Clean Energy Fuels Corp (CLNE) 2008 Q1 法說會逐字稿

Ladies and gentleman thank you for standing by and welcome to the the Clean Energy Fuels first quarter earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (OPERATOR INSTRUCTIONS) This conference is being recorded today, Thursday May 15th, 2008. I would now like to turn the conference over to Ina McGuinness of ICR. Please go ahead.

Thank you, operator. Earlier this afternoon, Clean Energy released financial results for the first quarter ended March 31st, 2008. If you have not received the press release it is available on the investor relations section of the company's Web site at www.CleanEnergyFuels.com. This call is being Webcast and 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 and uncertainties and assumptions that are difficult to predict. Words and expressions reflecting optimism and satisfaction with current prospects as well as words such as "believe," "intend," "expect," "plans," "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 a company's actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in the risk factors section of Clean Energy's form 10-K filed with the SEC on March 19th, 2008. 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 day 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. And with that, I'd like to turn the call over to Andrew Littlefair. Andrew?

Thank you Ina. Good afternoon, everyone. I'd like to begin today's call by discussing the extremely dynamic environment in which we are currently operating. Fleet operators continue to experience extremely challenging times with record oil and diesel prices, with no real signs of a significant reversal of this trend in sight. We all know oil prices have reached $126 a barrel, and while natural gas prices have increased as well, we're still seeing an 11 to one oil to natural gas spread. That's good for us. Let me tell you how that translates at the pump.

In Los Angeles, the average price of diesel this week was approximately $4.60 a gallon while at the same time some of our large fleet operators under contract are buying natural gas at $3 per diesel gallon equivalent. This makes a strong case for our fuel. This fuel savings is significant for fleet operators who are being hit with significant budget overruns on their fuel cost due to high price of diesel.

And in these economic times they're beginning to find it difficult to pass along the increased fuel costs to their customers. Now let me discuss some of our recent business highlights. We have positioned ourselves to be ready for this moment. Last year, we staffed up our sales, marketing and engineering teams to be able to hand this anticipated growth, and today fleet operators around the country are calling us to inquire about converting to natural gas.

We have never seen the volume of opportunities that are before us today, and when we look at our pipeline, it has never been stronger. Today we have dozens of stations in various stages of negotiation. And this pipeline reflects a strong increased interest from potential customers, and we are well equipped to respond to expected growth and demand.

Let me get into the specifics on some of the major opportunities, starting with our current biggest domestic opportunity, the port of Los Angeles and Long Beach. Authorities at the ports continue to take the necessary steps leading up to a clean truck rollout. Since our last call, the port of L.A. approved this portion of the clean truck plan, and as a reminder, the port of Long Beach approved its portion of the plan back in February.

In this plan, they specifically reference natural gas and state that they will, quote, require -- quote no less than 50% of the drayage trucks be replaced within five years by alternative fuels proved to be cleaner than diesel, such as liquefied natural gas, unquote. This represents a potential of more than 8,000 LNG trucks, which is a higher number than we had previously anticipated.

To give you a sense of the growth in the market, about 12 months ago, there was only one original equipment manufacturer building trucks for the port. Recently when the port of Long Beach sent out requests to proposals for builders of LNG trucks, five major truck manufacturers responded, Kenworth, Peterbilt, Autocar, Sterling and International. This strong response from the OEMs underscores the growing momentum of natural gas.

The port is well on its way to ensuring an adequate supply of LNG trucks to meet a conversion time frames. Overall, while we had hoped the ports would have moved a little more quickly, we are pleased with the progress we are seeing. In the course of the past several months, major milestones have been reached, and the pieces are coming together. When this is completed, it will be a huge opportunity for Clean Energy.

The authorities at the ports of L.A. and Long Beach are bold leaders in taking responsibility for improving air quality around the ports, and we believe that other ports will follow suit. And when they do, we'll be ready to help them.

Now, let me provide an update on the construction of the LNG plant we are building in Boron, California. Progress here is moving along on schedule, and we are on track to start commercial production in the fall. With this timing, we will be in good shape to meet the fuel needs of the port trucks in the near to midterm.

Now let me move onto some new contracts in our key markets. In the refuse market, we were awarded a contract by the City of Fresno municipal refuse fleet to supply LNG for up to five years. This is the expansion of a fueling relationship that began back in 2004. The Fresno fleet now has 80 natural gas trucks and the city has ordered 22 more natural gas trucks, making it the largest municipal LNG refuse fleet in California central valley, and the second largest in all of California. With their additional trucks, we expect to enjoy a boost in volume going forward from our relationship in this fleet.

Another noteworthy new refuse contract I'd like to highlight is in Brookhaven, New York. The town of Brookhaven recently approved a ten-year contract with two potential five-year extensions for us to build, own and operate a CNG fueling station at the town's transfer station. This CNG station will fuel the city's CNG refuse and recycling collection trucks, notably Brookhaven is the neighboring town to Smithtown, New York, where we began fueling their refuse trucks in January 2007. And this is a great example of how the word is spreading literally from town to town about the benefits of natural gas for refuse applications.

This growing interest by refuse fleets is driven primarily by their concern about the high price of diesel. But in addition the operational difficulties they are experiencing today in meeting the 2007 initiative standards has them concerned about the increased operational issues that they will experience once the more stringent 2010 emission standards kick in. Our sales force is aware of these challenges and is reaching out to this market.

For instance, last week, our sales team made a presentation in front of 50 refuse truck dealers at the New Jersey waste expo, and there was very positive reception to the savings we could offer their customers. In the municipal transit market, we were awarded the contract to supply CNG and provide operations and maintenance for two transit fueling stations in Las Vegas, Nevada, making our first entry into Nevada. These two stations currently fuel more than 50 CNG buses and para transit vans, serving the greater Las Vegas region, and they have 45 new CNG buses on order for delivery in 2009.

With the addition of these two new buses, the volume of these two new stations is expected to exceed 1.5 million gallons per year beginning in 2009. We believe this transit opportunity will give rise to other markets in Las Vegas. To those of you familiar with Las Vegas, you can imagine that it is truly an ideal market for us. With so many taxis running between the airport and strip, switching to natural gas would make drastic improvements to the city's air quality as well as provide significant savings for taxi cab drivers. Another example of growth in the taxi market is in San Francisco and San Francisco's Yellow Cab.

Their demand for natural gas taxis has overwhelmed our station that we built for them. This program was initiated in 2004 with, the purchase of about 34 taxis, and today their number of natural gas taxis has tripled, and as a result, we're going to build another station for them on their property. This is in addition to another station we recently announced, which we will build in San Francisco at the Presidio, which will be utilized primarily by taxi cabs in the area. Also of note, we're seeing for the first time interest from regional trucking companies. And of course, you know this is a huge market for us.

We have met be some very large trucking companies, and they are interested in taking a closer look at natural gas. Importantly, in many cases, they are getting pressure from their customers to take action. This represents a whole new market we didn't have before, and we look forward to keeping you updated on developments on this front.

On the international front, we recently opened our first overseas station in Lima Peru. The opening was a big success. I was pleased to be there with several top Peruvian government officials including president Garcia and the Minister of Energy as well as the U.S. ambassador to Peru. The station is unique because it can fill 32 natural gas vehicles simultaneously, meaning it can fill thousands of vehicles per day. Right now the station is primarily fueling taxis, but we expect significant ramp-up in the near future as it starts filling heavy duty buses.

Finally there will be two trailers that will haul CNG from this station to other stationary customers in Lima. Although we are keenly focused on core domestic initiatives, we recognize that natural gas is very much a global opportunity, as two million natural gas vehicles have been added worldwide in the past year. So we continue to explore international opportunities around the world, and we'll pursue further international expansion where appropriate.

Now, moving to our legislative update, we understand that the California bond initiative, that I've spoken of before, which is called the California Renewable Energy and Clean Alternative Fuels Act, collected about 750 ,000 signatures, a significant cushion to secure its inclusion on the November ballot. The bond supports the low-carbon fuel standard currently being developed under AB32, which is Governor Schwarzenegger's effort to move toward cleaner low-carbon fuels.

It would allow the state to sell bonds to raise funds for various renewable energy and air emission reduction projects, thereby expanding the use of solar, wind, hydrogen fuel cells, as well as natural gas vehicles in California. The passage of this act would be significant, as it has potential to displace roughly 1.2 billion gallons or 29 million barrels of oil annually. Specifically it would allocate more than $3 billion toward the purchase of 70,000 medium to heavy duty trucks, and more than 150,000 passenger vehicles that would run on clean fuels like natural gas.

Because of the positive implications for clean energy and for the industry, we are supporting efforts to promote this initiative and ensure that voters understand this ballot's measure's importance to the environment and energy security in California. Before I turn the call over to Rick to discuss our financial results, I want to note that we recognize the first quarter's volume did not grow as we would have liked. That's primarily due to the delay of certain key projects. I want to reiterate, though, that we are extremely excited about the opportunity ahead of the company and once these projects move forward, we expect to enjoy accelerated volume and revenue growth.

We are well prepared to see this progress in the second half of this year and into 2009 and beyond. With that, I'll turn the call over to Rick.

Thanks, Andrew. For the first quarter of 2008, our revenues increased to 29.9 million, which is up from 28.2 million in the first quarter of 2007. Adjusted margin for the first quarter of 2008 was 8.6 million, which compares with 7.7 million in the first quarter of 2007. Our net loss for the first quarter of 2008 was 5.4 million, or $0.12 per share, which compares to a net loss of 0.9 million or $0.03 per share in the first quarter of 2007.

The two largest contributors to our increased loss between periods were the gross margins on our fixed price contracts, which I will discuss in a second, and the increase in our SG&A expenditures between periods. In the second quarter of 2008, we incurred an additional $2.5 million of stock based compensation expense, an increase in marketing expenses of $1.3 million, primarily related to supporting the California bond initiative Andrew mentioned earlier, and the salaries and benefits increase of $1 million, primarily related to the hiring of additional employees and pay raises.

Non-GAAP loss per share in the first quarter of 2008, which excludes employee-related stock based compensation charges, was $0.07 per share, and was $0.03 per share in the first quarter of 2007. Our volume was 17.6 million gallons in the first quarter of 2008, compared with 17.8 million gallons in the first quarter of 2007. As we referenced in our last call, we had a couple of lower-margin customers that we did not renew between periods, and new customers and fleet expansions that our existing customers made up a majority, but not all of the lost volume.

Let me highlight the improvement in our adjusted margin per again between periods, which increased from $0.43 per gallon to $0.49 per gallon. The economics of our remaining volumes actually improved between periods. As I mentioned earlier, one element that impacted our financial results in the first quarter of 2008, was a decrease in our gross margins on our fixed price sales contracts, which was caused by the increased cost of natural gas during the period.

When natural gas prices increase, our margins on these contracts get squeezed. This scenario will also likely present itself in the second quarter as natural gas costs have continued to increase through the second quarter as of today. The good news here, however, is this impact will be drastically reduced in the second half of 2008, as our largest fixed price contract expires on June 30th of this year.

We have responded to an RFP for the contract beginning July 1st, 2008, and we are awaiting word on the awarding of this contract. Once this contract expires, our operating results will improve significantly as we will no longer have the drag on our actual margins from this contract, which is currently being fulfilled at a loss based on current natural gas prices.

Adjusted margin attempts to approximate the results that would have been reported if the underlying futures contracts related to our fixed price contracts and price cap contracts, would have qualified for hedge accounting under FAS number 133 and were held until they matured. Non-GAAP EPS in essence calculate EPS excluding non-cash stock based compensation charges net of related tax benefits. Both of these metrics are discussed in more detail in our press release that we've issued earlier today.

With that, operator, please open the call to questions.

Thank you. Ladies and gentlemen, at this time, we will conduct the question-and-answer session. (OPERATOR INSTRUCTIONS) One moment, please, for our first question. Our first question comes from the line of Brian Gamble with Simmons and company. Please go ahead.

Yes. Good morning, guys. Or good afternoon, I guess. Excuse me.

I was hoping to talk a little more about the contracts that you've signed recently. I know you gave volumes around one of them. I was hoping to get a couple of additional details of your opinion on potential volumes either for specific contracts or maybe for the lump of four together as to maybe be a little more discrete about the volumes for each individual one?

Let me just refresh here.

Brian do you have specific ones in mind?

No. He's thinking of the ones we just kind of ran through.

Sure. Fresno, Brookhaven. You gave the volumes for Las Vegas. And then San Fran. A lot of them together.

Brookhaven was about 750 ,000 gallons moving up. Fresno, I think we mentioned what it was. But -- what are the other ones here?

Just, I guess, the San Fran is the only other one with the volume.

The way that you should think of taxi cabs is, taxi cabs are -- sometimes it's more than this, but just about everywhere in the United States, a single-shift taxi cab uses 5,000 gallons per vehicle per year. Sometimes it's more than that, but that's a good rule of thumb.

Okay. That's fair. And in looking at the City of Phoenix contract, and that rolling off at the end of June. Any additional details you can provide on what type of timing they're looking at for making a final decision and when they'll know that you guys are definitely the supplier going forward there?

That really is -- should be any time. It's within the window, right now, Brian, of when they said they would let us know. And we could hear something, I think, in the next week or two. They've got to decide something soon, though.

That was my thinking as well. Seems like the longer it drags on, the more likely you guys are the winner there. Is that fair?

Well, we'd like to think that we provided very good service with them over time and have a long track record with them, and we've worked through supply issues over time and other things. And we like to think that we should receive favorable consideration, and have every reason to expect so. So keep your fingers crossed for the next week or two.

Sure. And then one final question. I was hoping you could break out just the LNG and the CNG volumes for the quarter.

All right. I'm going have Rick -- we're still at about 60/40, but let me see if Rick can be a little bit clearer on that.

Okay. Thank you.

Thank you.

Brian?

Yes.

LNG was 6.0 million gallons. CNG was 11.6.

Thanks, Rick.

Yes.

Thank you. Our next question comes from the line of Rob Brown with Craig-Hallum. Please go ahead.

Good afternoon. You had mentioned, I think, last quarter a number of stations you had in process. I'm just curious where that kind of stands this quarter, and just maybe a perspective on your pipeline?

Right. Thank you, Rob. Last quarter, I told you that we had 20 stations in process at the time. That number is, actually right now, kind of in that apples-to-apples comparison of 21.

We literally have dozens -- I don't want to put an exact number on it, but substantially more than that we have in various stages. Some of those are very soon to be signed contracts, and others would be a little further out. But we've never seen a backlog as robust as we currently have.

Okay.

We have compressors on order in order to be able to meet this need and that are actually being produced for us now. So we feel good about it, and the backlog continues to grow.

Okay. That's great. And then how do we think about -- is there a typical sales cycle here, or is this the kind of thing that is a Q4 volume that comes in? Is it 2009, or -- what's the best way to gauge this strong pipeline?

You're going to get some of this pipeline that's obviously going to accrue into this third and fourth quarter. A substantial portion of the pipeline will show up very late this year and in 2009, and some -- and some beyond. I think the sales cycle is important to mention because it is part of the reason we had a little slippage.

There is kind of a long sales cycle in this business. Takes a while to build these stations, as I think you know, and it takes a while for the customer to order the trucks and train their people and get into it the field. So, it's a longer sales cycle than some businesses, anywhere between six and nine months.

Okay. Well, great. And then you had mentioned you were working on some other international opportunities. Could you just give us a little more sense for what you're thinking there, and a little bit in the past? But can you give a little more sense on what International --

Well, we're, we're careful here, because it has to make sense for the company, and we have such great -- and as my board reminds us, and certainly Boone does. We've never seen the stars aligning quite like they have here in the United States, with certainly the heavy-duty trucks and with the cost of diesel and the continued pressure on carbon and all of the things that we talked about. We've never seen our backlog as big. We've never seen certain markets coming to us like now. But on the other hand, we are the largest in the business in the world, and we're being asked to look at various markets. I, for instance, just to give you an example recent got back from Thailand.

It's breathtaking what's going on there in Thailand. The king there made a decree about a year and a half ago. Since then, they've built 100 stations. They want to build 700 more. They've already converted 32,000 taxis. Now they're moving on heavy duty.

You're seeing the same sort of thing happen in other places. Some of the places may fit us. Some may not. We're looking at it very hard. But we're also mindful of the fact that we have a lot here as well. So that's about all I can say right now, but we're looking at it closely.

Okay. Fair enough. Thank you.

Thank you. Our next question comes from the line of [Rupert] Mayor with National Bank Financial. Please go ahead!

Good afternoon.

Hey Rupert.

Gentlemen, with the high cost of corn, do you see anything happening on the federal level that might change the ethanol mandate or the VTAC, and if so, what's the natural gas lobby looking like, and what's the chance of getting some kind of federal mandate for natural gas fuel?

Right. Rupert, it's a good question. I was just talking to our federal office this morning. The Farm Bill passed. The Farm Bill recently passed, but it didn't have any of the extensions in it for ethanol or for us. It really got to be very difficult politically. So it just did the basic farm issues.

We have every reason to believe, and still believe as do the other alternative fuels of VTAC, that it will get extended in the future. And not sure what form that will take. There has been some talk that there could be an energy tax title later -- later in this congress, and that would likely be a vehicle for the extension of VTAC. And I think the congress is generally supportive of doing what it can to continue to push the alternative fuels.

Ethanol has really come under a lot of pressure with corn prices and with the associated concern about food prices in the United States and in other places around the world. The subcommittee on air quality -- I think it's subcommittee on air quality and energy of the commerce and energy committee last week had hearings where they looked at the renewable fuel standard. You'll recall this is where really -- the congress four months ago mandated an increased volume in the standard of ethanol to be put into every gallon.

And I think congress both decided -- they all have decided that that really has been a problem. So there's been lots of discussion about twisting or opening up that orifice to include other fuels, more like what we used to ask for, which was alternative fuel standards. So I think natural gas will end up getting inserted into a new tweaking, if you will, of the RFS.

When do you think will be the first opportunity to see a tweaking of the RFS?

Well they're having hearings on it now, and I don't think I want to start predicting when congress is going to pass it up, but --

Fair enough.

But they're talking about it now. You can probably go online to those committees and actually see what's been said. So it's out in congress. People are talking about ethanol and now other things in lieu of ethanol. And so it's in play.

Okay. Thanks. Just a housekeeping question here.

We saw a bit of an uptick in SG&A. I know some of that was lobbying efforts, and some from the stock compensation, but should we expect the run rates in SG&A in Q1 to continue, or should we be modeling that as coming off a little bit?

Rupert we don't provide guidance. I will say that the California bond initiative, we will be incurring the bulk of those expenditures in the first half of the year, because in theory by then, we'll have incurred the expenses, if we are going to continue to support it, which I think we will. In order to get on the bond in November, or on the ballot in November.

The stock-based compensation should be pretty flat through the rest of the year, contingent on the board issuing any new stock options which is always a potential. But the other stuff should stay relatively consistent with where it's at. The big flux will probably just be the marketing and the lobbying expenses, as we've mentioned, in the past.

Okay. Thanks. And maybe one more. Can you give us quick update on where your outstanding liability is on your fixed price contracts, either a dollar value or a gallon value?

Sure. You'll see in the Q, which obviously is being filed today. As of March, we're predicting, based on prices as of March 31st, that we'll incur between 6.1 million and 7.5 million to satisfy those obligations.

Okay. Great. Thank you very much.

Thank you. Our next question comes from the line of Marvin Loh with WR Hambrecht. Please go ahead.

Hi. Good afternoon guys.

Good afternoon, Marvin.

Hey. On the port -- on the port transactions, what's the latest in terms of a best-case resolution kind of as you see it? And maybe if I could flip the coin there, what would the worst-case situation be? I know that there's been a lot of conversations going on, and depending on who you're retailing this stuff is very difficult to resolve while others think that it's something that just could be done fairly quickly.

Let me tell you as I've said before, Marvin, it's a complicated -- it's complicated, because they're really trying to change the way -- the way the people at the port have operated, trucking companies and others. So it's had lots of pieces to it. In fact, right now, the port of L.A. and Long Beach, the trucks are rolling today that have been funded and have been approved by the city council and approved by the port, the contracts approved. They're actually fueling at our station today. So that, I guess, is good news, but that process, to get those first trucks really rolling, there are 17 steps in that process.

Now will that process get shorter, and will they be able to do it in much more efficiently? Yes, no doubt about it. They had to certify -- when somebody got the money, they had to go before the city council. The contracts had to be dealt with. This was the first time. Then, even when that was all approved, then they had to show the new -- they had to show the old truck that they were literally going to drill a hole in the block and certify how that was going to be done. And this had never been done before.

But I feel confident that while it's been a bit bureaucratic, the ports are trying to put in place a process. We are meeting a procedure that will facilitate a lot of trucks being put on the road. We haven't seen any loss in the -- in the interest and in the enthusiasm behind the ports in doing this. It's just been kind of bureaucratic.

So worst case is that the thing stays a little slow for the next couple of months, as these next RFPs get answered and the next kind of series of trucks get sold into the process, but I feel like it's kind of underway now. I think the worst -- the worst is over. And, of course, many of you saw in the Wall Street Journal yesterday an article about the NRDC and the Teamsters looking at perhaps filing a lawsuit about the lack of an employee driver program in the Port of Long Beach versus the Port of L.A. We think that will get resolved, and we don't think that we're -- I guess we think that with NRDC liking the clean truck program, they're going to do everything they can to make sure that the program stays in place. So there's -- there are more shoes to drop, I'm sure, in this whole thing, but it looks to us like it's coming along.

Okay. So how many trucks are kind of on the road now, and are all of them just exclusive to Long Beach then?

There's just -- there's just -- the first fleet is now just putting the trucks on the road, and I don't know I have the exact number. But it's a small number. This is really of the first hundred. The second fleet taking 50 of those, I think they're right behind them into next week. And -- but now, they've gone out to bid and gone out to other truck -- trucking fleets, and those orders are coming in now. So we're beginning to see kind of the next phase of more normalized orders?

Okay. Okay. Jumping around a little bit here, as you look at all of this capital that's being deployed in building what sounds like a very robust pipeline, which has got to be real encouraging, what about the capital needs? You mentioned the potential capital rate is about 40 million in the K. What's your view on that these days and the timing around it?

Go ahead, Rick. I mean --

Hi Marvin. We actually updated looking at that number. One nice thing that's really helping us out is the IRS changed the rules regarding when we can collect the VTAC the $0.50 per gallon we get.

Okay.

We've accelerated that where we don't have to wait to get the bulk of it annually when we fill out our income tax return, we can now get it quarterly. when we fill out our federal excise tax returns. That's helping us to the tune of 12, 15, $17 million.

All right. Excellent.

So that's helping a lot. That coupled with the fact that some of these projects are a little bit subject to kind of timing delays and permitting and all that good stuff. Some has slid out a touch. The new number you're going to see in our Q is we're anticipating we're going to need $14 million the rest of the year to fund our business plan. We're first going to try to go out to get debt to fund that cash need, and then to the extent we can't get debt for some reason, then we would look at some other equity fund-raising option.

Okay. Have some of the recent announcements -- and I guess Brookhaven is the one that stands out. Are they using any of your financing to buy their trucks?

More for funding of the stations. They kind of handle the trucks themselves. We may get a little bit involved on the back end of financing them, but typically they kind of handle the bulk of the truck financing. Where we use our capital is more on the station side.

In the case of Brookhaven, we're actually working with the bank to try to do a lease deal for that capital, which will obviously help, kind of a can-do the debt facility we're out looking for. So our first brush is we would rather have somebody else use the capital, but obviously, where we need to, we will, and obviously the nice thing is that corresponds in to higher margin, because we're going to make sure we get a return on that capital.

All right.

So it all kind of works out. Whatever the customer wants to do, we're willing to structure something that makes sense for them that works for us.

O kay. And just one last quick question. How am I supposed to -- how am I supposed to look at the fact that we've had two quarters of sequentially declining volumes now? I kind of understand the loss of some of those accounts in the first half of 2007. But from a sequential basis, I wouldn't have expected a decline, particularly when -- generally I think it was a lot of people's understanding that as your contracts became older, you would expect volumes to actually increase as they bought more trucks to concert a larger percentage of their fleet to natural-gas type of vehicles.

Yeah. Absolutely. One thing to keep in mind, the first quarter, February is a short month, which surprisingly has a fairly significant impact on us.

Okay.

The other thing is some of our customers are lumpy, and -- well, a good example is you have some industrial customers in the LNG side of our business that, just depending upon their testing cycles, they may or may not buy a lot of product from us in a particular period. It just so happens in the fourth quarter, some of those customers did buy a lot of product. They didn't buy as much in the first quarter of '08. So there's a little bit of lumpiness in there, a little bit of February.

Another thing that also kind of hits us, and again, kind of along the lumpy explanation is the transit agency is just depending on timing of buys, and when we get trucks there and how full their tanks are. Those numbers can swing semi-significantly between quarters just depending on how full their tank happens to be during the period or the end of the next period, et cetera. So there is just a little bit of just built-in flux kind of in the way some of this works that you're kind of seeing that just happens to be going against us this particular quarter.

Okay. Okay. Thanks a lot, guys. I'll jump back in queue.

Thank you. Our next question comes from the line of Ron Oster with Broadpoint Capital. Please go ahead.

Good afternoon. Not to dwell on the volume number. But I guess, following on that question, are you seeing growth from your existing customers, as they add new trucks, like you previously thought might happen, or is that not occurring as quickly as you might have thought?

No. We're seeing it, and it kind of dovetails into what Rick said. We're seeing it, for instance, in San Diego. We'll see it in Phoenix. I mean, they're taking delivery of buses now. It's kind of funny.

Often, though, when they take them, they get them into their yard, I mean, literally 30 and 40 of them. Then they begin to decal them and do them in batches often times. So we're seeing several of the big transit customers taking new product. We're seeing certainly all of our refuse customers, many of them, taking the add-in trucks. So we're seeing our existing customers add -- add.

Okay. And then, with regards to your LNG supply agreements you have with Williams and Exxon Mobile. I believe those are -- the expiration is at the end of June. I was wondering if you could give us an update there with regards to if those have been renegotiated or exactly where those contracts stand?

Yeah. They are both up at the end of June. We're talking to them as we speak. The interesting thing is, just kind of figuring out how that factors in, once we get the Boron plant up and going as far as our supply needs, we're just kind of trying to weigh all that and figure out how that's going to shake out.

But the good news is we'll certainly have adequate supply for our customers. The other big one is the FTS deal in Arizona. That one, the plant is being built and we'll obviously be taking supply out of there as well. So we're just trying to sort through all of that and figure that out as we speak.

Would you expect these renegotiated terms to impact your margins, or would you expect similar terms to what you had previously?

Don't know on the specific terms other than in theory, we should be okay going forward, because we won't have any fixed-price deals going forward where we don't have futures contracts. So we would obviously factor in whatever the rates are we're going to pay from the supplier when we were calculating the price from the customer. Obviously to the extent it's index plus, that gets passed through. So it shouldn't impact our numbers.

Okay. And then, on the ports. Andrew, I believe you said previously you said you thought around mid year, you would start to see and a hundred trucks per month roll out? Can you give us an update? I know it's slipped a bit. When you might expect to see a steady rollout or what your outlook is there?

I've been a little ahead of myself, I guess on this. I still think when you see it come and middle of the year is good, that you'll see this hundred a month kind of number. I still think it's a good number. I think it will happen in the middle of the year.

I do know, for instance, one of -- I won't give a lot more color on it. I know one of the fleets at the port has ordered 130 trucks. That's a big deal. That fits my hundred a month deal. I think that will be the way it will roll out. That's the way the industry right now at least can respond, and that's about as fast, I think, as you'll see the process work from the port's point of view.

Okay. And then with regards to Peru. I think you said previously you have intentions to open up additional stations down there. Any update with regards to timing on the next one or two stations?

No update on that other than we are working on it. We've got two or three different ways that will happen. We have a couple green fill locations that we're negotiating on now, and we're also working with a large liquid retailer to do it there in a little faster way. So we're continuing to pursue that. We've got compressor units in stores to be able to respond quickly to that. In fact, we have our general manager of Peru in the office this is week as we're working on that.

Okay. Great. Last one, Rick, is -- I know you mentioned the 14 million funding required. Is there a CapEx number that you have for this year?

Yeah. It's all in the Q. Let me flip to it. I don't know it off the top of my head.

The CapEx, 54.6 million, 2008, to construct our natural gas fueling facilities. That's exclusive of our plant, which we anticipate will be roughly 50 million this year to finish it up. Those are the CapEx numbers as we sit here today.

And does that incorporate the 20 stations, sore there more built into that number.

That would factor them in.

The 20 or an additional --

Additional target stations that we just haven't identified yet that will come out of that pipeline we were talking about earlier.

Ron, it covers the 20 plus.

Okay. Great. Thank you.

Thank you. Our next question comes from the line of Graham Madison with Lazard Capital Markets. Please go ahead.

Hi, good afternoon, guys.

Good afternoon.

A lot of my questions have already been answered, but just a couple. Have you seen, just given the increasing -- the outlook is just getting increasingly better for natural gas vehicles. Have you seen any pickup in the number of competitors out there or other players looking to get into the market?

Oh we're hearing little rumors here and there of a few. We haven't seen anything substantial. But we've -- it seems like there are other -- there's some others sniffing around the business. We've heard that on the LNG side.

I haven't -- we haven't seen it dramatic yet, but I think it will happen. As I've said before, if it goes the way we think it's going to go, you're going to have some other people get in this business.

Got you.

And that doesn't -- that doesn't bother me, because -- for a couple reasons. We're way ahead of our competitors, and we're working with some of the nation's largest fleets and have contracts with them, and we're at key locations already. And the market is huge. When I -- I mentioned just kind of casually the regional trucking market. Well, that's -- I don't have the exact number off the top of my head, but that's many billions of gallons. There's a lot of room for others as well as just us.

Got you. Great. Also you're starting to work with some of the other bigger fleets. Are you seeing more opportunities for sort of pull-through contracts, where you're working with one company in one area and other regions are starting to come in and look to it?

With the same company?

Yes.

Yes. We're seeing that. We're doing that right now with UPS, for instance, and others, sure. We're seeing in some of the major refuse companies. That's certainly the case where we're in California and in other parts of the country where they serve. And we're seeing it with some of the trucking companies that we're talking to right now.

All right. Great. And then just one final question. Are there any thoughts of potential acquisitions out there just for some of the smaller players, or is that anything you guys have looked at in the past?

We've done it in the past, and we've looked at it and continue to look at it. There are -- there aren't that many that, I think, we would believe that would be strategic. But there are some opportunities out there, and we look at them.

Okay. Great. I'll jump back in queue. Thank you very much.

Thank you.

Thank you. Our next question comes from the line of [Eric Stein] with Northland Securities. Please go ahead.

Hi Andrew and Rick.

Hi Eric.

Well, a lot of my questions have been answered, but just a couple quick ones. On the LNG stations at the ports, you opened your first one in December on the last call, I talked about being in various stages with the next two. Is your plan still to be at five within the next 18 months, or is that kind of being timed based on -- that the ports are taking a little bit longer?

Sure. No, it's a good question. I mean, obviously we try to adjust it to hit the timing. But these things take a while. So that hasn't changed. In fact, we may even have added a couple of strategic locations in the inland empire since we last spoke that we think need to be built.

We've made progress on the other two. We've gotten through some contract issues on the next very large one. It will be the largest LNG station ever built. And we're very excited about that. That will come on, we think with, the very nice timing of the rollout of these trucks. So the plan still hangs together. Maybe it's expanded a little bit.

O kay. And this is just Peru and internationally. The CNG station opened -- once it's up and running at full levels, you've said five million GGEs a year is a good way to think of that. Other stations and other plants there and in other countries, is that -- I mean, would that be considered large, or -- what's a good volume to think of just as a general rule?

I mean, that -- the five million is a good number, and it's really predicated on having three pieces in Peru. And all these countries are a little different. But in Peru, for instance, at that station, that -- that contemplates taxis, which is called the light-duty sector. And then it also contemplates some stationary sales.

In Lima, you have some large manufacturers that want to use natural gas. So we'll be hauling natural gas in tube trailers that are already in station there. That should start very soon. And then the third component there is that station's built to handle transit buses, city buses, which, Peru wants to do.

In fact, when I was down there just -- I don't know -- two weeks ago, whenever it was, they finished kind of their rapid bus lane freeway down the middle of their kind of freeway area. So that's kind of coming in place. The west port engines have made it to the country. So that bus volume will begin to pick up.

So my point is there, that station is somewhat unique. Some stations we'll build down there won't have that kind of volume. They'll still be very profitable, but they won't maybe be a transit station. Our experience though, in our experience is doing some larger heavy-duty stations. We know how to do that. So we'll tend to tilt toward that where we can because of the volume.

But, like, in Thailand, it's really light duty right now. So if you were to look at that, those volumes won't be quite as high, though they're very busy stations. I mean, it's awesome to go there and see 200 cars in line. But you don't have the -- they're not taking 50 gallons at a pop, like a transit bus. They're taking three. So I'd say five million is on the high end, and usually they'll be lower than that a million and a half would be a good station.

Okay. I appreciate that. Very helpful.

Thank you. Our next question comes from the line of Jack Walker with Peninsula Capital Management. Please go ahead.

Hi Andrew and Rick. How are you?

Good.

Rick, I wanted to see if you could give us a little more granularity on some of the recent contracts you've announced? And specifically, given where natural gas prices closed today, almost $11.5 on NCF, what kind of pricing are you willing to negotiate on the long-term basis?

The great thing about our deal, is even if gas is $11.5 or $12, when you divide by eight math, to get into it per EEG equivalent, let's just say that's a $1.20. And take that number. Add on a dollar to cover costs and some nice profit and add on another,$0. 25 or $0.30 to add on to cover taxes, and just for fun, add on another $0.50, that gets you up to $3 a gallon, which is still $1.50 cheaper than what people are paying for diesel in and around L.A.

So we're kind of the benefactor of just having a cheaper fuel in that there's so much room between what we can charge and still make good margins relative to what their options are from looking at gas and diesel, that we're not getting huge squeezes on our deal. We're still making good margins. In fact, our adjusted margin per gallon actually went up between periods. So we're being able to capitalize on that spread between oil and natural gas that Andrew mentioned earlier.

Excellent. And Andrew, also in the follow-up on a comment you made earlier in the call about regional trucking fleets possibly entering the market. Where do you stand in conversations with those customers, and is there a potential to see one of those contracts in 2008?

I think there is potential for that in 2008. We're meeting with a lot of them. The sales team is meeting with them. I met with them personally as well. Though, keep in mind that until recently, you didn't have a product for them. We didn't -- the industry did not have really a suitable class eight over the road type which I would consider regional trucking engine.

You do now, and as I mentioned in these others that are responding to the port, sometimes I use "port" as kind of a code word for regional trucking. A lot of the same people that haul out drayage out of the port, they also do regional trucking. So to make sense for the port is also going to make sense for the regional haulers. And as I've talked to some of the regional haulers over the years, most of their business models, they're able to pass through the fuel costs. Many of them -- I'm not saying all of them. I'm not a trucker either.

But many of the trucks fleets didn't take much fuel risks that they were able to pass on to the customers. Well, the customers are very sensitive now when diesel went from 2.80 to 4.60, its creating a great deal of pressure. So the best thing we can create for our business is when we have the trucking fleet's customers, like Wal-Marts, like these other companies like that, coming back to the trucking company and saying, "Hey, what else have you got for me? "Are there other solutions here?

So one of the things you're going to here more and more from us is when you look at heavy-duty vehicles, natural gas is the only economic answer, solution that's out there. And people are beginning to figure that out. [Boone] was very good at talking to 2,000 people in Las Vegas on this very subject, and it isn't biodiesel. Sure, you can create in the United States, a couple billion gallons of biodiesel, and that's it. And it's more expensive than diesel.

So when a trucking firm looks at the future and they really begin to believe that diesel is going up and its going to get more expensive, natural gas is the only solution, and we have it today, and it works in an engine that they're used to running. So yeah, we think -- I think there will be some of those announced in 2008, and we're very excited about it.

Excellent news. In the past, you guys have done a really excellent job framing out what the opportunities have been with your different fleet opportunities, be it taxis or refuse trucks. You want to take a stab at what the adjustable market might be for the regional truckers?

Well, it's -- I hate to get -- I don't want to throw out big numbers. Just big markets, probably bigger than all of the other markets.

Excellent. Congratulations, guys.

Okay. Thank you.

Thanks, Jack.

Thank you. Our next question comes from the line of Eric Swergold with Gruber & McBaine. Please go ahead.

Good afternoon.

Good afternoon.

I'm not sure I totally understand the business model. If I look at where natural gas prices have gone sequentially quarter and year over year, sequentially up about 20% and year over year up about 25%. And looking at revenue growth in the range of low single digits roughly over the last five quarters. Does that mean you've lost roughly 20% of your volume, meaning if natural gas prices had not been up 20 to 25% over the last year, would we be seeing revenue declines of 15 to 20% for the company? Hello?

No. We're here. We're just thinking about it. It's a good question. I guess I don't think of it that way.

The only reason it's a semi-hard question to answer is there's so many components. We have fixed pricing, index plus pricing, we have retail pricing, and the revenue on all of that is impacted.

Well, price times volume equals revenue. So if price went up 25% and then volume went down a lot, that's how you got --

For instance, what Rick is getting at -- remember Phoenix. Largest customer. You lose money on every gallon you sell there. So that impacts what you're asking.

Okay.

Right now, you're losing $0.40 a gallon on every gallon you're pumping there. Now, you know, thank goodness, as we said earlier, that comes off in June. So we're done with that one. And so that -- that has a great deal of impact on what you're seeing there.

So if natural gas prices were to retreat back to where they started the year, what would that do with your revenue forecast for the remainder of the year?

Well, it'd take it down. And again, keep in mind revenue oscillates and fluctuates based on the price of natural gas, which is why we focus more on margins, which is where I was going there. If natural price goes up and we're in an index plus situation with our customer, price and revenue is going to go up or down based on the price of natural gas. Yet whatever our margin per gallon is, that's what we're going to make in both those scenarios.

That's why we don't focus on the top-line revenue. We look more toward our margin per gallon. Which is also why we put out that adjusted margin per gallon statistic. That shows you what this business, from its true operating perspective under a normalized situation, where we would have held on to our futures contracts, relative to our fixed price deals, what our operating results would have looked like.

Okay

So we look at it from a margin perspective from a revenue perspective, because a lot of times we just pass on the cost of natural gas to our customers.

If you look at it from a margin perspective then, do you hedge case by case contracts? I mean, theoretically on the Phoenix contract, is the reason you lost $0.40 a gallon because you weren't fully hedged? You only hedged part of the long-term contract? What's the reason you would have had that kind of loss?

You might want to call us so we can go through this. But we've had historical hedging practices where we basically got out of subcontracts that we originally had, which is causing us to be in this situation where we're at today. Going forward, we have a new policy whereby we won't be in this predicament today. That if we do offer a fixed price deal to a customer going forward, we will purchase the underlying futures contracts, lock in the economics, try and qualify for hedge accounting under 133. And therefore, you'll see a normalized operating margin in our numbers going forward. We won't be economically exposed due to situation where natural gas costs are going to increase.

Thank you. Our next question comes from the line of Ron Oster with Broadpoint Capital. Please go ahead.

Yes. Just one quick follow-up. I was wondering, with these 20 stations you have under construction, is there any -- is there an average volume you can put on these stations? Or just trying to get some visibility with regards to volume growth we might see from these 20 stations once they're at full capacity.

No. And that gets tough and that's kind of why we focus more on volume in general, and a good example -- and a reason for that is a lot of newer stations where you're building are going to be bigger and generate more gallons per dollar. The biggest example of that is the port stations.

Like, in the case of a port station, which will obviously be on the LNG side of our business, those can do three, four, five million LNG gallons a year, and those cost a million and a half, $2 million. Relative to a CNG station, for that same million and a half dollars, it may do a million and a half to two million gallons a year, just simply because it's limited by the amount of compressor capacity that it has at the site. In essence, it can only compress gas so fast. So --

Well, can you tell me what -- based on your current fleet, your current network of stations, what the average is per station?

Well, I guess we can do the math or just take our gallons and divide, 170 stations we have. The problem there is a lot of our old legacy stations are very small, and are kind of nodes on certain taxi networks in certain cities around. So you can certainly do that. I'm not sure it's going to be representative of kind of where we're at from an operating perspective today, nor where we're going to be going forward.

Ron you don't. This is dangerous, because I don't want you to multiply this by 20, because Rick's point is some of those are the LNG stations. They'll do a few million gallons. But you don't build stations in today's world -- I mean, some of the older stuff we have. You don't build stations today that won't do four, five, 600,000 gasoline gallons in the light duty. You just wouldn't do that. And there will be more than that.

Got you. Thanks.

Thank you. Ladies and gentlemen, that does conclude our Clean Energy Fuels first quarter earnings conference call. Thank you for your participation. This call is available for replay.

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