Clean Energy Fuels Corp (CLNE) 2013 Q3 法說會逐字稿

Greetings and welcome to the Clean Energy Fuels, third quarter 2013, earnings conference call.

(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. Good afternoon everyone.

Earlier this afternoon, Clean Energy released financial results for the third quarter, ended September 30, 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 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 November 7, 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 exclude certain expenses that the Company's management does not believe are indicative of the Company's core business operating results. Non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP, and should not be considered as a substitute for or superior to GAAP results. The 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 will turn the call over to Andrew.

Thank you, Tony. Good afternoon and thank you for joining us.

I'm pleased to review our third-quarter 2013 operating results. During the quarter, we generated $86.3 million of revenue compared to $91.5 million of revenue from a year ago. If you back out the one-time nonrecurring large dark construction project we completed in the third quarter of last year, and you take out our BAF revenues, which were in the 2012 number as we sold BAF in 2013, or June of 2013, our revenues actually increased 23% between periods.

We delivered 56.4 million gallons during the quarter, which is up 11% from 50.9 million gallons a year ago. And again, if you back out the gallons of our Peru joint venture that we sold in March of this year, our volumes are up 17% between periods. Before I get into our highlights from the quarter I'd like to take a moment to address some of the unfortunate market confusion that has stemmed from an erroneous research report that was published last month.

As a reminder, Clean Energy is the largest provider of both CNG and LNG transportation fueling solutions in North America. Over the last 16 years, we have designed, built, owned and operated close to 450 natural gas fueling stations across the country. Which is more than all of our other competitors combined.

We own IMW our world class CNG compressor subsidiary which has built and sold over 1,400 compressor units into the global marketplace, and supplies virtually all the CNG for Waste Management and Republic Industries. We fuel 7,000 CNG transit buses every day, about 6,000 CNG refuse trucks, and have built 43 CNG stations at 37 airports across the country, where we fuel several thousand vehicles each day, from a wide variety of industries. We also currently fuel dozens of CNG trucking customers at our public access stations, as well as some of the largest CNG truck fleets in the country through our trekking relationships with Frito-Lay, 99-cent only stores, Saddle Creek Corporation, Rowan Transportation and Central Freight.

These five fleets combined purchase approximately 370,000 gallons from us in the month of October. So, we believe we have earned the right to call ourselves experts in the CNG fueling industry. This notion that we are only developing stations that serve the LNG truck market is just plain wrong, as is the notion that LNG won't be used for heavy-duty truck fueling.

Let me give you an example of how misleading this report was. The research report stated at a recent visit by the analysts who chart industries manufacturing facility revealed no LNG tanks in process were on Highway applications in North America. Well, here's why. He was at the wrong plant. We immediately heard from our friends over at Chart that they did in fact have LNG station tanks in inventory and were in full production of on vehicle LNG tanks in their Georgia facility. But this analyst only visited the Minnesota facility.

Just last week, only three weeks removed from that analyst statement, Chart announced that they were contracted to build 20 LNG stations across the country. Additionally, last week Westport announced an order for 900 of their LNG tanks systems. So, there's a lot of developments taking place in the LNG fueling side of the industry.

So, let me reiterate. We are in the business of selling natural gas fuel for transportation, and we will provide whatever the customer wants. Based on our years of experience building out the largest network of stations in the United States, we feel very strongly that there will be applications for both CNG and LNG fuel, and to put out a report suggesting that Clean Energy is reliant on one fuel is just wrong.

As I previously mentioned, many of the early 12-liter engine orders starting in April were CNG. This is because until the beginning of August, the early 12 liters were 350 horse power, and not necessarily the right size engine to meet the demand of heavy-duty long-haul trucks. So, many of these early adopters were shorter haul trucks for whom CNG is perfectly suitable application.

Just to reemphasize, we think each fuel has particular advantages. CNG is certainly the only application for light duty vehicles, and the best application for trash trucks and transit buses, as well as truck fleets with shorter range requirements that haul freight locally. Saddle Creek, for example, who operates one of the largest CNG fleets in the country and fuels with Clean Energy, hauls freight throughout their distribution network.

Due to their duty cycle and weight characteristics, CNG is the perfect solution for them. Tens of thousands of trucks will fit this profile, which will be billions of gallons per year. However, with the launch of Cummins, Westport 12-liter 400-horsepower engine in August, the market now has an engine that meets the duty requirements of long-haul heavy-duty trucks. Additionally, we expect to see new engine technology for heavy-duty trucks from other OEMs come online over the next two years, and we believe there will be significant demand for LNG for long-haul market over the next 12 months to 18 months.

Many fleets that consistently haul 80,000 pounds and travel at least 100,000 miles per year will probably be better suited using LNG fueling for their applications. About 100,000 trucks sold each year fit this profile: roughly 50% of the annual production. Again, this is billions of gallons per year. Those of you familiar with long-haul trucking business know that these trucks will benefit from the fast refueling time, lower weight and extended range that comes with the LNG.

On their earnings call last week, Westport management reiterated our view on the market breakdown. In response to a question they stated that they see the dividing line between CNG and LNG at distances of about 200 miles a day, and that CNG above that point really starts to have some challenges. And they expect the great majority of fleets that have higher miles than that will go to LNG. That is a very strong validation from the company who produces the engine technology and has a neutral view on how this market will develop.

We believe that both CNG and LNG fueling applications will each be multi billion gallon market opportunities. And this is why we designed our stations on America's natural gas highway to have the capacity to provide both fuels. Many of our distribution center and intermodal fueling stations will have both CNG and LNG, as well.

This recap leads nicely to a discussion on heavy-duty truck deployment. Our national trucking team has been working closely with Cummings, Westport, the OEMs, shippers, dealers and carriers, and have been encouraged by all the positive feedback we are receiving from customer fleets that are deploying the new 12-liter engines. Since its August launch, demand for the 12-liter 400-horsepower has surged.

With sales already exceeding the internal projections of Cummings, which we believe will reach 2,400 units in 2013. These engine sales are expected to grow four-fold next year surpassing 10,000 units. Today, 46 of our trucking fleet customers have ordered 549 trucks, representing up to approximately 10 million gallons annually, 60% are for CNG and 40% of those orders are for LNG. Additionally, we are in the final stages of negotiation of validation with 107 other fleets who have plans to deploy over 1,250 additional LNG and CNG trucks, representing up to approximately 20 million gallons.

We've already begun to see some of the largest companies in the US make commitments to running natural gas fleets. Leading the way is UPS, who announced it will be ordering 985 LNG trucks, which will fuel at a combination of public access stations and their own fueling terminals at the regional distribution centers. We have just entered a multi-year LNG fuel supply agreement to provide a minimum of 5 million gallons per year to support UPS LNG trucks.

Additional announcements we made during the third quarter include a multi-year fueling agreement to support 36 new LNG trucks for Raven Transport, who hauls goods for some of the largest and well-known consumer companies in the country. These Raven Trucks will be fueling at our natural gas Highway stations in Jacksonville, Florida and Franklin, Ohio and are forecasting to consume approximately 1 million diesel gallon equivalents of LNG per year.

We are also pleased to be supporting Lowe's home improvement centers and their carrier NFI, in their transition to natural gas. Lowes recently announced the launch of a dedicated fleet of LNG trucks to serve the regional distribution center in Mount Vernon, Texas. This fleet will be fueling at our Silver Springs, Texas station. As part of their announcement, Lowes is making the commitment to transition all regional distribution center dedicated fleets to natural gas by 2017, and we look forward to supporting them in this effort.

I'd also like to highlight our agreement with Central Freight Lines, who will be fueling 114 CNG tractors at our stations in Dallas Fort Worth, and San Antonio to serve their customers in the Texas Triangle. Last month, we sold them 38,000 gallons, and just a few days ago, we sold them 2,500 gallons in a day. So, we are pleased to see the ramp in their daily consumption.

In addition, we know several other Fortune 100 companies who have recently sent out RFPs to their contracted carriers to begin transition to natural gas. We believe these examples demonstrate the major shift that is taking place for the largest consumer goods companies, and we believe the transition is going to accelerate. To support this transition to the fullest extent possible and to continue our efforts of removing any and all barriers to switching to natural gas, we recently entered into a strategic alliance with GE Capital to help potential customers offset the upfront cost of transition to natural gas.

It works like this. Truck fleet operators will first work with Clean Energy to develop natural gas fueling contracts, and will then apply for loans and leases from GE Capital to acquire trucks from the OEMs. The customer will commit to buy a significant volume of fuel from us, and we will then help offset the monthly cost of the newly acquired natural gas trucks to make them the same lease cost as a diesel truck. All the customer has to do is use the fuel.

We believe this is the first time in the natural gas trucking market that a lessor like GE Capital will establish a known value at the end of the lease. At the end of the term, our customers will be allowed to purchase the trucks or turn them back in. Truck owners will no longer wonder what the residual value may be at the end of a four-, five-, or six-year period.

Since we made this announcement only a few weeks ago, several customers are working fuel deals with us and completing applications with GE Capital. We are excited about this new offering and look forward to sharing our successes in the coming quarters.

Let's move on now to our core market stations. In our transit market last year, we finished a $40 million contract to build four CNG stations on behalf of Dallas area rapid transit. We have just been awarded the contract to operate and maintain those four CNG stations. The stations are starting to fuel over 500 buses and those vehicles are expected to use approximately 4 million gallons per year. We are already beginning to count these volumes.

Out here in Southern California, we were awarded an O&M agreement from Long Beach Transit which starts at 1.5 million gallons annually, and is anticipated to grow to 2.5 million gallons as more of their CNG buses are delivered in the coming year. In our taxi, airport and shuttle market, we continue to expand our station network to keep up with our growing demand of our fleet customers, as evidenced by our new stations at Dulles and JFK airports.

In Kansas City, we will build, own and operate a public access station to service the city's fleet of more than 265 light, medium and heavy-duty NGB's with the expectation that this fleet will grow to more than 400. Station is projected to supply over 1 million gallons of CNG per year within the first three years of operation. In addition, the local public transit agency in Kansas City awarded us a contract to design, build and operate a large station. They plan to start with 25 CNG buses and then gradually replace virtually their entire fleet of 256 vehicles, over the next few years. Which they estimate will displace nearly 2.5 million gallons of diesel each year.

In Atlanta, 18 additional buses were ordered by Park and Ride which will fuel at our College Park, Georgia, station, and Hartford, 18 city fleet vehicles are now fueling at the USA hauling station. In Las Vegas, Bell Transportation is rolling out 92 CNG taxis, and 10 large shuttle buses with an additional 80 on order for next year. In our solid waste market, we were recently awarded a contract by Lancaster, Pennsylvania solid waste authority for a time fill public access station to service transfer and collection trucks.

In Bedford, Massachusetts, we opened the first public access time fill CNG station for ABC Disposal to serve their 40 trucks. In Long Island, New York, which has been a model region in how to successfully implement natural gas for refuse fleets, we were awarded a joint development station contract at the Islip Covanta facility. This will be our second Covanta facility where we will build a high-volume station, and sell CNG to refuse fleets coming to the plant.

In the town of Babylon, Long Island, one of our new refuse contractors is ordering 10 CNG refuse trucks to serve a 20-year contract. Finally, in Smithtown, Long Island, where we built our first CNG refuse station seven years ago, for that region, we executed a new CNG contract that begins on January 1 and runs to 2020.

In aggregate, during the third quarter and in our core markets of transit, airports and refuse, 1,508 natural gas vehicles were delivered representing approximately 8.4 million gallons annually, and additional 1,834 natural gas vehicles were ordered representing approximately 10.4 million gallons, which is a new quarterly record for us. These core CNG markets continue to show robust growth year-over-year, and serve to prove that we continue to be the leader in the CNG fueling market.

Supporting the growth of our CNG network, our compressor subsidiary, IMW has made tremendous progress ramping up their production capabilities. In addition to supplying the compressors for all of our stations, IMW has recently been awarded several supply contracts all over the world. And some highlights include a $35 million contract award to IMW by Clear Edge Power to supply them 105 units in 2014 that will be deployed all over the world; a $4 million contract awarded to IMW by the largest industrial gas company in Mexico to supply two projects for an industrial site they are building in northern Mexico; a large gas delivery company based in Sydney, Australia recently awarded IMW with a $7 million purchase order for an industrial gas project in Western Australia.

Lastly, China gas holdings awarded IMW with the master purchase contract to supply 416 compressors for the construction of up to 310 public access CNG stations in China. This three-year agreement has the potential value of $167 million.

Today, we have supplied 42 compressors for China gas and plan to supply 23 more by year-end. On the construction carpet, our year to date station count consists of 52 completed station projects. These include 8 America's natural gas highway's projects, 16 Clean Energy owned stations, 16 stations we built for customers, and 12 stations through our partnership with Mansfield.

Keep in mind, that our American natural gas highway station buildout plan is being timed to keep pace with the recent launch of the 12-liter 400-horsepower engines, in order to maximize the returns on our deployment of capital. Because we see the heavy-duty truck market beginning to accelerate going into next year, we currently have 31 more truck stop station projects in various stages of engineering, permitting and construction.

In total, we expect to complete 18 highway station projects this year. We believe we are on track to complete about 80 station projects for the Company in 2013. In our renewable fuel business, we have had some very exciting recent developments. In October, we launched our branded renewable natural gas vehicle fuel Redeem. This represents the first commercial scale distribution of renewable natural gas as a vehicle fuel in North America. We anticipate that we will sell 15 million gasoline gallons of Redeem this year at our CNG and LNG stations across California.

This is the only commercially available fuel in the world that can offer a 90% greenhouse gas reduction, meet 100% of the fueling requirements of an 18-wheeler and be profitably sold at a discount to petroleum fuel prices based on current market conditions. We believe that this is a significant moment for alternative fuels, and we are excited about offering this product to our customers in growing volumes in the coming years.

We also set new production records in our Texas and Michigan biomethane processing facilities in September, as we are moving past our recent production and construction issues at these facilities. Our third facility outside Memphis, Tennessee is on track for March 2014 start up, and we are looking at numerous additional projects across the United States that we anticipate will increase our Redeem production capacity in the coming years.

Finally, as you probably know, we completed a $250 million convertible debt deal in September. We now have cash on hand of over $400 million.

And 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 to our results will be comparing the third quarter 2013 with the third quarter of 2012, and the first nine months of 2013 with the first nine months of 2012, unless otherwise noted.

Volumes rose to 56.4 million gallons during the quarter, up from 50.9 million gallons a year ago. The first nine months 2013 volumes increased to 158.9 million gallons, up from 143.2 million gallons. Please remember the third quarter of 2012 and the nine-month period ended September 30, 2012, include an incremental 2.5 million and 4.3 million gallons respectively, related to our Peruvian joint venture that we sold in March 2013. For the quarter, our CNG volumes were 37.2 million gallons, our RNG volumes were 2.5 million gallons and our LNG volumes were 16.7 million gallons.

Third-quarter revenue was $86.3 million, compared to $91.5 million. The third quarter of 2012 included $17.6 million in construction revenue from the sale of two large CNG stations to an existing transit customer, that did not reoccur in the third quarter of 2013, and $3.5 million of revenue related to BAF which we sold in June of 2013. For the first nine months of 2013, revenue increased to $267.5 million, up from $234.9 million a year ago.

When comparing our numbers between periods, please note that the third quarter 2013 includes $6 million of volumetric excise tax credits or VTEC revenue, and the first nine months of 2013 includes $38.1 million of VTEC revenue, of which $20.8 million related to the full year of 2012 that we recorded in the first quarter of 2013. We did not record any VTEC revenue in 2012, as the law was not in effect during the year, and was reinstated in January 2013 and made retroactive to 2012 at that time.

Just as a heads-up for the fourth quarter, we recognized approximately $24 million of station construction revenues in the fourth quarter of 2012, related to the existing transit customer I spoke of earlier, that will not reoccur in the fourth quarter this year. On a non-GAAP basis for the third quarter, we reported a loss of $0.16 per share. This compares with a non-GAAP loss of $0.19 per share in the third quarter of 2012.

For the first nine months of 2013, our non-GAAP loss per share was $0.19 and was a loss of $0.52 per share in the prior period. Adjusted EBITDA in the third quarter of 2013 was $4.2 million, which compares to adjusted EBITDA of minus $3.1 million in 2012. The first nine months of 2013 adjusted EBITDA was $35.4 million, compared to minus $6.7 million last year. Again, please remember the third quarter and first nine months of 2013 includes $6 million and $38.1 million respectively of VTEC revenue. In addition, the first nine months of 2013 also includes a $15.5 million gain on the sale of our vehicle conversion subsidiary BAF.

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. 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 $18.8 million or $0.20 per share, which included a non-cash gain of $1.4 million related to valuing our series 1 warrants, non-cash stock based compensation charges of $5.7 million, and a $0.2 million foreign currency gain related to our IMW purchase notes. This compares with a net loss of $16.3 million or $0.19 per share in 2012, which included a non-cash gain of $5.7 million related to valuing our series 1 warrants, non-cash stock based compensation charges of $6 million, and foreign currency gains of $0.7 million on our IMW purchase notes.

For the first nine months of 2013, our net loss on a GAAP basis was $34.7 million, or $0.37 per share, including a non-cash gain related to valuing the series 1 warrants of $0.9 million, non-cash stock based compensation charges of $17.3 million, and a $0.3 million foreign currency loss on our IMW purchase notes. For the first nine months of 2012, our net loss on the GAAP basis was $59.5 million, or $0.69 per share, and included a non-cash gain of $1.1 million related to valuing the series 1 warrants, non-cash stock-based compensation charges of $16.5 million, and a foreign currency gain of $0.7 million on our IMW purchase notes.

Our SG&A charges are higher between periods, primarily as a result of continued business growth, and costs we are incurring to support our construction and sales efforts to develop and launch America's natural gas highway. Our interest expense was also up between periods, primarily due to the interest charges we are incurring on our convertible notes we issued in June 2012 and 2013, coupled with the fact we capitalized less interest in the first nine months of 2013, related to our construction activities. Our interest expense will continue to increase in future periods, with the interest we will incur on the $250 million of convertible notes we issued in September 2013.

Our gross margin this quarter was $31.5 million, which compares to $20.2 million in 2012. For the first nine months of 2013, our gross margin was $100 million compared to $59.3 million. The gross margin for the third quarter and first nine months of 2013, includes $6 million and $38.1 million of VTEC revenues respectively.

Our margin per gallon on our fuel sales this quarter was up $0.05 from last quarter to $0.35 per gallon. The increase was primarily from the additional credits we realized when we began selling Redeem through our California public access fueling stations. Included in the margin number this quarter are some excess RNG volumes we had to sell from our third-party supplier, and the credits were at extremely high levels during the period. Based on our anticipated available volumes in the fourth quarter, and the reduced credit values we are seeing today, our margin per gallon this quarter will likely come down $0.02 to $0.03 per gallon.

As I mentioned, we completed a $250 million convertible note offering during the quarter. We plan to use the net proceeds of approximately $242 million to continue the expansion of our CNG, LNG and RNG infrastructure and for general corporate purposes. Our cash balance, plus our restricted cash, plus our short-term investments totaled approximately $418 million at September 30, 2013.

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

(Operator Instructions)

Rob Brown, with Blake Street Capital Partners.

You talked about 10,000 trucks potentially next year, 12-liter engine. Can you give us a sense of how those rollout and maybe your view on the mix of LNG and CNG in that group?

Yes, Rob, thanks. Rob, you know, it's not crystal clear. The 10,000 to 11,000 number that I know you've heard as well comes from sources, but we keep getting that number reconfirmed. We are under the impression and the understanding right now, as we do our checks, that the production rate is somewhere around, right now, around 600 engines -- 550 to 600 engines a month. So I'm guessing that's going to build, Rob, into 2014 and so you are going to see these things go out being produced somewhere above that number, to get to that 10,000, 11,000 or perhaps even more for the year. Which by the way, is almost four or five times what we did this year.

So, that's actually ahead of what we forecasted this year. So, we feel really good about that. But, we are guessing it will be somewhat smooth throughout the year. It will build, I imagine like it's doing now. Start out at 200 engines a month in August now you are at 600. So, I'm assuming there will be some sort of building of it as you go in the year and the experience continues to be good. We have validated, I guess, and are in works with arms around, if you will, about 3,300 of those. We expect to be those 10,000 orders so we have some visibility already into substantially more than what we have this year. Right now, it looks like 65% of those -- of those 3,300, I know I'm breaking this thing down for you -- a bit confusing. It's coming out about 65% LNG and 25% CNG with the remainder in the balance. It's what many of us suspected.

You will see a break down somewhere around 50/50, 60/40, in that range between these fuels. It just depends on which fleets come early and how many of them are regional and how many a little bit longer range. But that's what we are seeing right now, as we've looked at those. That's only one-third of those 10,000 is that it's breaking -- over half of those are breaking on the LNG.

Rob, as you know, with these trucks, certainly the early adopters will use anywhere 20,000 gallons and above. Of course, you multiply the 20,000 times 10,000 -- significant value, volume increase for the industry and of course for us. That, you know, it takes -- just to remind you, it takes about 4 months or so from the time between the time somebody orders one of these engines and it gets produced and goes in OEM and gets upfitted, the tankage gets put on. So, it will be backend loaded, some, I would imagine, if you do hit this 10,000 to 12,000 type number.

Okay. That feeds to my next question. How many of your highway stations are up and running right now and how do you see that opening over the next year as these trucks roll out?

Well, let me speak about how many that we see opening. Of course, it all has to do with how these trucks begin to roll out. We only have just a handful, we do the total of how many stations are currently up on the highway. We are opening about 4 to 6 here these next several weeks of the year. So, you will end up having about 15 to 18 of the stations opened here in the short run.

That's right.

Then, but as -- I just had a meeting on this today with our Chief Marketing Officer. We are beginning to see things take shape and so, I think by the end of the first quarter, you will end up opening up an additional 20-some odd stations adding to that count. So, that's how I see it. So, you will have about half of them. Of course, we are building some too as we go along here. But you'll have about half of them are still open and then of course over the remaining part of the year, we will make substantial progress.

Great. Thank you and congratulations on the nice EBITDA number in the quarter. I will turn it over.

Steve Dyer, with Craig-Hallum.

Nice quarter.

Thanks, Steve.

Just -- if you could expand a little bit more on the GE partnership. I know it's early, but what initially are you hearing in terms of feedback? Are you expecting that's going to be small fleets? Medium sized fleets? All of the above? How do you sort of see that playing out?

I guess, we had a offside meeting just last week with our Senior Team. Jim Harger, or Chief Marketing Officer was reviewing. We are very excited about what we've seen already. There's been dozens of calls. What's exciting for us, is GE is really committed on this program. They've done all the training of their team. They have 115 guys that do nothing but got call on trucking fleets to offer this program. That's very important for us. So, it's just starting.

But the early news, is very good. We never in this industry really had this until now. So, we've already had several fleets come in and begin to work through the process with us. We are already in touch with GE. I wish I had more color to tell you for how big and how small. I know, currently, they work with all sizes of fleets. These will be the Class 8 Trucks. Right? We are talking about those kinds of vehicles, not the smaller ones right now.

But, we are very excited about it. Our sales team and the trucking, which we call our national trucking team, with about almost 40 guys working are now with their 115 guys. We are excited about it. Steve, I hope to be able to have more color. It's only been a few weeks in process but we think it's the next important piece to help this thing really move along.

Okay. That's helpful. Just -- you announced several station openings with anchor fleets this quarter. It feels like that is starting to accelerate a little bit, which makes sense, as you go along here. Would you expect more this quarter? Or any color you can give on maybe how close you are with others, et cetera?

Well, yes. You remember, I used to talk about our pipeline, right? That was hard to get your arms around, because we threw in there qualified customers and it had to do with vehicles and stations and all that. But what's interesting to me -- and I will answer your question I promise, is today, when you look at qualified prospects and validation, those that you are getting ready to negotiate with, and in the negotiation process, and close deals, right now you have 1,600 deals in the works. That's almost from a year ago, it's almost double. So, as I said in my remarks, and I know there's a lot of numbers in there, we've got about 107 fleets that we are working with right now in negotiating how they're going to roll out these trucks.

There's a lot more behind that. I think you are right. It took a while to get these trucks into the mix. It took those 4 months to have them going and they don't take as many as you'd like on day one. But we are really beginning to see that traction. So, I feel good these guys are serious. We have dozens and dozens of fleets that are beginning to order trucks.

Therefore, that translates into working with us on how we are going to fuel them and where and if they need a station or if there is a station that we can open. As I said, those 100 customers have already ordered 1,250 trucks. They are going to be fueled here in 4 months. So, that's the way this thing is rolling out.

Great. Last question. Just the compressor business, obviously, doesn't get the headlines that China Gas Holdings deal was tremendous. Any color on the cadence of that rollout into next year? And then perhaps any other meaningful deals like that? That's obviously a big one. But, anything else of good size in the pipeline?

Well there are, and unfortunately, I can't tell you about one of them. But, there are two or three companies like China Gas that we worked with on and off over the years and actually sold equipment to them that we're working on in China. That's all I can really say about that. And then there's another major move in another major country and we are working very hard right now in trying to land that deal and I feel confident that we will. That will be significant from a country that has a significant volume in natural gas and wants to begin to build out a national network and we are close to landing that.

I would say in IMW, that we went through a period over the last couple of years of right-sizing that Company, improving the availabilities. We struggled there a little bit as we told you. Now, we like where we are. We made good strides. We made, we just recently, did those four or five announced -- we haven't announced them, but I announced them today, but four or five significant contracts. That business is up substantially from where it was.

We feel good about it. Worldwide, they're selling stuff believe it or not into Egypt and Vietnam, now. Really all over the world. So, I think we went through the toughest part of it and we feel pretty good about where it is. I, specifically on China, you know, sometimes these things never go quite as fast as you believe. I'm glad that we will put away almost 70 of the compressor's this year, since when we announced that deal. My guess is there will be another 100 of them, 150 done next year and the remainder will be in that 2015.

Great. Thanks again.

Andrea James, with Dougherty & Company.

It seems like the market seems to be gelling a bit. You've been able to announce even a number of new contracts since the last quarterly call. I guess my question, when do you think you will be at a place when you feel comfortable giving guidance?

Never. (laughter) The finance guy talking. That's a great question. I think once heavy-duty truck market matures, it's such a significant market and number. Once we get into there and start seeing normalized numbers, I think it will be a lot easier and we will feel a lot more comfortable predicting or projecting out our numbers or our results. Right now, obviously, we are still just too early with the starts and stops and hiccups and all those things. You know, it's something we think about.

We talked a lot about it and I know what would help you. I would guess that you are probably going to want to take a look at how this rolls out and matures a little bit in 2014. We have 10,000 or 12,000 of these trucks with the expectation that there will be 20,000 the next year. Then you are going to be -- you will have a much more predictable way of forecasting what's going to happen here. You know, if you just think back with us, you know as well as I do on this. Those trucks were delayed for good reason, but they were delayed about a year and we would have missed it by a year.

There's just so many things right now that are outside our control that we are just really hesitant to do it now. Once obviously those get smoothed out or we get more comfortable with them we will be more robust on them.

We certainly like what we are seeing on the truck adoption. We heard the number earlier in the year. It looks like it's exceeding it. Remember I told you that if we would watch really carefully the truck orders in October, November, December. It's really hitting about where we said -- boy if we had 600 and 700 out at the end of this year we would feeling really good about next year and that's what's happening. So, we are optimistic and we've got our fingers crossed and this is rolling out like we thought it would.

Okay. Thank you. Just to hop over on another type of question entirely. Can you talk about the cost to develop a CNG station versus the cost to develop an LNG station and how those costs vary according to the distance from a high-pressure gas line?

It's a good question. This is all goes into my first part of my remarks. There's a lot to this. It's hard to do it on this call, because there's a lot of different factors. You are certainly right. One of the things -- in fact, I was just in with my Chairman earlier today, Chairman of the Southern California Gas Company and very fairly familiar with this.

Every time you go to site for a fleet and try to -- and site a station, depending on what they want and what you can do most economically, you take into consideration many different factors. Is there electricity? How far away the pipeline is? Those start stations we put in Dallas, they had millions of dollars, each station had almost $4 million -- I believe I'm right on this, $3 million to $4 million of pipeline extensions involved with them. So, this could be a very big number. We are seeing some right now where customer wants one -- it has to go under a railroad track and under a freeway. All of that comes with a great cost.

So, certainly the accessing high-pressure pipeline gas is very important for development of CNG station. Just generally, we are thinking, Andrea, we are thinking here on -- for truck fleet, because if you're talking about taxicabs it can be totally different. But if you want to build a CNG or an LNG station that has the capability of fueling many trucks during a day, taking 50 to 100 gallons or 150 gallons at a clip, it has totally different -- it's totally different than if you are building light duty station. Many of our stations at airports, they average 8 gallons a fill. But, we are building stations and our competitors and others are building stations now for big heavy-duty trucks. They need to get 100 gallons at a fill.

A rule of thumb, is if you want to put gallons in at between 6 minutes to 10 minutes a gallon -- I'm sorry, 6 gallons to 10 gallons a minute, it's $1 million a hose for CNG. I'm talking CNG, now. So, if you want a robust station with redundancy that can fuel a whole bunch of trucks one after another. We will say 40, 50 trucks a day, taking 100 gallons a day, which would be a big station, but you do it with two hoses, you've got an easy $2.5 million to $3 million station. Now it'll depend on if you want canopies or what sort of improvements you're doing on the land. Can you build a $1 million CNG station to fuel 10 or 15 trucks? Sure, you can. But, it depends how quickly you want to do it and what sort of volume.

Another rule of thumb is for an LNG station with two hoses, like the ones we built on our highway that can do 2.5 million gallons a year, really with more volume, it's about $1.8 million. That station can probably do 5 million gallons for another, call it total investment of $2.5 million. So, when you get into really large volumes, you begin to see -- you begin to see the cost of the CNG station really escalate as compared to the LNG.

So, it's a complicated question. Both of them can be done, but you are right. It has a lot to do with, is there electricity available? Is there a pipeline with good pressure available? How many trucks do want to really fuel at once? So, I probably didn't answer or your question, but there's a lot to consider.

No -- thanks. That's helpful. Thank you. I appreciate it.

Carter Driscoll, with City and Capital Group.

Rick, question for you. Obviously, it's early on in the sales we are [gaining]. Do you think it is a normalized run rate that the margin per gallon impact might be in the $0.02 to $0.03 range as you highlighted?

Yes. I think so, net-net and obviously we will look to add more as we go forward. Which will just be a function of how fast we can either build our plant or to have excess capacity that isn't spoken for in some sort of power generation or other application, as well as there's various third parties out there that have access to RNG that we are trying to avail ourselves to. So, it will be a combination of those. In the short-term, I would think net-net of the whole thing is $0.02 per gallon.

And you managed to get most of the output of spoken for in Dallas correct and obviously the Tennessee station under construction and just ramping up in Michigan, correct?

Exactly. The ones that we have now, which you just listed, the vast majority of those gallons are already spoken for.

But, you know, just to give more color on that, though, our CERT team, they work -- because we have an advantage here. There are other third-party producers of this stuff. But we have one of the only delivery systems for it. So, we are working hard to gather up other third-party sources of this and being able to harness it and get it into vehicle fleets.

The other thing I would add, as McCommas expands, which as you guys know, we've been expanding. Those excess volumes should be available for these types of applications, as well.

Did I hear correctly that you said the Tennessee facility would open in March of 2014?

Did you say Tennessee?

Memphis.

Memphis, yes. Targeting first quarter next year.

Okay. For some reason I thought it was back half 2014. Next question is, on the LNG sourcing issue, I know it's early on and as the 400 horsepower engine very, begins to ramp, can you maybe outline your anticipation of your LNG sourcing needs? Maybe how you expect to roll out individual stations, how you get the third-party supply in there versus what you're hoping to unveil in terms of micro-LNG with GE as 2015 unfolds? I guess I'm trying to get a sense of exactly where you might need to increase your third-party sourcing versus what you might be able to do with existing pipelines?

It's an excellent question. We don't talk that much about, but we work a lot on it. We've gone, as you know, we've got a couple plants that we own and then we have another plant where we take all the production out there in the Arizona desert. But, we've expanded our third-parties to include now 13 different locations. So, we are taking fuel. We have a deal to take all the fuel out of Omaha, Nebraska, and down in Memphis, and in Indiana, and in the Southeastern United States.

So, we have, I think, our LNG supply folks have done a pretty good job lining up supply and organizing it to where we need it. Because as we've discussed before, you really don't want to haul LNG much more than a 200 miles and the closer the better. We've taken some steps to work on that. We've got a big cryogenic fleet that we've had now -- we've now dispersed out in the United States to be able to do this, because we have customers taking it to Ohio and these other places. So, we have about 85 tankers now to do that. We've lined up about 465 million gallons of supply, much of it from third -- I don't know the exact break down -- a lot of it would be coming from these third-party supply sources.

So, our job is to make sure that until we have those GE plants on and until we have scored the one down in Jacksonville to open up really the Florida and Southeastern market, we need to rely and work with our friends at some of these third-party sources and we are doing that. So, I think we have ourselves pretty well taken care for the next couple of years, coincident with these other plants coming online and of course as you know, we did that deal with GE and Ferus, our equal partnership and that has an eye also to making sure we have supply in the right places.

Thank you for that. My last question is maybe you could talk a little bit about the vision you had for opening up the facility or plans to open up the facility near Jacksonville. Some of the high horsepower applications or heavy loads that maybe a couple years out in the future and then maybe also layer in what your thoughts are on potentially the light duty segment beginning to adopt CNG, obviously GM announcing the Impala for the mid 2014 launch. Just your top level thoughts?

I think it's safe to say that the high horsepower, so really mining, rail and marine, I think it's for a lot of the reasons they use so much fuel. I think those markets are going to happen as well. As you know, I believe the trucking -- if it works for trucking, it sure works for a mining truck that uses 5,000 gallons in a day. So, as you know, GE is working on the locomotives. So is CAT through EMD and, so, the big railroads. We are already helping two of the big railroads on pilot fueling deals with rail.

So, I think the rail will happen. Its a little -- their big company has been around a long time. They have huge investment in locomotives, so it takes a while. For them it's going to be an upfit game, because they've got a lot of stuff out there that has 30-year life type locomotives. But I feel confident, when you talk to the CEO of BNSF, Matt Rose, he is confident that it's going to go this way.

The same for marine. We had some meetings talking about -- this is now in Jacksonville. You know, we've got an option to buy that property down there. We are working with two very large significant, very smart guys that own ships that move product into the Caribbean and other places. Because of the new emission requirements, these guys are going to move to LNG for their ships. One of the players involved has already ordered two ships for $70 million investment for two ships. The nice thing is, the baseload -- the reason why we liked it so much. One you baseload that plant in Jacksonville and you open up the Florida market to LNG. Which right now, you don't really have.

The fuel LNG is not that close. So, that's why the Jacksonville is nice. That's the whole basis behind this GE Ferus partnership, is because Ferus really wants to be involved in the high horsepower and the drilling. We really think we understand the trucking and also maybe the rail. But, building one of these plants for, let's say mining or for the oilfield opens up available fuel for us for the trucking. So, that's what happens for Jacksonville. We baseload it with those two companies of those ships and we open up Florida LNG to have economic fuel for them.

On light duty, I personally think you are going to see more and more models, more selections. This isn't anything that's complicated. GM makes 14 makes and models, Ford -- all these guys, they all make this stuff and they do it in Europe. There are 62 makes and models. Infrastructure is the game here. We check, we follow competitors of those people that are in the NGV business, there's 87 companies out there talking about building stations right now.

So, I think you could see more and more light duty product come to the market. Really proud of GM for coming with that Impala, that will be a great product. We are not totally focused on it, though we have the most public access stations that will be able to fuel that. But, I think you might be surprised that over the next few years you have more makes and models to choose from.

Right. I appreciate the answer to my question, guys. Thanks.

Caleb Dorfman, with Simmons & Company.

Andrew, some of those America's Natural Gas Highway stations have been opened for a few months or maybe like a year now. I guess, of those initial, maybe let say five of the stations which have been open for a while, what types of utilization rate are you starting to see? What type of increasing utilization can you point to?

I don't have -- Harger was going over my -- the Chief Marketing Officer was going over with that with me today. For instance, I'm now looking at some highway stations -- I'm looking at five of them that he just gave me for October that I have handy. One of them, now, in October. This is October numbers: 60,000 gallons, Eastern started 40,000, our one in Phoenix, with one customer took 40,000 gallons, UPS, which is the Phoenix and Las Vegas stations -- obviously there are other customers fueling there but it's just how we label it. Those two stations combined are doing 80,000 gallons.

So, when they open and you begin to get those fleets coming there, these guys use a lot of fuel. So, I don't know. I can't give you just a total ballpark, but you begin to see the volumes, the volumes go up just to couple thousand gallons a day, 2,000, 2,500 gallons a day, which really makes them economic -- begin to be economic right away. That's why we hold off, Caleb, until we have a critical mass of trucks to open these stations. When we do get 15 or 20 trucks there on day one, you start seeing volumes that make the station act well and you make money.

How do those, I guess, 40,000 or 50,000 gallon a month figures compare to where you thought you would be when you opened the stations?

Well, here's what I think about it. This is just in general terms, right? So, we think, that if we are doing our job well, those stations can do 2.5 million gallons and you'd like to see them do 2 million gallons. I'd like to see them do 5 million gallons, in which case we will double them up. But, you would feel really good as we've gone through that math before, if they do a 2 million gallons but we always figured we would take a 2 years to get to 2 million gallons.

So, if you are doing 60,000 gallons, you're at 1 million, you are halfway there. So, you open something up. You been operating a year and you are doing 750,000 gallons, you are halfway home. On what would be a really -- there are not many -- let me tell you, there are not that many natural gas fueling stations out here in the United States doing a 2 million gallons a year. Certainly not public access stations.

So, I guess I would say those are on track to where we thought they'd be and we need to make the ones that are doing 40,000 and 50,000 gallons, they need to come on up. But when they've only been operating now for 6 months, that is pretty good. But, we are targeting something that would be more than that, of course.

Right. Big picture, I know when you rolled out the concept of the ANGH back in 2011, you had been talking him out maybe 150 stations by the end of 2013. Obviously, you needed to wait for the trucks. When do you think you will get to that number of stations?

Well. We slowed down and I guess I like the fact that we could slowdown, right? Look, the trucks were a little delayed and I'm not blaming that on anybody. From when we thought they were going to come out, they are about a year late when you really shake it out. So, we were a little ahead. Working here with our Management Team, and our Board of Directors, nobody wanted to have 135 closed stations. So, we just slowed it down some.

To sync it up with the truck schedule. So, that's why this year we are going to build 18, not another 50. We're at about, by the end of this year, you're going to be -- when you put it all together, you are going to be at about 105. Next year as we sit here right now, we see in our pipeline about 31. So, you are going to be close next year to that magic 150. It's the way I look at it.

That's helpful. Thank you.

Laurence Alexander, with Jefferies.

This is Jeff Schnell on for Laurence. Now that you are a few years into the development phase and originally you had an idea of having a broad web of stations and then fill in the gaps that way, the 200-mile radius, do you think that now your strategy is shifting toward having higher density pockets throughout the map and then fill in regionally that way? Or are you staying with the same strategy?

No. I think your comment is probably -- is accurate. We really did feel like you needed to put in place a nationwide network. Now, are there a few of those nodes on that network that will probably always be lower volume than others and more urban environments? Probably, but you really didn't have a way to have a nationwide network without connecting up the dots. So, that's why we did it.

We always knew that there would be corridors, the Texas Triangle is a good example. If you look pound for pound how many stations we were building in that area, in between San Antonio, Dallas and Houston compared to other places, LA, Phoenix and San Diego and all that, there are certain corridors where there's a lot more truck traffic in the Southeastern United States. There will be a lot more stations. Then, I guess the only development or the next phase, I think we are really liking, is we are going to linkup that nationwide network with regional areas, kind of what you suggest. Regional areas that will be the underpinning of which will be intermodal facilities and distribution centers.

There are a whole bunch of distribution centers, you know warehouse district/[mile] or this stuff either comes to or gets distributed from with lots of trucks. And all those distribution centers are housed -- the customers we are already talking to. So, the next phase, hook the national network up. I'm speaking broadly here, with these distribution centers. Many of these stations that we are building right now, the 18 and next 8 that we will finish this year, or 10, I guess that are under way right now between now and Christmas, and the 31 others that are in the pipeline, right now.

They are really all distribution center models. They're going to have LNG and CNG. They tie into the network. There are also -- they have more anchor tenants already available sitting there in those distribution centers. So, it's -- let's call it, it's a little less speculative, it's a little bit more of the anchor tenant model, yet it fits in nicely with our regional -- with our corridor approach and then it ties into the networks.

Great thank you.

Matthew Blair, with Macquarie Capital.

Andrew, I was wondering if you could share some feedback of fleets. You have your LNG stations ready. You have these trucks with the 400-horsepower LNG engines rolling off the line. You have your lease partnership with GE. For the fleets that are still on the fence, what are their concerns and how are you working to adjust these concerns? Thanks.

These guys are trying to understand exactly the cost of the fuel, which fuel works better.

Where are the stations?

Yes, where the stations. What does their shipper -- the people they work for, what do they want? All of this goes into the mix. Let me assure you that we don't come to that meeting with that fleet customer with a bias. Look, if some guy wants to buy 1 million, 2 million gallons a year, I will sell them CNG. I don't try to cram him into some LNG network.

That's just not the way we operate so, we work with them, for them to really understand, so that we really understand. What is the duty cycle? How far do the trucks need to go? What does the fuel price -- what is the weight penalty, if there is one? All those things get factored in. Like Andrea said earlier, can you really put a real economic CNG station that can deliver the amount of fuel that they want at their location because there's no pipeline? Or there is a pipeline?

So, all those things go into the mix. The GE thing has helped because it has taken the financing piece off the table. So, that's been, I think, a very helpful thing. The experience, a lot of these guys are on the fence because they're wanting -- they're going to golf outings talking to their brothers in the trucking business and they're wanting to hear how their trucks are operating. So there is some of that going on here too. The good news there is, there reports of the 12 duty -- the 12-liter engines in the field right now has been excellent. So, all of that right now, Matthew is going into the mix. We just work closely with the customer to get them -- get them what they need.

Great. Rick, any thoughts for CapEx in SG&A for 2014?

Well, we don't give guidance. We need to watch the SG&A a little bit here. I would say I think we've seen the SG&A level out a little bit, which we anticipated as you guys all recall over the last year, we really built up our infrastructure and core competencies. Both operationally, sales wise, admin wise, finance wise, et cetera, to support the capabilities to be able to build the magnitudes of the stations. We are [talking about as well] service to the level of customers and volumes that we think will hope are coming. So, we think we've done that.

So in theory, our increased SG&A should level off here and to the extent we continue to ramp up our revenues which we're certainly hope that we do, then hopefully that percentage will stay where it's at or start to decrease in the coming years, which again gets back to leveraging concept. We've talked about before. So, that's some thoughts on the SG&A line. From a CapEx perspective, we have over $400 million of cash on our balance sheet, which we think is strong. As we go out and wait for this market to go and hopefully deploy that capital in a very timely and efficient manner.

We certainly think we are good for next year's CapEx program, which in theory should be somewhat similar or higher a little bit then this year's program. And then after that, I think it's just going to be dependent on how fast the market is going and how fast we are building stations, as far as how long the rest of that money will last us. We certainly feel good about where we are sitting now and think we've got it certainly covered, heading into the next couple of years.

Okay great. Then, I just want to clarify on the liquefaction capacity. Are you guys confident that you could open all of these 80 to 90 Natural Gas Highway Stations and load them up in 2014? And there's enough liquefaction capacity out there to meet your needs? Thanks.

Yes. There's more than enough. I wish we'd run out, but no, there's more than enough. If you added 200 million more gallons, let's just say all 10,000 trucks or 12,000 trucks, whatever you want to use, come on and they all use 20,000 gallons and they all come on in January and you need 0.25 billion gallons and you have about 500 gallons, 600 gallons available out there. You've got enough. Would there be a few places where you are hauling it a little too far, well, maybe.

But there's plenty of fuel -- by the way, there's been a bunch of projects announced too. There's going to be fuel in different places that will all take a while, 18 months to come online. Some of them. But, you will have enough fuel. The market is responding. I bet that we have our finger on 15 or 20 different greenfield projects that are out there right now.

Okay. Great. Thanks.

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

Thank you operator. You know, significant progress has taken place over the first three quarters of the year in long-haul's trucking transition and natural gas. And we believe we are positioned very nicely to serve these trucking customers whether they choose CNG or LNG. Our national network of public access stations in metropolitan areas as well as America's Natural Gas Highway will be available to serve their fueling needs. The new 12-liter natural gas engines are being delivered to the truck manufacturers.

Shippers are starting to request that their contract carriers make the switch to natural gas and some of the biggest companies in the business like Lowes, Procter & Gamble and UPS are announcing their commitment to natural gas trucks with America's Natural Gas Highway in place, significant cash resources available. Our fueling experience and established refuse and transit fueling markets and our superior capabilities in station construction operation, we really do believe we are well-positioned to take advantage of this historical shift. Thank you for your continued support and I look forward to reporting to you on our progress next quarter.

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