Clean Energy Fuels Corp (CLNE) 2011 Q2 法說會逐字稿

Greetings and welcome to the Clean Energy Fuels second quarter 2011 earnings conference call. (Operator Instructions). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ina McGuinness. Thank you, Ms McGuinness, you may begin.

Thank you, operator. Earlier this afternoon Clean Energy released financial results for the second quarter ended June 30, 2011. If you did not receive the release, it is available on the Investor Relations section of the company's website at www.cleanenergyfuels.com. This call is being webcast and a replay will be available on the 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 of expression reflecting optimism, satisfaction with current prospects as well as words such as believe, intend, expect, plan, anticipate and similar variations identify forward-looking statements but their absence does not mean 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 is could cause or contribute to such differences are described in detail in the risk factors section of Clean Energy's form 10-Q filed today. These forward-looking statements speak only as of the date of this release and the Company undertakes no obligation to publicly update any forward-looking statements or supply new information regarding the circumstances after the day of this release.

The Company's non-GAAP EPS and adjusted EBITDA will be reviewed on this call and exclude certain expenses that the Company's management does not believe are indicative of the Company's core operating results. Non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP and should not be considered as a substitute for or superior to GAAP results. The direct comparable GAAP information, reasons why management uses non-GAAP information, a definition of non-GAAP EPS and adjusted EBITDA and a reconciliation between these non-GAAP and GAAP figures is provided in the Company's press release which has been furnished to the SEC on Form 8K today.

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

Thank you, Ina, and good afternoon. Everyone. Our market timing for announcements is impeccable. Today we reported revenue of $69.1 million, up 57% from $44 million in the second quarter of 2010.

We delivered 39.2 million gallons during the second quarter of 2011 which is up from 31.1 million gallons a year ago.

IMW was off a bit during the quarter which affected our earnings and there were several reasons for this that Rick and I will explain later in the call. All in all I am satisfied with how the business has performed and our accomplishments over the first half of the year.

One of our biggest accomplishments so far this year is obtaining Chesapeake Energy's $150 million investment in clean energy that will allow us to accelerate the formation of America's Natural Gas Highway. We believe this rollout of a fueling station infrastructure along major trucking corridors comes at a good time and will lower the last big barrier to using natural gas fuel trucks which is access to fueling stations. Also, with the 12 and 13-liter engines on the way to market in the last half of next year which is a very popular engine size for heavy duty trucking fleets, the introduction of these engines will time up nicely when we have the corridor under way.

In addition, fleet operators continue to be interested in the fuel savings they can achieve by operating natural gas. To recap some of the key points of this endeavor over the course of the next few years we expect to build close to 150 stations. We already have eight corridor stations under development and have become -- begun site investigations on another 60 locations.

These stations will be the backbone of the corridor. They will provide fueling access along major corridors such as the I-10, the I-5, the I-40 and the I-95. The stations will be spread out at approximately 250-mile intervals and will utilize many Pilot-Flying J locations under our exclusive agreement with them. Our Northstar subsidiary will play a key role in constructing these stations.

In the meantime our national fleet program is gaining momentum. We're finishing up permitting on the LNG station in Las Vegas that will be anchored by 48 UPS trackers. We're also beginning to fuel the Dillon transportation fleet in Dallas. These trucks consume approximately 45,000-gallons per year each. With substantial fuel savings from both Dillon and its shipper, Owens Corning, we're now expanding this effort to plants in Ohio and in Georgia. We expect other plant locations will follow.

We also recently signed the second contract with Fair Oaks Dairy to build and operate additional stations in Sellersburg Indiana. We like this contract because Fair Oaks is a leader in the dairy sector and it has great growth potential for us because dairies operate 24/7, and they have to move the milk to market making them very high volume fleets. Coca-Cola and Pepsi are adding more than 50 vehicles combined to their operations in California and Texas, and they have indicated there would be additional deployments in 2012. In addition to these deals, Dean Foods just deployed five tractors to serve customers in Southern California.

As an option to purchasing natural gas trucks, there are also leasing opportunities starting to develop in the marketplace. On June 28 Ryder announced a secure lease agreement for 87 heavy duty natural gas trucks from customers including Golden Eagle Distributors and Mohawk Industries. Ryder expects to have 202 natural gas vehicles in its fleet by the end of 2011.

In the refuse sector we're in the final staging of negotiating national services agreement with the nation largest refuse fleet. This is an excellent for example of how they the assets of IMW, Northstar and our service operations can create a compelling customer offer. This market continues to grow rapidly and you may have seen the news in July from Waste Management they celebrated their 1000th natural gas truck in the fleet. Their stated goal is 80% of new trucks in 2012 will be natural gas. Republic has indicated they would purchase 550 trucks in 2012 and 20 stations.

In addition to the big national players in the refuse sector which we just talked about it is important to reiterate the conversion of natural gas is also happening with the smaller commercial and government fleets around the country. During the past quarter more than 150 trucks were ordered or delivered by such fleets in 11 different states. We see this trend accelerating as local and regional players are moving to CNG.

In the taxi and airport sectors we continue to see good growth around the country including Chicago, Dallas, California, New Jersey and Seattle, more than 225 taxis or shuttle buses were delivered during the second quarter which helped to build volumes at our existing Clean Energy CNG public access stations. In addition during the quarter these same fleets ordered more than 300 vehicle which are scheduled to be delivered before the end of the year.

BAF continues to perform well in spite of reduced orders from AT&T and Verizon. Through June 30th, 2011, BAF converted or sold conversion systems for 643 vehicles compared to 691 a year ago. BAF also continues to cement its reputation for quality. They recently completed ISO 90001 certification and are Ford's only qualified vehicle modifier for gaseous fuels. BAF has expanded its product offering to include Ford's Transit Connect which seems to be well received especially with taxi companies. BAF has captured taxi business in Chicago, Connecticut and throughout California with this card certified product. Earlier this year BAF introduced its bio fuel truck and van and these new products certainly serve to broaden their market opportunity.

Although IMW was off this quarter we believe the outlook for the IMW business remains bright. Our team recently had a good meeting with China Gas who was taking measures to focus on its natural gas fueling operations and hopes to complete 45 stations by April 2012. In addition, China Gas is now expanding beyond CNG to including LNG and LCNG stations and with our LNG know-how we're hoping to develop our relationship with them by providing our expertise in this area.

IMW continues to be an innovator on the product front. Recently IMW introduced its portable CNG fueling station unit in the US which will be used to support the transition of vehicle fleets to natural gas in key industries such as refuse. Initial interest in this product has been strong and we envision that this product will allow us to highlight our suite of fleet support services and provide other services to our customers. Also with support from Northstar, IMW recently contracted with a company in Canada to install its first LNG station.

Let me talk a bit about our engineering carpet. Engineering carpet is growing rapidly, and we're now at 115 stations. This is up from 82 the last time we talked. This includes 36 refuse stations, 18 corridor stations, 15 transit and 38 airport and taxi stations. Our pipeline which encompasses stations in various stages of elevation, qualification, and negotiation and new fleet deals totaled 348.

Since our last call we have closed 55 deals. Vehicle deals are important because they add volume to existing stations. Our bio methane subsidiary continues to make good progress on all fronts. We anticipate commencing construction on our plant at Sauk Trail Hills Landfill, Michigan by the end of the summer and we have recently completed well field improvements at our project at McCommas Bluff in Texas. Plant improvement are underway at McCommas that we believe will lead to a ramp-up in gas volumes produced towards the end of the year. Our bio methane team is engaged in due diligence in preparation of proposals with respect to many potential bio methane production sites and we look forward to landing additional projects where we can replicate the success we have had in McCommas

I know I can't close this call without giving you an update on the Nat Gas Act. We continue to push our national leaders to formulate a long term energy strategy that includes natural gas vehicle as part of the solution. It is also true that with the incremental costs of the heavy duty engines coming down as more engines are produced and with the very significant fuel savings, the economics are compelling for many fleets bought the Nat Gas incentives.

We are not waiting for DC to act to make the investments necessary to ensure that Nat Gas-- that natural gas becomes an increasingly important part of our nation's fuel supply and move our company forward. Given the current political climate, it is difficult to speculate on timing. As are you likely aware, the house ways and means committee, two subcommittees actually, scheduled a hearing on August 3rd at which I was invited to testify. This hearing was postponed due to activities related to Congress working on raising the debt ceiling and the August recess. We're told it will be rescheduled in September.

With that let me turn the call over to Rick.

Thanks, Andrew. Before I review our financial results, I would like to point out all of my references to our results will be comparing the second quarter of 2011 to the second quarter of 2010, and the first six months of 2011 to the first six months of 2010 unless otherwise noted. Volumes rose to 39.2 million gallons during the quarter, up from 31.1 million gallons. For the first six months of 2011 volumes increased to 74.7 million gallons, up from 59.7 million gallons. The increases between periods were primarily due to the addition of several LAMTA O&M deals, several new refuse customers, and the new LNG O&M customers we obtained with the Northstar acquisition.

Revenue increased to $69.1 million during the quarter, up from $44 million. IMW contributed $14 million of the increase, Northstar contributed another $2 million, and BAS revenues were off $2 million between quarters. For the first six months of 2011 revenues increased $134.5 million, up from $83 million a year ago.

We lost $0.10 per share on a non-GAAP basis in the second quarter of 2011. This compares with a non-GAAP loss of $0.06 person share in the second quarter of 2010. For the first six months of 2011 our non-GAAP loss per share was $0.15 per share and it was $0.13 per share in the prior period.

Our net loss on a GAAP basis for the second quarter was $ 5.6 million or $0.08 per share which included a non-cash gain of $4.8 million related to valuing our Series I warrants. This compares with net income of $9.9 million or $0.14 per share in 2010 which included a non-cash gain of $16.6 million related to valuing our Series I warrants

For the first six months of 2011 our net loss on a GAAP basis was $15.4 million or $0.22 per share and included a non-cash gain of $1.5 million related to valuing the Series I warrants.

For the first six months of 2010 our net loss on a GAAP basis was $14.5 million or $0.24 per share and included a non-cash loss of $2 million related to valuing the warrants.

Before I move on, I would like to emphasize that the Series I warrant adjustment 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 warrant each period due to certain anti-dilution features in the warrant. The non-cash charge increases or decreases each period based primarily on the increase or decrease in our stock price during the period. We will need to continue to value the warrants in each period and record a non-cash gain or loss until they are exercised or they expire which is May 2016.

Adjusted EBITDA in the second quarter 2011 was $0.9 million which compares to $1.4 million in 2010. For the first six months of 2011 adjusted EBITDA was $4.8 million compared to $2.3 million last year.

The first three quarters of 2010 did not include any Volumetric Excise Tax Credits or VEETC revenue, as VEETC expired on December 31, 2009, and was not reinstated until the fourth quarter 2010 when it was made retroactive to January 1, 2010. For purposes of comparison VEETC revenue for the second quarter and first six months of 2011 was $4.7 million and $8.9 million respectively.

Adjusted EBITDA and non-GAAP EPS are financial measures we developed to highlight our operating results excluding certain large, non-cash or nonrecurring charges that are not core to our business including the amounts we are incurring for the Series I warrant evaluation and our stock-based compensation charges from our option. Adjusted EBITDA and non-GAAP EPS are described in more detail in the press release we issued earlier today. Our gross margin this quarter was $18.7 million, which compares to $13.4 million in 2010. For the first six months of 2011 our gross margin was $37 million compared to $24.8 million.

As Andrew mentioned, IMW had a tough second quarter which impacted our operating results for the period. Their margins were negatively impacted by several factors including the impact of the weaker US dollar on the foreign currency exchange calculation, a delay in orders from China Gas, a postponement of orders from its large contract manufacturing customer until sometime next year, and a shift in its sales mix from higher margin units to lower margin units during the period. These items contributed to both lower revenues and lower margins relative to our expectations. We have been working with the team at IMW to improve their productivity, operating efficiency and sales efforts over the last half of the year. But they will be challenged to replace the lost contract manufacturing business over the last six months with the current economic conditions throughout the world.

One thing to keep in mind, however, is with Clean Energy's increased construction activity, more and more of IMW's production is going to fulfill Clean Energy orders that do not immediately show up in our financial statements as sales revenue or margins. These sales are inter-company sales and get eliminated in consolidation. For the second quarter of 2011 IMW sold Clean Energy $3.9 million of equipment that does not show up in our financial statements.

Also, this amount is anticipated to increase over the last half of the year. Our margin per gallon on our fuel sales was $0.24 which is consistent with the first quarter of 2011.

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

Operator?

Thank you. (Operator Instructions). Our first question is from the line of Graham Mattison from Lazard Capital Markets.

Good afternoon, guys.

Hey, Graham.

Wondering, a question on SG&A. It picked up quite a bit sequentially in the quarter. Just wondering, if there might be in the Q&A I haven't had a chance to get to that part yet but is there some one-time items in here, year end bonuses or is this just the expansion with new engineering people and going forward is this a run rate we should think about for the rest of the year and into 2012?

Yeah, Graham. There is not a lot of one-time stuff in there. We did incur some advertising stuff that might have skewed it a little bit. We do that from time to time, so that's kind of part of our deal. It basically is.

We're anticipating some significant growth that we want to make sure we're ready and have the foundation in place to be able to support that growth and consequently we're gearing up our sales force and training up some engineering people and construction people and while you're doing all of that, obviously you're hitting your SG&A line until they get out there and working on projects at which point they capitalizable. Going forward, we have always kind of said that from an SG&A perspective we're always watching it.

We want to spend our money wisely, but we're also cognizant of the business opportunity and we don't want to miss anything, so to the extent we see an opportunity to either increase lobbying efforts to support some legislation, we're going to do that or if we see some advertising opportunities that we think need to be undertaken to aggressive market we're going to do that and we're obviously ramping up as this corridor proem and the other things about to take off. At the Chesapeake investment we're going to be building hundreds of stations over the next couple of years and we want to make sure we have everything in place to do that as well, and also on just the general SG&A side we're doing a lot of things from the system perspective and IT perspective, again, just to make sure we can satisfy customer needs from billing and information purposes as well as just internally making sure we have enough horsepower on the IT, and (inaudible) we have an infrastructure site, to handle everything.

Great. That makes sense. A question on the margins going forward. I know that this quarter probably had a lot more transit volume lower margin work in there. Can you give a sense how to think about margins going forward for the rest of the year and, as the new retail stations roll out, a what type of margins should we be thinking about? Is $0.40 a gallon still the right number?

You know, we don't forecast those types of numbers. I will add or say we were encouraged that even with adding additional LAMTA volumes during the quarter our margin per gallon was consistent with the first quarter which I thought was strong, and that to me says we're adding other projects to offset the lower margin primarily in the refuse and the airport sectors which are obviously at the higher margin. Going forward, hopefully we've bottomed out now that we have all of the LAMTA business in, and with all the other projects coming on, a lot of them are in the higher margin world, be they transit, excuse me, trash or airports or shuttle buses, et cetera.

This should help a little in the interim and then the really big increase should come down the road once we get this corridor built out and the heavy-duty trucking deals kick in and that's in our commercial retail model which is where we do make our higher margins and where we're pricing relative to the diesel essentially, so that's a little ways down the road. Once that starts happening the thing we like is the magnitude of that market is so large that it can significantly increase our margin per gallon quickly because if we're doing a couple hundred million gallons now at $0.24, it doesn't take a lot at a much higher margin, a 30 billion gallon market to really start to swing that up, so when and how fast that all translates and comes to fruition I guess we'll have to wait and see. That's from a strategy perspective what we're looking to do.

Okay. Great. Very helpful. I'll jump back in he queue. Thank you.

Our next question comes from the line of Rob Brown from Craig-Hallum.

Good afternoon. Wonder if you can give us a little more color on IMW. First question is the quarterly run rate the level we should expect near term, and then maybe just get a little more color on the contract that got pushed out and you say contract manufacturing?

YesAgain, we don't forecast revenues, but with the loss of the contract revenue and it is not a loss, it is just their business slowed down so they correspondingly turned around and slowed us down. We're talking to them now with-- working with them trying to get back on track at some point next year, and we're hopeful and think that will happen, so in the interim, you know, with the world economy where it is at, and probably going to clip along and China gas is starting to kick it back up a little bit.

As Andrew mentioned they're looking to do 45 stations by April of 2012. The other thing which is kind of hidden in there that with Clean Energy doing so much more construction activity we're obviously using IMW equipment and a lot of their production is going to us which just doesn't show up in our numbers. They're generating economic value, it is just unfortunately not showing up in our numbers. I guess maybe that's enough to kind of help you come up with some sort of estimates of what you think.

Yes. And was that contract manufacturer for a different industry segment or did they slow down in a geography or was there something?

We have been kind of careful on this because this is a large conglomerate, a household name. We were providing actually more and more services for them for this product. It is large, energy, green energy equipment, and it just kind of slowed down. I think they got a little ahead of themselves and just put the brakes on the program, but it is a program that will continue and I think it is just taking a little breather here.

Okay. Good. Last question here. Just wanted to get a sense you announced your Chesapeake deal, I guess, have you seen an uptick in general interest? Is this more interested in the market and then just wanted to get the latest sort of thinking on the timeline and how that ramps through the next twelve months?

Rob, it really has. I don't know that you use active term but I think it is somewhat-- it is a bit transformed the way people thought about it. We have heard from dozens of shippers. We heard from trucking companies. We have heard from other industry players, other fuel providers, so we have gotten a lot of interest in it.

We have -- we had the Chairman of-- the President of the American Trucking Association came out and looked at our LNG fueling station because he saw what we announced and thought he better really get his hands on it and get an eyeball on our station, so we've had a lot of that kind of thing. It has helped as we have been able to tell the story and meet as you know, we have a focused sales group on the shipping community that contract out trucking services, and it is giving them a great deal of starch to know that the products coming and there will be stations there. In addition, we've had detailed -- since I would say the last three weeks we have had three detailed , long conversations, phone meetings with manufacturers, engine manufacturers and truck OEMs because this captured their attention as well. So I think it has been very helpful, and we have had other interests from others that would like to potentially do what Chesapeake has done. It has been important.

Thank you.

Our next question comes from the line of Brian Gamble from Simmons & Company.

Afternoon, guys.

Hey, Brian.

A couple of bigger picture things. When you think about the investments that Aubrey and Chesapeake made, have you talked to him since then? What has been Chesapeake investor feedback to him as to how his strategy plays in with natural gas long-term and what they're doing with their money and to the answer you just gave and saying that there are additional people that have expressed interest, was there anything there that he has gotten as far as either positive or negative attention that would propel people to do this similar thing or to negate them from doing a similar thing?

It is an excellent question, and I have had follow-up conversations with Aubrey, but I haven't asked that question, so I don't know exactly what his feedback is. I am sure if he had a great deal of negative feedback I would have heard that probably.

Probably.

I know he's talked to others, other financial type players in the business that have expressed interest and have wondered, asked him questions about that. I think it has been received well. You may have noticed, Brian, the advertising they did, that seemed to get a lot of positive feedback from others, so I can't answer precisely, but it is a good question.

Fair enough. And then, I don't know, it is hard not to ask a big macro question just given what we have been through the last three days in the market. When you think about the longer term strategy regional trucking, when you walk into those sorts of meetings and listen to individual people talk about pricing assumptions or margin forecasts, what sort of oil/diesel prices are they using? I mean, you're looking at a spread that obviously still as historic high gas to oil is roughly, what, 20 to 1? I mean, that's still --

It is a good question, and we do talk about it. I have said this before, but there was a time years ago where it was hard to engage the end-user, and let's take convince them that diesel might be under pressure because there was so much history of having relatively low diesel prices and with the shock in 2008 with the oil prices and the recent move up to $4, it is clear to us that when diesel goes over $3.50 and is approaching $4, and we have that out here in California it really sends ripples through the trucking-- and you have seen the articles in the New York Times and the Wall Street Journal about the problems with the surcharge and this and that.

It really sends ripples through the trucking business. I think most of the truckers and frankly the shipper s who is pay the bill, they're convinced that oil is going to be volatile and it is going to be -- but over time they believe it will be more expensive, and of course we saw it retrace back here $17 over the last couple of days and your point is right on mark. I think some people when they look at Clean Energy and trade our stock, I think they over-play the move down in crude oil and take their eye off the ball on the spread as you correctly point out. We were just unbelievable 25 to 1. We're still at 20 to 1.

The financial incentive is still really dramatic and especially when you take the crude oil and refine it and make diesel, there is still a huge spread in there. I think it all bodes well for us. I haven't seen any deterioration. I think people are really edgy about the price of the future price of diesel. You know, diesel fuel as it has been reformulated and as it has been put in the 2010 and late in these newer engines, it is not as efficient as it once was. All of that ended diesel engines are more expensive now. So all of that factors into the life cycle analysis these guys do.

Great. Appreciate your indulging the big picture question. Have a good one, guys.

Our next question is from the line of Eric Stine from Northland Capital Market it is.

Thanks for taking the questions.

Sure.

First thing to clarify, is it fair to say that just a handful of the 150 stations, the Chesapeake deal, just a handful are in the pipeline number you quoted?

You know, actually I know the numbers are hard to pin down. I try to be -- we obviously are consistent. The numbers that I just used in the pipeline don't have the corridor station numbers in there.

Okay. That makes sense.

The 18 or the 16, all of that and eventually 150, that number is not in the pipeline number.

Okay. That's helpful. That makes it a little more sense there.

I think going forward we're going to try to keep -- because the funding, at least the Chesapeake funding is determined, it's earmarked for this, we're going to try to help you by trying to keep that corridor thing separate so you can get a feel for how we're doing.

Okay. You do have -- as far as the engineering number, you do have some in that number?

Yes, in the carpet, Yes.

Yes

Okay. Thanks for that. Just any updated thoughts on what you think the mix will be in that 150 station number, what the breakdown between Pilot and non-Pilot might end up being and if you could just maybe discuss from a high level what the economics might be, what kind of economics you might need to give up to Pilot as part of that?

Okay. On the mix, and you know we're doing investigations on a lot of Pilot sites right now. I think I mentioned 60, made very good head way over the last few weeks. We have really gotten a hold of this, part of what you're seeing in the SG&A, we broadened our team of permitting people and others to do feasibility studies. A lot of these places where Pilot operates they're under regulations about what they can do with the particular site, so some of the locations are larger than others and so as we go through the Pilot locations we have a better sense.

Right now locations of let's call it the 18 and 60 that we have done the feasibility check on so far, a vast majority of those are Pilot's. I think 50 some odd of the 60 are titles right now. That number will go up. Some of that will fall out when we run into a permitting problem somewhere, but we consider Pilot to be an excellent partner. They're well positioned, relationship while it is still relatively young looks to me to be very constructive. We'll try to do a lot of those with Pilot going forward. I don't know, of 150, I don't want to speculate. I don't know how many will fit. A large number of them will be Pilots. Rick, do you want to handle the --

To be clearer, the other thing I was going to add is our deal with Pilot, they have a right of first refusal to participate with us if we do a station at a different site that's not on one of their locations, so in theory although it is sitting on a Pilot if they want to participate somewhere it could be under these same economics, we'll just (inaudible) chat about, and basically the way the deal with Pilot works is we're going to put the capital up to build the station, and then as the station builds volume and starts generating operating results, we get paid back our capital plus the specified return, and then after that is all done, then we start each providing various services to the entity we're going to get paid something for doing the O&M. They'll get paid something for the rent, and whatever is left at the end of the day we'll split those and so that's how it is working. It really is a partnership type deal which I think is on the call we talked about last time which is what we wanted as opposed to just some sort of lessor/lessee type of relationship and they seem totally on board. Andrew talked to their President or CEO the other day, and he gave a big thumb's-up to what was going on and was really excited about the Chesapeake investment and what's about to happen and he is very excited about the whole deal and as are we.

Okay. And so directionally from here it should mean higher margins, but it is somewhere in between O&M and retail is how we should think about that?

I would think way skewed more towards the retail.

Skewed towards retail and somewhere in between.

Right.

Okay. And then maybe just touching on BAF, could you just say what the revenues were again and just to clarify that? I think I missed that.

BAF's second quarter revenues were $9 million, and their margin was $2.8 million, so we're actually pretty darn proud of BAF because even in the phase of AT&T backing off their orders a little bit, they have done a nice job of developing some additional products and going out and getting some additional business. I can't remember the exact numbers Andrew read but I think they were only off 50 units or so for the six months of 2010 and six months of 2011, so all in all they will have some pretty good and doing a nice job.

Let me say on the AT&T, that's my friends at AT&T on the spot, they continue to be pleased with BAF's performance. They just frankly with all the different things they're doing, they took a look at their vehicle acquisition budget and they made some changes, and they're still committed to their larger program. You remember they made that announcement about 8000 alternative fueled vehicles and 5000. They slowed up some. I don't know if we know the exact number, how many hundreds or 500 or 600 they'll be behind, but they told us that they plan to get back on track, and another two other things with AT&T, they took receipt of some of the Transit Connect vehicles.

In fact, their CEO even drove it around to show their operating people that maybe it is time to move to a smaller vehicle. These vans that a lot of the cable companies, telephone companies use are pretty big vehicles nowadays, pretty heavy. They use a lot of fuel. They think that the Transit Connect might suit them well. That's good.

Then also we have brought them a look at the first mobile refueling unit that would really I think help them -- they got a little worried about deploying the vehicles and being able to get the infrastructure all in place in a timely manner and so this mobile refueling unit which is down there and they looked at it, I think might really fit their system, so we continue to have a good relation with them, and I think Rick is right. We're pleased with BAF's continued business even in the face of losing about half of what the biggest customer was doing, and the good news is the biggest customer we think is coming back. We don't know exactly how many orders we'll have. For the fourth quarter we just got a field for the third quarter and so we're moving forward with them.

Okay. Just some book keeping things for Northstar and IMW. Can you just give the gross profit number and then also the volume CNG, LNG, and bio methane would be helpful.

Sure. Volume first, bio methane $1.7 million, CNG $25.6 million, LNG $11.9 million, and that gets you to your $39.2. Margin numbers IMW was $200,000, BAF was $2.8 million, and Northstar was $0.6 million.

Okay. Last one for me, just an updated CapEx number for the rest of the year and I know that that's outside the Chesapeake investment.

As well as outside of the McCommas money we'll be spending it was funded with the bond offering we did. Exclusive of both of those, it is about $45 million for the last half of the year.

Okay. Thanks a lot.

Thank you.

Our next question is coming from the line of Peter Christiansen from Bank of America-Merrill Lynch. You may proceed with your question.

This is Peter in for Steve Milunovich. Thanks for taking my question. In terms of following up on the Chesapeake deal here, has there been a change in sentiment by some of your customers maybe that are in pilot programs and testing out the idea of nat gas vehicle. Has there been a change in sentiment there?

Peter, I got a little distracted. The question was because of the --

Your pilot programs.

Yes, there has been. You know, the thing I have described before, we're pleased with what we have seen. We kind of liken it a little bit to the refuse. We're seeing many more fleets trying the product, and that's -- I was trying to allude to that with the Mohawk and the couple hundred vehicles and Ryder. These are going out into major fleets, some of the major trucking operators are using them, and so that's good, so in the last several weeks it is a few hundred more trucks have been identified that are going out into these fleets. It is very good news.

You remember, Peter, also the product, we have the 9-liter and the 15-liter. We have gone through this before. The 9-liter is a very good engine, does great in the refuse and well in the transit. It is a little bit smaller than what the major trucking guys are used to using and the 15-liter, it is a very good product from our friends at Westport and tends to be a little bit bigger. That's what we we're on the phone last week with Cummins and just getting an update on the alpha and beta testing for the 11.9-liter, and we're pleased with the fact that seems to be on track and coming to the market in the middle of next year. We think that's going to be very important, but importantly as well is that these trucking firms are trying to get their feet wet with the 9-liter right now.

So you would say a lot of this infrastructure that you are working with with Chesapeake is going to come before some of these engines that come to market?

Well, that's right. I mean --

(inaudible - multiple speakers) generally going to be the trend, how we should think about it.

These things don't get built over night, right? The permitting on the Pilot stations for us to be simple about it, it is a three to six month permitting for all of these places. Some will be longer. You might want one of the locations even though you have a really terrible permitting regimen you have to go through, but you might go ahead and get the clock ruling on that and maybe you will build a station that has a nine month permitting and it will just take longer to come on board and you will move some other easier to build sites ahead of it.

The stations will be commensurate with when you begin to get these -- we'll have a bunch done before the engines hit the market which is what we want, but shortly thereafter the engines, the new engines will be in the market in the middle of the summer and third quarter next year. So we don't, won't have a lot of stranded assets out there for very long. And then remember we're working hard with these shipper customers. We're working very closely with them to get their operating lines and being able to see where they move product, and that -- all of that is being blended in to where these Pilot locations are chosen.

Great. And then in terms of AT&T and the conversion plans, it is great that they're looking at the connect and a bio fuel solution. Have they indicated or your customers in general indicated that they're looking for something that's CARB certified as well as EPA certified.

I don't know exactly, Peter. Most of our if not all of our BAF Ford product is or will very shortly be CARB certified. We think that's important. That's really the highest standard and of course obviously you need it here in California, but the Transit Connect car certified, I think, frankly, CARB certification is pretty much a must. Certainly you don't have to have it CARB certified to convert a vehicle in Texas, but our stuff will be CARB certified.

In terms of the IMW slowdown, would this in any way help you guys roll out your stations faster?

Perhaps from the theory they'll have more opportunities to do stuff for us. We're always working with them on changing configurations and working on more efficiency type stuff and improving their production process and all of that stuff. To the extent they have more time, perhaps, but they're trying to get back on track and get the China thing going and so it is not like they're sitting around idle up there. Maybe a little bit, but not much.

Great. Rick, one last quick question. The LAMTA was all in this quarter. Was that a full ran rate for the quarter?

Yes. I think it was in there might have been half a month before it was in fully, but, yes should be all in now and -- (multiple speakers)

Early in the quarter they were still a little light on volumes, weren't they?

Okay

(Inaudible) I know they finished back but I thought maybe early in the quarter they were still a touch light.

April, May, June?

(Inaudible) April's still off, just a tad. What we saw, we talked about this, early in the year it was very strange actually because usually the transit volumes are very predictable. They run fixed routes, use the same amount of fuel, and really our transit properties earlier in the year we saw several of them that were off in L.A. and other parts of the country, but they've all come back.

In the first quarter.

They were definitely down.

And now they seem to be picking back up.

Great.Thanks you.

Our next question comes from the line of Pavel Molchanov from Raymond James. You may proceed with your question.

Thanks for taking my questions. Just a couple of quick ones. Regarding the Nat Gas Act, you mentioned the hearing was postponed but more broadly with the Congress in cutting mode, how realistic do you think that this will happen before the election?

Well, you know, look, I think you have to be kind of a fool to say that the world hasn't changed a little bit certainly in Washington and focus sure seems to be looking at trying to cut expenditures and cut things. However, this is a large government, and it is a large budget, and I think one of the things that keeps the Nat Gas Act on the floor is the fact that it is a job creator, and you will see as the Congress comes back and I am sure they're getting an earful now while they're at home, the Nat Gas Act can really demonstrate jobs, so I think if it was just a pork barrel thing and didn't have the national security element that it does, energy security, national security element, and if it didn't -- if it wasn't a great job creator, I would say things look kind of tough. The hearing specifically was going to focus on job growth and economic stimulation and the benefits that this relatively modest tax incentive of $5 billion plus or minus, what it would mean on jobs and what it would mean on energy and national security, so if you were a betting man, I mean, yeah, does it look kind of difficult right now with the Washington environment, I would say things are tough, but there are some attributes to that Nat Gas Act that I think keeps it in the mix.

Regarding the Pickens warrants, have you gotten any indication whether there are plans to exercise them by year end or not?

I talked to Boone about it. Obviously this is his decision, and I think he continues to believe in what we're doing here, and I think -- I haven't talked to him today since the market was down 600 points, but I fully expect that he still wants to do them and if they're in the money I think he will exercise them.

Understood. Thanks very much.

All right. Thanks.

I would now like to turn the floor back over to Andrew Littlefair for closing comments.

Sure. Thank you. Thanks, operator. This is a dynamic time for us and for the transportation industry. We have entered an era in which the availability of domestically-produced natural gas has reached a scale many were skeptical could ever be achieved, and finally engine technology is catching up to meet the needs of the heavy-duty trucking industry.

I am very pleased to be able to close this call by saying what we're seeing is a new wave forward as a result of this progress. We're now on the road to using American energy resources in a way many did not dream possible just a few years ago. We look forwards to you reporting how Clean Energy will benefit in the coming months and years. Thanks for being on the call today.

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