Clean Energy Fuels Corp (CLNE) 2011 Q4 法說會逐字稿

Greetings and welcome to the Clean Energy Fuels' fourth-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, Tony Kritzer, Director of Investor Communications. You may begin.

Thank you, operator. Earlier this afternoon Clean Energy released financial results for the fourth quarter ended December 31, 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 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 word 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-K 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 exclude certain expenses that the Company's management does not believe are indicative of the Company's core business operating results.

Non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP 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, Tony, and thanks to our listeners for joining us today.

First I want to thank Ina McGuinness, who has been our Investor Relations consultant, for her steady hand over the last four years. Tony is our new in-house Investor Communications Director and so thank you, Ina, for all your good work.

I am pleased to have the opportunity to review our 2011 operating and financial results. Briefly on our financial results, our revenue in the fourth quarter of 2011 rose to $86.2 million and for the full year 2011, revenue totaled $292.7 million which is an increase of 38% from 2010. Volumes for the year were ahead of plan and up 27% to 155.6 million gallons.

As you probably know we undertook a major initiative with substantial investment to build a Nationwide network of stations to coincide with the arrival of new heavy-duty natural gas engines at the end of this year and 2013. We recognized by making this investment we put pressure on cash flow in the second half of the year. However, we believe this was absolutely the right business decision and we strongly believe that this will allow us to further capitalize on a larger opportunity. And the more stations we build, the more entrenched and the further ahead we become and the more valuable we are.

2011 was a year of enormous change and one in which we saw many components of our plan coming together. Most importantly our efforts have fundamentally shifted the dialogue on alternative transportation fuels and established natural gas as the primary alternative fuel for heavy-duty trucking. Our consistent marketing and sales efforts across all of our target segments has driven substantial customer growth and generated a whole new level of prospects for our products and services.

The awareness has spread from our customers to other leaders in the energy industry. From the independent natural gas exploration and production companies with leaders like Chesapeake and to other significant companies like GE, GM and Shell; after customers in the energy industry awareness kept spreading to the broader investment community, no longer do we have to explain that trucks can actually run on natural gas. And in 2011 we saw increased understanding from the investor community at large, including money managers and sellside analysts and the financial press.

All recognize the opportunity we've created by building the infrastructure for natural gas fueling.

Finally, it's very gratifying to see that the general public understands our value proposition. That we can replace imported oil with domestic fuel that is abundant, clean and less expensive. Thus greater awareness across the board culminated in President Obama's speech at our LNG fueling depot at the UPS facility in which he reaffirmed his commitment to natural gas development in this country.

The President has discussed natural gas for transportation three times in the last five weeks. And in fact 45 minutes ago, Senator Richard Burr of North Carolina took to the Senate floor to discuss his support for the Reid Menendez Burr amendment. Or what we all refer to as the NAT GAS Act, that could be voted on tomorrow. So we've come a long way.

However, the key driver of our growth continues to be economics. With the high price of diesel and gasoline continue unabated during 2011 and the oil and natural gas spread favoring natural gas, today I think it must be historical levels at 47 to 1, we knew that the time was right to make our commitment to build out a nationwide network of natural gas fueling stations. And in July we announced the creation of America's Natural Gas Highway.

With the commitment from Chesapeake Energy for $150 million earmarked specifically to help fund what we call ANGH, America's Natural Gas Highway, coupled with $150 million we received from investors, Temasek and RRJ, we have $300 million of funds to build out the initial phase of the network. And in December we received an additional $150 million from our Founder and largest shareholder, Boone Pickens, and others when the exercise warrants. This brings the total to $450 million of committed capital to fund our expansion.

We believe our cash on hand, our major commitment to build stations coast to coast and border to border has given our current and future customers the assurance they need to commit to natural gas for transportation. It also gave the manufacturers, the truck manufacturers the signal they needed to step up their commitment to develop and support the right sized natural gas engines in the Class 8 market. Last year, we saw Westport, Cummins, Volvo and Navistar all announce plans to deliver nine liter, 12 liter and 13 liter engines by later this year, and in early 2013 as well.

So today all the major OEMs, which includes International, Freightliner, Kenworth, Peterbilt, Mack, Ford, GM, Autocar and Capacity have plans to manufacture natural gas engines. This commitment coupled with increased demand has already brought the incremental cost of these engines down considerably. Today it's in the range of $30,000 to $35,000 and in fact just a few days ago, there's been a recent sale for a large number of trucks where the incremental cost was in the mid-$20,000s. And we anticipate the incremental cost will continue to decrease in the future as volumes and efficiencies increase. With today's fuel savings customers are experiencing one-year paybacks on incremental costs of the natural gas truck.

In late January we announced a joint marketing and fueling agreement with Navistar International Corp. Navistar is bringing to market the broadest truck and engine offering and Class 6 through 8 through Class 8 categories. This program also rolls out a fuel and lease product with their Ideal lease, which is owned by Navistar dealers. In which a truck driver's lease for a new natural gas truck from Navistar can enter into a fueling agreement with us. The fueling agreement makes the lease payment of the natural gas truck the same as a diesel truck and in addition, the customers still saves another $0.60 per gallon. Below diesel.

So we believe this is a real winner for the fleet operator.

Detroit automakers are also getting onboard. Both General Motors and Chrysler Group announced last week they would offer factory pickup trucks that can run on natural gas, and of course, as you know Honda already makes a CNG powered version of its Civic and they announced they will make it available in all 50 states for the first time this year.

So let's talk a little bit about the American Natural Gas Highway. In mid-January 2012, we unveiled our backbone network for plans for America's Natural Gas Highway or ANGH. We laid out the route planned for 150 new natural gas fueling stations and identified the first 98 locations in 33 states. Our goal is to have as many as 75 of these stations open by the end of 2012 and 150 stations or more built by the end of 2013.

By the end of 2012 we expect to build a network of stations spanning the country. This will encompass building stations covering the major interstates, including I-40, I-10, I-95, I-55, I-80, and the I-5 that will allow for the movement of goods around the country using natural gas. As we have previously discussed, we anticipate that most of the fueling stations will be co-located at Pilot/Flying J Travel Centers through our exclusive agreement with them. This will allow trucks to continue to use their normal fueling locations.

We also are working with regional fuel providers to fill in our national network because, as you know, about 85% of trucking is regional in nature.

Now I want to move to our core markets, and let's start with refuse. We'll spend a few minutes updating you on our progress in penetrating this market. For many of these markets, refuse in particular, we see natural gas becoming a norm rather than the exception.

Four years ago only 3% of the trash trucks purchased were natural gas. And this year we expect that number to be north of 40%. That's pretty impressive.

Our friends at Republic Services have fully embraced this shift with their commitment to purchase 65% of their new trucks on natural gas and they anticipate 40% of their 14,000+ vehicle fleet will be CNG within five years. We are building all of Republic stations and we're also working with Republic to produce biomethane on their landfills and we plan to get that biomethane into the refuse truck fleets.

Also we recently announced a national agreement with Waste Management to provide maintenance and repair services for their CNG fueling stations throughout the United States. Currently Waste Management operates over 1,000 CNG and LNG waste collection and recycling trucks throughout North America every day. Their CEO recently said that 90% of their new vehicle purchases in 2012 will be natural gas.

Our agreement with Waste Management complements our existing relationship with them which includes their use of IMW compressors, and equipment at their CNG fueling sites and their broad use of NorthStar LNG and [LCNG] statements and equipment, and operations and maintenance agreements at 14 existing CNG and LNG sites. So looking at the refuse space as of today, we are doing refuse deals across the country in 19 different states. The shift in this market is being driven by the convergence of broad natural gas availability, significant fuel savings, maturing fueling infrastructure, shrinking incremental cost of the vehicles, and dissatisfaction, frankly, with the diesel engine performance.

And the industry is going about it without any incentives or tax credits.

As of February 28 in the refuse sector we are working with 70 refuse companies at 121 locations and we have 27 stations on the construction department. Already this year we've completed nine stations and could build as many as 32 refuse stations by the end of this year.

Taxi airport and shuttle markets, today almost every major airport in the country has natural gas fueling. In the fourth quarter of 2011 we saw additional shuttles deployed around airports in Southern California, Atlanta, San Francisco, Dallas and Austin with more to come in New Orleans and Philadelphia. In addition we gave charged our sales force with focusing on loading these existing stations in addition to adding new stations.

We believe there are numerous untapped fleets around these and our other existing stations that we can convince to go to natural gas with the current station infrastructure in place and the economics of making the switch.

Our taxi customers have also expanded their CNG fleets in Las Vegas, Seattle, Dallas and Chicago. Plus in Chicago they just approved a new fee structure for various classes of taxis. Fleet owners of CNG and CNG 88-compliant vehicles can charge more money per shift and can be kept on the road longer.

Additionally, New York City recently identified the MV-1 and you know we are an investor in a product, as the ADA-compliant vehicle for its taxi fleet. We hope this will be replicated throughout the country.

I would like to turn my attention to our national trucking team. Since forming a sales and marketing team focused strictly on shippers and private fleets, we are pleased to find that the list of companies who are deploying natural gas vehicles for their fleets is expanding. We are also hearing of increased pressure by shippers on for higher fleets to move away from these diesel in favor of natural gas. We are now submitting a number of proposals to large carriers to meet the increased demand of the shippers.

Let me give you some idea of the level of activity we are seeing in the sector by talking about some of our recent wins. Owens Corning, the world's largest manufacturer of fiberglass and building materials, has contracted Dylan Transportation to move their products in Ohio and Texas where they are consuming over $40,000 per year per truck. As a result of those successful deployments Owens Corning is expanding with Dylan into the Southeast in conjunction with the buildout of the ANGH network where Dylan fuels exclusively.

Sunny Delight, the beverage company, has entered into a five-year contract with Glacier Transportation to haul their beverage shipments around the Southwest, using CNG trucks and fueling at our growing network of CNG stations. This will substantially reduce their fuel costs as well as reduce their greenhouse emissions compared to using diesel.

Coca-Cola products have hired CR England, one of America's largest for hire carriers, to transport their shipments from their California distribution center to Las Vegas and back using Peterbilt LNG tractors powered by Westport's 15 liter HPDI LNG engine. These trucks operate more than 100,000 miles each per year.

Tesco, one of the world's largest retailers and the world leaders in sustainability, has hired Ryder trucks for their subsidiary Fresh and Easy, a West Coast grocery chain, to operate 25 CNG tractors for their shipments. These trucks also operate more than 100,000 miles per year and complement Tesco's sustainability strategy. CEVO, which is a global logistics company involved in various aspects of transportation management, they are now transporting parts for American Honda using LNG trucks from their distribution center to dealerships and independent companies throughout the Los Angeles Basin.

Other carriers that have deployed natural gas trucks include Golden Eagle, Bridgestone, Great Wide, Dean Foods, Lindy, Staples, Woerner and Schneider.

Turning to station construction in 2011, we completed 68 fueling station projects in 16 states, including five LNG fueling stations along the Natural Gas Highway. The 68 projects included seven stations serving transit fleets, 18 stations for refuse operations and 28 stations for airport taxi and shuttle fleets around the country as well as 15 stations situated to support local and regional trucking and smaller fleets. All told, the number of station projects completed during 2011 increased by 50% over 2010.

As we started fresh in 2012 our project pipeline as of March 5 includes 536 deals in various stages of validation, qualification and negotiation as well as fleet and vehicle deals that add volume. In addition, our construction and development projects are moving forward aggressively with 121 station projects underway since the beginning of the year. We've completed 10, we have 31 stations in construction, 53 in development -- in various stages of development in terms of permitting and 68 in the process phase. Permitting phase. These projects also are in various stages of engineering.

With respect to biomethane, we are realizing the return on our investment and upgrading and expanding our landfill gas plant in McComas Bluff. We've hit records for a single day of production in 2012, exceeding 40,000 gallons per day with the average production up 20%. We are also happy to see Fitch recently reaffirm the investment grade rated on our tax-exempt bonds issued to fund the expansion. Additionally, in our Michigan [Soft] Trail Hills facility we've entered into a 10-year fixed price sales contract for the majority of the biomethane that we produce there. This contract will place the project on secure financial footing while allowing us to sell the remainder of the product in vehicle fuel market as fully sustainable renewable natural gas.

As our biomethane production volumes increase, we also plan to offer our customers a unique fueling option including a blended fuel product.

Before we turn the call to Rick, let me say how pleased I am that James O'Connor, who is the former Chairman and CEO of Waste Management, joined Clean Energy's Board of Directors this past September. Based on his long career in the waste industry, Jim's expertise will help us help guide us as we expand further into this vital sector. I speak for the entire Board and management team when I say we look forward to his contributions.

And with that I'll turn the call over to Rick.

Thanks, Andrew. Before I review our financial results I'd like to point out all my references to our results will be comparing the fourth quarter of 2011 to the fourth quarter of 2010 and the year ended December 31, 2011, to the year ended December 31, 2000 unless otherwise noted.

For the quarter our revenues were $86.2 million, up from $83.2 million. When looking at the quarterly amounts keep in mind that during the fourth quarter of 2011 we recorded $4.5 million of V-Tac and we recorded $16 million of V-Tac revenue in the fourth quarter of 2010. The 2010 amount which represents the amount of credit earned in all of 2010 was recorded in the fourth quarter of 2010 as the credit was reinstated during the quarter and made retroactive to the beginning of the year.

So, the fourth quarter of 2010 has $11.5 million more of V-Tac revenue than the fourth quarter 2011 based on this timing difference. For all of 2011, revenue totaled $292.7 million which is up 38% from $211.8 million a year ago.

As Andrew mentioned, during 2011 we made a business decision to embark on building America's Natural Gas Highway. We felt the time was right to build the backbone of the fueling network for medium and heavy-duty vehicle operators to move goods across the country based on economics available for natural gas solutions and the engine platforms that are coming to market.

We're getting out front and leading the way in this 25 billion gallon market. The impact of this decision on 2011 was that we incurred considerably more SG&A expenses than we anticipated at the beginning of the year. We significant ramped up our personnel, particularly in the engineering and construction areas, to build the station and in sales to load the stations with vehicles and fuel sales when the stations open. With hiring more people our related ancillary expenses such as marketing, rent and T&E also increased.

Consequently, our SG&A expenses were $23.6 million higher in 2011 versus 2010. Had we not made this decision we would not be in position to aggressively pursue this market, and in fact this market might not exist at all. So, we believe it was the right decision for the long-term success of the business.

Also from an expense perspective, please keep in mind we now have a significant amortization expense charge slated to the intangible assets we acquired with our IMW and NorthStar acquisitions in the third and fourth quarters of 2010 which amounted to $10.3 million in 2011. We also began entering interest expense charges in 2011 on the convertible notes we should during the year which were $5.7 million in 2011 and will be $16.9 million in 2012, including the next $50 million Chesapeake convertible note we anticipate issuing this June.

So please keep all these items in mind when reviewing our financial results between periods.

Adjusted EBITDA in the fourth quarter of 2011 was $-3.5 million which compares with $20.2 million in the fourth quarter of 2010. Again, Q4 2010 had an extra $11.5 million of V-Tac revenue. For 2011 the adjusted EBITDA was $3.1 million compared with $21.3 million in 2010. Adjusted EBITDA is a non-GAAP financial measure we developed to highlight our operating results, excluding certain large non-cash or non-recurring charges that are not core to our business. Adjusted EBITDA is described in more detail in the press release we issued earlier today.

We had a loss of $0.21 per share on a non-GAAP basis in the fourth quarter of 2011 compared with earnings of $0.17 per share in the non-GAAP basis in the fourth quarter of 2010. For 2011 non-GAAP loss per share was $0.47 which compares to a $0.04 loss per share. Non-GAAP EPS was also a financial measure we developed to highlight our operating results excluding certain large non-cash or nonrecurring charges that are not core to our business. Non-GAAP EPS was described in more detail in the press release we issued earlier today.

Our gross margin this quarter was $19.7 million compared with $33 million in the prior year period which included the additional $11.5 million of V-Tac revenue. As we've discussed in prior quarters IMW did not contribute as much to our margin line as we had anticipated. The Company has incurred some growing pains and production issues that impacted its cost of sales amount during the year. We are working with them on several production and efficiency initiatives to get them back on track, and we are also working with them on developing some new products that hold promise.

BAF also was down between quarters as 670 AT&T vans we anticipated in the fourth quarter of 2011 slid to the first quarter of 2012. Our margin per gallon on fuel sales was $0.26 in the fourth quarter of 2011 which is consistent with the fourth quarter of 2010. Our net loss on a GAAP basis for the fourth quarter was $20.7 million or $0.29 per share. This compares with net income on a GAAP basis in 2010 of $13.8 million or $0.18 per share. In addition to the extra $11.5 million of V-Tac, the fourth quarter of 2010 also has an additional $4 million of gains related to valuing our Series 1 warrants.

For 2011 our net loss was $47.6 million or $0.68 per share. This compared with a net loss of $2.5 million or $0.04 per share for 2010. Volumes during the quarter rose to 40 million gallons, up from 31.7 million gallons. For 2011 we delivered 155.6 million gallons which is up 27% from 122.7 million gallons in 2010.

From a cash perspective we had approximately $330 million available at year end to execute our growth plan. We also have another $100 million committed from Chesapeake for additional convertible notes we anticipate issuing in June of this year and June of 2013.

And with that, operator, please open the call to questions.

(Operator Instructions). Brian Gamble, Simmons & Company.

Good afternoon, guys. Appreciate you walking through all the new markets and existing markets that are growing, that was quite a mouthful, Andrew, as always. Good to know that people are getting interested.

A couple comments you made I wanted to touch on. You mentioned incremental costs for the vehicles for a particular order in the mid-$20,000 range, down from seemingly $30,000 or $35,000 I guess, in my most recent notes. Was that strictly due to higher volumes or are those cost outmeasures that are starting to roll through at the OEMs?

I think it's a little of each. I think it's a big -- I'm not at liberty to tell you it was but it's a big player. So we got purchasing power. I think it's a recognition that you're beginning to see some of the costs come out of certain of the components. Even the tanks for instance. And you know, it's not -- when you look at the refuse market on that, we talked about this before on the nine liter, the Cummins Westport nine liter. As you know, today in a trash truck the nine liter natural gas engine is cheaper than the diesel engine. So on the Class 8 products, we haven't been there as long, and you're beginning to see -- to me it's pretty --. I'm very excited about it because when you just roll back two years ago the incremental cost from the nine liter product was $65,000.

And last week you got an order in there in about the mid-20s. So we've come a long way pretty fast, that's good.

At that rate as you know you're using 20,000 gallons, 30,000 gallons, you are in there at a six to seven month payback.

I think anyone would take that on a 10-year used vehicle for sure. And then you made another comment that some users of traditional fuel trucks were becoming dissatisfied with their diesel engine. Can you clarify that?

Yes. And look, I'm not picking on all my friends in the diesel engine business, but when they had to get to the 2010 emissions standards, they had to put a lot of treatment, active treatment on these trucks. And frankly they had to kind of bring that to market sort of fast, so I've had some of the OEMs say, hey, this is going to get better over time.

But the truth is, a lot of people operating diesel trucks certainly in the refuse market, they are not happy. They are not happy with [urea], they are not happy with the traps, they are not happy with the heat that is generated, they are not happy with the efficiency. And so, that bubbles up through a lot of guys operating diesel engines. So it's kind of -- not to wish anything bad on my competition, but it's what we used to say a few years ago that the diesel engines would get better -- will get more expensive and the experience wouldn't be as good, and that's kind of what happened.

Lastly from me, volumes down fractionally quarter on quarter, kind of seemingly flat to the last half of the year. Can you kind of walk us through how quickly some of these growth initiatives start to materialize and maybe what sort of volumes we can expect either first half of this year or full year 2012?

We don't give guidance, but we are seeing an increase in volume. Last year was up -- what did we say, 27%? So I feel like it's going to be -- it's going to be north of that. But I really remind everybody that I think that the -- certainly the volumes that will come from these stations that we're building -- and we're beginning to see that ramp up in all these refuse stations and others that we built last year. They are beginning to -- the volumes are picking up. But for these 100 stations that we are getting ready to build for the Natural Gas Highway, it's really a very late 2012. In that particular market, it is a very late 2012 and really 2013 story. Because some of the engines won't be ready to go until last part or at least latter part of 2012 and early 2013.

I appreciate the color. I thought you were done. If you want to continue.

I am done. But we -- you've heard me say this before, that I -- nothing I've seen, in fact, everything I've seen in the last six months at the is maybe more bullish. When I look at the adoption rate on the refuse sector, and I lay that on the Class 8 sector, you are getting pretty serious volume. So it's got me as stimulated and as excited about what's going on out there than I've ever been.

Thank you.

Steve Milunovich, Bank of America, Merrill Lynch.

Thanks. Andrew, could you maybe size the Class 8 market for us, how big it is, how many of those trucks they think are applicable to what you're doing? And kind of give us a sense what --? A couple years, what kind of gallons that could mean for you?

Sure, let me try. These numbers -- I think everybody can come up with a different set of numbers, but I've been told by my friends in the trucking industry these are okay. So I believe and what I think is a pretty good number if you talk to the American Trucking Association. I think there's about 3.2 million Class 8 trucks. So that's what we've think of as over the road 18-wheeler.

And the number of trucks sold into that market every year is a little bit under -- if you exclude Canada, and I don't know that we should for this, but that's okay; let's exclude Canada -- It's a little under 300,000. It's about 280,000 or so per year. Of course that depends on the economy. A few years ago it was 180,000 to 200,000 when we had a real tough economy, guys weren't buying trucks.

But when you look at some of the banks that run models in this, they are kind of calling it somewhere between 275,000 and 300,000 out for several years to come. So, when we look at that, and Steve, I think I've talked to you about this before but I really think the best way to look at it, because the incremental is coming down much like it did in refuse and because of the experience they even use more fuel and the savings is therefore even better, and, sure, we've got some work to do on infrastructure, which -- that's our job -- I really feel very comfortable laying this adoption rate that we've seen in refuse. We've got that first good Cummins Westport engine that really is the workhorse in 2008, and that year was 3% and then we went to 2009 and it was 7%.

So we've really I think the way to do that is really look at that, figure that these engines really won't be -- you're going to have a bunch sold into this year which we are very excited about. But most of them are going to be done latter part of this year and the big time in 2013 to 2014 if you really get rolling. But I think that still allows you to look at something, a penetration rate that's 3%, 6%, 12% and I think it will be very similar, maybe even faster. I may be being conservative but when you do that, based on the 275,000 to 280,000 trucks, Steve, by the time you get 2016, 2017 you're at 3.2 billion gallons a year. Just on the fact that you -- by late 2016 you'll have 250,000 over the road trucks using 3.2 billion gallons.

So it could be bigger than that, but I mean -- let's start there. And I feel pretty good about that.

What kind of (multiple speakers)?

That is what we think is going to happen. As a minimum.

What kind of growth do you think you might need in SG&A this year to help make that occur on the road?

Rick, do you want to help me a little bit here on that?

Absolutely. Steve I think from an SG&A perspective we anticipate we will continue to increase our expenditures this year as we invest in people and resources and infrastructure and all that good stuff. Our goal and effort and what we're trying to do to keep it as a consistent percentage of revenue for the next couple of years as we really grow. This thing and it obviously, as we've talked about before, we think is leverageable that will go down in the future. But if we can keep it in the 30% range of revenue that's kind of our target.

Okay. And can you talk about barriers to entry, I think the world's starting to believe this is going to happen, and that's likely to bring more folks into it. I think there's often a perception that the barriers are fairly low here. I assume you disagree with that to some degree. Could you numerate your reasons why not?

We've talked, a lot of people on the call talked about this before. Can other people be in the fueling business? Sure. But I always like to start out by saying this is different than the passenger car market. So let's for at least for the moment take that integrated play, the majors out of this, because they are not really in this market. They are not fueling trucks and they are not fueling trash trucks and -- that's not their market.

So if we thought that every passenger car in the United States was going to go to natural gas, I think I'd have a harder story on that. I'm not going to get wiped out by somebody that has 5,000 or 10,000 fueling stations.

When you look at the truck market it's a little bit different story. The more I have gotten to know our partners at Pilot/Flying J, the more impressed I am with what an operation they run. But think with me that they have 450 truckstops, Pilot/Flying J truck stops in the United States that fell somewhere around -- I don't know, 8 billion gallons of diesel. Do a1million transactions a day. And so -- they are my partner.

So when, Steve, when you ask about the market size the 33.2 million Class 8 trucks, those Class 8 trucks use about 24 billion to 25 billion gallons of diesel. So they've got a pretty big piece of the market. And they are our partner and that's why we are rolling out there.

So I think that was a key strategic move to partner with the Pilot/Flying J, and we've announced some others that don't get quite the cachet. But we've signed up the Quarles Petroleum people in the Mid-Atlantic that have 180 locations. And we have several others that will be announced soon.

We think this is a very key piece of this business which is to have locations under contract, under long-term exclusive arrangement so that we can put LNG truckstops in where America's trucking fleets go. So I think in one way that's probably the most important -- I don't like barriers to entry, I think that's one of the most strategic advantages we have.

The other thing is we have a compressor company, other people can get those I know that. We have one of two LNG fabrication and construction companies that we have, and we have a nationwide network of construction people building these and we operate now, we have contracts from 650 of the nation's largest fleets. So we are already doing business with a lot of these. That doesn't mean we couldn't be displaced but we think that's an advantage. We have LNG plants, we understand LNG supply, we have an LNG -- a cryogenic tanker fleet.

And so Steve, what I think we've been in the business -- after all, we've spent I don't know, $600 million, $700 million, $800 million. It's not like we've been just casual about this. We are building out -- we are way ahead. Nobody else is really building; there's been a handful of LNG fueling stations, nobody else has done what we have done.

So I think when you put all that together we are pretty far out in front of the crowd. Now I think we will have competition and we are starting to see little pieces of it pop up. I think that's just -- I think that's, frankly, is good news. That validates the fact that we got a real business.

Great, thank you.

Rob Brown, Craig-Hallum.

Good afternoon. On your pipeline I think you said you had 536 deals you were sort of working on. Could you give us a little more background there, how many of those are Natural Gas Highway-related and other stuff?

I am hoping that -- I'm in Washington, DC, because I'm up here on this thing. And I'm hoping somebody in [Seal Beach] has maybe got that breakout there. Let me -- while they are fumbling around, when you look at the pipeline, the Highway piece is not in there. So when we look at the station construction, that big number, that 120 some-odd, the Highway, the sort of 2012 station count is in the construction carpet. So if that is clear as mud, I don't know. The 75 we believe we're going to build, and we feel comfortable with it we're going to build in 2012. In that number I'm giving you today the construction carpet is at 121, 70 some odd of -- or 60 some odd of the America's Natural Gas Highway are in that 121 number.

Now when you look at that 536 number, that doesn't have those -- that doesn't have any of the American Natural Gas Highway in that number to inflate that. So that's really just -- and I'm very proud of that. That's the fact you've got all these salesmen out there now, and I think last time we talked that number was closer to 438 and in the last 90 days it's gone to 530. So that is because you've just got more fleet deals, fueling deals, airport deals, different construction items that are in there.

Good, that's helpful. Thank you. Your Navistar program that you talked about the lease program, where are you at in that? I know it's new but have you seen interest from that yet and when should we look to see that turn into (multiple speakers)?

I think you're going to see some of those announcements, I'm hoping, soon. And one of the things I alluded to on that big truck order, that's a Navistar deal. And the thing that I talked about earlier. So we'll just let them roll that out.

But no, we have had a really exciting launch to that program, we've met with all of their sales folks, we've met with many of their dealers, we've made presentations, we've made dozens of proposals, and so I'll tell you what. The Navistar folks have been very impressive, they've really -- from their engineering staff and their sales staff, run by Jim Hebe, who is a pro, they have really taken this very seriously. They see it as an important piece of their business. And so our man, Jim Harger who, as our Chief Marketing Officer, is in charge of that relationship, they have done a lot together and you're going to see some of those announcements pop out here pretty soon.

Great, thank you.

Graham Mattison, Lazard Capital Markets.

Good afternoon, guys. Just to follow up on Rob's question, could you break down the stations you have in backlog or in the carpet, what percentage of those you'll build, what percentage you'll own and operate, what percentage are just for third parties? Just to get a sense on that.

I don't know if I have that handy but let me look at it and try to help. So right now, as we sit here, the carpet is at about -- those of you that have been listening to us for a while, that number is substantially higher than it used to be. So we used to in about the middle of the year we thought we were doing good last year when we got to 80 projects in June.

So we are sitting here today at about 121 projects. And of that, 31 of those are construction projects that are underway on America's Natural Gas Highway. And there is another -- there's another subset, and I don't want to get tripped up here. There's about another 35 that are America's Natural Gas Highway that are in sort of permitting and design. And then the others will be built this year, but they are I would say focused on our core markets. So now, on that, a slug of those, and I want to say, granted, it will be closer to 12 or 15 will be refuse stations -- we will build more than that but we will build some of those for Republic and Waste, and that's for their account, right? We won't own those but we will build them and will design them and we'll use IMW -- most often we will use IMW stuff on that. I would say other than the refuse, most of that there are four in Dallas, that will be big transit properties, those are for dark. I would say that those remaining stations, that other 60 kind of breaks down 30 for customers and 30 for us.

Great. That's very helpful. And then, looking at the LNG Highway, I guess looking at LNG supply for those stations as you build them out around the country, where are you in terms of locking in supply? Is there a need to build additional liquefaction capacity or are you looking with local liquifiers or just a little bit more color on that.

I'm going to be a little careful on this because we see this as an important thing. We think we have an advantage here because we have an LNG supply group now that's working on this. I guess I am pleased that there was a little bit more LNG available in the country than I thought.

And as you know, some of it is in the Mid-Atlantic and the Northeast where it's by utilities and its peak shavers and there's other cryogenic facilities in the Southeast and even in the Northwest. We believe as you kind of shake all that out there is probably 1 billion gallons a year available of LNG supply.

We don't have it all tied up yet because you don't need it. But if you heard my answer to Steve Milunovich, I think by 2016, in that neighborhood back into that, you better be where you got yourself lined up to get that 3.5 billion gallons of LNG. So you're going to be okay between now and the next few years, two years. But we are going to need to begin to work with our friends in the gas patch, and in Midstream to begin to make the changes to some cryogenic facilities at storage, at truck loading to be able to have more LNG on hand. And I am fully confident that that can be done, but that's going to be important part of this business. And I think it's going to be a strategic piece of it too.

All right. If you look at that, the LNG Highway that you are building out right now, what percentage of that would you be fueling from your own LNG facilities versus fueling from third-party LNG supply?

Let's put it this way. I don't know an exact percentage, but as you -- let's assume we've got these things spread out across the United States. Really, you shouldn't -- you shouldn't go much further than 250 miles in a perfect world to really remain as competitive as you want to be on the transportation. You can push it a little bit.

So you ought to think of concentric circles laid on top of our highway for LNG supply as we move around different parts of the country. You've probably in the beginning can do it 300 miles, 500 miles, but you would rather it be more like 300 to 250. You see what I mean?

Yes.

You could do it. For a long time when we didn't have any choice, we hauled it 800 miles to Los Angeles. But that's not the way to run a railroad.

Got it. That makes sense, thank you. One last housekeeping question for Rick. What's the current share count right now post the warrants, what share count should we be modeling in going forward for 2012?

We sit here today, about 85.8 million.

Great. I'll jump back in queue, thank you very much.

Eric Stine, Northland Capital Market.

I was just wondering if we could go back to the Navistar relationship. Actually just wondering is there exclusivity to that or are you able to work with other truck OEMs in a similar arrangement?

Yes. We have an exclusive strategic relationship with Navistar. In that we will do joint marketing and joint calls with Navistar, sort of corporately, think of it that way. And that is exclusive. And there is a term on that, I don't know that we disclose that. And -- all right. So that's one thing.

That does not preclude us from calling on other truck OEMs or hustling a fuel deal with a dealer that wants to sell 50 Peterbilts somewhere. So we are not precluded from working with our other friends in the business, but we do -- we do have sort of an exclusive corporate deal with Navistar at the corporate level, and we are not allowed to do that with the others, but we are allowed to be called in and do fueling and educate people there, but it's just a little different. Does that make sense?

It does. So you can work with them but it would not be the same setup where it's the set lease program, five-year contract that sort of thing but you can certainly help on the fueling side. Obviously.

That's right.

That is helpful. Maybe we could just turn to BAF. Just curious if you could give the revenues and the uptick volumes in the quarter, just talk about what the capacity is in that business on a quarterly basis.

Revenue for the quarter was about $5 million. They did 336 units during the quarter. Comparably it was down considerably from the fourth quarter 2010 but keep in mine in the fourth quarter 2010, that was a monster quarter for them. They had a significant chunk of AT&T vehicles they finished during that quarter and unfortunately some orders in this -- we thought we were going to get in the fourth quarter of 2011 here slid to the first quarter of 2012. So that hurt them a little bit.

But they just moved into a new facility and they got plenty of capacity, and they've been working with their dealer network and outfitting that work. We can do all kinds of capacity, that's certainly not the problem. And the good news is that means their core business setting the AT&T Verizon stuff aside for a second is actually doing very well. Their shuttle vans and stuff they do for DART, doing some taxi transit connect type work, they're working with a lot of the E&P guys trying to get pickup type business in their operations. So all that stuff is going pretty well. We just need to get AT&T back on track and we've been talking to them and they still seem committed to doing the deal, it's just slowed down a little bit from what we thought it was going to be.

But all in all they continue to plod along and do well, and we're hoping they get back on track this year.

Eric, I just would make a comment. Rick alluded to it. So they moved into a new facility which makes them more efficient, they were in as they were a very small company years ago, they were in five buildings so now they are in one; it gives them more efficiency. Of course the OEMs like that because it allows them to do stuff with quality better.

They've got the whole lineup of the E&F series now, [Ford], most of it dedicated and biofuel to even come up to the 550 and the 650s which are pretty big engines.

And Rick's exactly right. Now they've trained their upwards to 100 Ford dealers. The important thing there is so somebody wants six pickup trucks in Albuquerque, we've trained the Ford dealer. So it's pretty seamless now, they order it from a Ford dealer, it gets dropshipped to us and it goes right back there and now the Ford dealer is trained. And so, we'd like a couple these other big [500, 1,000] units, but in the meantime they've been growing the breadth of their business nicely. So -- BAF still does more than anybody else does in this business, we hope that it will pick up a little bit this year.

And the order that you said had slip, just to be clear those are orders that have been placed and that will be first-quarter volume?

In fact -- most of them are done.

A lot of them have already been shipped.

Good (multiple speakers)

We got a big order from AT&T, they were the first ones to certify the transit connect. They got an order for 673 of them. Slipped from last quarter into first quarter. Most of them are done, I don't know if they have all been delivered, but almost all of them if not have been completed.

Sounds like a pretty strong start to the year, and maybe 2012 is more like 2010 than 2011. Would that be a fair comment?

Again, we don't give guidance, but we are hoping that things pick up.

Good try, Eric.

Worth a try. Last one from me, I was going to ask you about Quarles. You touched on that, but interested in your comment of working with other regional players. Just curious your thoughts how that plays out, and will the deal be similar to Pilot in most cases?

We have to be a little careful there, but all these players are the same but different. So you're kind of having to -- you're using a similar template, I would say, but it's a little different. It's important, though, because a lot of -- there are some pretty powerful -- these are big businesses. And it's pretty powerful groups of 300, 500, 700 regional fueling players. Because the interstate kind of rural stuff is one thing, but then when you get into the more urban environments, that's where you see these other pretty important network fueling providers. And so we are working our best to try to line some of them up as well.

Okay. Thanks guys.

(Operator Instructions). Pavel Molchanov.

Thanks for taking my question. In 2011, LNG shipments were up about 30%, CNG up 25%. I realize you guys don't give guidance, but do you expect LNG to continue to outpace CNG on a percentage basis?

I do. The CNG got a big boost because you have those big transit properties. But when you look -- when we look out to the future in this -- we are kind of seeing how that's playing out right now. But when you look out at that regional trucking in the big interstate trucking market, and some -- I don't know that everybody is convinced what the split will be, but I think it will break 70/30 to LNG. So I kind of think it's going to break that way just because of the LNG properties. The density and the ability to put in stations for less and all that. So I think you should see as our business model gets into effect I think the LNG should probably be bigger than CNG, I would think.

(multiple speakers) be more pronounced once the highway stations get built.

I was going to ask about that. What's your target for when the highway stations will get to full utilization? In other words is it something where it takes a year for them to ramp up to full sales capacity, or how do you estimate that?

Well, we are being very focused as our Board has required it. We're very focused in what we call our national trucking team.

When that station opens we want to have a base book of business there. So we've used different numbers on these calls. But we know that you need a minimum of 20 some odd trucks to make that station operate efficiently.

You can't stop there, but you need to get it -- you need to get it to 100 or so as about as quickly as you can.

One of the things that makes me very comfortable is that -- because we throw around -- with Steve a few minutes ago we threw around these hundreds of thousands of truck numbers. And it scares everybody. When you really break it down to that $1.5 million LNG truckstop station, you really need 100 of the right trucks there. You don't need 1,000. You need 100.

So on day one you want to make sure you've got 20 or so. And obviously I'd rather have 50 or like we have in some of the early ones we just opened. Because those stations have somewhere between a 2 million and 2.5 million gallons capacity. Now you can continue to add to that capacity, you'll add other lanes and this and that. So to me it's not so daunting but I don't think you should think of it in 12 months every one of those stations will be completely loaded. I think that would be too much to hope for.

I think we ought to think about a little bit more of a phased in approach. But even so over a couple years, as long as you get 50 of those trucks in there in year one you're going to be very pleased with its return.

Appreciate the color. Just a quick one, this current quarter are you making an earnout payment for IMW?

We will. I think at the March to March calculation, I'm not exactly sure what it is at this point but they are on track to make something for this period.

Understood. Appreciate it.

Peter Christianson, Merrill Lynch.

Thanks for taking my question. Andrew, on the Hill, I was wondering if you give us a sense of a sentiment for the amendment. It looks like it's getting some good attention. From both the pros and the opposition on the side of the field. What are you seeing, what's your feelings right now?

This is kind of a wild and woolly place up here. But I'm glad you asked the question. Because I think we should keep in mind how far we've come. And I don't know if you saw it earlier today, and I mentioned it, but Senator Richard Burr, he was great. He went to the floor and of course there aren't a whole lot of senators there but he went to the floor, I thought he did a really good job over 45 minutes talking about why he thought this was a game changer and that there was really no downside in doing it.

I don't really think we should worry tomorrow so much about a yes or no vote as much as I think we've already done -- we've made our points. There's no one here who thinks we shouldn't use natural gas for transportation. There is some disagreement over the form of what that should take in the process, and I can't predict if this will pass tomorrow or not.

And it's -- this is -- there's a whole bunch of amendments. It will go rapidfire, I think, tomorrow morning. I don't know how will come out. I'm not sure this is the end of it, but as I've said before, look, we are busy. And the industry is coming our way, and the commercial businesses are coming our way, so this thing is going to happen regardless. I think Senator Burr said it right, this is going to make it go a lot faster. And it will be better for the country. But I am not -- a couple, three years ago, we -- people got all hung up that we needed this to make our business case. We don't need it to make a business case. It would be good for the country if it would happen. My guess is it will be tight tomorrow and we'll just have to see how many Democrats show up. And -- and if we can get the 15 or so Republicans that we need.

That's good color. And Rick, I was wondering if you could give some color, it looks like the converts are likely in the money right now that were issued last summer. Would that preclude some change in the share count going forward?

Obviously if they do convert it's going to change. And we actually after two years can force conversion if the stock price -- stock trades 4% above their conversion price. So they certainly obviously can convert any time. So to the extent that happens you're looking at another 9.8 million shares or something like that, I think, coming in.

So it's after two, 2.5 years until you can force conversion?

We can, if the stock is trading high enough.

Okay. And then finally on the development of the initial stations, what's dictating the buildout strategically? Is it topography before the larger displacement engines come on or is it customers or a bit of both? If you could just talk about how the first couple of stations are going to roll out, what the selection process is there.

You've paid close attention to us, you're exactly right. Here in this period when we have literally dozens now of carriers or shippers beginning to kind of put some of these in their fleet which I think is a very positive sign, we don't have the 12 leader. We don't have the 11.9 we don't have the 13. So our sales people that really focusing on flat topography. And so that drove some of the early stations in the Midwest and some of these other areas, so that's working well.

But we are also -- we're also taking the information that we've learned from these customers and we've put it into our database, and we are overlaying that on the Pilot information. And so it helps us make sure that we get the right stations in, the first ones in first.

But on the other hand, we feel it important by the end of this year to have a workable network. That doesn't do you a lot of good to have something going across the country and have a big 500 mile gap in it. So we think that's important, that's what we said we were going to do and that's what we're going to do. So we are doing two things, you're right. Flat topography and also laying the lane data information to make sure we build the right ones first. It seems to be working pretty well.

Great, thanks for the color.

Just to be clear, the convertible note conversion to 13.2 million shares, I'd only given you a piece of them before. That includes all the investors.

Great. Thank you.

There are no further questions at this time. I would like to turn the floor back over to management for closing comments.

Thank you, operator. Our efforts in 2011 kept us in a leading position for capturing the ship and natural gas for transportation use in the future. The news flow awareness and an acceptance has validated what we saw coming. As we look to 2012 we plan to execute on our aggressive buildout plan in anticipation of dramatic growth in 2013 and 2014.

In closing, we are continually and proactively looking for opportunities to expand our lead. This requires investment, long-term planning and persistence. Every indication we have convinces us that we are on the right path and every day we are reinvigorated about what we are doing for our communities, our country and our shareholders.

So thank you for being on the call today.

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