Clean Energy Fuels Corp (CLNE) 2009 Q3 法說會逐字稿

Greetings and welcome to Clean Energy Fuels Third Quarter 2009 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation.

(Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Ina McGuinnesss of Integrated Corporate Relations. Thank you, Ms. McGuinness. You may begin.

Thank you. Earlier this afternoon, Clean Energy released financial results for the third quarter, nine months ended September 30, 2009. If you did not receive the press release, it is available on the Investor Relations section of the company's website 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 contains forward-looking statements that involve risks, uncertainties and assumptions that are difficult to predict. Words and expressions reflecting optimism, satisfaction with current prospects as well as words such as believe, intend, expect, plan, anticipate and similar variation identify forward-looking statements but their absence does not mean that the statement is not forward-looking.

Such forward-looking statements are not a guarantee of performance and the Company's actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in the risk factors section of the Clean Energy Form 10-K filed with the SEC on March 16, 2009 and in the Form 10-Q for the quarter ended September 30th filed earlier today.

These forward-looking statements speak only as of the date of this release and the Company undertakes no obligation to publicly update any forward-looking statements or supply new information regarding circumstances after the date of this release.

The Company's non-GAAP EPS and adjusted EBITDA, which will be reviewed on this call excludes certain expenses that the Company's management does not believe are indicative of the Company's core business operating results. Non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP which should not be considered as substitute for or superior to GAAP results.

The most directly comparable GAAP information, reasons why management uses non-GAAP information, a definition of non-GAAP EPS and adjusted EBITDA and a reconciliation between non-GAAP and GAAP figures is provided in the Company's second quarter 2009 press release which has been furnished to the SEC on Form 8-K today. Participating on today's call from the Company are President and CEO Andrew Littlefair and Chief Financial Officer Rick Wheeler. And with that, I will turn the call over to Andrew.

Thank you, Ina. Good afternoon, everyone. This has been a really good quarter for Clean Energy operationally, strategically and financially. We are beginning to see the benefits of the leverage in our business model. Our gross margins are up and our volumes are up. Volumes rose 58% from a year ago with all of our sectors, refuse, supports, tracking, transit and airports contributing to our growth.

On the strategic development front on October 1st, we closed on a transaction to acquire BAF Technologies. BAF is a leading provider of natural gas, vehicle conversion technology in the US and we believe a nice strategic fit for us as they provide conversion solutions to our taxis and airport shuttles. Remember we worked with BAF for years as they provided vehicles in our key markets, so we are familiar with them and their capabilities. This acquisition bolsters our strategy of providing trend key solutions that lead to the adoption and the use of natural gas as a vehicle fuel. We believe we can provide the resources and marketing help for BAF to capitalize on the opportunities we see in front of them.

The biggest neutral opportunity for BAF is the AT&T-CNG van conversion project that I have mentioned on previous calls. BAF is more than halfway through the first purchase order for 600 vehicles that AT&T submitted awhile back. And BAF also just received the second purchase order from AT&T for 483 vans for the delivery in the first quarter of 2010. We also believe that AT&T and other companies will feel a little more comfortable converting their fleets to natural gas knowing that Clean Energy is behind the conversions with its industry expertise and financial resources.

Turning to the Queen Cities Program, we are very pleased to have benefited from the Department of Energy's stimulus funding that was awarded in late August. Clean Energy and its direct partners were originally awarded $34 million to build 11 natural gas fuelling stations and offset the cost of deploying 800 natural gas vehicles. As I mentioned earlier, there were also several other awards that were announced in the natural gas arena without a specified station builder or fuel provider. As of today, we have added another four stations and so our total was now $40.8 million and 966 vehicles. So, we are actively pursuing more of these opportunities and I am sure we will be successful in winning more projects. We will keep you abreast on our progress as it unfolds.

On the legislature fronts, the NAT GAS Act continues to have strong bipartisan support, now with 120 members of the House signed on as co-sponsors. And as you know, the Senate bill is sponsored by Senator Menendez and Senator Orrin Hatch and has the support of the majority leader Harry Reid. Right now, health care is dominating the agenda in Washington so we are working hard and we are looking for the time when energy initiatives resurface to the forefront.

The NAT GAS Act has strong congressional leadership support so there has been talk about the act succeeding as a stand-alone bill. But other options include as part of the transportation bill, as part of the modified energy bill or other legislation. Our team is joined by the American Gas Association, the American Natural Gas Alliance which is a coalition of leading natural gas EMP companies as well as the Pickens Army, and they are actively engaged on several fronts. Boone has been working this very hard but we are confident that these efforts will keep the bill at the top of mind. To me, the NAT GAS Act is not an if but it is a when situation.

Another important development was the formation of the Congressional Natural Gas Caucus. This caucus was formed by House members who support natural gas issues and recognize the importance of natural gas for this country including helping to pass the NAT GAS Act. Boone spoke at their first meeting a few weeks ago.

With the announcement by AT&T to deploy 8,000 natural gas vehicles over the next four years, several national fleets are considering similar policies to protect themselves from rising gasoline and diesel prices and to reduce their carbon footprint. For example, last week Verizon issued a request for proposal to purchase up to 800 natural gas cargo vans that will be converted and deployed in 2010. This is a new announcement.

Our subsidiary BAF has submitted a bid to do the conversions. Although we do not yet have a contractual agreement with Verizon to fuel their CNG fleet, we expect many of these vans will use our existing public network in metropolitan areas where our service areas overlap. For instance, we are already fueling now 151 AT&T vans on our existing network. We also expect that Verizon will have private CNG stations built for their large vehicle bases which will present an opportunity for us to capitalize on the national fleet opportunity. I have asked Jim Harger, our Chief Marketing Officer, to devote his time and develop a team to pursue this sector of our business.

The successful deployment of heavy duty trucks in the Port of Los Angeles in Long Beach has also been noticed by several national heavy duty regional truck operators. With almost 500 LNG trucks making daily deliveries from the port, some of America's largest private regional operators are now convinced LNG trucks work and that they are commercially ready alternative to diesel.

Many of these fleets including Freeway, J.B. Hunt, Knight, Mohawk, Pepsi, Shaw, Southern Mail, Cisco, Swift, UPS and Wal-Mart have tested the freightliner and/or the Kenworth heavy duty LNG trucks in their local serving California operations. The demonstration results have been good and some have already placed orders and others were awarded large deal re-stimulus grants to develop LNG trucks and fund infrastructure.

The third quarter marked the first full quarter of operation for our Port of Long Beach LNG truck stop. We are really pleased with how the station is performing. Already, it is one of our highest volume stations and is running at about 9,000 gallons a day and sometimes it hits as high as 12,000 gallons on certain days. This clearly has been a contributor to our accelerated volume growth. For the quarter, port volume was up 35% from a year ago. And as more trucks roll out of the ports, we expect our LNG stations to continue to deliver strong volume growth.

As of today, there are about 500 LNG trucks operating at the ports, and we are continuing to see good signs in the deployment of additional trucks. Funding programs have already been approved that will add another 546 LNG trucks or so. This number was increased just last Friday by 63. So, if all goes according to plan, there should be more than 1,000 LNG trucks fuelling at the port in the coming months.

The refuse piece of our business has continued to see some promising developments. And over the course of the past several weeks, we have opened two stations, one in San Luis, Obispo, California and one in Pompano Beach, Florida. The southern Florida station marks our entry into the Florida market. These were previously announced projects and we are pleased to see these stations now fully operational and contributing to the expanded geographical reach of natural gas' appeal in the refuse sector.

We also have another refuse station opening tomorrow in New Jersey. It is worth revealing that the refuse sector of our business is contributing in a significant way to our growing backlog. When you look at the refuse sector, we are seeing multiple installations being contracted with major companies. I think there is a pattern here that is worth pointing out.

We started slowing the refuse industry but we have now been in that business in earnest for three years or so. And today we are seeing the major players in the industry expanding their natural gas fleets in a meaningful way. This is not just because they are worried about meeting the 2010 emission standards; it is also because they have had time to experience economic and operational benefits available from natural gas.

In comparison, the regional trucking market is a new market for our industry. We are roughly in the same phase of our sales cycle today in regional trucking that we were in the refuse sector a couple of years ago. I think the deployment will occur more quickly with regional trucking because the engine technology is more advanced and the fleet turns over more quickly. High diesel prices coupled with incentives and the potential of Natural Gas Act could really jumpstart this sector.

The next phase will be with more customer pilot programs and then larger and larger deployments of LNG trucks within these customer suites. The important takeaway at the Port of Long Beach and Los Angeles has really been that it has proved out the heavy duty trucking market, delivering a proof of concept and confidence that will push for regional trucking toward natural gas. Remember of all of our markets, this is the biggest, consuming about 30 billion gallons of diesel per year.

Turning briefly to our international business, when we first talked about Peru, I mentioned that we wanted to build more stations down there and I am pleased to report that we now have two more under construction. In addition, our main station sold 572,000 gallons in the month of October and this compares to 90,000 in March.

Finally, let me cover some new business that does not always warrant a press release but speaks to the progress we are making on a number of fronts. For instance, in the last 90 days or so, we have added 12 new contracts and here is a just a sample.

At the University of California San Diego, we have 100,000 gallons on an annual basis related to their expanding natural gas shuttle service. Oklahoma State University, we are building a station to serve 25 new shuttles. Orange County Transportation Authority in Irvine, California, added 40 new buses for 500,000 gallons annually. And at Love Field, Wayne Transportation added several new shuttle buses which add 25,000 gallons.

The City of Dallas is adding 13 new trash trucks for an additional 80,000 gallons a year. And at LAX airport, rental car service is adding a total of 50 new buses for Hertz, Avis and Budget that would consume about 750,000 incremental gallons on an annual basis.

Together, these developments add another 325,000 per month. In addition, we renewed three waste management contracts for another ten years after the first ten year contracts expired. These new contracts comprise 2.5 million gallons annually. All told, we have many new contracts during the quarter that show very good progress across our company segments. With that, I would like to turn the call over to Rick to review our financial results.

Thanks, Andrew. Before I review our financial results, I would like to point out that all of my references to our results will be comparing the third quarter of 2009 to the third quarter of 2008 or comparing a nine-month period ended September 30, 2009 to the nine-month period ended September 30, 2008 unless otherwise specified.

Volumes during the quarter rose approximately 58% from a year ago to 29.5 million gallons. The increase in volume between periods was in large part due to our increased port volumes, increased volumes from the transit properties we acquired from Exterran and increased sales at our landfill gas project in Dallas. We are also seeing increased volume in the third quarter of 2009 from the additional piece of the Phoenix LNG supply contract that we recently won and that commenced on July 1st.

For the first nine months of 2009, we delivered 71.5 million gallons of fuel to our customers, up from 54.8 million gallons. We earned $0.01 a share on a non-GAAP basis in the third quarter of 2009. This compares with the non-GAAP loss of $0.08 for the third quarter last year.

On a non-GAAP basis, our loss per share for the first nine months of 2009 was $0.06 per share compared with the non-GAAP loss of $0.28 last year. Our net loss on a GAAP basis for the third quarter was $18.5 million or $0.31 per share. This compares to a net loss of $12.1 million or $0.27 per share. Our net loss for the first nine months was $31.3 million or $0.59 per share versus a loss of $20.7 million or $0.47 per share in the prior period.

During the third quarter of 2009, we recorded a non-cash charge of $15.4 million or $0.26 per share, related to valuing our Series One warrants, which is required this year under new accounting guidance. The primary driver of the increased amount recorded this quarter was the impact our higher stock price had on the valuation model we used to value the warrants.

Before I move on, I would like to emphasize that this is not a cash liability of the Company but rather a required exercise we must do under the accounting rules to mark-to-market the warrants each period due to the exercise price reset feature of the warrants. As an aside, the first reset date for these warrants just passed on November 3rd and there was no reset of the warrants' strike price. There is only one more reset provision on the warrants which is on November 3, 2010. So, this issue will be gone in the fourth quarter of next year and we will no longer have to mark-to-market the warrants from that date on.

Adjusted EBITDA in the third quarter of 2009 was $5.4 million, which compares to a loss of $1 million in the third quarter of 2008. Adjusted EBITDA for the first nine months of 2009 was $9.9 million compared to a loss of $7 million in the first nine months of 2008.

Adjusted EBITDA is a financial measure we developed to highlight our operating results excluding the large non-cash charges that we are incurring that are not core to our business, including the amounts we are incurring for our Series One warrant valuation, our third quarter 2008 losses on the features contracts included in our derivative gain-loss line item and our stock-based comp charges for our options. Adjusted EBITDA is described in more detail in the press release we issued earlier today.

From a margin perspective, our gross margins increased about $759,000 from the prior quarter primarily due to our volume increase between periods. Our margin per gallon was $0.42 for the quarter, which compares with $0.48 in the first six months of 2009. The decrease was primarily due to the proportional increase of transit volumes in our volume mix during the third quarter.

One thing to remember on our transit volumes is we typically do not have any capital on this deal so making lower margins in this segment still makes economic sense. We are, however, focused on improving our margin per gallon number in the future as we look to add new volume in the higher margin segments of our business including our commercial retail operations.

For the quarter, our revenues were $31.2 million versus $33.8 million last year. For the first nine months, our revenues totaled $89.3 million, which compares to $97.6 million. As we have previously discussed, a significant portion of our revenues are based on the price of natural gas which was down about 67% between the third quarter of 2008 and 2009. But as you know, when the price of natural gas goes down and our revenues go down, our cost of sales for the natural gas that we are selling to our customers also goes down and generally by a similar amount.

In these instances, the price of natural gas is in essence a pass-through to our customers. So, as we have also discussed before, this is the main reason we believe you need to look at us from a net revenue perspective, taking out revenues and subtracting our cost of sales when assessing our financial performance.

On the acquisition of BAF Andrew mentioned at the outset of the call, we paid $8.3 million for all of the equity of BAF, but part of the proceeds were used to pay back our $3.8 million note we had outstanding with BAF. So, our net out-of-pocket cash for the acquisition was only $4.5 million.

We also agreed to pay the seller various portions of the gross margins of the business during 2010 and 2011, subject to certain minimum performance levels and certain maximums. We believe BAF will be a nice acquisition for us, especially with the AT&T vehicle orders they are currently working on and the other project they are pursuing.

On October 7th, we paid off our Facility A term loan with Plains Capital Bank, which had about $17 million outstanding at that time, and simultaneously amended the loan into a $20 million line of credit that we can draw on over the next two years. As we did not have an immediate need for these proceeds, we thought this was prudent as they will save us about $900,000 in interest expense per year while the money is not outstanding as debt and we still have access to the funds in the future for when we need the money.

As of today, after the BAF acquisition and the note payoff, we still have about $60 million in the bank to cover our future capital needs before drawing on the line of credit. So, barring any large, unanticipated expenditure, we should be good through next year from a cash perspective. And with that, operator, please open the call to question.

Thank you. Ladies and gentlemen, at this time we will be conducting a question-and-answer session.

(Operator Instructions)

Our first question comes from the line of Rob Brown with Craig Hallum. Please proceed with your question.

Good afternoon. Nice job on the quarter. I wanted to give a little color on your backlog and pipeline, given your stations in the pipeline in the past. Can you give an update?

Right. Sure, Rob. I think last time we were on this call, I said we were going to complete about 25 or 26 stations for the year. That is the contracted amount of our pipeline or our backlog, I guess, we use both terms sometimes; but that number has grown.

So, currently on the engineering carpet those stations under contract has grown since last time we talked, about 34, that are either in permitting or under construction right now. And then, the number is still in the low 80s that is in the pipeline. Those are stations and we are working with them. We are negotiating deals. They are not under contract but we have seen that number grow. I would say, Rob, that is fairly conservative. We have been working with our guys. Those stations have to go through some betting before we add them in there. So I still like what that looks like.

Excellent. And then, on BAF, was there any revenue in the quarter and then maybe give a sense of how much revenue that 483 truck incremental PO could be?

Yes. Rob, we did not do the acquisition till October 1st, so the BAF results won't show up in our numbers until the fourth quarter. As we talked, basically the conversion of these types of vans are somewhere in the $15,000 range a pop. You can do the math there to see, 400 or 600 or if AT&T pulls off the 1,500 or so they are talking about doing next year. You can see that that business starts to ramp up pretty nicely from the revenue perspective. We certainly look forward to having a drop on some financial help to our results as well.

Okay, great. Thank you.

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

Hi, good afternoon, guys.

Hey, Graham.

On the DOE Clean Cities Awards, you mentioned you gave an update in terms of the numbers there. How much is still out there under the hunting license, if you will, that you guys are still chasing?

I hate to give a number but I know just being on this business long time, I know how all those work. What happens is, people submitted proposals and, not surprisingly, the political nature of the way these things go, those words were spread out around the country. What we find often is that while there are a lot of good intentions, some of these projects are noteworthy and I think that ultimately will be successful projects, might have whacked some of the funding.

And so, I do not know if out of the $300 million if $50 million or $100 million falls in that category, but I would say it is significant. I do not want to say too much here but I know for instance in one state just this last week, it looks like four new projects are getting ready to come our way. And in another state, it looks like two and potentially four.

There were a bunch of different projects and I do not have a number off the top of my head that were ones that were funded and were significant more than the number of stations I was talking about. So, I think over time as these awards have to move to the contract phase, I feel pretty confident we will continue to peak up more. (inaudible) has told us that they had hoped to have a lot of these in contract and of course they moved rather slowly in December.

Okay, great. And then, looking at the new gallons that you added in the quarter or the sequential growth there, can you give us a sense of how much of that came from the Hanover acquisition and how much came from Phoenix and how much of it was an expansion at the port versus just an expansion of existing customers that you have adding more fleets or more vehicles and ramping up?

You bet. The Exterran added about 6.4 million gallons of the increase. The port is about 750,000 gallons of the increase. Phoenix was about 1.2 million gallons of the increase. And then, the other big one was the DCE. As you recall, we picked that up in August 2008, last year. And then, with the capital improvements and enhancements and all that good stuff, it has really picked up its production and it kicked in about 1.3 million gallons of the growth between periods as well.

Got it. And then, in the port, I mean, we really still haven't seen the contribution from the truck awards itself.

I agree. You all have seen their end process and we have talked about it before. It takes a little while for the grants and everything to matriculate through the process. It's all in motion but unfortunately, as you know, it takes a little while to get all that done. They are rolling along and coming along. So, hopefully they will just continue to roll out and start to hit our numbers over the fourth quarter and in the next year.

Great. I will jump back in queue. Thank you very much.

Our next question comes from the line of Eric Stine with Northland Securities. Please proceed with your question.

Hi, everybody. Thanks for taking my call. This is Ian actually sitting in for Eric today. I just want to get back to Rob's question. I think you mentioned that there were about 80 stations in the pipeline. Any sense of percentage between O&M deals and supply deals of those 80?

My perception is a lot more of a Miranda supply variety than the O&M variety. I think the Exterran acquisition is the biggest impacting our numbers you are going to see from the transit side. A lot of the new stuff we are working on is trash projects and regional trucking and other projects along those lines. We are more building the stations for selling the fuel, doing what we do more on a regular basis. I would think as those continue to roll out and come online, you are going to see a lot more of those on our main line of business of selling fuel.

Okay, alright. And then, internationally, obviously you got Peru going but many thought about other international advancement in the next --

I have said this before. We have an opportunity to look at a lot of things. Some countries where there is a lot of exciting opportunities, it just does not seem to fit us. Either the gas utilities are owned by the government or we just have a hard time seeing how we fit in. We are working a little bit with some opportunities in the United Kingdom. There we think the model might fit our business and so we will keep you posted on that. I do not have anything yet to announce on that.

Okay, great. And then, just lastly real quick, the VTEC, any feeling for the renewal on that on December 31st that is coming up?

You are talking about VTEC?

Yes.

VTEC, as you well know, is currently embedded in the NAT GAS Act. And you are right, the fuel portion of VTEC expires end of this year. We have been talking with the committees of Congress about depending on the pieces of the NAT GAS Act ensuring that the VTEC would get extended in what they call extender bills. It's one of those things where you do not want to let up on the gas on the NAT GAS Act and switch the focus over to extenders, but this is the way that game is played.

And we are beginning to talk to them to make sure that if the NAT GAS Act becomes bogged down because of the other agenda in Congress of other items, make sure that the VTEC portion gets extended. I feel relatively comfortable that that will happen because, as you know, many of the other fuels need to get that extended as well. So, this is a regular bit of housekeeping that the Congress does. It is not a huge "ask" and I think that if we get to the point where we have to get it in an extender bill, that will happen.

All right, great. Thank you.

Our next question comes from the line of David Woodburn with ThinkEquity. Please proceed with your question.

Nice one on the volume this quarter, guys. Question on the margin per gallon, Rick and Andrew, do you think that with jump in trends of volume from Phoenix, do you think that margin per gallon has hit bottom or at least close to bottom, and as you get more trucking and fleet business, non-union fleet business, that it will, at least, stay flat if not go up?

Yes, I think you are right on there. As we talked last quarter, this is the quarter when the Exterran acquisitions as well as the Phoenix LNG supply contract coming back on was just a very significant portion of our total volumes this period. The nice thing is as we go forward, as we are talking about the backlog unfolds and some of the other projects we are working on unfold and stimulus projects we are talking about unfold which are all in our higher margin businesses, our commercial retail world, our trash world, et cetera, that should hopefully bring that number back up, which obviously is something we are focused on because obviously it really drives our business as well from a financial results perspective.

Okay. Andrew, in looking at what the ANGA group is doing, it seems like obviously very well funded but a brand new group, do you think they fit full stride yet in terms of their activities?

No, I do not. But let me say, I am really proud of what they have been doing as an industry. I was in the EMP sector in the old days with Mesa and with Boone years ago and we are one of the few that got actively involved, and I think they correctly analyzed the situation.

Well, here they are. It is a very large, significant company that creates a lot of jobs for the country. They just did not have the right set-up as an industry to protect themselves and promote themselves like they should. And so, they pulled together a war chest of about $80 million, which may be less than what Coal has got at their disposal, I am not sure, but it put them in good stead.

And so, I am pleased that they are doing that. We have met with a lot of them. They have met with Boone. They have been helping the Pickens plan. They have added lobbyists on Capitol Hill. You have seen some of their ads.

Now, I would say they are just beginning to get active. Their messages will begin to roll out. You have seen those commercials talking about Eureka, that natural gas was plentiful. They have been working Capitol Hill pretty good and getting the word out that there has really been a change and the change being increased natural gas supplies. So, I think look for a lot more from them on the lobbying side and the government relation side as well as promoting the message of natural gas for transportation. I think it is getting done.

All right, great. Thank you.

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

Good afternoon, guys. How's it going? I just wanted to touch on the 12 regional contracts that you talked about. You guys gave some decent detail, 325,000 gallons a month, if I heard you right. You are talking about 4 million per year run rate. I just wondered with what you are seeing in the current pipeline, is that the sort of growth that you guys think is achievable on a quarterly basis? Do you think it is higher than that? What is the strategy there?

And then, along with that, are there additional large chunks of gallons that you were looking at or does the growth in the future for the seven, eight, 12, 18 months all look like these smaller projects that were all lumped together to create the growth?

No. Rick will maybe give some more color. Here is how I break it down. Those samplings that I gave you are really just incremental load. Now, some of our new stations are new but most of those are not. And that is just same-store sales growth, so that we see are just ongoing businesses.

Like for instance, the Dallas. We are fueling 13 of those trucks that now have arrived but they have got 17 more getting ready to come. You will see that all over. We are opening up other new airport stations and we are getting other fleets come on. So, I think you can look for that as just an example of ongoing same-store sales growth.

Now, those are big chunks. They're big chunks in the refuse market and in the regional trucking market. Figure that a regional truck can use anywhere from 15,000 to 20,000 gallons a year. And so, you add significantly -- you have heard me talked before about you get into several thousand truck numbers. Those are the bigger pieces that I think add in and that will add in our commercial retail business. So, just look at that as a nice-to-have business that comes in and it is very nice incrementally. It helps drive nice margins to the bottom line of those current stations, but there are bigger pieces to come.

And then, secondly, on the gross margin for gallon of $0.42 in the quarter, obviously the down take quarter-on-quarter makes sense. Rick, any color on growth getting back to that $0.49 or possibly greater? I know the growth of 4-year run rate, and we had I think expected it not to take down quite that much during the quarter. What does that mean for the rest of the year and then as you look forward into next year, what can we be thinking about?

Yes, I mean, we are certainly focused on getting back to the levels where it was at in previous quarters in previous periods. When and how fast that happens? The nice thing is the math works out that if we can get the next 20% of our volume growth into our higher margin businesses, that number should start ticking back up to where we have seen it before.

So, when and how fast that happens, that is just going to be predicated on how fast these port trucks roll out, which we know were coming, how fast some of these other projects we are talking about come online. We are also trying to do some fairly significant things with our landfill opportunities and other things. We are looking at out there which are nice pieces of the business for us. So, a lot of it is just predicated on how fast a lot of the stuff comes on, but we are certainly focused on getting back to more historical type of level as soon as we can.

The thing that Rick and I talked about a week or so ago is that knowing that you had noticed this margin going down, it really does have a lot more to do with the transit volumes that are added on in the period. But it is not a sign that we have seen the best of the margin growth because the markets that we are really focusing on and that we will be adding, the regional tracking and some of these others are substantially higher margins. So, I think you will see that reverse itself.

And then, finally, this non-contract with Verizon and AT&T for their new vehicles coming online. I know that is not an issue for you guys. It is perfectly well and you see them fuelling from your public stations. Have there been continued discussions on that front to building stations directly for those customers, or are they perfectly happy with the current arrangements and going to stations on a more public basis?

No, they have and we will. But they are smart guys, and so they figured out that in certain places they do not need stations and certain places that they do. So, we're working through that with them. We are going back and forth with them on how we will develop some of those for them. So, it will be a blend. But there is no -- for instance, in a couple of these places we are literally down the street with a nice public access stations. So, it just makes sense for them to do it this way. We have a lot on the stations in the Northeast and other places that they will avail themselves as well. But it will be a blend and we are continuing to talk with them and negotiating some stuff on building some more stations for them.

Sounds good. Thanks, guys.

Our next question comes from the line of Rupert Merer with National Bank Financial. Please proceed with your question.

Thank you. Good afternoon and congratulations on your solid results.

Thanks, Rupert. How are you doing?

Very well, thanks. It looks like you had a nice drop in SG&A in this last quarter. How you should we look at that going forward? Is that a run rate we should expect or you expect that to pick up the equity on the BAF acquisition?

It will certainly pick up a little bit with the BAF acquisition in the fourth quarter. Their G&A and their operations will start showing up in our numbers. They certainly have their conversion facility in Dallas and all the requisite G&A on their business.

The other thing is, just going forward and heading into next year, we have got some cost cutting measures which are helping us this year which we will continue into next year. But next year, we anticipate ramping up pretty considerably on the sales and marketing side, some other areas of policies and some of those types of things that really capture the momentum which we think is building our business now, while the economy is down a little bit. Once that thing turns, we want to make sure we are in the position to really capture the upswing on this deals. So, we may layer in some more costs next year so just, FYI, that may be coming as we build for the anticipated growth we see coming in the business.

Okay. Can you give us an idea of the scale of that ramp-up?

It is hard to say. It depends on how fast and how we see it coming. And we do not give guidance or so, but you can probably make some assumption, certain percentage of increase where we are tracking at. Obviously, we view SG&A from more of the cash perspective than what the actual number looks like in our P&L. We pull out all the stock-based comp and all the other funnier stuff that is in there. And once you can strip all that out and look at that number, I would ramp that up a little bit assuming a growth-type environment if I can come up with some reasonable numbers.

Okay, great. Just one more quick question, what do you anticipate will be the timing on the ramp-up of volumes associated with the Clean Cities Program?

Well, as I said, it is always a little murky when you are dealing with the DOE. But they are now -- they will push those contracts out in about a month; they said in December. So, we have to take them at their words so that means -- December launch is a pretty short month, I have to tell you. And so, I am guessing that you will see those in December and in January.

But that is enough for us. Once we get those signed, then we will start. We will start on the vehicles that will be ordered and we will start on the stations. So, it takes anywhere from four months to six months to get through the construction of these stations. So, we will see if that will begin to come on in the mid-part the early four to five months, five months into 2010.

Okay, great. Thank you very much.

Our next question comes from the line of John Roy with Janney Montgomery Scott. Please proceed with your question.

Hey, guys. Hey, quick question, with all these growth companies coming, are you guys seeing any competition as yet that is out there? Are you seeing anybody that is talking about it?

Yes, we are. We are starting to see it. It typically, John, takes the look, I guess it is the right word. It shows up as small companies that are willing to build somebody a station. And they do not have a lot of -- they do not have much track record and they have not done much. But everybody has figured out that if you can go and build something for $500,000 to $1 million, there may be some profit in that.

There are not many, if any really, in the business like us that really provides turn-key set of services that help analyze the fleet and help hedge fuel or sell fuel and operate stations long term and do all those other things that we think are important to really make people come along. Certainly, we do not have much competition on the LNG side just because of the production.

For instance, I heard the other day there was a job walk at an airport where there were 50 people there. Now, some of those will not end up being able to produce takers. They just do not have the right. They will not meet the right requirements but we are starting to see some of that.

And so, if this business goes the way we think it will, you will realize -- you are going to draw some competition. You are just going to see it first with some of these small mom-and-pop construction companies. And they keep us on, let us face it, but I do not know that we are going to lose a lot of stuff to them right now.

Right. On the LNG side, could you have an idea of how much is available out there in the US versus -- I mean, if you really want to ramp up, are you going to need to build another plant?

Right. I mean, if it goes the way I think and I have to be careful here but I really do think that just from watching the media and what is happening with the climate change and everything else, I really do think the natural gas is going to move into regional trucking and in goods movement.

The NAT GAS Act is asking to be a nice catalyst if it happens. But you know what? It is going to happen anyway because of the economics. And so, when you start looking at -- I have used this before and I'll use it again just for fun. This is just the one that I have in my head. Recall that we just got through talking about that. At the end of this year, you will be on your way to about a thousand trucks on the port. But there are 3 million 18-wheelers in the United States, right? And they turn over in the good year. We are not having a good year in trucks. We have about 95,000 18-wheelers of class A trucks purchased this year, but on a good year you do more like 225,000 to 250,000 trucks.

So, if you sell over a four or five-year period, you can get yourself around -- figuring you are not going to get all of those but you could get yourself to a 350,000 truck number. That is the number that we have shared with the administration and others and it had been [vetoed] by some pretty smart people. Well, that is 5 billion to 6 billion gallons of diesel.

Right.

And it requires a lot more LNG. It totally outstrips anything that we have in the United States right now. That is why we have been actually working and talking with some of the large natural gas producers. Now we think that there will come a time relatively soon and that is why we have been meeting with them that they ought to develop some LNG plants.

Right.

We see working with them to do that. Sure, we will end up on the trigger at some point here as we see this inflection point on our Boron plant but we will need more. And we think we will be down the road and making some deals with some of these fuel providers and we will get the LNG.

Got it.

But it is -- it will get pretty big and it will be a big business.

Thanks, Andrew.

Thank you.

Our next question comes from the line of Peter Christiansen with Bank of America Merrill Lynch. Please proceed with your question.

Hey, guys. Thanks for taking my question. Also, for the increased transparency of this quarter, I thought it was great of you guys to lay out some of the incremental growth plans lying ahead. Couple of questions here, on the national fleets' opportunity that you see, do you think there is a chance that some of these opportunities who were building these private plants, private stations, will use multiple suppliers?

So, if I understand what you are saying, you mean like will Walmart go out to bid?

Yes.

Yes, sure. Some of these big firms are really very well-versed in shopping for things. So, yes, there will be competition for that kind of thing. And that is where we have to distinguish ourselves by service and price and by experience, sure.

Some of these very large fleets are used to doing some of it for themselves. So, you will -- we have seen that before. We have sometimes seen big sophisticated companies decide they will do it themselves and then after a while they figure out it is a little bit further outside their core competency and then it comes back to us. But you will run through all those different scenarios.

Thanks, great. Also, with the economy starting to come back a little bit, have you seen increased utilization from your customers just from your existing customers, using more gallons?

It is a good question. We saw a dip toward the end of last year and in the first month or so, but I do not know. Rick? It has been a little bit. It is a firm sum but I do not know if I have that up at the top of my head.

Yes, I think firming is a good word. It has certainly taken back. The nice thing is the natural gas is cheaper than gas and diesel. So, they are certainly incentivized to use their natural gas vehicles, barring the other benefits. I think that is accurate.

We saw, we heard and tell. I do not know that we -- it is hard to get your arms around some of these. We know that some of the transit properties curtailed some routes, curtailed some service. I think a lot of that has come back. So, I do not know. That is the best we can do for you right now.

That is great. Just one last quick question, on the warrants, I know you said we discussed the reset date so the strike price does not change much. But did the strike price change when you went through with the follow on?

It did. It went -- from the $13.50, where I believe it was originally set at, it went down to, I think, $12.86. My legal guide is nodding his head so that is a good sign, also in our Q as well. And the nice thing was we did feel good that we did get pass this first reset. There was no reset. Now we just have to deal with this for another year. We tried to put out that 8-K, so hopefully everybody saw the numbers so they know what it is; it is non-cash. Everybody can realize, A, the magnitude of it and, B, what it is so you can deal with it appropriately.

Are you going to continue to release an 8-K?

Yes.

On a regular basis?

Yes.

Okay.

Obviously quarterly.

Great. Thanks for your answers.

Thank you for the questions.

Welcome for the answers.

(Operator instructions)

Our next question comes from the line of Mark Segal with Canaccord Adams. Please proceed with your question.

Hi, good afternoon. Beyond the Verizon and AT&T, can you quantify the CNG vehicle fully pipelined that you see out there?

Well, I thought you are going to ask me what are the national kinds of fleets. So, Hertz and Avis and Park & Fly and Parking Spot and Cox Cable, those are all CNG fleets, Republic, Allied Waste Management, mostly CNG. The way this business is developing, think about fleets with smaller vehicles, so vans and pick-up trucks; those will be CNG.

Trash trucks, you will have some LNG but most of refuse fleet, in my humble opinion, will go to CNG as will most transit buses. And really, trucking is where you will see more LNG. Of course, it is a big market. But those big national fleets that I talked about J. B. Hunt, Knight, Swift, those are all the LNG.

Okay, thank you.

I do not know if that answered your question.

Yes.

But that is the way it will break out.

Thanks.

Our next question is a follow-up question from the line of David Woodburn. Please proceed with your question.

Forgive me, guys, if I missed this, but did you give the breakout of LNG versus CNG versus landfill methane?

I cannot believe it. We almost got through the call without somebody asking. No, we did not and we would be happy to. Here you go. Third quarter of 2008, CNG was 12.3 million. LNG was 5.8 million, obviously these are millions, and biomethane was 0.6 million to get you to your 18.7 million gallons.

The third quarter of 2009 for CNG was 19.9 million, LNG was 7.7 million and biomethane was 1.9 million and that gets you to your total of 29.5 million. That is also in our Q which we filed earlier as well, if you want to look for it there.

Okay. So, a little increase in the biomethane, is that stopped] Is that going to be level from now on? Or is there still some potential ramp-up with the existing infrastructure there?

Well, it is a 1.3 million increase so we got to like it but actually, yes. We are producing, with the new capital upgrade the level where we can run for a while. Now, we are looking at increasing production further because, obviously, there is a lot more gaps down there with the Shell deal and all that stuff coming together and making that thing really economic. We are looking at a way to expand that and do some things to get that production up. Bu for now and in the short term here, it will probably be at that current level for a little while.

All right. Thanks a lot, guys.

There are no other questions in the cue. This does conclude our conference for today. You may disconnect your lines at this time and have a wonderful day. Thank you for your participation.