Clean Energy Fuels Corp (CLNE) 2012 Q3 法說會逐字稿

Greetings and welcome to the Clean Energy Fuels third quarter fiscal 2012 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. Thank you Mr. Kritzer, you may begin.

Thank you, Operator. Earlier this afternoon Clean Energy released the financial results for third quarter ended September 30th, 2012. If you did not receive the release, it is available on the Investor Relations section of the Company's website at www.cleanenergyfuels.com,where the call is also being webcast. There will be a replay available on the website for 30 days.

Before we begin, we would like to remind you that some of the information contained in the news release and on this conference call contains forward-looking statements that involve risks, uncertainties, and assumptions that are difficult to predict. Words of expression reflecting optimism, satisfaction with current prospects, as well as words such as believe, intend, expect, plan, anticipate, and similar variations identify forward-looking statements, but their absence does not mean 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 Factor section of Clean Energy's Form 10-Q filed August 6th, 2012. These forward-looking statements speak only as of the date of this released and the Company undertakes no obligation to publicly update any forward-looking statements, or supply new information recording 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 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 substitute for or superior to GAAP results. The directly 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 are 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 will turn the call over to Andrew.

Thank you, Tony, Good afternoon everyone. Thank you for joining us. Before I begin the official part of our call, I would like to take a quick moment to say a few moments about Hurricane Sandy. As everyone knows one week ago this historic storm ripped through the East Coast causing immeasurable destruction. I am sure that some of you listening on this call have been impacted. I would like to report that we have 49 stations on the East Coast that were in the path of the storm. Because of the around the clock effort from Clean Energy's station technicians and other employees, as soon as the water subsided, all of those stations including ones in incredibly hard-hit areas of Long Island and New Jersey were up and running. This enabled our refuse customers in that area to fuel up and begin the critical relief effort of clearing debris and damage caused by the storm.

It also enabled many of the critical public transit busses and other shuttles in the area to transport people in those communities who depend on them to get around, whether it be to work, the grocery store, or other necessary destinations. I am proud of our operations group who amassed in the Northeast, slept in sleeping bags of pickup trucks,they organized stand-by generators and got the stations on-line by Wednesday. We here at Clean Energy send our thoughts and prayers out to the communities in which we operate, and the millions of people who have been affected by this devastating storm.

Moving on to our results, today we reported record revenue in the third quarter of $91.5 million, up 27% from $72.1 million for the third quarter of 2011. We also delivered a record 50.9 million gallons in the third quarter, up 24% from 40.9 million gallons in the third quarter of 2011.

Before I highlight the specific operating results of the Company over the third quarter, I think it is important to bring everyone's attention to the growing awareness and major developments of the natural gas vehicle industry just within the last few months. As most of you probably know, Governors from 22 different states have joined together to issue an RFP for the Big 3 auto makers to provide natural gas vehicles for their state-run fleets. Obviously we would like to be the premiere fuel provider in all of these states, but more importantly, we are thrilled that this has been a bipartisan effort to expand the use of CNG vehicles.

We just recently announced a partnership with the Commonwealth of Virginia to convert their state-run and local municipal fleets in natural gas, and provide them fueling options with our network of stations in that area. We think this will serve a good model for other states to follow. Perhaps the most significant example of the industry validation of growth was announced just last week when FedEx announced that they have taken delivery of two brand-new Kenworth LNG tractors with the Cummins Westport 11.9 liter engine. They will be running out of our Dallas area LNG stations. FedEx has stated that during the testing phase they will be slip seating these trucks, in order to run them up to 1,000 miles per day.

FedEx's global business model is heavily dependent on having the lowest and most-reliable transportation costs is pursuing LNG fueling for their freight business. To me that is about as good of a validation as one could hope for. Speaking of validation, the trucking industry is taking the transition to natural gas seriously, the American Trucking Association is hosting their first Natural Gas Summit at the end of the month in Washington, DC. I will be joined by industry leaders from trucking companies, shippers, truck stop companies, and end points of government officials, to discuss how not if the trucking industry is making the switch to natural gas. The ATA reported last week that the conference was sold out. But now they have added the capacity to accommodate about another 50% bump in attendance. This is impressive.

Honda Motor Company also just recently announced they will offer $3,000 pre-loaded Clean Energy fuel cards to customers who purchase a new 2012 Honda Civic NGV. This car can be used at clean energy CNG stations across the country, and represents two to three years of free fuel, which dramatically helps offset the current cost premium of the natural gas model of the Civic. The reason why I mention these recent announcements is not just because of the gallon volume that they potentially represent, but rather because it shows that the growth of the NGV industry is being stimulated, both from the supply and demand side of the market.

Now switching gears back to our third quarter operating highlights, as I have mentioned over the last several quarters our primary focus is on executing the roll-out of the Clean Energy's of American Natural Gas Highway stations, and simultaneously growing our traditional core market segments of airports, refuse, and transit, where we are the undisputed leader. I am pleased with the progress we have made on American Natural Gas Highway. Today we have completed construction of 48 of our highway stations. We have 21 more stations under construction, and an additional 12 in various stages of entitlement, design and permitting, which is contrary frankly to some reports and comments made by others last week.

We are still on track to complete our goal of about 70 stations by year-end. The majority of these stations will be located at truck stops with our partner, Pilot Flying J. Compared to the one LNG highway station we had completed at this time last year, we have come a long way. And we already have an additional 64 stations in process for next year with more to come.

As I have said on past calls the American Natural Gas Highway stations will be LNG, because LNG is better suited for the majority of heavy-duty truck operators. CNG is more practical for light and medium duty vehicles in urban trucking, with shorter haul requirements in metro areas. As we continue to build out the necessary station infrastructure for America's long haul and regional trucking market, we are also closely monitoring the deployment schedule of the natural gas engines from the different OEMs,particularly the Cummins Westport 11.9 liter engine, which is expected to become available in the first few months of next year. And the Volvo 13 liter, which is expected in early 2014.

While the existing Cummins Westport 8.9 liter and the Westport 15 liter natural gas engines are excellent for certain applications, the 11.9 and 13 liter engines are really the desired engines for the vast majority of the heavy duty trucking market, because they provide the best mix of necessary torque and fuel economy for the drivers. We are excited about the introduction of these engines and for the truck adoption to begin in the first half of 2013. We will have a fully build out natural gas fueling infrastructure in place as those trucks are gradually introduced into the fleets.

We expect fleet operators to test a few units, and run them on high mileage routes, just like what FedEx is doing. Then we look forward to accelerated adoption of fuel cells. This would mirror what we saw in the refuse industry over the last five years, once the market had the right 8.9 liter Cummins Westport engine. The same factors are in place except that over the road trucks use more fuel, and therefore have even more annual life cycle savings than refuse customers.

In the meantime our national truck sales team has continued to successfully target and pursue shippers in private fleets all across the country, in order to educate them on the impressive economic and environmental benefits that come from operating natural gas trucks. In addition to the announcement by FedEx that I previously mentioned, I am pleased to announce recent deals we made with some of the largest and most well-known companies in the country over the past quarter. Frito-Lay just signed a two-year national fuel agreement with Clean Energy to fuel about the first 75 natural gas trucks that Frito will be running. Frito-Lay is expecting to grow their natural gas fleet to over 800 heavy duty trucks at 13 different sites.

Staples contracted carrier is now using natural gas trucks for their store deliveries in Southern California. Saddle Creek Logistics who are a contracted carrier of both Office Depot and Covidien, brought their total natural gas fleet to over 100 with the addition of 62 new natural gas tractors. UNFI, the leading US independent national distributor of natural organic and specialty foods is using natural gas tractors. Central Freight took ownership of 14 new natural gas trucks that will be fuel at Clean Energy stations in Houston. They have also applied for another 22 dozen trucks. Greatwide Logistics began making deliveries to Nordstroms department stores using natural gas trucks. The contracted carrier for Fresh and Easy grocery stores are now using natural gas trucks for their Southern California store deliveries. Lily Transportation, one of the contracted haulers for Whole Foods has converted a percentage of their fleet to natural gas. And finally Con-Way Freight deployed their first two natural gas trucks that will fuel at Clean Energy stations in Chicago.

Now let's turn to our core markets. There are too many deals and deployments to mention on this call, but I will highlight a few from each market. In our refuse market 462 new CNG refuse trucks were delivered to Clean Energy refuse customers in the eastern, central and western regions of the country over the past three months, an additional 434 trucks have been ordered. Through a new partnership with Covanta, we will be opening a new station in north New Jersey to serve their fleet of refuse trucks that use that facility. Clean Energy opened its first refuse CNG station in Canada to fuel 58 CNG trucks for Emterra Environmental in Winnipeg. We also opened a CNG facility for burrtec Waste Industries at their headquarters in Fontana here in Southern California, which includes a long-term operations and maintenance contract of 50 trucks. Progressive Waste signed an agreement with Clean Energy to build a CNG station in Haltom City, Texas, and another in Bridge City, Louisiana.

In our taxi airport shuttle market, this quarter we broke ground for our new station at JFK Airport in New York City in conjunction with GAZ Realty. 125 CNG taxis were added in New York City and Chicago in the last three months. We executed an agreement with Orlando International Airport to build a new Clean Energy CNG station on airport property. In Cincinnati we signed a station agreement with GAZ Airport Logistics to own and operate a CNG station at the Cincinnati Airport that will initially serve 20 airport shuttles and 70 taxis. In San Diego we opened our second public access fueling facility at the San Diego Airport, where we have already been seeing impressive volume. In Seattle we commissioned a facility with IMW Equipment at the Seattle Tacoma Airport rental car center and are running operations and maintenance for over 50 CNG buses.

In our transit market we were awarded four CNG transit stations by Dallas Area Rapid Transit, DART, for which we will fuel 400 buses within the next three years. We have completed two of the stations, one of which has begun fueling 200 paratransit vehicles. And the remaining transit depots will be completed by year-end. In Richmond, Virginia Greater Richmond Transit will begin fueling 14 buses at our new Richmond station. In Anaheim we secured a contract to fuel up to 20 buses providing transportation service throughout the Disneyland resort area, through the Anaheim Transportation Network.

Moving to our construction carpet in our Refuse/Airport and Transit markets we have already completed 42 new projects this year, with about 20 more scheduled for completion by year-end. Between our highway stations and our core market projects, we have completed construction of 85 stations so far this year, which compares to 40 stations we had completed this time last year. As you can tell, this represents over 100% growth over last year. Our deal pipeline continues to expand with over now 1,000 deals in various stages of validation, qualification, and negotiation. We have had over a 200% increase in the amount of deals we have closed over the third quarter of last year. Last time we spoke we had 677 deals in the pipeline. And remember our pipeline number does not include American Natural Gas Highway projects.

Lastly on our biomethane operations, Clean Energy renewable fuels McCommas Bluff biomethane plant set a new record for production in October exceeding 1.2 million gasoline gallons for the month. This is a 33% increase in production year-over-year. We are in the final strokes of commissioning our new biomethane plant in Michigan, and eagerly awaiting the utility's completion of the pipeline interconnect facility. We anticipate that we will begin producing and selling pipeline quality gas this month, once the interconnect facility is completed.

Our third facility which will be located at a landfill outside of Memphis, Tennessee is in engineering and permitting, and scheduled to commence operations in late 2013. The renewable fuels team is hard at work on feasibility studies for numerous other biomethane projects and also negotiating with many third-party biomethane producers, to acquire renewable fuel that can be marketed and sold through Clean Energy stations.

I think it is worth emphasizing here what an incredible opportunity the Clean Energy Renewable Fuel business represents. We call that CERF. We are producing over 40,000 gasoline gallons equivalent a day of biomethane from our project at McCommas Bluff. 40,000 GTEs a day that can be used to fuel anything and everything from taxi cabs to long haul 18-wheelers, while achieving a 90% or more reduction in greenhouse gas emissions. Moreover it can be produced and sold profitably, at prices below petroleum fuel product prices The opportunity to sell an economic, fully sustainable fuel through the very same infrastructure we have been building for CNG and LNG, a fuel that can permanently solve problems associated with the use of finite petroleum fuel products. It is just another way that we are very excited about, something else that we are very excited about here at Clean Energy.

With that, I will turn the call over to Rick.

Thanks, Andrew. Before I review our financial results, I would like to point out that all of my references for our results will be comparing the third quarter of 2012 with the third quarter of 2011, and the first nine months of 2012 to the first nine months of 2011, unless otherwise noted. Volumes rose to 50.9 million gallons during the quarter, up from 40.9 million gallons a year ago. For the first nine months of 2012, volumes increased to 143.2 million gallons, up from 115.6 million gallons. For the quarter revenue increased to $91.5 million, up from $72.1 million. For the first nine months of 2012, revenue increased to $234.9 million, up from $206.5 million a year ago.

Keep in mind when comparing the numbers between periods, the first three quarters of 2012 did not include any volume metric excise tax credit or VTAC revenue, as the VTAC expired on December 31st, 2011. VTAC revenue was $4.5 million and $13.4 million respectively in the third quarter and the first nine months of 2011. One big item contributing to our increased revenue this quarter, was we completed and sold two large CNG fueling stations to a transit customer in Dallas during the period. Our fuel sales were also up about $4.5 million between periods.

On a non-GAAP basis for the third quarter of 2012 we reported a loss of $0.19 per share. This compares with the non-GAAP loss of $0.11 per share in the third quarter of 2011. For the first nine months of 2012 we reported non-GAAP loss of $0.52 per share compared to a non-GAAP loss of $0.26 per share in 2011. Adjusted EBITDA in the third quarter of 2012 was minus $3.1 million compared to $1.8 million in 2011. For the first nine months of 2012 adjusted EBITDA was minus $6.7 million compared to $6.6 million in 2011. Again please remember the third quarter and the first nine months of 2011 included $4.5 million and $13.4 million respectively of VTAC revenue.

Adjusted EBITDA and non-GAAP EPS are financial measures we developed to highlight our operating results excluding certain large noncash or nonrecurring charges or gains which are not core to our business. These include the amounts we are incurring for the Series One warrant valuation, our stock based compensation charges, and the foreign currency gains and losses related to our IMW purchase notes. Adjusted EBITDA and non-GAAP EPS are described in more detail in the press release we issued earlier today.

Our net loss on a GAAP basis for the third quarter was $16.3 million, or $0.19 per share, which includes a noncash gain of $5.7 million related to valuing our Series One warrants, noncash stock based compensation charges of $6 million, and $0.7 million in foreign currency gains related to our IMW purchase notes. This compares with a net loss of $11.4 million, or $0.16 per share, which included a noncash gain of $1.5 million related to valuing our Series One warrants, noncash stock based compensation charges of $3.2 million, and $1.7 million in foreign currency losses related to our IMW purchase notes

For the first nine months of 2012, our net loss on a GAAP basis was $59.5 million, or $0.69 per share, which included a noncash gain of $1.1 million related to valuing our Series One warrants, noncash stock based compensation charges of $16.5 million, and $0.7 million in foreign currency gains related to our IMW purchase notes.

For the first nine months of 2011, a loss on the GAAP basis was $26.7 million, or $0.38 per share, which included a noncash gain of $3.1 million related to valuing our Series One warrants, noncash stock based compensation charges of $10.1 million, and $1.2 million in foreign currency losses related to our IMW purchase notes.

Our SG&A charges are higher between periods primarily as a result of our continued business growth and hiring more people as we ramp up to support our construction of the American Natural Gas Highway. Our Interest expense is also up between periods due to the interest charges we are incurring on our $250 million of convertible notes we have issued over the last year or so to fund our capital program, including American Natural Gas Highway. Our gross margin in the third quarter of 2012 was $20.2 million which compares to $19.3 million in 2011.

For the first nine months of 2012 our gross margin was $59.3 million which compares to $56.4 million. Our margin per gallon this quarter was $0.28 per gallon, which is down a penny from the prior quarter. Our Pickens plant was down during the quarter which caused us to incur some additional charges to deliver some LNG to our customers. And Natural gas prices ticked up a bit which impacted our cost of sales number. However we are still up $0.04 per gallon over our margin per gallon number in the third quarter of 2011.

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

Thank you. (Operator Instructions). One moment please while we poll for questions. Our first question comes from the line of Rob Brown with Lake Street Capital. Please proceed with your question.

Good afternoon. Wondering if you could give us a little more color on both the Frito-Lay and FedEx agreements. Are those part of the natural gas highway and was the highway instrumental in signing those agreements?

Rob, I think the highway, and I think that most people in the industry would agree that until we really launched the highway last year and announced that we were going to do it, we have these conversations with OEMs and others, it was kind of hard for our friends in the trucking industry, and frankly our friends that ship goods, get their head around how exactly this was going to work. So until we launched the highway I think people were skeptical. Right at about Thanksgiving time, you will be able to drive from LA to Atlanta, and then Atlanta to New York City. By the end of the year we will be able to go border to border, coast to coast. I think this has been very compelling for contracted carriers such as Frito-Lay, and also certainly FedEx and UPS.

Now let me just say a couple things. FedEx is fueling at what we would consider at American Natural Gas Highway stations in the Texas Triangle in Dallas. That is a test. What you will see is with a company like FedEx, you will have less over the road coast to coast stuff as you will using local, regional networks. We have now in Texas, certainly for those test fleets, we have a very nice regional Texas Triangle that is up and running and it works well.

Frito-Lay is a little bit different. In that they are running and very satisfied with, and I think the truck order they are talking about in the 13 stations, they do a smaller number of miles, and it is really distribution, and of course they are moving potato chips. So they really cube out before they weigh out on these trucks. They are very satisfied with the 9 liter engine. So I would say with Frito-Lay probably our highway is a little less important, just because of how they go about their business. I think for FedEx though and for many others, the highway has been great.

Good. And is then Rick could you let us know how much of the Dallas station revenue hit this quarter, and how much are you expecting in Q4? I think that was a $40 million contract?

It was about $17.6 million this quarter.

Okay, thank you.

Our next question comes from the line of Steve Dyer with Craig-Hallum. Please proceed with your question.

Thanks, good afternoon, guys.

Hi, Steve.

So the $17.6 millionshould we expect because you have done two of the four a similar number, or like number in Q4?

Yes. Get them done and all of that, but they seem to be on track and should hold.

Okay, very good. And then I am wondering if you could talk a little about capacity utilization at the Boron and Pickens plants, and at what point you may need to start thinking about adding some liquefaction capacity either there or other places?

Sure. It is a good question. Of course the Pickens plant is down right now, so we have a lot of unused capacity there, but just as the highway begins to roll out, and certainly with the Texas Triangle the Pickens plant will go up. It is still underutilized. I think it is at 35% or so utilization, we will see that move up. Boron has hit higher volumes than that. We have seen times where it has been at 65% or so utilized. We can expand that. We slowed up on doing it this year, just because we felt like we had a little bit of time. We did spend several millions of dollars to add, to acquire the long-lead items. We will go ahead and start that. That will be a project that will begin in the first or second quarter. I am talking about the Boron plant in California. So we will increase that capacity by a thirdfor next year.

Now when we look out at the future, and we look out into 2013 and 2014, and we go beyond that, and you heard me talk about this before, we being to use similar adoption rates as we have seen in the refuse industry, the industry will need more LNG. We are very mindful of that. We see a time in 2017 when we will need several billion gallons of LNG. The industry doesn't have it, and we don't have it. We are mindful of it, we are working on it. We have two or three-pronged approach of more capacity at existing locations, new capacity, and also working with our friends in the gas patch to bring and made modifications to cryogenic plants to add capacity. That is something that is very important for not only our Company, but for the entire industry, you need to start seeing announcements on that in 2013 and 2014 otherwise you won't have enough volume. So watch for that, Steve. I think it is important. We are all over it. We have a new Vice President of LNG Supply. We have lined up a lot of fuel, but more will need to be done.

Great, very helpful. I am wondering if you have an expectation you can share on volume growth in 2013, just on the current station footprint, setting aside what you are going to roll out again next year?

I don't know that we are going to provide that exact guidance on this call, but all things being equal, and I don't think they should be going forward in the latter half of 2013. We have been growing at about 25%. Eventually when the truck, and you have heard me say this before, Steve. These trucks, the very important 11.9 trucks will begin to make their way into the market in February and March, and they will go to the OEMs. You will begin to see some adoptions and testing in the latter part of the second quarter. We hope we get on track with the 11.9s. I believe we will. To where will have a few thousand trucks sold next year, and we hope in the fourth quarter you will begin to see that ramp up significantly.

And so our American Natural Gas Highway will see increased volumes, but I think 2013 will be a year of testing and adoption. There will be some significant volume growth. I think company-wide you will see our core markets grow at a substantial, probably similar to a little bit higher than we did this year. America's Natural Gas Highway will be back loaded in 2013. And I think the significant growth you will in probably the beginning of 2014.

Great. And then I would just like to touch on BAF for a minute. You have talked about in the past about there were some large opportunities in the second half of the year. Any visibility into those? Are they still out there? Maybe even upfits for the quarter? Anything new on BAF?

We are proud of BAF. I will say this, they are struggling a little bit right now just in terms of the big, major orders that we see out there for our big friends, the AT&T's, the Verizons, and some others. We have lines in the water with a lot of large significant fleets. I can't name all of them here today that are testing, that have the wherewithal to really make big orders. We like that. I think BAF has done a good job expanding its dealer program with more dealers across the country. We are seeing some traction there on that.

They have done a nice job broadening out their vehicle availability and also their customer base. So we are down from where we were last year. We are still working like heck to try and land some of the big 500, 1,000 orders. In the meantime we are down a little bit, but we are kind of holding our own as we broaden the customer base. I don't have any big announcement for you with them yet. We haven't given up hope. There is just a lot of blocking and tackling. We have now a very robust offering. We have everything they have got in terms of fleet vehicles. We are starting to see some really good penetration with that program.

Thank you very much. I will hop back in the queue.

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

Good afternoon everyone.

Hi, Graham.

Looking at the revenues, there was a big jump in the construction revenue, but if you pull back the construction revenue and take out the VTAC contribution from last year, your core revenues are only up less than 4%. Is there anything specific that goes into that, or can you give a sense on a like-like basis?

Andrew eluded to BAF off from where it was last year so that is kind of one that is heading down. Norstar is off. We made a business decision to not have them pursue outside sales, and just to work on our highway stations. So just kind of through the affect of that,their revenues are down from where they were. But if you look at all of the other stuff DCE, our fuel sales, all of that good stuff, I mean it is heading in the right direction. So I think you have got some things that are going down that may be masking how well some of the other pieces of the business are doing.

Can you give a sense of what the underlying core business, the fueling revenue was?

About $37 million in the quarter. As I said in my comments, it was up about $4.5 million from the similar quarter in 2011.

Great. And then do you have any plans to open any stations up in Canada, looking particularly with the growth of the 15 liters predominantly coming out of that region? Is there any plans or outlook on that?

Graham, you are talking about sort of a mini natural gas highway-type program up there?

Right.

We are looking at some stuff in the eastern part of the country in that important Toronto corridor. We are working with some folks up there on that. We have opened some stations in Canada, but it is really focused on our refuse clientele. We have got a couple of new deals in the works there that you will hear about. We don't have anything to share with you that is concrete right now on a 12-station plan running down a particular interstate or corridor there in Canada yet.

And Graham the other thing I wanted to say on the revenue, keep in mind there is $4.5 million of VTAC revenue that was in the quarter of 2011 that is not in the third quarter of 2012. We are starting from a $4.5 million hole in theory when you are looking period to period.

Okay, and that was the VTAC included? Do you count that as a fuel revenue?

No, it is separate, but it is just a revenue number.

Great. And then just give us a sense on the LNG plant when you expect that to be up online?

The Pickens plant should come back, we have got our fingers crossed here, but we are making some good progress on it. It is supposed to be back up November 20th. So we are close. That was just one of the freak accidents. We had a shaft basically in the turbine that disintegrated on us. That was a specialized piece of equipment. We had a backup shaft and we did the standard procedure. We went ahead and expirated the backup shaft, and sure as heck there were some fractures in it, and some problems with it. So we had to go back to scratch and have this thing purpose built. So that was a real shame. It should be back online November 20th.

When did it go down?

Right about the beginning of the quarter.

Great, I will jump back in queue, thank you.

It has been down about 100 days, a couple of months. A little longer than that.

Our next question comes from the line of Laurence Alexander with Jefferies. Please proceed with your question.

Good afternoon.

Good afternoon.

I guess two questions. First, as you look at the product revenue margins, is the main factor driving the sequential decline the BAF, and then as you look at the BAF order patterns I think to year-end, should we see the margins recover in the first half of next year?

Keep in mind VTAC falls to my margin line, so it is hurting us to the tune of the $4.5 million, the revenue we lost. Yes, BAF is certainly hurting us from a margin perspectiveas well. But the nice thing is IMW bounced back comparatively from the third quarter of 2011 to 2012. They are up. Norstar as I mentioned again, we have got them working on our highways, so they are not out producing third-party sales that show up in our numbers. That is down. Station margin stuff, one thing to keep in mind on DART, is we priced it pretty aggressively to make sure we got the business. We are hoping to parlay that into a long term O&M fueling-type arrangement. We went in pretty good on the pricing there. That is kind of pulling down our station margins. It is such a big chunk of it.

There are a lot of things going on there. As I mentioned our fueling margin is down a penny from what it was last quarter. In theory it is up from the prior quarter. Our actual fuel margin is up when you look quarter to quarter. So there are a lot of things going up and down in there, that kind of I guess shake out, maybe not looking as attractive as you think. But there are a lot of good things going in our margin line.

Just to clarify, but as you look at it sequentially, those various items that are shaking out by the first half of next year, the 24% margin you had in Q2 should be back in reach?There is nothing ruling that out, there is nothing that has changed structurally?

Correct, we don't give guidance, so I need to be a little careful, but in theory yes, there is nothing fundamentally that has changed that would cause us to think that we couldn't replication historical-type margins. In theory, we are hoping that they ultimately go up once the highway, and more our station fuel sales get into our retail market.

Laurence, we are bringing on higher margins in sales. As soon as we begin to see those trucks come on the road, those are higher margin sales for us. These airports, while the shear volume of them are not, start out a little slow, they are very high margin as well. As you bring on more of these trucks on America's Natural Gas Highway, that margin as we have said before should continue to tick up.

One thing to keep in mind if you are looking sequentially, remember we had about $2 million of carbon credits we recorded in the second quarter of this year, as we kind of caught up our carbon credits once the courts kind of lifted that injunction. So that is skewing your numbers as well.

And then just a somewhat convoluted question, which might have a short answer, but have you seen in any of your areas where you have fueling stations, other people put fueling stations in as well in anticipation of fleet orders, so as a result while we are in this lull before the fleet orders show up, we have actually seen a little bit more of a hit to utilization rates, and therefore that would imply a faster pick up and better incremental margins once the fleet orders show up?Are you seeing that dynamic? Are you right now not running into that?

I lost you on the latter half of the question. The first part of your question was, have you seen during this period other people build stations where I am building stations. The answer is no. Like zero.

Okay. Good, thanks.

Our next question comes from the line of Shawn Seaverson with JMP Securities. Please proceed with your question.

Thank you. Good afternoon. I was wondering if the installed base starts to expand here, and you are getting a wider network out there, just trying to get an understanding of the fleet sizes you are talking to?This mix between the 5 to 10 truck guy and the 50 to 100 truck guy, and what the mix is there?

I am not going to use some names, but now you are talking about on sort of the over the road, the truck piece, right?

That is correct.

For instance, as you know we have nondisclosure agreements with about 150 shippers. These are the people that hire the trucks. One of them, and they are very significant companies, one has a $3 billion a year fuel buy. So you run that at dollars per gallon and think about how much fuel that one fleet is buying. Now they hire many of the trucking companies that you would be familiar with. So we have some very significant customers. Some who have hundreds of trucks, 100 hundred trucks that move goods on a daily basis, and one of them has 56 different companies that haul goods every day. But when you boil all of that down, Shawn, you get back to where there are dozens or hundreds of candidates that are all in this 2013 period going to begin to try out, to test these vehicles. And they are not going to buy 100s at a time, they are going to test a dozen, and then they move from there.

Great. And then lastly along those lines, trying to figure out the price, and I know we are not getting into exact pricing structure and contracts and such, but as a large fleet, I know how it works through diesel and traditional fuels, I am just trying to understand how hard a bargain they are driving, for lack of a better terminology, in terms of fuel prices and length and really what the dynamics are there, how hard are they pressuring you for pricing?

Well, these are very sophisticated people that are used to squeezing every penny out. We have our eyes wide open with certainly some of our trucker friends. I would say this right now, the good news is, there are good economics to go around. We have a very big differential between the cost of our fuel delivered at the nozzle, and the savings we can provide our customers, and the margin that we can have for ourselves, to recoup our investment either on our plants and our stations, and they still say we are still sticking toward this and staying close to saving close to $1.50 a gallon. I am sure that people will begin to work over time to get the best fuel prices as possible. But right now we are fortunate that we have a very nice differential, and the economics are on our side for really everybody to do pretty well.

Great, thank you.

Thanks.

Our next question comes from the line of Caleb Dorfman with Simmons and Company. Please proceed with your question.

Good afternoon, thanks for taking my question. First off when we spoke last quarter I note that you mentioned there were a number of American Natural Gas Highway stations that you had completed, but not yet opened because you were waiting on customers to get their fleets ready. Have these stations opened yet, and what type of progress are you seeing on connecting your station buildout and completion timeline with actually having the trucks ready to utilize the stations?

Let's review that again. I thought I was clear on that. A lot of our customers are waiting for the 11.9,and that engine is not available yet. That engine should be available, the first bunch of them will be available in February. I would say most truckers in America want to use a 12 liter to 13 liter engine. This is a key product for us.

So we have our stations really up and ready a little bit ahead of when these trucks, at least the 12 liter will be ready. And that is okay. If it were the other way around then people wouldn't order trucks. Are we six months ahead? Yes, we are. And we will have a coast to coast situation of stations ready to go when those trucks really begin to make their way into the customers' hands after March, April, May, June. So I think we all have to keep our eye on that ball and certainly in the second half of 2013. So we have stations completed. They are not open. Many fall in that category. As soon as we get either a combination of the 9 liter and 15 liter to justify the station opening where the station will work correctly, we are opening them. We are ahead with several of these, many of these stations to where I think they will remain shuttered until the early part of next year, when we really begin to see these trucks going into order. You don't want to dump 10,000 gallons of fuel into a station and then have it vent. So we are ready, and I think it is really going to be the latter part of the first quarter next year when we begin to see a lot of these stations opening.

That makes complete sense. I guess all of the completed America's Natural Gas Highway stations, how many are actually being actively used by your customers then?

Some are opening right as we speak, and we have got a couple of other truck deployments that are on the way. I don't know that I have the exact numbers, so don't hold me to it exactly. I think there are about 15, well there are 6 plus 14, so there are about 20 LNG stations open. There would be a like number that are not open right now, that are completed and ready to open.

Okay. That is helpful. What type of costs do you see on a quarterly basis for these stations which are completed yet not open? Is there like some sort of cost that we should think about to factor in?

Not really. It is pretty de minimis. We consciously don't put fuel in them and do some things so they would start incurring more costs from a utility perspective or a venting perspective, or anything. We try and manage that down to obviously as little as possible, so we can obviously not incur a bunch of expenses before they start selling fuel and generating revenue.

Once we are really commissioned, where the station has been accepted and passed all of the permits, I think we begin to have a little bit of rent we share with our partners. But it is small scale. We don't have maintenance men out there. It is pretty low maintenance in general anyway, and certainly when we are not using them.

Great. That is pretty helpful. And I guess my final question is now we are really close to the election. I know that you had talked about previously maybe you could get something done, whether it was VTAC credit or something on the legislative side post the election. Have you heard any talk around that, or have you seen any possibilities for that post this November to January timeframe?

Caleb, I always hate to mention this stuff nowadays,because I feel like I jinx myself. We never give up. The natural gas industry has some things in a couple of pieces of legislations, that could end up taken up in the lame duck. We have got our eyes on that. I don't know that I would put any money on it right now, but we are working it. Anything more meaningful than that would be in a couple of these different tax extension-type bills, I think you will have to wait for another Congress.

I am glad you bring it up. I don't know that we are in a position right now. Sure I would love the government to show some leadership , and I would love for the President or a new President to talk about how the government private sector could work together to use their own domestic natural resources, and those kinds of things. I don't know we as an industry any longer really need some silver bullet piece of legislation. We have good economics. I think the country would be well served to do some things to move using our own domestic resources ahead. Our business doesn't require it, so that is where we just kind of keep our head down. I think that our customers now are seeing this life cycle savings, and if the trucks work wellI think we will be fine even without legislation.

Great, thanks, Andrew. Thanks, Rick.

You bet.

Our next caller comes from the line of Carter Driscoll with Capstone Investments. Please proceed with your question.

Good afternoon gentlemen. It has been beaten to death a little bit, but you did mention approximately 20 LNG stations that you would qualify as operating. Could you update us as to whether those are located roughly in the area that you hope to build out, in terms of the long distance lanes, or are they concentrated in specific areas when there is a regional hub before you start to build the national? I guess what I am trying to get at is, have you changed your plans in terms of which stations on the highway are going to get your next attention, or has that really stayed fairly similar?

No, I don't think we have changed anything really on that. Part of this is due to permitting and entitlements, and I won't bore you with the gory details of that. We can't always fine-tune whether the city of Midland will require us to put in a fire hydrant or something, and if they do, so that throws a four-month wrench into the permitting. But we always knew that these trucks, and certainly the ones that are the first out of the gate are probably more regional in nature. So while we talk about coast to coast and border to border, we always have to remember, and I know you know 85% of the trucking is really regional in nature. 50% of it goes from LA to New York.

We always knew the Texas Triangle, and Southern California, and up the coast of California, and LA to Phoenix, and Phoenix to Vegas, we always knew those kind of pieces and corridors up into the Midwest were important. And so they did get an early priority, and based on the lane data that we have from some of our early customers we always, tried to bring those on. So if you look at our station map today, and I imagine you can look at one, we probably have the stations on our website, but you will notice that we, I mean Texas has got a disproportionate share in the Texas Triangle. It is done. Not every single station of the Texas Triangle is open. But there is a huge amount of trucking that goes between Dallas and Houston, and Houston and San Antonio, et cetera. We haven't changed our thing. By the end of this year all of the pieces fit together. A lot of the stuff that got opened up early was for kind of what you would imagine would be corridors that we always knew would be important corridors.

I think last quarter you talked about some of the lead times, or some of the equipment maybe loosening up a little bit. Maybe you could talk about whether that has changed in either direction?I think that would be helpful.

My sense, and I haven't had anybody come in and darken my doorstep about telling me his problems that we can't get tanks. I know that on cryogenic tanks, I know capacity has come online. One of our big suppliers doubled the size of their plant. So that is good news. I am sensing that on the truck side there have been I think Chart Industries is making the tanks, I think there has been some additional capacity brought there. I don't see any bottlenecks. We bought a bunch of stuff. We are ready to go. I have always believed that if you will put a purchase order out there, you would be surprised how quickly you will be able to get people to make stuff. I don't think there is a constraint at least for us, certainly not right now on being able to build this stuff.

Thank you for that. My last question is it does seem as though the CWI 11.9 is an extremely important engine, especially for maybe when you populate from your 20 to 48 stations in terms of putting fuel there. You have heard a lot of differing launch dates. Some still believing it is the first quarter, maybe having slipped to the first month of the second quarter. How would any type of slippage if it is that short affect your plans, if at all, for 2013, and are there other engines that are anywhere close to the 11.9 liter in terms of their importance for the Natural Gas Highway buildout?

I don't want to, you have good questions there. Our team is still very much focused on the 9 liters and the 15 liter. I don't want to say that people don't want that, but those engines are very good for certain types. For instance Frito-Lay, the 9 liter is perfect. Some fleets like that big 15 liter, so that is good. So our sales team are working to try to load our stations with the available product.

Now we just happen to know that a lot of the overgrow trucking market is really liking 12 and 13 liters. I told you in my prepared remarks that the Volvo won, the Volvo 13 liter, which I don't believe comes to the market until 2014, yes, we think that is an important piece to the puzzle. And we know that the 11.9 comes with Westport support. So whether or not the 11.9 slips a month or so doesn't really impact, sure it will impact our volumes a little bit, but I think the dye is cast, and I think the industry is going this way.

As I was trying as I communicated to my Board and our management staff, it is not like you can just flip the switch and build a whole network of stations across the country. So I feel good that we have shown that we can do what we say we were going to do, and meet our goal of building these stations, and basically take the fact that there is an infrastructure across the country out of the equation. If we were here in March, April or May of next year and we didn't have stations every 250 miles, then people would be right in saying that the infrastructure is not ready. But the infrastructure will be ready. And so we will just, we are doing everything we can to support Cummins and Westport and helping the tests, and doing the education and training and mobile fueling, you name it, we are doing everything we can to make sure that this test phase goes as smoothly as possible.

Thanks, guys. I just wish you guys could build a fuel station next to my house since I haven't had electricity in nine days.

I am sorry. Alright, thanks.

That is it for me. Thank you.

We will if you want to pay enough.

Our next question comes from the line the Matthew Blair with Macquarie. Please proceed with your question.

Hi, thanks, good afternoon, everybody.

Good afternoon.

Could you give us a sense of what the same store volume growth was at your existing stations? So stations that were open for more than a year?

We actually don't really track that. I will say that in general I think things have been going pretty well at our same store sales. Because we made a conscientious effort to try and load up our existing infrastructure. A certain aspect of our sales force has been out aggressively targeting fleet within X miles around our open stations, looking at whatever fleets are around there trying to go out and package deals, or financing packages, or fuel deal, or whatever just trying to incentivize people to switch to natural gas vehicles, to load those up. Just trying to help grow the markets around those stations. I know they have been successful in that. We don't really at this point keep track of those types of metrics or statistics. We are more focused on getting other stations up and going and growing. It is not a great answer, but we are doing our best to load what we have. Because obviously that helps our returns.

The only thing I would correct my Chief Financial Officer a little bit, we do pay attention to what the buy is at every station. We do track internationally if the station, if the volume is going up or down. We hired 15 new people to look at nothing but same station sales. We do have a little sense of that, I do think Rick is right on that. We haven't provided, we haven't broken that down for you. It is something we are looking at to see if there is a way for us to make that available in the future, as we begin to maybe provide different levels of guidance, and provide that to you. Frankly we do have capacity at a lot of our stations. When we take our station from 1,000 gallons a day to 2,000 gallons a day, that all drops to the bottom line. So same store sales growth is important. Maybe in the future we will try to see if we can break something down for you on that.

Sure, that would definitely be helpful. Also just on the natural gas highway stations, if you have less than 50% of these new stations open, I am just wondering if it makes sense to purposely slow down the progress of building these stations to conserve capital if it looks like the CWI engine is not going to be out until second quarter or third quarter, how much sense does it make to be rushing to finish stations by the end of 2012?

So let me be clear on that, Matthew. We are not doing that. We are not incurring overtime. To all of a sudden lay off your construction staff, and then start it back up, I don't know if that makes sense either. So we have a lot of stuff underway. We think it makes sense to track this. However having said that, we have let a few things slip. We think it is prudent to get these stations done. I mean what I was trying to provide, I believe the best guidance that I can, I believe that those first engines are going to be put out in February. So it is not a third quarter story. It is a February story.

Now those engines will go to the OEMs, then the OEMs are going to upfit them and get it done. So it will take a little while. But I agree with you. If I thought that we were not going to see 11.9 until the third quarter then we would go about this differently. We have to have these stations ready to go as these trucks begin to show up in March or so. You are talking about three or four months. And it is a little too hard to calibrate to hold out for three months, and then go ahead and start up again and put another 250 people back to work.

Sure, sure. And then my final question here, just curious what kind of contribution your two LNG liquefaction plants make to the Company, and can you talk about what kind of synergies, I guess how much sense does it make for Clean Energy to own those facilities? Thanks.

Well, I will let Rick muddle around with the contribution problem. But let me put it this way. If we didn't control our own destiny and have that boron plant, you wouldn't have ever launched the trucks in the Port of LA. Otherwise we would have been bringing, you still would be bringing product in from Wyoming. And it wouldn't be economic. You never would have had the first 1,200 or 1,300 trucks, and we wouldn't be sitting here talking today about a national truck roll out, because we wouldn't have proved that it worked here.

I think it makes a lot of sense for us to control our own destiny and make sure we have supply. I would be really nervous if I sat here believing like I do that in 2016, 2017 you need 3 billion or 4 billion gallons knowing that you are 4 billion gallons short, and doing my dead level best to make sure we are bringing on supply or making sure that supply is being created, and make sure I can control as much of it as I can. Do I want to necessarily be building every single LNG facility or plant that ever comes on in the United States? I don't know about that. But I want to make sure we can control our own destiny as this market develops, and have LNG where and when we need it.

From a contribution perspective I would just say that it enhances our margins from the prospective of our liquefaction charges or basically the actual costs that we are incurring to produce the LNG, as opposed to if we get it from a third party supplier we are in theory paying their return on capital and profit, and all of that good stuff. It is just a margin enhancer for us to have them, as well as the other strategic advantages that are probably more important, that Andrew alluded to.

Thanks.

Thank you.

Our next question comes from the line of Patel Molchanov with Raymond James. Please proceed with your question.

Hi, guys. Most of my stuff has been answered. As I look at your volumes year to date, I think they are up 26%. Do you have any sense of what overall industry volumes have done over that timeframe? In other words are you grabbing market share? Are you losing market share, or is it fairly stable?

That is a good question. My sense is in the heavy duty market we have 85% to 95% market share, in the refuse market we have 60%-some odd market share. In the airport market, we have 80% market share, and transit is something less. I don't know that one off the top of my head. We get the lion's share of the deals. I don't know exactly what percentage rate the industry grew at. Do you, Rick?

No, the other thing that makes it a little more difficult to calculate, a lot of the markets are growing. Like the refuse and the trash, it is not like we are splitting up the pie, and exchanging market share with who ever else might be trying to compete with us. A lot of the Republics and Waste Management's are all adding new stations. That market is growing. That just makes the percentage calculation a little tougher.

The transit one is the one that in theory is a little more perhaps more of a set market, whereby our percentage is probably a little more stable. I think we have just been kind of hanging in, adding a few here and there with our competitors. I think our overall the general theory is our market share is very high in pretty much all of the markets, and in theory in the heavy duty trucking market, that is a big one we are going after. We pretty much have the vast majority of it, and we are hopeful that once we get the stations and the engines and all of the engines, and everything, and all of the stars aligned, that we will continue to have a healthy share of that one.

Understood. And a quick follow-up, I think at the beginning of the year you were guiding to SG&A to around 30% of revenue, and it looks like averaging about 35% so far. Should we assume a reversion to that 30% level? I know you don't give formal guidance, but is that realistic as revenue ramps up, or is it going to stay in the mid-30% level?

I would talk about the word guide as a little strong, I believe we said we were trying to maintain that same percentage. But that being said, I think the issue is our revenues have just been off a little bit from where we saw it. Obviously percentage-wise, the math would suggest it is going to be a little higher. Just because your denominator is smaller. It should hang in dollar-wise where it was at this quarter, and again with the caveat that excludes any one-time things that may or may not show up down the road that we decide to invest, be it a legislative thing or marketing campaign or a big trade show, or something like that. The magnitude should hang where it is at with that caveat, and again we are continuing to add people as we ramp up with building more stations and construction, and sales activity, and all of that good stuff. It will probably pick up some, but the rough magnitude should hang in there.

Appreciate it, guys.

Thanks.

Our last question for today is a follow-up question from the line of Steve Dyer with Craig-Hallum. Please proceed with your question.

Thanks guys. Just a follow-up on the model. The SG&A continues to ramp up. How should we think about that going forward? Is there a point where that maybe moderates a little bit, or how should we think about that number going forward?

Roughly it should stay where it is at or tick up maybe slightly, just as we continue to add people and grow and expand, and ramp up for the coming growth, and all of that good stuff. And again with the caveat that if something pops up that we want to pursue from a business perspective we are probably going to do it, be it a legislative thing or trying to get VTAC back, or another big deal like in Pennsylvania or Virginia, and working with some states. There are all kinds of thingswith the industry growing, and people looking at it and starting to commit, there is a lot of stuff out there. I guess that is the best answer. We obviously try and watch it, but we don't want to be penny wise and pound foolish. We want to make sure that we capitalize on the greater opportunity that is out there, and we are trying to do that and manage that the best that we can.

Okay. Very good. Thanks.

I would like to turn the floor back over to management for closing comments.

Sure Thank you. About 2013 and 2014 will be key years in the deployment and rapid expansion of natural gas for America's trucks and other vehicles. I am very pleased and encouraged by the record revenue, the record gallon volume, the record truck deployment, and the record number of stations that we have brought online. As has been the message over the previous few quarters, we will continue to remain focused on the execution of our station build out, and growing our core markets. I fully expect that we will be well positioned with our network of stations and suite of customer services to meet the anticipated demand, and continue to stimulate the adoption of America's commercial fleet.

So thank you for your continued support. I look forward to reporting to you on our full year progress when we next report our next quarter. Thank you very much.

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