senior Executives just got back last week from India, Thailand, and Hong Kong so right now we're assessing which markets are appropriate for us to see how they might tit into our plans.

Before I turn it over to Rick, I want to talk about some potentially significant developments in the public policy arena. Here in California, the Attorney General recently approved the title and summary for a $5 billion bond initiative called, The California Renewable Energy and Clean Alternative Fuels Act. And that should go on the ballot before the California voters this November. The initiative is collecting signatures right now, and if successful, this initiative allocates more than $3 billion toward the purchase of 70,000 medium to heavy duty trucks and more than 150,000 passenger vehicles that will run on clean fuels like natural gas. These vehicles present the potential to displace roughly 1.2 billion gallons or 29 million barrels of oil annually. It's very exciting for us because as you can imagine, if this initiative should pass and we're supporting it, it will be quite significant for the Company and the industry. Now I'll turn it over to Rick Wheeler to cover our financial results.

Thanks, Andrew. The fourth quarter of 2007, our revenues increased to $29.7 million which is up from $26.7 million in the fourth quarter of 2007. For the year revenues totaled $117.7 million which is up 29% from our revenues of $91.5 million in 2006. Adjusted margin for the fourth quarter of 2007 was $8.8 million which compares with $8.3 million in the fourth quarter of 2006. Adjusted margin for 2007 was $35.1 million which is up from $21.4 million in 2006. Our net loss for the fourth quarter of 2007 was $2.9 million or $0.07 per share, which compares to a net loss of $14.6 million or $0.43 per share in the fourth quarter of 2006. One thing to keep in mind, last year's financial results include derivative losses from our prior hedging practices that we no longer engage in. Our net loss for the year-ended December 31, 2007, was $8.9 million or $0.22 per share, which compares to a net loss of $77.5 million or $2.45 per share in 2006.

Non-GAAP loss per share in the fourth quarter of 2007 was $0.02 per share and was $0.43 per share in the fourth quarter of 2006. Non-GAAP loss per share for the year-ended December 31, 2007, was $0.04 per share, and was $2.45 for 2006.

Our volumes increased to 18.2 million gallons in the fourth quarter of 2007 which is up from the 17.7 million gallons that we delivered in the fourth quarter of 2006. For the year, we delivered 75.3 million gallons of fuel to our customers, which is up from 68.4 million gallons delivered in 2006. While historically, it has been rare that we lose customers, we did lose two non-core low margin customers in 2007 who accounted for 2.4 million gallons of lost volume in 2007. Factoring this in, our volume growth with new customers and projects was 9.3 million gallons during the year.

Concerning our adjusted margin calculation I think it's important to note that it will largely go away over the course of 2008 as the vast majority of our fixed price and price cap contracts that give rise to the calculation expire during the year. Consequently our adjusted margin amount should transition into our actual margin in our statement of operations in 2009 if we are successful in renewing these contracts. Adjusted margin and non-GAAP EPS which in essence just adds back our employee related stock based compensation charges net of related tax benefits to our GAAP net loss amounts are discussed in more detail in our press release that we issued earlier today. And with that, Operator, I'm pleased to open the call to questions.

Yes, sir. Ladies and gentlemen, at this time we'll begin the question and answer session. (OPERATOR INSTRUCTIONS) Our first question comes from Rob Brown with Craig-Hallum.

Good afternoon. Could you maybe just provide some background? You mentioned a bonding bill in California, you said 1.2 billion gallons, could you just give us a little more info on what types of vehicles could be funded and how that would relate to your sales and your potential customers?

Sure, Rob. In California we have the initiative process where people can put, citizens can put items on the ballot, and so this initiative is one of those, just a little bit of the background, you have to submit the item for the ballot through the Attorney General, he approves the -- how it's labeled and then you go out and collect the signatures, that's what's going on right now. I think the ballot initiative will require somewhere between 600,000 or 700,000 signatures. They've been at it for a few weeks so in May that likely will be qualified for the ballot. It will be voted on in November, and it's a general obligation bond, it will be a $5 billion bond. It's pretty -- it's very straight forward in that I believe Rob is $1 billion is to subsidize to large scale solar, about $3 billion falls into the vehicle transportation category and the idea is without creating a new bureaucracy or spending a lot of money on the government, if a fleet Operator, for instance, that operates a heavy duty truck like these port trucks I've been talking about in the Port of LA, all they would do is they would take their Bill of Sale, they would forward it into the Franchise Tax Board which is our state taxing agency here in California and they would get remitted up to in that case a heavy duty Class A vehicle $50,000 cash payment.

The notion here is to really push alternative fuels, to try to reduce pollution and also try to reduce imported oil, and low carbon fuel, so in this initiative, there are certain categories in the light duty area, electric vehicles would qualify, cell fuel vehicles would qualify, E85 ethanol vehicles would qualify, not low blends and natural gas vehicles would qualify. Also, super high mileage vehicles would qualify which we haven't seen many of those but those would qualify as well and then on the heavy duty side, it's a little bit more narrow, but natural gas vehicles, certainly would qualify and the payments would range depending on light duty anywhere from $2,000 to up to $50,000 depending on the size of the vehicle.

Okay, great and that would be over and above everything that's out there today?

That's right. That's right.

That's great. And then maybe--?

Of course for us, Rob, it's big. Since we have a leading position, it would be very important and from what I'm seeing in the Port of Oakland and these other places and the interest I'm seeing in regional trucking, I really think a lot of these fleet operators will avail themselves to wanting this kind of help.

Okay, great. And then you mentioned about just kind of switching to the high oil prices and the cost of equipment, I think in the past the payback period has been one to two years in some of these investments. What's kind of the payback period looking like today with the new, kind of the new mix of prices?

Well, of course our margins on some of our new public access stations, we're in nice territory, right now. I mean when you look at $9 gas, $9.25, $9.30 gas today and you compare it to oil you're still seeing that relationship as we've discussed before on these calls of 11 to 1, so we have quite a bit of room to be very competitive to diesel and gasoline. As I said at my prepared remarks, it's really kind of breath taking right now. Our diesel friends and our fleets that we're talking to, they's very really seen a dramatic rise in the cost of diesel fuel, and so we're very competitive right now. The payback on stations all has to do with the volume, and so if we can get on some of these large LNG projects, give them appropriately, get the volume up, the payback is going to be anywhere between two years, two to three years. So that's kind of what we shoot for, and of course those are long lived stations.

Okay, great. And then last question--?

Now the payback on the vehicles, right now, I always like to use the example of going out for a refuse truck, so today, if I can just use the example, Waste Management would go to the market and buy a factory made vehicle, the incremental cost, the net incremental cost because there's some tax credits available for those vehicles can be anywhere between 6,000 to $10,000 and so you can see that those vehicles are paying out in less than a year or six months so to keep that thing 10 years or longer and so the payout is very attractive right now on the vehicle investment.

Excellent, great. And then last question you mentioned Peru could ramp to 5 million gallon annual capacity. How soon should we look for that to happen and when does it actually start selling fuel?

We were actually, this is one of these things where I was hoping that I'd be able to tell you we've already had a successful month of it under our belt, but it's gone a little slower than we want. The stations finished, it's completely done. The gas as of last week is in the pipes, if you will, at the dispensers. We're going through the last check off list with one of the permitting agencies. That station could literally be operating any day. I mean it would be tomorrow, it could be the next day. I'm hopeful it's very very soon and it will start commercial operation immediately. It's ready to go. Our people are down there, we've already done the commissioning, our vendors have done it, so we should see that come on line immediately and then I think the more important thing is for us to get on with the process and developing other stations down there as well.

Okay, and then does it, once it's open, it can go to that 5 million gallon?

Yes, we have high hopes for that. They're still down there lines of two hour lines at stations that have four hoses. Ours will have 32. I like to think on day one, we could be beyond that, let's hope, I'm an optimist, but I like to think that that could have substantial volume right out of the chute, and we designed it that way, we believe it will happen that way so it's not inconceivable that in the first few days of operation, you could be on that kind of volume path.

Okay.

We've always thought that that station could do 15,000 gallons a day easily and I think that's what it will do.

Okay, great. Thank you.

Our next question comes from Brian Gamble with Simmons & Company.

Good afternoon, guys. Andrew, wondering if you could go over a little bit on V-tech, if you can give us an update there as far as what's going on in Washington, what if anything you hope to have transpire over the next couple months.

Yes, the V-tech thing is really an example of how Washington works. It's been sort of murky there as we've talked before, the extension of the V-tech for us has been in the Senate Farm Bill, the House is working on negotiating on their part of the Farm Bill with the Senate. It's not clear to me that a tax package is going to make it through. It's pretty expensive right now and with concern over the economy, I'm not sure that the Farm Bill with the big tax piece is going to make it so I'm not sure the V-tech extension as we have contemplated in the Senate side of the Farm Bill is going to happen.

I was just talking to our man that heads up our Washington office this morning and I think it's safe to say that there seems to be consensus in the House and Senate both sides of the aisle that we need to extend these credits for all of us, for the propane, ethanol and the others, and some of the thinking now is our credit and some of the other fuels actually goes away in September of 2009, I think the ethanol credit is in place until December of 2010. There's been some thought to get everybody and the incentives on the infrastructure, fuel, and vehicles all trued up so that they're uniform and my guess is when we see this happen and I'm not sure it will be in this Farm Bill, I'm not sure where it will be but we feel pretty comfortable and all the fuels are supporting this to get the fuels extended so that they all expire in the 2010 December time frame and then from there, it will be easier for the Congressman I think to really look at what they've got. So, I wouldn't see anything getting extended any time soon, though I feel pretty comfortable that for all the important reasons, reducing our dependence of foreign oil and what the Congress did earlier this year on their fuel standard, promoting renewable fuels, I think that there's no doubt that those fuel credits will get extended. And we're working it hard all the time. We're on it, but it's like watching sausage being made every so often up there, but I feel pretty comfortable on it.

Understand completely on the Washington factor. Wanted to get a little bit more detail on the down tick in volumes for the quarter. What went on there? What was the catalyst on that side of things?

The question is on the volume for the quarter?

Yes.

Yes, well, as Rick said and we're not altogether happy with the volume growth. We'd like to see it higher, and on the last call I told you if I thought there was any difficult news it is that some of our projects have been slower to develop than we would like to see. Certainly the Port of LA falls in that category. I'm really as happy as I could be with the progress of the Ports of LA and Long Beach. In fact watch for the Port of Los Angeles to make their announcement on their portion of the clean truck program, I think I just saw a release here a few minutes ago, on March 20, so that's coming right down the trail as well and I think we'll be pleased with their push for clean vehicles in that, but there's no doubt that that's one thing that is slower. Those 158 trucks didn't come on in the middle of last year like we thought. They have been slower. They're just now starting so the port has been a little slower to develop but that it is developing. I think it took a minute for our fleet customers to understand that some of the things we've been telling them on the diesel was true and now that's the case, the new diesel engines are more expensive, they're less efficient, the price of fuel has gone up dramatically. I'm very pleased with our refuse effort out there and so as I mention on my remarks, those things start out a little slow but I think we'll have a whole lot of projects that will come on this year and they take awhile to come on but we'll put a lot of them on and then they grow 10% or so a year. So I'm very optimistic on the volume, it's probably slipped a little bit, maybe six, eight months than where I would like to have seen it, but we've got more staff in the field. We've got more projects ever than we've had, and we've got more stations under construction, so it's coming. Might be a little bit further behind than we would like to have seen and then we have that situation where last year we lost a couple, 2.5, almost 3 million gallons and we had to replace that, so it wasn't as robust in the latter part of 2007 as I'd like to have seen but I feel good about it in general.

Can you give us specific reasons on that lost volume that you just mentioned? Why would those customers go that route?

One of the large ones was up in British Columbia and it was an LNG, sort of a legacy customer, it was an LNG customer that actually used LNG on a -- a lot of LNG on a relatively thin margin basis to dry lumber and they went to wood chips, they converted their plan over to wood chips so that was one and help me on what was the other one?

The other one was the big transit agency where we were just providing the commodity. We weren't providing any O&M or vehicle services and they just locked into I think I heard like a 50 year supply of natural gas from somebody somewhere so they just went out and basically got the commodity somewhere else. That was another legacy carryover from the old blue energy days.

Was that just a happenstance on price? They just found a better price and went with that? You talk a 50 year contract and you guys obviously have plans for infrastructure and the like of being around that long. That was the sticking point on not reupping that in your favor?

They just went out and did it and didn't really come to us to do it so I assume it was some sort of decision within the transit agency that they wanted to do it for whatever reason they just did it without consulting us.

Got it. That makes sense.

I think it was and we'll get back to you on this but I believe we're talking about Fort Worth, I think it was actually a city RFP, and it might have been just more than the transit agency down there as well.

Finally just a question as we're seeing kind of the financial markets in the U.S. not holdup their end of the bargain, kind of in this recessionary type fear across the industry, have you seen any slowdown in the orders due to just a general market malaise, as opposed to individual issues like the Port issue and such? Is there the fear that maybe this is a longer term issue and that the economics and just the dollars to convert some of these vehicles might be put on hold while we kind of see where the economy is going?

We haven't seen that yet and of course, one of the reasons I think it's a little bit different than where we saw it seven or eight years ago when we had this kind of economy was that the economics are pretty good, so let's use my private refuse hauler case. There isn't much of an incremental cost. These guys do have to replace and sometimes they slow up on a replacement but they get themselves strung out to where these are 10 and 12 year old vehicles they have to replace them because the things are just falling apart, and the economics today because of the price of our fuel versus diesel and the high price of oil is really working. And so to answer your question, no. We haven't seen municipalities, we haven't seen people pull back orders because of their concern, and I think that's being a buttress because of the economic case that we can make for the fleet operators where they can actually save money on our fuel.

That's great, Andrew. Thank you very much.

Thank you.

Our next question comes from Ron Oster with Broadpoint Capital.

Good afternoon, guys. Quick question on the Port, Andrew I believe last time I heard you speak there was, you mentioned potentially about 100 trucks per month that might be a good run rate to use, assuming about a mid 2008 start up. Does that still seem like a good number or do you think that's fallen off a bit?

No, I still think, I mean I've been as you know, a little off on the month every so often, but I still think that's reasonable. Our fellows were in the meeting with the Executive Director of the Long Beach Port and his team last Thursday they had a very good meeting with them, we're in very close communication with West Port as they're working with Kenworth. I still think that's a safe way to model 2008 though we don't give those kind of numbers but that still makes sense to me. I think when you look at 2009, to get to where the Ports say they want to be, it has to go above that. So I think that's a good rule of thumb to use as we begin to deploy these things and certainly, as I mentioned we're building a few more stations to be able to handle that, and we'll know more here in the next few days when the Port of LA makes their announcement on how they see this rolling out but a lot of pieces have been put in place to make this happen and the truck ban where they are going to actually tell these guys they have to get rid of their trucks, that's in place, I don't see that changing so I think that would be a safe way to go.

Okay, and then with regards to the Port stations, did I hear you correctly, you mentioned five additional and any timing on that? With regards to those stations?

Well, I said, Ron, that those five would be in the next 18 months. We have got one open, we got two in permitting right now, we've ordered all of the material for it, the long lead item stuff is actually in, so the construction of those will begin very shortly and we expect both of those to be done in the latter part of the Summer or early Fall, and we're just working on the other really two to three locations right now. So I think my guess here of the five and 18 months is safe. We'll be able to handle the first traunch of trucks with our one station that we've got and this other one we're calling Anaheim Street Station, it will be up later this Summer and the timing of that will be good because it will be very large and can handle a lot of trucks, and but I think the five and 18 months could be more than that but I think that's a safe way to look at it.

Okay and then to your knowledge, has there been any other permits filed to build another LNG plant in California or do you guys still have the one and only?

Not that I'm aware of.

Okay.

And as I said, that station has come along nicely and in fact, I think tomorrow, they're putting the lid on our 1.8 million gallon tank and so it's moving along pretty well. It's on schedule.

Okay. And then internationally you mentioned the start up in Peru at the first station is imminent. I think you mentioned previously maybe having an additional two by year-end. Does that still seem reasonable in Peru?

It is. We're working without getting too much detail, we are working on two or three different proposals for stations in key, kind of in our key market target areas if you will. We're also working with the large, a couple of the large transit agencies on proposals, so yes. As I've always said that we weren't interested to go to Peru to build one station. As proud as we are with that one when it gets up, we need to get into the market and develop more. So we have a General Manager there and our Senior VP of Operations is getting ready to make a trip down there where we'll hopefully make some head way on getting some other locations.

Okay and then last one for me. On the number of contracts rolling off, the skinny margin type of contracts, can you just comment on the -- how the renegotiations are going with some of those customers? Has there been a lot of pushback or just how those talks are advancing?

Sure. The biggest ones are municipal transit agencies that go through an RFP process and the biggest one is up for renewal in June of '08 of this year and we put our bid P in on that. We're just waiting to hear on it. The other two are bid situations which will be towards the end of the year because those contracts expire in December of '08, so the RFP's for those should be out soon and I know we're already talking to one of them just trying to redo our deal with them, so it will just be through the RFP process. The biggest one we'll hopefully know about in a couple months here and then the other two we should know about hopefully shortly into the fourth quarter.

We like to think that we have been a good provider for those fleets. We've worked with them for several years. We've got increased LNG capability with our new plant that will come on line. We've got the most LNG tankers in the business. We have redundant tankers, so we like to think that we've got, not only have we provided very good service and we have good pricing but that we have developed a very good reputation with them and we think that will pay off as these things get redone.

And the two that expire in December in Texas and we're the only ones with really LNG close to their Operations, so we certainly ought to have a cost advantage on those two, pretty significant one as a a matter of fact.

Okay, great. Thank you.

Our next question comes from Rupert Merer with National Bank Financial. Please go ahead.

Good afternoon, gentlemen.

Hi, Rupert.

You mentioned the two customers that you lost for 2 million gallons of fuel. Those customers I assume they weren't lost early in the year. What's the run rate of fuel per year those customers were using? Were they using bout 3 million gallons a year? 4 million gallons of year? Can you give us a little more detail on those clients?

The bigger one actually was lost earlier in the year, we lost it in February. The run rate of the two of them is probably 4, 4.5 million gallons a year.

Okay. And if we look at the Ports, do you see any competition on the fuel ling side at the Ports or are you the only ones building infrastructure at the ports to fuel the trucks right now?

I've always believed that as the port business goes and regional trucking goes that we'll have competition, and I've always said that in a healthy business you want competition. We have a little bit of a head start as you know because Rupert, we have that big LNG plant that will be in California so in terms of excess LNG supply, just as the way things have worked out we're a little ahead of everybody. We're the only ones right now, but I'm sure there will be others and as more and more trucks go, you'll see other people come into the business. But we've got a little bit of a lead on some of our soon to be competitors I'm sure.

So what would be a reasonable market share assumption to make? The Ports are ramping up the number of trucks over the next four years so you'll have to see competition move in pretty quickly I would think?

Well, I think we're well ahead of the competition so I don't want to predict or sound too bragadocious, but I think we're going to do well on that volume here in the near and middle term. As we've talked before, really, LNG supply is somewhat constrained and we've been aggressive, right? We've signed that deal with Spectrum, we've built a first plant in California history, LNG plant, and so we're just ahead and we have taken some risk to do that but we think it's paying off, and others have to do the same thing, but as we found out, it takes 2 to 3.5 years to build those things. So we'll have some lead on the competitors here for the near -- the short and middle term.

On the LNG supply, can you discuss a supply/demand balance the next couple of years, if you could discuss it a little about how much LNG you have contracted and how much you expect to produce in '08 and '09 versus what the market might look like in that time frame?

Well, let me take a crack at it this way and then Rick is busy doing a math here on this sheet. We think we're going to need it all. So obviously while we're taking similar to like six loads a day, right now we're doing more or less 130,000 gallons of LNG a day, six or seven of that is coming from our third party suppliers, obviously as our new plant comes online and the volume from the Port that's going to, the percentage of that will go down dramatically but we don't want to lose that volume, so it will ship -- the volume of LNG will ship West. We'll still need the volume from the Rocky Mountains in Wyoming and the others, Colorado but imagine that a big emphasis of it will ship West to the Spectrum plant and of course to our California LNG plant. And I would guess that if it goes the way we think, we're going to need all of that supply and so you're going to end up needing, I want to say 27 loads, 35 loads a day and today you're at 13 so it's going to triple. So we see a great deal of growth coming, I may be light on that but a great deal of growth coming. The third party stuff will obviously be much smaller percentage when we get out to 2009.

How flexible will your own clients be in production, so if for example, if you find that you have a little too much capacity, is it easy enough to turn the plant down?

Yes, it is. The one in California is being designed that way, and one of the reasons we put such a large tank in it to give us that flexibility, so yes, we can. It's the type that we can actually shut it down if we need to.

Okay, great. Just one more. Could you give us a break down of CNG and LNG volumes for the quarter? If you have it?

Let's see here. I'm guessing it's going to be 60/40, but. A lot of paper here.

Maybe I can follow-up with you later.

Hold on, he's got it.

Yes, why don't you call me, Rupert. I don't have it handy at my finger tips.

It's generally been in that sort of range.

Okay, great. Thank you very much.

Our next question comes from Marvin Loh with WR Hambrecht.

Hi, good afternoon, guys.

Hi, Marvin.

Hey, with regard to the legacy fixed price and price cap contracts can you give us a sense of what the value of those contracts, I guess the cost of those contracts are now given where natural gas prices are and maybe remind us as to when we can expect a drop off in the volume of those contract deliveries?

Sure. As we were kind of alluding to earlier, the biggest one will drop off in the middle of this year in June, next two biggest will drop off at the end of '08 and according to our run-off table, roughly 80% of these contracts will be gone by the end of 2008. So the nice thing is that they will be, this whole adjusted margin concept will in essence kind of phase out during 2008 and as we renew these contracts, either on an index plus basis or if we do a fixed price deal we'll do our hedging policy and get the futures contract, et cetera, so that we won't have to go through the adjusted margin process, we'll have basically the results will just show up in our normal margin or actual margin that you are going to see in our P&L.

Right. Now, during this past quarter, you had about 730,000 in contract adjustments. Kind of where the market has been trending so far this quarter, would it be higher or lower?

Probably a little higher. I think at the end of the year, we were in the 3.5 million to $4 million range is our estimated run-off, the dollars that we'll spend to service those contracts, gas has ticked up since then so it's probably up a little bit.

Okay, great. And kind of just jumping around a little bit here, on the international front, as you look at kind of some of the additional markets that you're talking about, India and Hong Kong and I remember China was mentioned in the past, is the value proposition that you bring to those conversations different per country or is there some homogeneality associated with what you bring to the table?

It's a good question. A lot of people around the world have built small stations for small vehicles and that's been kind of the model as this has gotten started in a lot of the countries. Not many countries, but it's beginning to change, not many countries have much experience or providers in those countries have experience with very large stations servicing large vehicles. Little bit of that in China but for the most part not but we were beginning to see it for the same reasons it works well for a taxi, it works well for a trash truck in Paris and we're beginning to see that and that's one of the things that we can bring to the party. We do have experience fueling thousands of heavy duty vehicles every night, and it's a little bit different than maintaining a very small station, as some of these stations are 10 times the size of the stations or 15 times of what you see in these small markets so that's one place where we see a niche and we've been asked about that.

For instance, in Thailand, the governments made several decrees to basically change all of the buses there. Now, we have to have the right partner. We have to get comfortable about the country risk and other things but that looks to be for real, and that's why we're there, and so some people, or a couple of those big companies there that are well positioned have asked us to come and look at whether or not we would be interested in doing business there because they recognize that we have ability with the heavy duty fleets, with operating large station, constructing, building, owning, and operating these large stations.

The other place where we have kind of a niche and I see it as really a pretty exciting as what's going on in the Port of of LA and Long Beach is a little ahead of some other places in the country, and in the world, but it's really the same. Ports end up being the dirtiest place, in fact we're seeing it in Canada, we're seeing it in Hong Kong, really in many places around the world, these ports are all seeing increased air pollution, increased traffic, and many of them are needing to do something, and in those places it looks like it will be LNG, so, we really do have the most experience on providing LNG for vehicles and certainly heavy duty vehicles so that may be our niche, may be one of the things we use if you will in international Port of business and bring our experience that we're gaining here and that we've done here on LNG.

And one of the beauties of your model is that there is, of course there's competition and it's always a competitive market but there is very few in the United States that has kind of the depth and breadth that you bring to any of these kind of larger kind of discussions. When you look internationally, is the landscape similar or do you find that there are multi-nationals out there that can play with you in this space?

Well, we're the largest one. I mean when you look at it worldwide, we're really the largest. That doesn't mean that a multi-national couldn't do it but what we see internationally in many places, it would cover a large percentage of the countries we're looking at, it's often State owned, oil and gas companies and State owned utilities, so that in a way has precluded some of the players and often those State owned want somebody that has our kind of experience, so because this thing started out kind of slow and quiet, it's kind of creeped up, but we don't see many large companies our size or even our size in any of these places. Some of them have been big in South America but most of them are focused on producing equipment. So I think there's plenty of room and there's certainly plenty of growth, and it's really for us, we've done well positioning ourselves in the United States and we feel comfortable the growth is coming here and Boone emphasizes that to us all the time that for all of the right reasons we're going to get to where we want to be, but we want to make sure we don't miss out on some interesting international opportunities but yet we're not going to be foolish about it.

Great, thank you.

Thank you.

Our next question comes from Shawn Boyd with Westcliff Capital Management. Please go ahead. Shawn Boyd with Westcliff Capital your line is open. If you are using a speaker phone please lift your handset, we're unable to hear you. Mr. Boyd? Mr. Boyd, please go ahead, we can't hear you.

Well, why don't we give him a minute to get his phone deal squared away and is there any other questions, Operator?

There are no further questions in the queue at this time, sir.

Okay.

One moment, please. Mr. Boyd, please go ahead with your question if you are actually there on the line.

Gentlemen?

Yes?

Okay. Very quickly I want to go back to margins for a second.

Okay.

In terms of the $0.47 that we're at on the year, we've talked in the past about kind of the total potential and then also an incentive to keep Operators very interested in making sure that they're looking at the different tax credits et cetera. And I'm wondering, can you give us a feel as we go into '08 and more importantly out into '09, where you see the margins if you see continued growth there, could you give us an idea on magnitude and timing?

Sure. We don't provide guidance, so we need to be a little careful here but our philosophy on margins is with the spread between the price of natural gas either in CNG or LNG form relative to $4 diesel and $3.65 regular gasoline, there's a lot of room in there for us to expand our margin as, because that's kind of -- those types of deals are deals we do in our commercial retail world where we're selling through our infrastructure at pumps like at these Port stations or our stations at LAX, or other stations that are just around our municipalities those are our higher margin stations and as more of our business moves into this particular segment, we think that's going to be good for us. We also like the opportunities as we reprice a lot of our old legacy contracts to increase the margins. We think that's going to help us because a lot of those are baked into that $0.47 that you're seeing, so we don't know where it's going to go or how fast or how high, But we're pushing to get it up.

Okay. And the other thing I was thinking about in terms of the account that moved away from Clean Energy last year, there's a stickiness factor that maybe we need to think about. Andrew, you mentioned on particularly in particular the client that moved away for a very long dated contract really wasn't using Clean Energy for infrastructure or other services. Can you help us out in terms of maybe what the average account looks like now and what you're doing in helping arrange financing the infrastructure that you're doing on the stations, et cetera?

I've always been a big proponent of liking to have our infrastructure that we own with our customers, I've always felt like that gives us the longest and best position with our customers. The one legacy customer we're talking to is one that we inherited when we bought a Company, where really, and this is, I've talked about this before and I think it's important to note, the early adopters in the natural gas vehicle business were public transit agencies and that's because they got, most people don't realize but $0.87 to $0.90 on every $1 spent for a bus in Texas or New York or LA, comes from the Federal Government, and because of that, and they get money for bus washes and stations and so it's been very hard for us to compete with free money when they're getting free money and then they match it with the local match, and so often, it's relegated us in those businesses to providing either fuel or just services but not owning the station and reduces our margins and reduces our importance to those customers but those are the first guys to the party. Now we're seeing this expand past public transit agencies we're seeing private haulers and private trucking companies and private shuttle companies, et cetera. Where I think our business model is really proved and better and makes for longer relationships and bigger margins. And those have always been the ones that we like best, but when you're starting a new business and starting a new industry you have to kind of take what you get.

Understood, and last question, which along those lines, Andrew, when we think about the volume growth here, and kind of being a bit behind plan in '07, but we think about what you're building and what's going on in Peru, the expansion at LAX, we look at a lot of different infrastructure that's coming on and so I'm wondering, are there any metrics that you can give us on a total Company basis that would help to show that inflection on the growth and volumes coming to us?

Well as Rick said we haven't to this point been giving guidance so we got to kind of get into quicksand there but that's why I mentioned it today and that is, I look at just that station engineering carpet and look at the numbers of stations that we're building and so that's one thing. We'll try to, we don't announce every time a customer shows up we don't announce it. We try to announce some of the big ones but I think I'd watch the Port, I'd watch regional trucking, because I think there's an inflection point coming on the regional trucking and for instance, we're seeing Wal-Mart now testing vehicles. It will take them awhile because they're sophisticated but they're testing LNG vehicles right now. Well, they're the largest trucking fleet in the United States so that tells me something and AT&T has just fielded test demonstration for 25 vans and they say if it goes well probably get in trouble here, that they wanted to go to a thousand vans, so we haven't seen that kind of thing and that's because the economics are so strong and because of the concern of the environment and greenhouse gas, low carb and et cetera. So a lot has changed today but I think we're there right now, and certainly as we're, a few year ago we would be lucky if we were talking to six or eight refuse companies at a time and literally, we're in there talking to 25 plus. So I can see it happening. So I'd say keep your eye on our station backlog, to the extent that you can see those things coming on, that will help.

Good enough, thank you.

Thank you.

This does conclude the question and answer session. I'd like to turn the call back over to management for their concluding remarks.

Thank you very much for participating today and we appreciate your interest and we look forward to reporting to you on our programs in the coming weeks and months and so good day. Thank you very much.

Ladies and gentlemen, this does conclude the Clean Energy Fuels fourth quarter earnings conference call. You may now disconnect, and have a pleasant day.