Clean Energy Fuels Corp (CLNE) 2013 Q1 法說會逐字稿

Greetings, and welcome to the Clean Energy Fuels first-quarter 2013 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 financial results for the first quarter ended March 31, 2013. 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 calls also being webcast. There will be a replay available on the website for 30 days.

Before we begin, we'd 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 Factors section of Clean Energy's form 10-Q filed May 8, 2013. These forward-looking statements speak only as of the date of this release and the Company undertakes no obligation to publicly update any forward-looking statements or supply new information regarding the circumstances after the date of this release.

The Company's non-GAAP EPS and adjusted EBITDA will be reviewed on this call and excludes certain 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 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 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. And with that, I'll turn the call over to Andrew.

Thank you, Tony, and good afternoon, everyone. And thank you for joining us. I'm pleased to review our first-quarter 2013 operating results. Today we reported first quarter gallons of 49.9 million, up 14% from 43.7 million in the first quarter of 2012. We generated $93 million of revenue during the first quarter, up 26% from $73.6 million a year ago.

Before I get into our quarterly operating highlights, I want to spend a few moments on the exciting announcement we made yesterday regarding our new strategic partnership with Mansfield Oil., For those of you who aren't not familiar, Mansfield is the largest back lot fueller in the country, providing 3 billion gallons of diesel a year to over 3,500 fleet customers. Many of those customers are showing interest in transitioning their fleets to natural gas. Clean Energy will be the exclusive provider of natural gas solutions for Mansfield's customers. When we combine Mansfield's excellent back office support, sales, marketing, and other financial services with Clean Energy's natural gas experience, we will be the most compelling offer in the marketplace.

As part of the alliance, Clean Energy has acquired Mansfield's 43 service contracts and 20 new construction contracts adding to our existing portfolio of almost 400 natural gas stations. We now have strategic partnerships with the country's largest private back lot fueling company, Mansfield, and the country's largest public network of truck stops Pilot Flying J, which we believe positions us extremely well to serve truckers in all market segments.

Along with aligning ourselves with the best in class fueling providers, we are actively working with Cummins Westport as they roll out the new 12-liter engine. Companies like UPS have already made strong commitments and announced plans to purchase 700 additional LNG trucks over the next 1.5 years. Even medium-size carriers have to made the decision to place orders, putting them in a stronger position to gain market share. This was evident in a recent request for proposal, or RFP, by Proctor & Gamble. The giant packaged goods company, for the first time, included a natural gas requirement for the fleets that transport P&G products. Having one of the largest shippers make this requirement of their contract carriers is a significant milestones in this transition to natural gas. P&G has announced the transportation awards, and Clean Energy is now working with many of the winners on their natural gas fueling needs.

Our friends at Cummins Westport say that production of, and orders for, the 350 and 400 horsepower 12-liter engines are right on track. Similar to what we saw in the refuse market, we knew that the new orders this year were going to be modest to allow fuel operators to perform their duty cycle testing in order to get comfortable with how the engines operate before making more full-fledged commitments. The first units have already been shipped and everything is going as expected. So far so good.

America's natural gas highway is open and continues to expand. Currently we have 20 truck stop stations in development with 34 others in contacting and proposal stage. We will be opening stations as trucks are being deployed in certain regions. For example, two weeks ago we opened our Latta, South Carolina station right on I-95 for Modern Transportation, who hauls roofing supply equipment for Owens Corning, in between their Sanford, North Carolina and Savannah, Georgia plants. The fleet will complete each 600 mile round trip on a single fuel.

Our 2013 station development plan augments the long-haul highway corridors and targets clusters of distribution centers, intramodal rail ramps, and manufacturing facilities. These distribution center clusters attract large number of truck trips that we are targeting for natural gas. The stations have the flexibility to be both LNG and CNG and will be anchored by early adopter customers located in the centers such as Coca Cola, Con Agra, Covidien, Home Depot, Lowe's, Martin Brower, Owens Corning, Saddle Creek, and Target stores. This strategy also ties in nicely with our Mansfield agreement.

Now let me turn to our core markets. Our refuse business is on fire. We have 10 refuse stations currently in construction and 42 letters of agreement for stations to be built in the future. We recently finalized our master construction agreement and are in the final negotiations on a master maintenance agreement with Progressive Waste Services, the third largest solid waste company in North America. Our IMW subsidiary provides virtually all the compressors for waste management and we are building a station for them in Nashville. Waste Connections, the fourth largest publicly traded solid waste company has committed to start converting their fleet to natural gas and just awarded Clean Energy their station construction job for Vancouver, Washington.

In our Airport Taxi Shuttle market we currently operate 37 airport stations across the country and continue to see impressive fleet expansion throughout. Clean Energy was recently selected by Chicago O'Hare Airport to build a CNG station. Once completed this will be our fourth station in the Chicago area will serve the taxi fleet, as well as new airport hotel and rental car vehicles. We are also completing station projects at Newark, JFK, Reagan -- Reagan National, Dallas, and Orlando airports.

We're taking over operations for 6 CNG sites owned by Pico, a large utility in the Philadelphia area. We are working with Leon Gas Partners on the Pico stations as well as a four other CNG sites in Pennsylvania. For transit, we have recently renewed supply agreements representing almost 9 million LNG gallons per year between the transit agencies in Dallas and Phoenix.

So for our core markets we have, at present about 48 projects in various stages of design, permitting, and construction. Our renewable fuel subsidiary just closed a $30 million financing with Anson Capital, which is the private equity arm of Mass Mutual. This deal was a great validation in financial marketplace of our renewable business. The proceeds will be used for new project opportunities and are secured by the McCommas and Sauk Trail plants. The financing is nonrecourse to Clean Energy and will allow Clean Energy to reduce its capital on the next two renewable projects by a corresponding amount.

To-date, we have closed on $2.9 million of low carbon fuel standard credits generated by Clean Energy's natural gas vehicles fuel cells in California, and an additional $1.9 million in LCFS credit sales is under contract through 2014. As we sit here today we have our 2013 capital plan funded and our plans do not include raising equity through the rest of 2013. Beyond 2013 we are considering various debt instruments to help fund our capital needs.

And with that, I'll 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 to our results will be comparing the first quarter of 2013 with the first quarter of 2012, unless otherwise noted.

[Volumes] sold 49.9 million gallons during the first quarter of 2013, up from 42.7 million gallons a year ago. Our CNG, LNG, and RNG totals for the first quarter 2013 were 34 million, 13.7 million, and 2.2 million respectively. For the quarter, revenue increased to $93 million, up from $73.6 million. When comparing our numbers between periods please note the quarter ended March 31, 2013 includes $26.2 million of volumetric excise tax credit, or VETC, revenue of which $20.8 million related to fuel sales in 2012. We are required to record the 2012 VETC revenue in the first quarter of 2013, as the law reinstating VETC to January 1, 2012 and extending it through 2013 was not signed until January 2013. We did not record any VETC revenue in the first quarter of 2012 as the law was not in effect at that time.

Offsetting the increased VETC revenue was a decrease in station sales revenue of $12.2 million between periods. We completed nine station projects in the first-quarter of 2012 and completed two stations sales products in the first quarter 2013. We have several station projects in the pipeline and anticipate this piece of our business will pick up over the remainder of the year. We also recently landed -- launched a facilities modification unit which we also hope will land a few projects over the remainder of the year.

On the non-GAAP basis for the quarter, we reported earnings of $0.03 per share. This compares with a non-GAAP loss of $0.16 per share in the first quarter of 2012. Adjusted EBITDA in the first quarter of 2013 was $20 million, compared to minus $2 million in 2012. Adjusted EBITDA and non-GAAP EPS are financial measures we developed to highlight our operating results, excluding certain large non-cash or nonrecurring charges or gains, which are not core to our business. These items include the amounts we are incurring for the series one warrant valuation, our stock-based compensation charges, and for currency gains and losses related to our IMW purchase note. 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 first quarter was $3.9 million or $0.04 per share, which included a non-cash loss of $0.5 million related to valuing our series one warrants, non-cash based stock compensation charges of $6.2 million, and $200,000 in foreign currency losses related to our IMW purchase notes. This compares with a net loss for the first quarter of 2012 of $31.9 million or $0.37 per share, which included a non-cash loss of $13.5 million related to valuing our series one warrants, non-cash stock-based compensation charges of $4.7 million, and $400,000 in foreign currency gains related to our IMW purchase notes.

Our SG&A expenses are higher between periods, primarily as a result of our continued business growth and efforts to support our construction of America's Natural Gas Highway and the anticipated fuel sales it will generate once it starts fueling heavy-duty trucks. Our gross margin in the first quarter of 2013 is $42.3 million, which compares to $17.7 million in 2012. The gross margin in 2013 includes the $26.2 million of VETC revenues recorded during the quarter. Our margin per gallon this quarter was $0.28 per gallon which is down $0.03 from the prior quarter.

During the first quarter 2013, we sold our ownership interest in our Peruvian joint venture to our JV partner for approximately $6.1 million and recognized a gain of $4.7 million on the transaction.

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

(Operator Instructions) Steve Dyer, Craig-Hallum.

Rick, could you give the segment revenue debt again? I think I missed it.

Which segments are you referring to?

Just generally -- gas, construction, IMW, BAF, et cetera.

Sure. BAF, revenue was $4.2 million. IMW was $17.6 million. Station was $2.9 million. And then the VTEC was $26.2 million.

Got you. Okay. Perfect. And then as you look at the pipeline, looking forward, you announced a bunch of stuff. The mix of O&M versus supply, and maybe if you've seen that change at all dramatically in the last quarter or two?

You know, Steve, I don't think so. It's kind of -- it sort of depends on what is hot. Obviously, we do a lot of sales when we do some of our Refuse business, because we are selling equipment to two of those large customers. And they are using their own capital, and then, of course, we do some station maintenance.

So on the Refuse, it is similar. As Rick mentioned, we did not build as many stations in this quarter. We see that coming. We've got more signed deals than we've ever had before, so that tends to be a little bit lumpy. I would say that as we begin to open up the highway, which is really, as we discussed, is really back end-year loaded, that's going to be more fuel sales and less R&M, and less operations, and less O&M. It will be more commercial retail, and of course, our Airport business is commercial retail.

So I don't think we've seen, really, much of a shift. I think going forward, there will be less O&M, because we believe that the fuel sales that are commercial retail and the truck stops and these others will be a larger volume.

I'd say it's about the same. It's similar.

Okay. As you think about your station construction revenue throughout this year, I know it's obviously hard to model and think about, but any particular lumps or ramp, or cadence throughout the year from a modeling standpoint?

One of the things -- and Rick, indulge this one. One of the -- remember, at the end of last year, for instance, you have those big dark projects, which was almost, I think, in fourth quarter, it was $23 million. And so, those were real large station sales deals. Running this year, I don't see anything, at least I know of right now, that's like that. But there is more refuse sales deals in the pipeline than we've ever had before. So those will begin, unless something funny happens, those should begin to drop in the second, third, and fourth quarters. Rick, is there (technical difficulty) you want to say next?

No, that's right. Just keep in mind, there was $43 million or so in DART revenue related to those big stations we built and sold to them in the third and fourth quarters of last year. And obviously, that was kind of a one-time big one, and we don't have another similar project this year. I would say, obviously, we are hopeful that the second quarter picks up from the first quarter. And typically, there's a little bit of a push at times to get projects done in the fourth quarter as trash companies and others try and use up their budget dollars for the year.

So you might see a little bit of an uptick in those quarters, but it's tough to predict, as you alluded to, just because it is kind of predicated on when we get done. And obviously, some of that's outside our control, so --. With those kind of general guidelines, hope we can at least get some flavor of what it's going to look like the rest of the year.

Sure. Okay. Last one and then I'll hop back in the queue. Gallons delivered in Q1 was down sequentially, for the first time in quite a while. Is there something seasonal there that we should think about, because generally, a simple way that I think about it is, is the more stations, the more gallons. But you're probably getting big enough now that from a seasonal standpoint, was there anything unusual about Q1?

Yes, there's several things going on there. First thing is that we sold Peru midway through March, so, obviously, there's a few weeks that the Peru gallons worked, and in the first quarter of 2013 number than it was in the full quarter of 2012, that cost us about 300,000 gallons. We had some production issues that a couple of our two plants in the renewable natural gas biomethane sectors that cost us about 300,000 gallons. There's a lot of just one-off kind of differences between the fourth quarter of last year and the first quarter this year.

The first one is one of our transit agencies on the East Coast in New York, when Hurricane Sandy hit, they were running down there to help out and bus people around, so they incurred about 300,000 gallons more in the fourth quarter last year as opposed to the first quarter of this year. The LAMTA, for some reason, decreased service between the two periods. We've been in touch with them. There's no cutback in service or anything, so that may have been seasonal and for some reason, that just kind of happened.

The other big thing that happened in the fourth quarter of last year, we adjust all our take-or-pays, and there's a lot of them in the transit world, to the extent they don't hit them. So you're seeing a lot of revenue show up in gallons in that quarter that, in theory, you're not seeing in the first quarter of this year. I think those are kind of the biggest one-off ones.

So by the time you add all that up, there is a drop-off sequentially in the quarters, but it's kind of one-off stuff and seasonal stuff. And certainly, we don't think indicative of how the business is going, or where things are going, as evidenced by all the projects Andrew just alluded to and all the things we're working on. (multiple speakers) Kind of some one-off stuff that just happened to, unfortunately, hit all at once.

There are also, Steve, I think we'll see here, coming up here now, there seemed to be a bulge somehow in the trash truck deliveries, so you're going to see (inaudible) in this quarter, another 750 trash trucks roll in. So you know, it's kind of hard to project all these things, one-off things. But you are right, most stations should be more volume.

Perfect. That's helpful. Thanks for the explanation.

Rob Brown, Lake Street Capital Markets.

Good afternoon. On the Natural Gas Highway, could you give us an update on how many stations you have built, but not opened, how many opened, and then how to plan on how those turn on and roll out throughout the year?

Right. Sure, Rob. We've got 70 that are built. We actually have two that will be completed here any second. As we know, we've all talked about it on these calls before, we got ahead of the engines because those engines were somewhat delayed. But we needed to be to really change the -- really, the discussion between shippers and between the carriers.

We have 70 completed, we've got 20 more under early construction right now, and another 34 or so behind that. And that's really in anticipation of the truck deployments that are going to happen in the latter part of this year, and really in 2014. We can't wait, and I'm going to answer your question. But we can't wait until latter part of this year to begin to get the stations built that are going to be required for the probably four-fold truck deployments next year.

We've got to work on that now. We have about 10 or so open, and we have another like amount that will open over the next couple months. But every time we get one of these fleets -- we just heard another one yesterday that's taking another batch of trucks -- that allows us to open another station. For instance, we're opening a station now in Coachella because the fleet down in Southern California, they moved hay around the region and out to the Port of Los Angeles. They're just taking more trucks. That allows us to open that station and that will be open in the next couple weeks.

And, for instance, when we got the announcement of a couple weeks ago about UPS, let me use that as an example of what that means. You saw, Rob, that UPS talked about taking over the next year or so, 700 trucks, going from 112 to 800 or some odd number. We just looked at the impact of the trucks that are already on order that are coming right now, which we believe is about 350. UPS has asked, it wants to build four new stations, and we'll be involved in a couple of those for sure, we hope. And that looks to be Memphis and Mesquite. But it allows us right now to begin to prepare to open up four other stations -- Mesquite, San Antonio, north Houston, Amarillo.

So just that one fleet with 350 trucks allows us over this next two months to open four more stations. And that's the way this is going to go this year. I don't have a number for you right now, how many will be open at the end of the year, but it's going to be back end-loaded. And we will just continue to open them as we work with these fleets to bring the trucks on board.

Okay. Great. Thanks for the color. On your distribution center clustering model, could you give us a sense of how many station -- what's the opportunity there for stations, and how much of this market volume is truck stops versus behind the gate, or just --?

You know, it's interesting, Rob, as we work on this -- I've spent the last couple days with Michael Mansfield, and that's a very impressive company. And he uses kind of a different number than I've been familiar with. You've heard me talk about that -- if you look at long-haul and Class A trucks, it sort of looks like -- it's hard to pin this number down, but about 25 billion gallons. He uses a number, when he looks at diesel and gasoline, trucking, in more his part of the world, which is hub and spoke, back lot, [healing], proprietary back -- behind the gate, which would be very similar to what you see in these distribution centers. He uses a number of something closer to between 35 and 37 billion gallons.

It's kind of hard to reconcile both those. There is just a big piece of the business. He said 70% of the business is behind-the-gate business. I think that's because, frankly, he takes into account some gasoline, and we've always been talking about diesel. So it's just -- it's a very large market. And when you look at -- I sat in a all-day review of the next 54 locations that we're looking at and these distribution centers intermodalD

It's really breathtaking, Rob, to look at it, and we have guys on the ground out there working on it. And then they bring the material back to us, and they use a combination of boots on the ground and contacts with customers, and the customers we already have, the MBAs and lane data and also with Google Maps. When you look at the sheer number in a given location, and they're all over the United States, I mean, there's hundreds of warehouse and districts, and it's breathtaking to see the size of these warehouses and the numbers of trucks and truck trips. I mean, just one brewery in a given area, forget Target and they're all the same, is literally hundreds and hundreds of trips a day out of one location.

We like this as the next phase. It's a little bit harder to build them. That's why you'll see the station a little slower, it takes a little more finesse, you can't just run around and put them in at a truck stop that's already pre-prepared. You have to find the right location, and so land and other things come into play. But it is a significant opportunity, and it's a huge volume.

So we like the idea, as we sort of see it as the last few miles from the ANG Highway. And it will be, though, a combination of CNG, and LNG and LCNG. So all these will come into play, but it's a very large piece of the market.

All right. Thank you.

Andrea James, Dougherty & Company.

Can we zone in on that South Carolina station as an example of how this process works on the natural gas highway? So you open the station up, and Owens Corning is using it. And I guess I'm just curious, what does that look like on the P&L? And then since you opened it, have other people started using it?

All right. Now, I don't know the second piece to your question. I believe I was told yesterday there is another fleet that's getting ready to use that station. But we're going to have to get back to you. Maybe when we talk to you later I can answer that. Obviously, these are going to be stations that will be open to other customers, Andrea. So yes, it's our hope that you will have several different customers use these public access stations.

In this particular case, Modern is the contracted care for Owens Corning. Owens Corning has been very progressive. They were an early supporter of the Pickens plan. They've asked their contracted carriers to get with the program. Modern stepped up. I believe it's 25 trucks for them, but there's a press release out on it. Of course that enables us to open that station well.

You want these stations to have a nice volume so that they don't vent, and they act like that like they're supposed to be the way they're designed. We've talked before, it's kind of a 20-truck threshold. So that means that those trucks are fueling there every day, and so that's really -- and they're high volume, so I would say that's going to be somewhere between 400,000 and 500,000 gallons. And it's a nice base load. That station, remember, can do 2.5 million gallons. So it's just the beginning.

The way we talk about it, and we've talked about it before, I think, is we start with the 20. You want to get yourself to about 100. These trucks typically use 20,000 to 25,000 gallons a year. They really sing -- with margins we have today, they really sing when you move beyond the initial 20. And you get a relatively good payback. So, that's how we start them.

The nice thing that I like about it, it's something we've done for years is we've loaded our stations. It's not dissimilar to what we've done for many years in the Trash business. We start with 15 or 20, and we add per year. So we are experienced in doing that. But the good part -- idea here is you don't need thousands of trucks. I'd love to have hundreds and hundreds, but they really make a nice economic return when you move from 20 up to 100. And we expect that we would do that over the course of the next year or so.

That is helpful. Thank you. And then the second one, you talked about working with shippers and with P&G. And I'm wondering if you maybe give us some color on if you're seeing pressure on margin per gallon and move your target margin per gallon to both LNG and CNG?

I don't think we were going to give you on this call our target margin per gallon, but it was a good try, Andrea. (laughter) But I really do -- seriously, we go back to look at -- you know there's a lot of economics on every gallon right now. When you look at the commodity per gallon, somewhere today between $0.50 or $0.60, and then you put our cost on it, you are really at the nozzle tip, with lots of room between our delivered fuel and the competing cost. There's sometimes as much as $2.50. So there's a lot of margin for our customers to save $1.50 per gallon and for us to do well.

So as the shippers are working with their contracted carriers, and this is been a very heated thing, by the way. I've got an earful from some contracted carriers that don't like me going around telling people there's $2 a gallon savings, because they don't want to share all that, necessarily. And they know they have to buy more expensive trucks.

But what we've seen, and we saw it with Procter & Gamble, is they are working with the contracted carriers. They know that they are asking them to put new kinds of trucks in their fleet, and a little bit more inconvenient, at least today, the infrastructure. So they are working with them and giving them some of the savings, and they want some savings, too. But there really is enough, I think today, to go around.

Thank you.

Caleb Dorfman, Simmons & Company

First off, on the Mansfield deal, it looks like you've been doing a lot of business development work, obviously, in the LNG space. This is the first new, large deal you've done in the CNG space. And do you think, going forth, how do you view the LNG versus CNG businesses strategically? And what type of mix do you think you are looking at over longer run?

You know, we are the biggest in bulk, right? So we know that depending on the duty cycle of the vehicle, we believe that -- it's whatever the customer wants, right? We know that typically, return-to-base fleets, that go less than 200 miles a day, are pretty well suited for CNG. You will have certain drayage trucks, you'll have certain fleets.

We have a very good customer down in Florida, Saddle Creek. Well they haul cigarettes, and they cubed out their trucks before they weighed them out. And they do a lot of distribution work down there. CNG works pretty good for them. We also know that as you look at over-the-road trucking and longer requirements, range becomes to be very key. And we think for that, LNG makes a lot of sense. So we see a blend.

We -- in fact, you've got these big fleets right now that understand that. I was on a panel the other day with Bill Logue of Federal Express, and he is President of the Freight Division. He's got 16,000 trucks, and their different divisions are testing CNG and LNG. Their package delivery will probably be CNG. Their over-the-road stuff, a lot of it will be LNG. So it's going to depend on the customer. It's going to depend on the urban environment. It's going to depend on the routes that are run, and we will do them both.

(inaudible) I'm more thinking about the strategic partnerships. Do you think we should start seeing more strategic partnerships on the CNG side versus the LNG side since you put so much development work into the LNG side over the past two years?

Well, yes. The Mansfield one is recognition that we knew that at the right time, the proprietary, behind-the-gate fueling is going to be very important. We think most of that's going to be CNG, and that's why we did what we did yesterday and announced that yesterday. You'll see others come along on that.

We've been working with Ryder. They have 853 locations across the country. They're a huge, huge operator. We are working hard to see that we can be their fuel provider at their different locations. A lot of that will be CNG.

It will be both, you will see both of them. I'm not trying to be cute. I just think it's a recognition that both fuels will work, given the right application, and we're going to do them both.

Okay. That's helpful. Then, I guess when we were thinking, obviously now the 1.9-liter engines are in production. I guess they're going to be scaling up production this summer. Obviously, it will take a while for them actually to get on the road. When you look out maybe a year, two years, three years, what type of adoption curve do you think we should actually think about when production for the engines is at full scale?

Here's what I think, and I've been saying this, and I haven't had anybody in the industry, that I know of, tell me that I need to stop saying this. So, let me just run through what I use. And that is, we looked at using the refuse adoption rates and apply that to the over -the-road trucking, so the Class A. And what's different, of course, is the Class A fleets use a lot more fuel, 20,000 gallons versus refuse of 10,000. They go out to bid about every year, so they're a little bit more sensitive to the market. And 200,000 Class A trucks are sold, more or less, every year, so it's a much, much larger market.

What we saw, Caleb, is that starting 2008 when you've got the right engine, the 8.9 comes Westport engine. You start it out in a test year. I believe you're in that kind of test year this year, of 3%. And this year, what, five years later you're at 60%. So if you'll just do that, and use something that's a kind of a variation of that, we think this year, we are taking Cummins Westport and Cummins at their word, that they will be somewhere in the neighborhood of a 2,000, and 11.9s hit the road. That's the modeling work that we've done.

We think in the last quarter, the numbers could get higher in that on the order book. They won't necessarily get put on the road this year. And so when you do that, we do the math on that, it means that it's like almost 0.5% of the trucks this year. Even less will be these 11.9 of those 200,000 trucks sold. And then what we've said is, okay, then next year, use 3%. And you can use whatever you want, but that's what we've seen before, so we think that means there's 7,500 engines sold next year.

Other than that, that's 12 liters, but we also know the 13 liters get introduced next year, and of course, you have the 9 liters, so I'm not counting those. Really, sort of counting the new engines. And then if you go to 10%, that means in the next year you'd have 20,000 engines. But to me, that's pretty conservative, because in that year, two years from now, when you set 20,000 engines, you still are selling 180,000 diesel engines.

So I could be conservative. But when you ramp that, you get into some pretty significant growth year over year. You're doubling and tripling, so that's important for us. And that's what we're preparing for, and that's why have to build these stations and be ready.

Thanks, Andrew. Very helpful.

Okay.

Matthew Blair, Macquarie Group.

Regarding the fuel margin of $0.28 per gallon, looks like it's in line with last year, but down a little bit from the fourth quarter. Could you talk about the moving pieces here. I know natural gas moved up a little bit, but I thought you were also able to increase your CNG and LNG retail pricing. Any color here would be helpful. Thanks.

Yes. This is actually more some one-off stuff. As I had mentioned earlier in my explanation I counted a gallon variation between periods, we had some take-or-pay true-ups at the end of last year that showed up in the fourth quarter, and those are just all revenue, the drop rates and the margin line. That probably added $0.01 to last year's number that is not in this year's number. And I also mentioned, we had some issues at our RNG production plants during the first quarter of this year.

Those combined at both plants probably cost us a $0.02 per gallon. If you factor those two items out of the equation, in essence, the fuel margin was consistent between periods, which kind of makes sense. And then, as Andrew was alluding to earlier, we're hopeful that targeting to get that number up over the rest of this year and into the next few years, as more and more of our fuel sales business falls into either the highway or other retail applications, like in the airport shuttle markets, in order to get that number up. That's kind of why it looks like it dropped, or why it did drop between periods.

Okay. Thanks. And then, Rick, can you walk us through how you thinking about funding for this year? It looks like you've cut CapEx by about $25 million. Can you give us a status also on the IMW payment and also the $50 million that's going to be due from Chesapeake in midyear? Thank you.

Sure. We made the IMW payment January, so we won't have another one until next year, for this year. The Chesapeake money, in theory, it's slated to come in here the middle of June, and we have no reason to believe it won't show up. (multiple speakers)

They actually made a filing the other day that they intended to pay it.

Exactly. So that gives us some more starch in thinking that that's good. If you add up our cash, our restricted cash and our short-term investments, that means we've got about $131.5 million in cash at the end of the quarter to apply toward cash and CapEx fees over the last part of the year. We've also got the VTEC money that will be coming in that we have not seen yet, which will be substantial, $30 million, $40 million, $50 million in the coming months, as predominantly, as we collect that 2012 amount, so that will certainly be helpful.

The financing we just did, or CERF, a subsidiary just did, will be helpful in that that will alleviate our need for funding CapEx for future, our next couple RNG projects, so that will certainly be helpful. By the time you add all that up, we feel pretty good that we've got the rest of this year covered from a CapEx perspective. And then, as we go forward, we are obviously looking at various debt instruments to help fund our next round of capital needs.

Great, thanks.

Steve Dyer, Craig-Hallum.

Was wondering if you could break out the gallons, CNG versus LNG, this quarter? And then also maybe how you see that, understanding that LNG is largely a testing year this year, but how you see growth rates generally in those two segments going forward?

Sure. RNG, a renewable natural gas, was 2.2 million gallons, CNG was 34 million, and LNG was 13.7, and that all adds up to our 49.9. I think we look at the business, kind of think as you -- the LNG market segments starting to increase as these Highway stations open, just due to the magnitudes of the trucks and the type of gallons, and the theory we're going to be selling over the course of the next several years. We certainly see that piece of the business increasing significantly, and what the ultimate percentages are, whether it flips from the 70%-30% we are now or ends up being little less.

I think it will all be predicated on how much of the Trucking business that ultimately goes toward the CNG side of the equation. Well, obviously, with this Mansfield partnership, the bulk of that is going to be CNG in our mind.

And we talked earlier, and Andrew started alluding to this, we've always viewed from a strategic perspective that we knew we were going to start with the LNG over the highway, and then ultimately get to a CNG-type application in the distribution centers and those types of places, as those type of applications and needs are typically CNG-oriented, the last couple miles to get to the ultimate customer distribution center, et cetera, et cetera. That was always part of the plan, but I would think just -- it's kind of hard to predict.

But I would think in the short term, there's going to be a pretty big swing to LNG as we open all these Highway stations and get these trucks out there. And that percentage may start to slide back maybe closer to parity, as more and more of the additional distribution centers and other intermodal sites and stations open up.

Okay. That's helpful. Wonder if you're willing to share gallons via the Pilot deal, how many have gone through there?

You mean the stations where we have Highway stations on Pilot locations?

Right, yes.

Don't know exactly that number, it's not overly huge right now because we just don't have a lot of those stations up and running. Our biggest Highway station is in Las Vegas, which is, I don't believe, on a Pilot site. I believe it's on the UPS location. I don't know that that's a huge number just yet. Obviously, we think that's going to grow, because the bulk of our Highway stations we have now are on Pilot locations. So to the extent we start opening those, I guess the odds are that a significant chunk of them will be on Pilot locations. So that number should grow, and we can maybe start watching that and help you as we go forward and those stations do open.

Okay. Perfect. Thank you.

Carter Driscoll, Ascendiant Capital.

Just a follow-up on the last question. If you change the pace of the Natural Gas Highway rollout, do the economics change at all for the Pilot Flying J stations if you pushed out or slowed down the ramp for this year or next?

No. They should hold in. It's all predicated on us getting a return of our capital, and obviously, that meter doesn't start until the station opens. In theory, the economics of our relationship with them and the stations themselves should be the same. They will just be triggered and start when we open the station.

And then, shifting gears a little bit, not to beat up the LNG side, but have you -- given how close you work with Cummins Westport, can you talk about what the carriers are looking at between the 350 and the 400? Obviously, it's not -- 400 is not going to ramp until August, and I think you guys prudently slowed down the Natural Gas Highway rollout this quarter in advance of them doing so. But how closely are you rolling out these stations, given that's the one engine, at least this year, that most of the fleets are looking for before Volvo comes out next year with the 13 liter?

Well, we are very close to this, and we have a very detailed list we reviewed with our (inaudible) Board of Directors the last couple of days. We know exactly how many trucks have been ordered, and how many trucks have been deployed, and where, and we are all over this. We pay very close attention, and we're in very close communication with the OEMs and with the dealers. And we have to be, because that's how we know when to open up a station.

We're paying very close attention to this. You're right, the over-the-road crowd really is wanting the 400 horsepower, and I think that Cummins, Cummins Westport have been prudent as they work on putting out this new product. They wanted to start out in 350. That tends to be more CNG, because it tends to be more -- a little bit lighter loads and less range, so that's why a lot of those earlier orders were CNG, and then you'll begin to see some of it ramp to LNG as the 400 horsepowers come out.

And then on the R&G side, could you maybe elaborate on what the specific problems were with each of the plants and then maybe give an update as the progress or the third one in construction that's still on timeframe for you.

Sure. Sure let me start on it. We've done a lot of work on McCommas. We're proud of what we've done there. But this is not altogether easy. We really dramatically increased the size of the compression, the well field, really, all elements. Since we took over McCommas, we've spent a great deal of money, and we really are on our way to moving that volume to actually double, 2.5 times the daily volume.

We are just now commissioning the second piece of that. We've had some problems. We've had some meter problems and other things. It's now almost -- in fact, I just looked at volume today -- it's kind of getting back to where it's supposed to be. So I think the coast is beginning to clear there on that one.

We've had some difficulties at Sauk Trail Hills. That one opened up, and we had some design issues, frankly, that just didn't -- that wasn't designed to be -- that the cooling towers weren't the size that they needed to be. And it was -- is a real problem there, and so we're at about 50% of where we should be right now. That's being resolved by the contractor, and it's been a little ugly. But we are getting that done, and that should be done here after about -- in June.

These are all kind of custom plants, and we are learning as we go. The next one, we are just in the -- we're getting ready to go to a final contract with the provider of that equipment for the next plant. We are a couple of months behind where we should be on that, but it's partly because we learned from some of what we did at Sauk Trail Hills. So, we will sign that contract here in a little bit.

Thanks, appreciate that out there. And then lastly, is there any update or any pull forward, or any slippage in what you hope to do with GE? Is it still mainly a 2014 event? Maybe you have any colors you can provide would be helpful.

It is. We are busy working on design with GE, and we are getting down to picking some locations. That's what we are working on right now. It's still pretty much a 2014. You'll begin to see latter part of this year, we'll begin to order some items. We're making good headway there on the design, working with our friends there. And really, they are busy trying to nail down the location, and we're -- got it down to about three different locations right now.

Okay. Thanks, gentlemen.

At this time I would like to turn the call back over to Management for closing comments.

Okay, good. Thank you, Operator. We think we've made significant progress. And that progress has taken place over the last few months in the long-haul trucking transition to natural gas. The new 12-liter natural gas engines are being delivered to the truck manufacturers, shippers are requesting that their contracted carriers make the switch to natural gas, and some of the biggest companies in the business, like UPS and FedEx and others are announcing large orders of new natural gas trucks.

With America's Natural Gas Highway in place, our feeling and experience in the established refuse and transit fueling markets, and our superior capability in station construction operation, no other company is as well-positioned to take advantage of this ship than Clean Energy. So, thank you for your continued support, and I look forward to reporting to you on our progress next quarter.

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