Clean Energy Fuels Corp (CLNE) 2011 Q3 法說會逐字稿

Greetings, and welcome to the Clean Energy Fuels third quarter fiscal 2011 earnings conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder this conference is being recorded.

It is now my pleasure to introduce your host, Ina McGuinness. Thank you, Ms. McGuinness, you may begin.

Thank you, operator. Earlier this afternoon, Clean Energy released financial results for the third quarter-ended September 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 the replay will be available on these websites 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 contain forward-looking statements that involve risks, uncertainties and assumptions that are difficult to predict. Words of expression reflecting optimism, satisfaction with current prospects, as well as words such as believe, intend, expect, plan, anticipate and similar variations, identify forward-looking statements, but their absence does not mean that the statement is not forward-looking.

Such forward-looking statements are not a guarantee of performance, and the Company's actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in the Risk Factors section of Clean Energy's Form 10-Q filed today. These forward-looking statements speak only as of the date of this release, and the Company undertakes no obligation to publicly update any forward-looking statements or supply new information regarding the circumstances after the date of this release.

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

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

Thank you. Good afternoon, everyone. Today we reported revenue of $72.1 million, up 58% from $45.7 million in the third quarter of 2010. Per gallons delivered totalled 40.9 million for the quarter, which is up 31% from 31.3 million gallons a year ago. From a broad start market perspective, this has been a very volatile time for investors. However, from a Company perspective, we've remained extremely focused on building long-term value by executing on our business plan, and we have made substantial progress.

Let me start today's update with a progress report on our LNG Truck Stop network, which we have branded America's Natural Gas Highway. Today we have 92 truck stop stations in various stages of development. This is in addition to the stations on our traditional construction carpet. These 92 stations include seven under construction, one that's completed and 61 stations in various stages of engineering, permitting and site investigation, and 23 stations where more work is needed on location approvals. By the middle of next year, we expect to see the construction phase of these projects accelerate.

On average we will invest about $1.5 million to build each station and while this will impact our bottom line during this rapid phase of expansion, we expect to start to benefit from growth in volumes and profit as vehicles are deployed. Now keep in mind these trucks typically use 20,000 gallons a year of LNG. Just 100 trucks will use 2 million gallons of fuel per year. With just 100 trucks, our station economics become very attractive and will get even better as more trucks are added. And also keep in mind this market has 3 million trucks. So, you can see it's critical that we put this platform in place now in order to set the stage for the enormous growth we see on the horizon.

During the quarter, we secured $300 million to help us build out America's Natural Gas Highway. This investment was led by our friend in Chesapeake, and we believe they've found our breadth of assets and capabilities to be the best in the business. Chesapeake's investment was followed by investment companies Temasek and RRJ Capital. America's Natural Gas Highway is a big undertaking. We are bringing to bear our expertise in engineering, design, installation of compressors and equipment, station construction, service and support, LNG production and distribution to make this all happen. In support of this project, I'm very pleased to announce that we recently acquired Weaver Construction.

Weaver's a Southern California-based construction and engineering firm that specializes in natural gas fueling stations. Their team of approximately 38 engineers and construction employees will be key in terminal resource for supporting our station construction activities. We've been working with Weaver for years. In fact, they were recently our general contractor on the big LAMTA electric -- electrification projects. As a result of our long-standing relationship, we understand their capabilities and how well suited they our projects. In addition to these internal resources, we've engaged 5 survey companies, a national geo debt firm, 3 engineering and design firms and 3 outside construction firms.

Let me talk a bit about how we intend to load America's Natural Gas Highway. We now have an entire marketing division dedicated to serving heavy-duty trucking fleets. Today we have nearly 40 companies under non-disclosure agreements so that we can work very closely with them. Many of these are Fortune 500 companies, and if we analyze just the fleets under MDA, we would represent about 2.8 billion gallons of fuel annually. Our part is really remarkable when we think about how little these clients understood about the potential saving of natural gas trucks less than a year ago. By having America's Natural Gas Highway in process and the 12-liter engine in customer trials, our timing for having the base of the corridor in place should coincide with the release of these engines. We think this margin will show rapid growth in the next several years similar to what we have seen in the refuse sector.

Fuel usage in the heavy-duty trucking market is about 15 times greater though than in the refuse market. Ryder is a great case study for the compelling benefits of natural gas in the heavy-duty sector. They have leased nearly 200 trucks that now operate in California and Arizona, many of which fuel at our public CNG and LNG stations. Included in the Ryder deal are various companies that either lease trucks from Ryder, or testing natural gas vehicles. They include Pepsi, Coca-Cola, Fresh & Easy, International Paper, Mohawk Industries, Dean Foods, Rite Aid, Bridgestone Tires and Home Depot, just to name a few. Also we just signed an exciting deal with Saddle Creek, a third-party logistics company, that does hauling for Walmart, Anheuser Busch and Publix. They have contracted with us to build and operate a large private station at their Florida distribution center. They will operate 80 trucks that are expected to consume in excess of 1.5 million gallons per year.

Let me give you an update on our refuse, transit and airport markets. Refuse companies, large and small, are moving to adopt natural gas. In fact, the 2 largest natural refuse companies, Waste Management and Republic, have given strong indications of their commitment to converting their fleets to natural gas. They have more than 30 CNG stations between the two companies. As you hopefully saw last week, we announced that Waste Management has engaged us to provide maintenance services for their stations throughout the United States. This underscores our capabilities and substantial leadership in the sector. In addition, we have a similar relationship with Republic in which we build and maintain their space.

It is very exciting to see these two companies setting the tone and showing leadership in the conversion of the waste industry to natural gas. With a strong commitment now coming throughout the refuse industry, we project that 40% of all new trash trucks purchased in 2012 will be natural gas. Today, we have 26 refuse stations on the construction carpet, and already this year we've completed 11 stations, and we're on track to build 20 refuse stations this year in total. These stations are located in 8 states, and our refuse sector has projected annual volumes of more than 24 million gallons.

Looking back in 2007, we built 3 new refuse stations and sold 8 million gallons to all of our refuse customers. Also I'm pleased to report on a new relationship with Covanta. They are a large landfill incinerator company that has dozens of land fills energy-from-waste facilities. Our first project with them is a station we're building at their landfill in Newark. This station will service about 400 trucks per day, and primarily serve public, private and municipal waste haulers off the New Jersey turnpike. We're excited about this relationship, and there is potential for more Covanta sites.

Turning to our taxi, airport and shuttle market, we had strong growth in our airport markets in Los Angeles, Dallas, Atlantic City, Las Vegas, San Francisco, Seattle, Chicago and Connecticut. Collectively, we added 200 shuttle buses, 50 vans and more than 500 taxis. In Connecticut, besides the public access station we built for a large taxi operator facility in West Haven, Metro Taxi, rolled out the first MV-1 CNG taxi and 4 Trans Connects. We're also building two more stations, one at Hartford Airport and another in Hartford area for a large taxi operator that has more than 150 vehicles on order.

I'm very pleased to give you an update on the BPG taxi project. You'll recall we were an early investor in the MV-1, which is the first and only vehicle built from the ground up on natural gas to meet the Americans With Disabilities Act vehicle guidelines. We're very proud of its introduction. It was recently named as an approved vehicle for public transportation in New York City, and just last week, the BPG Group received outside funding of $40 million, which allows them to scale their production. We really believe that MV-1 will be very well received by transit authorities and municipalities, where dial-a-ride and other public transit services in the need of para transit vehicles.

In the transit sector, our team has just returned from the American Public Transit Association Convention in New Orleans, and it seems to be a new day as it's becoming overwhelmingly obvious across the country that natural gas is much cheaper. Numerous manufacturers display their CNG offerings and the interest in CNG buses and smaller, para transit vehicles was positive and far reaching. Of note, there are 40 more buses going into service with the Regional Transportation Commission in Las Vegas where we fuel.

As part of our partnership with Viola, we opened another station on their property in LA to service they're growing fleet of buses. And during the quarter, 76 full-size buses were delivered to transit properties where we fuel. These buses are expected to add close to 1 million gallons per year. And as of today, we fuel about 6,000 buses every night across the country.

Before I move to a discussion on the performance of our subsidiaries, let me talk about my last interaction with the Congress and the Senate regarding the status of the NAT GAS Act or HR-1380. As you know on September 22, I provided testimony to the subcommittee on select revenue measures and the subcommittee on oversight with the House Ways and Means Committee. During the session, I spoke about the immediate, positive impact that replacing diesel with natural gas would have on job creation and reducing imported oil and reducing greenhouse gases. And my testimony was well-received by the committee, and we expect in the near-future that a companion bill will be introduced in the Senate by Senators Menendez and Burr. So we continue to see positive momentum.

Turning to a discussion of our subsidiaries, we believe the growth pains IMW experienced have been resolved. In the first half of the year several large, custom projects tied up IMW's engineering department. This engineering bottleneck created a drop in production. So that has been cleared out, and we've returned to producing 8 compressors per week. We also see sales picking back up in China next year. And during the quarter, IMW signed a 2-year contract with the United Technology's UPC division, to be their exclusive provider of natural gas reforming and cooling modules for their fuel cells. Meanwhile, IMW's innovative portable refueling station is in production, and we're producing our first 20 units.

Northstar is fully integrated into the Company. We've ramped up their capabilities. Last year North Star built and installed about 10 LNG skids, and now we're producing 1 skid per week. We anticipate we'll be able to produce 2 LNG skids per week in the second quarter of 2012.

Turning to VIF, so far this year we've completed over 1,500 conversions. Even with the expiration of vehicle credits, the cause order rates to fall. BEF is still the largest conversion company by unit volume of any outfitter in the country. And thanks to our investment in ServoTech, we continue to add models in the Ford line up, where we think sales will pick up in 2012. ATT is ramping up again as well, and we now have orders from them for 464 Transit Connects in the first quarter, and we are seeing an acceleration of orders from other major customers.

With respect to our biomethane subsidiary, the build-out of our Michigan plant and the expansion improvement of our [Maconis] facility continues as planned. We expect our investment in both projects will begin showing real volume returns in mid-2012. As our biomethane productions volumes increase, we also plan to offer our customers a unique new fueling option, including a blended fuel product.

And finally let me close by talking about our construction carpet, which is larger than ever and is growing rapidly, and remember, this does not include the stations we are building for America's Natural Gas Highway. The carpet currently includes 93 stations, of which 40 have been completed so far this year. Looking at our pipeline it now totals 444 projects, which is up from 348 last time we spoke. The pipeline encompasses stations in various stations of validation, qualification and negotiation. As well as new fleet and vehicle deals which add volume. Year-to-date we've closed 130 such deals. So, as you can see we are laying the groundwork for what we expect will be a very robust 2012.

With that let me turn the call over to, Rick.

Thanks. Before I review our financial results, I would like to point out that all my references to our results will be comparing the third quarter of 2011, with the third quarter of 2010 and the first 9 months of 2011, to the first nine months of 2010, unless otherwise noted. Volumes rose to 40.9 million gallons during the quarter, up from 31.3 million gallons a year ago. For the first 9 months of 2011, volumes increased to 115.6 million gallons, up from 91 million gallons. The increases between periods were primarily due to the addition of several LAMTA stations, several stations for Republic and other new refuse customers, a few additional airport stations, and the new LNG customers we obtained with the Northstar acquisition.

For the quarter revenue increased to $72.1 million, from $45.7 million. IMW contributed $12.5 million of the increase, Northstar contributed another $1.9 million of the increase and BAFs revenues were down $3.1 million between quarters, to $6.2 million for the period. For the first 9 months of 2011, revenues increased to $206.5 million, up from $128.7 million a year ago. On a non-GAAP basis for the third quarter, we reported a loss of $0.11per share. This compares with a non-GAAP loss of $0.10 per share in the third quarter of 2010. For the first 9 months of 2011, our non-GAAP loss per share was $0.26 per share, and there was $0.23 per share in the prior-period.

Our net loss on a GAAP basis for the third quarter was $11.4 million, or $0.16 per share, which included a non cash gain of $1.5 million related to valuing our Series I Warrant, a $1.7 million foreign currency loss related to the notes we issued to purchase IMW and non cash stock-based compensation charges of $3.2 million. This compares with a net loss of $1.8 million, or $0.03 per share in 2010, which included a non cash gain of $7.9 million related to valuing our Series I Warrants and non cash stock-based compensation charges of $3.3 million.

For the first 9 months of 2011, our net loss on a GAAP basis was $26.7 million, or $0.38 per share and included a non cash gain of $3.1 million related to valuing the Series I Warrant, a $1.3 million foreign currency loss related to the notes we issued to purchase IMW, and non cash stock-based compensation charges of $10.1 million. For the first 9 months of 2010, our net loss on a GAAP basis was $16.3 million, or $0.27 per share and included a non cash gain of $5.9 million related to valuing the Series I Warren, non cash stock-based compensation charges of $9.2 million and an AMT refund of $1.3 million.

As I have mentioned before, but I want to be clear, 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-mark the warranties period due to certain anti dilution features contained 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 exorcised or the expire, which is May 2016.

Adjusted EBITDA in the third quarter of 2011 was $1.8 million, which compares to a loss of $600,000 in 2010. For the first nine months of 2011 adjusted EBITDA was $6.6 million, compared to $1.8 million last year. The first 3 quarters of 2010 do not include any Volumetric Excise Tax Credits, or VTAC revenue, as VTAC expired on December 31, 2009 and was not reinstated until the fourth quarter of 2010 when it was made retroactive to January 1, 2010. VTAC revenue for the third quarter and the first 9 months of 2011 was $4.3 million, and $11.9 million, respectively.

Adjusted EBITDA and non-GAAP EPS are financial measures we developed to highlight our operating results, excluding certain large non cash or non-recurring charges which are not core to our business, including the amounts we are incurring for the Series I Warrant valuation, foreign currency gains and losses related to our IMW purchase notes and our stock-based compensation charges for our options. 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 $19.3 million, which compares to $12.1 million in 2010. For the first 9 months of 2011 our gross margin was $56.4 million, compared to $37 million. Our margin per gallon on our fuel sales this quarter was $0.24 per gallon, which is consistent with the past 2 quarters. And with that, operator, please open the call to questions.

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) One moment please while we poll for questions.

Our first question is coming from the line of Mr. Rob Brown with Craig Hallam. You may proceed with your question.

Good afternoon. Just wondering if you could give us a little more color on the customers you've brought to the table since America's Natural Gas Highway was introduced. I know you gave some NDA disclosures, but are people that under NDA - - can you give a sense of kind of what these customers are thinking and how this brought them to the table? And second, maybe how you see these customers rolling out once the infrastructure is in? How should we think about how should that can happen?

Thanks for the question. Let me try to give you some color on this. Yet some of the information and some of the things we're working with remains proprietary for us.

The reason for the NDAs is because we're working with these fleets, and they're sensitive to their information. So we have to be kind of careful on that. But just broadly, we're working both with trucking companies and those companies that contract with trucking companies. The latter is very significant.

So, we're working very closely with them, and we're trying to ascertain - - the information to give us an idea about where we may need to build infrastructure to augment the National Highway that we're building, and what stations that we might want to prioritize first on America's Natural Gas Highways, so that they'll be able to load those more quickly.

So, we're working also with what we call the shipper fleets, but also with the trucking fleets, those that are hired, because after all they have very large bases, and they operate a lot of trucks and ultimately, they have to be comfortable so these trucks work and work well.

It's been very impressive that our offering today with the engines that are coming to the marketplace by the middle of next year and by some of the engines that are already in the market, Cummins Westport product, 9-liter, I think that when you can show the economics today, that essentially, for the 9-liter engine, that the incremental cost is coming down to the $30,000 level, $35,000 level, and some of these customers use 20,000 to 30,000 gallons, you're saving $1.50 a gallon or more.

The economics are pretty compelling, and we know from our refuse experience, as I talked before, you need to get these fleets comfortable to begin to test, and that's what we're seeing. So, I think since we've announced the Highway and started to show our plans to these trucking fleets, and shipping fleets, we've gotten a lot of them come and begin to start the requisite tests. So, I don't know if that's enough detail for you, but I think that's all I'm going to give you.

That's helpful. Thank you. And then I know you mention the Covanta deal. Could you just give us a little more sense there of how you're working with the landfill, gas business, how you're trying to get that to grow?

Covanta is a very large company, as you know, and very sophisticated in handling waste-to-power and operating these landfills. So, we're very excited about that potential, working with them, and they are as well. We're actually are working to review many of their sites to see if they'll work quite like the one in Newark.

In Newark, they have about 400, 500, 600 trucks a day comes to their facility, and by building the station there on natural gas, we're able to begin to have fleets that maybe aren't large enough themselves to have their own station, but go back and forth to that particular Covanta site every day, switch to natural gas.

So, we see them as very important hubs and Covanta is very aggressive, and they want to move their facilities as best they can into natural gas, as well. Because they can see that it will help and in the areas in which they operate it will help them to attract more trucks and, therefore, more fees, and by having the cleaner trucks, it helps their business as well. So, looks to be a win-win situation. We're starting our first project with them, and we hope to expand.

All right. Thank you.

Thank you. Our next question is coming from the line of Mr. Graham Mattison with Lazard Capital Markets.

Hi. Good afternoon, guys. Just a follow-up on the question about the NDAs. So, the 40 companies you're with an NDA with, they do about 2.8 billion gallons of fuel a year. Is there anything - - how does it work from your standpoint? Is there a follow-on contract with it, or there any sort of contractual terms that lock them into using you as a fuel provider?

Right. So, every deal is going to be a little different, right, Graham. In some cases these fleets are going to want us to build stations at locations, and some places we'll sign long-term contracts to fuel at the public LNG pilot stations on America's Highway. So, they're all a little different.

The reason for the NDAs is to be able to see what it is that they need so that we can move forward. And that's about really all I can say. But each of these will be a little different, depending if they want their own fueling stations and depending on their [land].

Got you. And then just a question on the political side. Do you have any outlook in terms of the V Tax? I know that's due to expire at the end of the year, the outlook for that being extended into future years. Or, is it still the goal to get that rolled-in when the NAT GAS Act comes?

As you know it's VTAC, the fuel credit, is invented in that Gas Act. I think you're also are probably aware that the VTAC, which is the current fuel credit for our ethanol friends, is under heavy pressure, and it also expires at the end of the year and, of course, you've probably seen what I have, that the ethanol lobby is working to try to extend the ethanol credit.

There's been some talk about eliminating it. There's been some talk of extending it but at a lower rate. So, we're in there working with the various fuel providers. We're, obviously, we have it in the NAT GAS Act.

We were working with those members that are working on VTAC extensions and different extender-type bills. But Congress, as you well know, is really consumed right now with the Super Committee and those things, and it seems like they have a hard time focusing on a lot of these things at once.

So, I think you're going to have to get by the Super Committee and that before you're going to see how the end of this year shakes out. There will be many - - kind of bills that need to be passed to extend certain spending of government and, obviously, we'd like to see the VTAC included in that. But I think it would also be foolish in today's current environment to think that the VTAC is going to have clear sailing, either.

So, we, obviously, hope that it will end up in being in pieces of the NAT GAS Act that get adopted later. But we are also know that certain other of the industries really need to have to have the VTAC. And I would say, in our business, the VTAC isn't as important as, for instance, the vehicle it's incentive.

Got you. All right. Great. That's very helpful. I'll jump back in queue. Thank you.

Thank you. Our next question is coming from the line of Mr. Brian Gamble from Simmons & Company.

Good afternoon, guys. On the - - I want to walk through the station build-out and the potential to accelerate that. Obviously, you have got two different paths, your traditional one and then the NAT GAS highway deal.

Can you do more bolt-ons like you recently bought the construction firm? Can you do more bolt-ons like that to up your ability to build the stations faster? You've obviously got the cash to move a little quicker at this point? What is your current view on that?

Well, - - we've bolted some stuff on now. We have to expand our capability. For instance, - - we brought Northstar on and by having IMW is giving us a lot better ability to be able to call on compressors and get those designed and brought to market faster. And obviously, without Northstar, I think it would have been a very difficult position to be in.

So, we've done some things. We now have engineering and construction, an operations team that is getting close to numbering 300 people. So, we've dramatically increased our capability, but now where I sit today, it looks to me like America's Natural Gas Highway will be somewhere around 60-some odd stations next year, by the end of the year, and that your traditional market stations will be somewhere in that number, as well.

So, you kind of go from last year building 45 stations to something in the high-60s this year, to next year being closer to 150 stations. So, that's building a station every two days. I don't know that we should expect that we can dramatically ramp that up. But I am putting a lot of pressure on our construction, and that's why we bought Weaver Electric, to really beef up our internal resource capabilities.

You might be able to get another 15 or 20 built, but I don't know that you could build another 150, or 100, or something. It's true that I don't know that you need that many next year. So, we don't want to have a lot of stranded stuff out there either. I think we're doing it about as quickly as you really want to at this point in time.

You're definitely ramping it up. That's a good decision in relation to the 2.8 billion in fuels and 40 customers. It seems like if you had more in place the discussions might move along a little bit quicker. But not to fault your current track record. I think it's accelerating admirably.

You know, Brian, I do think you're on to something here. If it goes the way we think it's going to go, you really need to be our Company, and others will begin to be there as well. But our Companies need to be in a position in 2013 and 2014 to be building a few hundred stations a year. And that's what you're going to need.

Yes. No. I agree with that completely. I wanted to touch on the legislative side, but I think you've pretty much already hit it. If you had to pick today between the definitive solution that ended up not going in your favor and the NAT GAS Act getting pushed out even further, and eliminated for now, versus this continual just uncertainty, do you think your customers would see a conclusion even if it was negative as a positive?

I know where you're at. We're not waiting for the NAT GAS Act. And really Wall Street is focused on it, and you guys are often pretty focused on it, and some other pundits are really focused on it.

The refuse sector has gone from last year about 20% to this coming year 40% of all new vehicle purchases are natural gas, and there are no incentives for that. So, we can keep an eye on it. We're not totally preoccupied on it. I don't think it's as big a chilling effect as some people might think it is.

I happen to think that the vehicle incentive would be helpful and it would expedite this business. I don't think there's any doubt about it. But the business is not going to wait, it's not going to wait for it, it's going to move ahead. You're going to see some I think rather large announcements from some pretty big fleets in the coming months.

Look, when they figure out they can save. When they figure out they can save $1.50 a gallon, they don't need the federal government really at this point. It would move the business along faster. It would probably bring more manufacturers into the business, but the industry is not waiting. It's going to move without it. So, I would say the way I think the industry - - and there were some board calls today for industry associations on this point.

We're going to support the effort of what's happening in the Senate, and we're going to rock through here in the next several months and see how it goes, and the end of this year, and into the next Congress. And my guess would be is if, for some reason, the NAT GAS Act cannot make its way through the legislative calendar before we get to the presidential campaign season here in six-, eight-, nine-months from now, if we're not any further along than we are now, you probably won't hear us talk much more about it.

But I kind of think that they are going to try to do something on this. So, we're not going to give up at this point. And you know as I look at pieces of the NAT GAS Act, I really want the vehicle incentives. I'm not as hung up on the fuel incentive as I am the vehicle incentives.

Perfect, Andrew. Thank you.

Thank you. Our next question is coming from the line of Mr. Steven Milunovich from Bank of America-Merrill Lynch.

On those 92 stations in development for the Natural Gas Highway, are those all Pilot-Flying J facilities, or what percentage of those are?

No, they're not all. I'm kind of doing this by - - I think of the 92, 23 right now are still to be determined that aren't. Most, so what's that math like? 69 of them, 66 of them, I think, are at Pilot-Flying J. There's still 23 where we're working that out.

Some of them might end up being at Pilot-Flying J, and some of them won't be probably. And that's not because we don't want them with them. It's because particular locations where we need one, because of the customer information we've obtained, they may have a site that's small, or for some reason it just doesn't work. So, the majority so far, clearly over 60, probably two-thirds of them are at Pilot-Flying J, but not all of them.

And how do you approach the build-out? You indicated that some customers may want certain stations in certain places. You had that map, I think, showing potentially a station every 250 miles. An alternatively you could just build out a particular corridor in a fairly big way and sort of demonstrate that this works for a couple customers. How do you think about that?

So, we're going to do both, right. We think for the truck dealers and the trucking companies that do move across the country and the goods, a certain percentage of it does move across the country. We think once and for all that there is enough business to put these corridors across the country.

Now, keep in mind that really you should think of these trans-continental corridors as almost more regional corridors, because often some trucking fleets will just use them in the southwest or in the southeast or in a portion of Texas. But, we are going to build those national corridors.

What you're going to do is, you work with these other companies. You're going to see two or three nodes, either distribution centers they have, or plants that they have, that also tie into the national corridors. And I kind of think of it like in the oil field as in-filling.

So, you'll put these corridors in place here over the next year and a half, get that opened up so the country really can move a truck across the country. In the meantime, you're going to begin to in-fill that with these more customized fleet-focused approaches. That will also tie into the national corridor.

Okay. And could you comment on the Westport-Shell relationship and generally, how you see potential competition? And if you're likely to work with any of the LNG engine or truck companies as a tandem sales approach?

Well, we are working with several of the truck OEMs now. We don't have anything that we can announce at this point. But we have one of the major OEM truck companies in the sales division is in the conference room right around the corner from where I am right now. They just got here about an hour ago. So, we are working with all of them on how we can help work together, and some of the large OEMs have lease facilities where trucks come and go. We talked about fueling them, et cetera, et cetera.

We're working with them to make sure that there's a great understanding about how CNG, and how LNG is going to work. So, as they roll their product out, we're working with them. We're also working with them on the tests, on the customer trials right now. So, we have a very good relationship on it.

Many of the trucking companies really don't - - I would say the OEMs, they're leary of just doing exclusive with a fuel provider like us, since there's so many fuel providers. But we have a very good working relationship with all of them. Now the first part of your question I kind of forgot.

The complication?

Oh, yes, Shell. We need to talk to Shell, and I made a presentation, several of my management team went to their world headquarters in Houston and did a speech about our natural gas and LNG stuff to all of their LNG supervisors that came in from around the world. As I understand it, the relationship with Westport is going to start out mainly focused in Canada, and that Shell is going to build an LNG production plant there.

In my subsequent conversations with Shell, which I've had, I've tried to ascertain how we might work with them. And I think that's a potential on that. Shell today, as I sit here, obviously, Shell has got a lot of natural gas and a lot of capability, but they don't really have a lot of LNG. So, that's available here in the United States to go to a trucking fleet. So, I think there's maybe ways for us to work together as they begin to try to refine their plan.

All right. And finally, are you still counting on the Warrant conversions from T. Boone this year and how does that impact your build-out plan?

I still have no reason to believe that Boone won't exercise those Warrants. Of course, he - - I believe he intends to. It doesn't mean he has to, but I think he will. And as you know, those will expire at the end of the year. We're sitting here currently at some between $225 million in cash and $250 million in cash.

So, I think we're fairly well funded. Boone's Warrants would bring another $150 million in, and I think that really goes a long way to help us get through 2011 and well into 2012, and be able to do the things that Brian was talking about and even expand the National Highway more.

We've got another $50 million coming from Chesapeake in the June of next year and June of the following year as well. So, that will play into the mix also.

Right, Rick. Thank you.

Thank you. (Operator Instructions) One moment please while we continue to poll.

Our next question is coming from the line of Mr. Eric Stine with Northland Securities.

Hi, guys. Thanks for taking the questions. I was just wondering if we could just quick bookkeeping, if you could just break down the volumes, CNG, biomethane and LNG, and then also provide the number of upfits in the quarter for BAF?

CNG was $26.8 million, LNG was $12.3 million, biomethane was $1.8 million. That would get you to your 40.9, and BAF did 406 conversions. Thank God we got that last one in there to get north of 405. That's that.

Okay. Maybe just focused on BAF, so the AT&T sounds like you a recent contract for 1Q for next year. Maybe just give some context into what levels with AT&T have been this year. Does that signify to you that they're ramping their program and that it may get back to what it looked like in 2010?

I don't want to put words in AT&T's mouth, but as you know I think I talked enough about the fact that they were off of their - - you've got to give them credit, right? There's not many fleets in America that have added 4,000 natural gas vehicles to their fleet over the last couple of years. So, kudos to them.

They've slowed up a little bit this year on what had been their path, at least with us, and I think, in general. I think they went from almost about 2,000 vehicles to something substantially less than that.

But all along, we've worked very closely with them to work on mobile fueling solutions for them. We actually certified some other models that they wanted to have. They actually, it's kind of impressive. Their CEO, Randall Stevenson, took delivery of a Transit Connect in Houston, drove it around, and the next thing you know they ordered 672 of those.

So, that's pretty strong. We have every reason to believe that they're going to get back on track to do the 2,000, I guess it was 2,500, wasn't it?

AT&T did 1,880 to 1,800. (duplicate speakers)

1800 is kind of where they've been, and we think that they'll be back on that track. In addition you have this other 607. So, we, knock on wood, see them ramping up for next year.

Okay. And maybe if you can just talk about how that business has evolved, as far as diversifying. I mean, clearly this year has been a lot outside of AT&T, just how that looks maybe versus - -

l - - our history - - I mean, I worked with BNAF 10 years ago when they were called something else. And it was a good month when those guys did seven taxi cabs, or something. And they have really stepped up their quality control. They train Ford fleets for Ford dealerships all across the country.

They have the relationship with Nap High that some of these other very large vehicle conversion companies that do sort of one-stop conversions for vehicles with these steel wells and some of the others, so they train those. They're using their dealer networks. Their ISO 9,000 compliant. They're the first QVM, gasless QVM by Ford. We bought ServoTech, and so we went from buying EMCO Systems to doing our own.

Now we're using all of our own under-the-hood componentry, has all been carb certified and also EPA certified. So, their capability has grown dramatically, and this year, because we lost some of - - a couple of our big customers, the Verizon order and AT&T order is substantially off.

We replaced a lot of that and had our biggest year ever, other than having the AT&T year. So, we've had to go out on the road and sell in municipalities and other customers, and I think we've done a pretty good job. We have a full complement of Ford vehicles now from a 150 up to a 550, with dedicated natural gas. We're also looking into some GM platforms and a Chrysler platform.

So, we're going to expand the offering. And remember, Eric, this is in the year when you didn't have any vehicle tax credits, which is a big thing for an incremental $15,000 van. Not as big a deal on a $300,000 trash truck, where the incremental is down to $10,000. But on a taxi cab, or transit connect, the way we're doing them so far, that was a big change in the marketplace.

One thing that's nice, if you pull out the AT&T and Verizon business, if you look at their other business, it's actually up between periods. So, they've done a nice job of catering to other customers, adding on new products, and they are working on additional products, biofuel, bigger engines, all kinds of different shuttles and such. So, business is actually doing pretty well. If we can get AT&T, Verizon, some other states back in the mix, we're looking forward to their 2012.

Yes.

Okay. That's helpful. Last one for me, just if you can comment on how the mix is shaking out in the station pipeline between O&M and fuel supply. Thanks a lot.

I think the vast majority on fuel supply. I don't have the exact number, but I think, rough magnitude, that's right.

Your American Natural Gas Highways, virtually all of that is fuel supply. You have some of your big refuse customers where it's some O&M and, of course, some of our transits that came aboard are O&M. But I would say it's all heavily skewed toward fuel supply. Did we lose our call?

Actually, we have another question coming from the line of Mr. Pavel Molchanov with Raymond James.

Thanks very much. A quick one if I may. I guess this is a little more conceptual. On the earlier question that alluded to Shell and Westport collaborating, how far are we from moving towards the consumer market for NGVs in this country?

Because clearly the conversation that we're generally having revolves around fleets almost entirely. I'm curious your thoughts on the retail opportunity and what the time line for that might be?

As you know we tried to stayed focused on the fleets, because that's what we have, and we think that's the kind of lowest-hanging fruit. Something still tells me that though we're in a country that's importing 65% of its oil and that you're starting to see $4 gasoline again, and when you don't even really have a real good robust economy anywhere in the world. And when the automakers can produce 62 makes and models in Europe of natural gas vehicle. And we're a country that has the most natural gas reserves of any country in the world, something tells me that eventually - -

Somebody has got to put that together.

Somehow that all comes together, but I don't know when. It is not rocket science to make these on natural gas. General Motors alone makes 14 natural gas factory vehicles in different parts of the world. So, I don't know, Pavel, I really don't like to talk about it. You don't want people that go net me, like I'm off in someplace where I shouldn't be, but I happen to think that some day it's going to happen. I just don't see why it won't. I think it will.

But I don't know if you're two years out, or three-and-a-half years out. We know that the Chrysler CEO said he's going to bring some models, and we know that GM now has a pickup and a van that they say they're going to begin to bring more into factory.

So, I just don't know - - and I don't know how the electric thing goes. I'm for all of these different technologies, but I don't know if the electric experience is going well or not. So, I happen to think you're going to look at all this and you might be surprised that you begin to see some natural gas options creep into the lineup. But I have a feeling it's a few years out still.

Okay. Appreciate the color on that. Just a quick follow-up if I may. As you're accelerating the build-out of the network with the new capital, are you running into any additional permitting issues that perhaps you were not encountering as you were, running at a slower pace in terms of your build-out?

Well, permitting is a big deal, and entitlements are a big deal, and as we've been working with our friends in Pilot in the truck stop world, yes, we've had to kind of come up to speed with maybe a little bit different capability on entitlements, and so, therefore, and permitting than we've seen in the old days here in Southern California where we kind of got everybody familiar with it.

So, you are putting some stations in places where it's not quite as familiar. I think we have 150 natural gas fueling stations in Southern California. So, fire marshals know about it, and permitting people all know about it. I don't think it's a big deal.

So, we bulked up on the permitting, and we actually have three companies that are helping us do the entitlement work. I think we have it in hand. We've had to beef up a little bit to be able to do it.

Now, we do - - it's not something, it's not a one week. You don't just go pull the papers in a week. It does take longer. It's a three-month, six-month permitting process at a minimum. Some places the entitlement work is a year. And it would be a year today to put in a truck stop too, or two years. So, it is not easy to build stuff in this country as it turns out.

Understand. Appreciate the color, guys.

Thank you.

Thank you. Our next question is coming from the line of Mr. Rupert Merer with National Bank Financial.

Hello, everyone. For the LNG stations you're building on the National Gas Highway, what's the typical design capacity of the stations initially? If you could let us know how much fuel they'll be designed to deliver, and how easy it is to scale them up?

We're kind of starting them out, we have a standard design, which would essentially be a 15,000 gallon tank, space for another 15,000 gallon tank. Normally one island that has a couple of dispensers and maybe two to four hosts. That's sort of the bare-bones approach that we're using to start with. Now that configuration will have a - - I would say - - doing very well, can deliver, certainly has the capacity to do between 3 million and 4 million gallons a year.

Okay. Great. So, if things - -

Yes. After 3 million to 4 million, you're going to need to probably - - because of the queuing, but probably not because of any other reason, because you can't get that many trucks through that fast. You'll have to start then augmenting out to other islands.

That'll sort of be a (high flash) problem. And you will be able, because you're designing it, to put other extra 15,000 gallon tank in eventually. You'll have enough fuel on-site, but you're going to have to do some plumbing to replumb some other islands.

And what does the cost look like to scale up then? Is it going to be much less? I imagine the permitting work will be less onerous?

Yes. There will still be some permitting as you expand, but it will be less. It will be more civil stuff. You're going to be jack hammering up, putting in some piping. You'll probably do it overhead rather than underneath, because this is [project] stuff, and I don't think it will be that difficult. It's not, it won't. We've talk about this being $1.5 million.

I'm kind of guessing here, Rupert, to put in another island maybe it's $500,000, and dropping in the tank is another $200,000 for another tank. So, you kind of double the station for $700,000 compared to the original cost of $1.5 million. It would be in that sort of range.

Excellent. Thank you. And if things go to plan, how long before you would be looking at increasing your LNG production capacity?

Well, we're doing that now, right. And we didn't talk about it today; but we are moving forward on our third train at Woron. We do have a group now that's working on LNG Supply in different parts of the country.

So, if this goes the way we think and we build 100 stations here in the next 18 month or so. And if we do our job right, and eventually those are doing as you and I just discussed, 3 million gallons or 4 million gallons that means you just added 400 million gallons of LNG over the next few years, you're going to need more LG.

So, we're busy at work on that. We've ordered some - - we're getting ready to order some more trailers and we're working with LNG Partners in various parts of the country.

Is there any risk that could become a bottleneck for you, or do you think - -

Sure. It's depends on fast this goes. We sort of think there's sort of need - - I'm an sold salesman, but this is sort of an easy - - not for size. I think there's 1 billion gallons of LNGs are out there to be had, and that's pretty easily accessible, maybe even 1.5 billion gallons.

Now you're going to have to do some stuff to get that. You're going to have to do some truck-loading facilities and do some stuff. But that - - you have that now. When you start, when we start talking, and I'm fully expect this to happen. When you begin to - - remember we talked Rupert.

You take that refuse truck adoption rate and you apply that starting in 2012 or so to the nation's Class A trucks, and that tells me then four or five years, you need 3.5 billion gallons. So, to get there, you're going to need more LNG. But it's there to be had.

You're just going to need to work with the gas producers to begin to put in cryogenic facilities to produce more LNG. Up until now you haven't needed it, so you haven't done it, but that's what you'll do. And I think you'll have enough visibility and enough timing to get that done.

Great. Well, thanks.

Thank you. Ladies and gentlemen, our next question is coming from the line of Mr. Eric Stine with Northland Securities.

Actually all of my questions have been answered. Thanks.

Thank you. Ladies and gentlemen, we have reached the end of our question-and-answer session. I would like to turn the floor back to management for any closing comments.

All right. Thank you, operator. Let me close today's call by saying that we will continue to stick to our knitting. As of today we have more station development and vehicle projects underway than ever in the Company's history. We are on track to set a record for station completions this year with growth across all of our target markets.

One of the many great aspects of our business model is that we are not relying on one-time sales. These stations will be selling fuel for a long time into the future and growing volumes for the next 10 to 20 years.

We will continue to work on station expansion, as well as on driving same-store sales growth where we can, and we have the subsidiaries in place, the sales force in place, the partnerships and resources aligned, and we're very focused on what we're seeking to achievement. I want to thank you for your continued interest. We look forward to reporting to you on our progress on the next call.

Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you very much for your participation and have a wonderful afternoon.