Clean Energy Fuels Corp (CLNE) 2013 Q4 法說會逐字稿

Greetings and welcome to the Clean Energy Fuels fourth quarter 2013 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation.

(Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Tony Kritzer, Director of Investor Relations. Thank you. You may begin.

Thank you, Operator. Earlier this afternoon, Clean Energy released financial results for the fourth quarter and full year ending December 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 call is 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 factor section of Clean Energy's Form 10-K filed February 27, 2014. 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 the non-GAAP and GAAP figures is provided in the Company's press release which has been furnished in 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. Good afternoon, everyone, and thank you for joining us. I am pleased today review our 2013 operating and financial results.

Today, we reported fourth quarter revenue of $85 million. Revenue for the fourth quarter 2012 was $99.1 million, but this included $22.7 million of a one-time construction revenue related to two large CNG stations for one transit customer and $6 million of revenue related to BAF which we sold in June 2013.

For the full year 2013 revenue totalled $352 million, up from $334 million a year ago. Gallons delivered for the fourth quarter 2013 were 55.5 million compared to 51.7 million gallons delivered in the same period a year ago. Gallons delivered were up 13% from the fourth quarter of 2013 when excluding 2.5 million gallons delivered in the fourth quarter of 2012 by the Company's Peruvian joint venture which was sold in March of 2013.

For the full year 2013 we delivered 214.4 million gallons compared to 194.9 million gallons delivered in 2012. Clean Energy now proudly fuels 35,000 vehicles daily from about 800 different commercial fleets.

2013 was an important year for both Clean Energy and the natural gas for transportation industry as a whole. The awareness in the environmental and economic benefits of natural gas fuel has become more mainstream. Now there are -- there are now several big markets like refuse and municipal transit which could be described as established and have been successfully fueling with natural gas for years.

It's important to note that the percentage of new natural gas refuse trucks, buses continue to increase year over year. I am very pleased to say that Clean Energy's customer base in volumes in these markets continue to grow and strengthen in 2013.

And after talking about it for longer than we had hoped, we can celebrate that the heavy-duty trucking industry began to make its transition to natural gas in a meaningful way in 2013 with the introduction of the Cummins Westport 12 liter engine. It's still in infancy, but with all the necessary pieces now in place and with the encouragement of outside forces like shippers looking to achieve their sustainability goals and by the President who once again mentioned natural gas trucks in his recent State of the Union address, trucking companies all over the country are placing orders ranging from a few [test] natural gas heavy duty trucks to several hundred trucks like market leader, UPS.

I am going do something a little different today and begin my report of our business segments with IMW, our CNG compressor manufacturing company. We purchased IMW in 2010 in anticipation of the significant increase in the demand in CNG fueling and we've been proven right. After acquiring IMW, which we believe has the best CNG compressor technology, we have made comprehensive managerial and structural changes, developed new product offerings, and beefed up the sales force.

While we still dealt with some challenges at various times throughout 2013, we are pleased with the progress that has been made. As you might know, NGV penetration in other parts of the world is greater than in the US and there is a pent up demand for quality made compressors.

Two of the biggest developments over the last six months at IMW were securing deals with the right foreign partners in the fast growing NGV markets of China and Russia. Additionally, IMW has made sales in Australia, Vietnam, Turkey, Israel, and Mexico to name a few and is enjoying the strongest sales quarter ever.

We also see 34% of IMW's 2013 sales going to the US market which includes Clean Energy [own account]. We are very pleased with how IMW has gotten back on track and we are looking forward to their further growth.

Moving on, we continue to see strong growth of our core markets of transit, refuse, airports, and fleet services. I will quickly touch on a few 2013 highlights of each of these markets.

In transit, our customer, the Southern Nevada Regional Transit Commission of Las Vegas added 125 CNG buses and 35 CNG paratransit vehicles last year, and volumes jumped 25% year-over-year to 2 million gallons a year run rate. We have recently been awarded a contract to expand and upgrade two stations for them which will provide additional capacity to serve their growing fleet.

We completed a new station for long-time customer LA Metro Transit which operates over 2200 CNG buses and uses over 35 million gallons annually. Additionally, we signed a new 10-year O&M contract at four of the locations allowing us to continue to operate all 10 of their CNG bus fueling stations for a number of years to come.

We are awarded the operations and maintenance contract for the four CNG stations we built for DART, that's Dallas Area Rapid Transit. These stations will fuel 500 buses and are expected to use approximately 5 million gallons per year once they are up and running.

We are building three stations that service the expanding fleet of the city of Los Angeles transit buses that are operated by MV Transportation and Veolia. We expect to have those stations completed in 2014.

Also here in California we recently completed a new station for Newark -- Norwalk Transit and we're awarded the O&M contract for Long Beach Transit's new station. In addition, we secured O&M contract renewals with Foothill Transit and Orange County Transportation Authority.

And, finally, we were awarded design, build, and operating contract for two large transit properties that are transitioning to CNG. One is Hillsboro Area Rapid Transit of Tampa, Florida and the other is for Kansas City Area Transit (inaudible). Both stations are expected to be operational later in 2014. And these are just some of the transit contracts awarded in 2013.

Our revenues market continues to excel, growing volumes 30% over 2012 and expanding geographically. We were awarded a contract with Lancaster County Solid Waste Authority in Pennsylvania to build and operate a station for their fleet. On Long Island we are building our fourth station to service refuse trucks in several of their townships. This one will be for the town of Islip for the 50 refuse trucks that service that community.

Waste management continued on the CNG path by adding over 800 trucks to their fleet in 2013 which will be fueling at stations we maintain while [pumping] services added 485 new trucks and 9 new CNG stations which we built during the year. Additionally, we built four stations for Progressive Waste, the nation's third largest solid waste company in Dallas, New Orleans, St. Louis, and Ontario, Canada.

Besides large national players, we are building stations for numerous local and regional haulers, including Waste Industries in North Carolina, ADC Disposal outside of Boston, USA Hauling in Hartford, Garden City Sanitation in Santa Clara, CWD in Dallas, South San Francisco Scavenger, and Alameda County Industries.

Our fleet services and airports market continue to grow in 2013. We took over operation in Boston Logan and Washington Reagan airports. We completed major upgrades at San Francisco International, opened our second station in LAX which is base loaded with Hertz, and we built a new station at JFK Airport in New York which brings us to a total of 39 stations at airports across the country.

We have also been selected to build stations in Chicago O'Hare, San Jose International, and Orlando International airports. I should remind you that these stations also provide a cornerstone for our CNG public access stations in metro areas as they are large enough to fuel a wide variety of commercial vehicles, including delivery vans and shuttle buses.

We're also expanding into new markets like the state of Missouri where we've already completed a public/private station and partnership with Lee Summit School District who recently deployed approximately 140 CNG school buses which we believe is one of the largest single CNG school bus procurements in the station. We're building two additional public CNG stations to support the growing municipal fleets in Kansas City and Columbia, Missouri, as well as CNG trucks traveling on the interstates in those areas.

And, finally, we're proud to continue to support AT&T who is planning on fueling over 500 new CNG vehicles at Clean Energy stations starting the first quarter of this year.

During the fourth quarter, our core markets added 34 new fleet customers representing over 1600 vehicles which will be fueling at Clean Energy stations.

Switching gears to the heavy duty trucking markets transition and natural gas fueling and, as I mentioned on our call a couple weeks ago, this market is in the early stages of development with fleets testing and deploying the new Cummins Westport 12-liter engines and the demand is growing. As I have said almost every quarter, and I think it bears repeating today, we're the leader in both CNG and LNG and believe that as the trucking market continues to mature, both fuels will be widely used.

As expected, many of these fleets are deploying CNG trucks which we fully support. Currently, 13 of our highway truck stops have CNG fueling capabilities, including our six stations in the highly traffic Texas triangle. We are working hard to expand our network of both CNG and LNG stations. Both fueling solutions will work well. It depends on the customer needs and the fleet application. Trucking is not a one size fits all market.

As an example, we built the CNG station that proudly supports Saddle Creek Transportation which operates one of the largest CNG heavy duty truck fleets in the country with over 150 trucks. In 2013, they consumed approximately 1.5 million gallons. Other CNG fleets that we are proud to call customers include Central Freight, Frito-Lay, Premiere Transportation, Roan Logistics, Lily Transportation, Northwest Food Products and Transportation Services, and 99 Cent Sores to name a few of our 77 current CNG trucking customers.

Meanwhile, our growing list of LNG trucking customers includes UPS, Ryder, Modern Transport which hauls materials for Owens Corning, NFI which hauls to Lowe's Home Improvement Centers, Raymond Transport which hauls for Millers Coors, Cal Cartage, Calco Transport, and Southern Counties Express to name a few of our 183 different LNG customers. We are extremely focused on expanding our list of trucking customers and shippers and working with them to help provide whatever fueling solution works best for the particular application.

To help support the trucking industry's transition to natural gas fueling, last quarter we announced a strategic alliance with GE's transportation finance unit to help potential customers offset the upfront cost of transitioning in natural gas trucks by offering a fair market value lease and fuel rebate program. Our sales team has been engaged with the GE sales folks and has generated significant interest in this initiative. There is a strong pipeline of trucking companies that are working with both GE and us to secure financing and fuel deals as part of this partnership.

We now have completed 85 stations and we currently -- and we recently opened stations in Jacksonville, Florida; London, Ohio; Pontoon Beach, Illinois; and Valdosta, Georgia, to bring our total of open truck stop stations to 24, and we have a few others that should open in this month -- this next month. Our renewable fuel subsidiary served closed 2013 on a strong note and is poised for even better results in 2014.

Our Dallas facility and our Michigan facility both set production records during the fourth quarter and exceeded 64,000 gallons of production in aggregate on a number of days. And while the severe winter weather has provided certain challenges during the cold snaps of 2014, we are starting to see the benefits of the hard work we have put into these facilities, and we should be able to set new records for production at both plants in 2014. Our Memphis, Tennessee facility is also expected to come online in about a month or so and will add to our production numbers as we ramp up over the year.

We are very pleased with the response we received to date on our Redeem biomethane vehicle fuel product launch. We sold close to 14 million gallons of Redeem into the vehicle fuel market during in 2013 and have contracted with new biomethane supply sources that will come online this year that should enable us to eclipse these numbers in 2014. We anticipate that our share of the carbon credits and [reems] we generate from the third party biomethane that is sold as Redeem will provide meaningful contributions to our margins at current prices.

Perhaps more importantly we are confident that the game-changing sustainability benefits of fueling with Redeem, which can achieve as much as a 90% reduction in greenhouse gas emissions, is going to be a driver for fuel cells, especially for our customers who have their own specific goals to increase the sustainability of their operations. We believe there isn't an alternative fuel commercially available in the marketplace that can accomplish the kinds of greenhouse gas reductions we can accomplish with Redeem, especially for the price.

And, finally, as you probably know, we completed a $250 million convertible debt deal in September. At year end we had cash on hand and short-term investments of roughly $385 million. We are going to be very disciplined with our 2014 CapEx program in order to align our deployment with the pace of the market. 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 my references to our results will be comparing the fourth quarter of 2013 to the fourth quarter of 2012 and the year ended December 31, 2013, to the year ended December 31, 2012, unless otherwise noted.

Volumes rose to 55.5 million gallons during the quarter, up for 51.7 million gallons a year ago. For the year ended December 31, 2013, volumes increased to 214.4 million gallons, up from 194.9 million gallons. For the quarter of 2012 and the year ended December 31, 2012, included an incremental 2.5 million and 6.8 million gallons respectively related to our Peruvian joint venture that we sold in March 2013.

For the quarter our CNG volumes were 37.1 million gallons, our RNG volumes were 3.6 million gallons, and our LNG volumes were 14.8 million gallons. Fourth quarter revenue was $85 million compared to revenue last year of $99.1 million. The fourth quarter of 2012 included $22.7 million in construction revenue from the sale of two large CNG stations to an existing transit customer that did not recur in the fourth quarter of 2013 and $6 million of revenue related to BAF which we sold in June of 2013.

For the year ended December 31, 2013, revenue increased to $352.5 million, up from $334 million a year ago. When comparing our numbers between periods, please note that the fourth quarter of 2013 includes $7.3 million of volumetric excise tax credits, or VETC revenue, and the year ended December 31, 2013, includes $45.4 million of VETC revenue. We did not record any VETC revenue in 2012 as the law was not in effect during the year.

Also, 2012 included $40.3 million in construction revenue from the sale of four large CNG stations to the existing transit customer I spoke of earlier that did not recur in 2013, and BAF revenues were lower in 2013 by $17.3 million as we essentially owned it for a full year in 2013 as compared to a half year in 2012.

On a non-GAAP basis for the fourth quarter we reported a loss of $0.25 per share. This compares with a non-GAAP loss of $0.23 per share in the fourth quarter of 2012. For 2013, our non-GAAP loss per share was $0.44 and was $0.75 per share in the prior year.

Adjusted EBITDA in the fourth quarter of 2013 was minus $1.8 million compared to adjusted EBITDA of minus $5.7 million in 2012. For the year ended December 31, 2013, adjusted EBITDA was $33.6 million compared to minus $12.3 million in the prior year.

Again, please remember the fourth quarter year ended December 31, 2013, includes $7.3 million and $45.4 million respectively of VETC revenue. In addition, 2013 also includes a $14.1 million gain on the sale of our vehicle conversion subsidiary BAF.

Adjusted EBITDA non-GAAP EPS or financial measures we develop to highlight our on sieve results excluding certain large non-cash or non recurrent charges or gains which are not core to our business. Adjusted EBITDA, 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 fourth quarter was $32.3 million or $0.34 per share which included a non-cash gain of $0.1 million related to value in our series 1 warrants, non-cash stock-based compensation charges of $5.7 million, $0.2 million in foreign currency losses related to our IMW purchase notes, a $1.4 million write down on the holdback shares we expect from Westport Innovations related to our sale of BAF, and $1.3 million additional lease exit charges related to our headquarters move.

This compares with a net loss of $41.7 million or $0.46 per share in 2012 which included a non-cash gain of $2.3 million related to valuing our Series One warrants, non-cash stock-based compensation charges of $5.6 million, foreign currency losses of $0.1 million on our IMW purchase notes, a one-time charge of $14.5 million related to the impairment of the Company's investment in BPG, a one-time charge of $2.1 million related to the settlement with the IRS on certain VETC claims, and a one-time charge of $0.6 million related to a settlement with the California Air Resources Board related to certain vehicles.

For 2013, our net loss on a GAAP basis was $67 million or $0.71 per share and included a non-cash gain related to valuing Series One warrants of $0.9 million, non-cash stock-based compensation charges of $23 million, $0.5 million foreign currency loss on our IMW purchase notes, $1.4 million write down of the holdback shares we expect from Westport related to our sale of BAF, and $1.3 million in additional lease exit charges related to our headquarters move.

For 2012, our net loss on a GAAP basis was $101.3 million or $1.16 per share and included a non-cash gain of $3.4 million related to evaluating the Series One warrants, non-cash stock-based compensations charges of $22.1 million, foreign currency gains of $0.6 on our IMW purchase notes, a one-time charge of $14.5 million related to the impairment of the Company's investment in BPG, one-time charge of $2.1 million related to the settlement with the IRS on certain VETC claims, and a one-time charge of $0.6 million related to a settlement with CARB related to certain vehicles.

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 in 2012 and 2013 coupled with the fact we are capitalizing less interest in 2013 related to our construction activities.

Our gross margin this quarter was $27.7 million which compares to $21 million in 2012. For the year ended December 31, 2013, our gross margin was $127.7 million compared to $80.3 million. Gross margin for the fourth quarter and year ended December 31, 2013, includes $7.3 million and $45.4 million of VETC revenues respectively and the fourth quarter of 2012 includes $1.4 million of margin as not in the fourth quarter of 2013 as we sold BAF in June of 2013.

Our margin per gallon on our fuel cells this quarter was down $0.04 from last quarter to $0.31 per gallon. As anticipated and discussed on last quarters' call, the decrease is primarily from the drop in the value of the credits between periods associated with our Redeem RNG sales. And with that, Operator, please open the call for questions.

Thank you. Ladies and gentlemen, we'll now be conducting a question-and-answer session.

(Operator Instructions)

Our first question comes from the line of Eric Stine with Craig-Hallum. Please proceed with your question.

Yes, hello. It's Aaron Spychalla on for Eric Stine. Good afternoon.

You guys provided a lot of great detail on the trucking market a couple weeks ago here, so maybe I'll start on IMW, too. Could you talk about the Russian Machines agreement in a little bit more detail?

Digging into it, it looks like they're tied in with Gazprom, with building on stations over there. So, could you help us frame this from a size or a timing standpoint, maybe?

Right. We basically signed an agreement with Russian Machines which is an exclusive distribution and service agreement with them. Russian Machines is part of a big conglomerate; and they, among other things, manufacture automobiles, natural gas trucks, natural gas buses, lots of industrial equipment, farm equipment. So, we really believe they're a really good partner.

The desire by Russian Machines is to begin to develop natural gas fueling in and around major cities in Moscow. Working with us to really focus on the important high fuel-use customers that they should focus on first, such as municipal bus companies.

It's interesting, Aaron. It's hard to get your arms around everything that goes on there in the Russian federation, but there was a decree not long ago by President Putin talking about new municipal buses, some percentage thereof, being of natural gas.

They have huge gas reserves, as you well know, and it looks to us like they are now getting to be very serious about trying to develop, much like we've talked about, corridors, large corridors running from Moscow and towards Europe. There are three major arteries and they would like to do a lot of these on natural gas.

So, this is a beautiful opportunity for IMW. It's an exclusive arrangement where we think we're partnered with the right people. We've heard large numbers of stations. We're going to start out small and begin to ship some stations to focus on very key customers, and we'll see how it goes.

We're excited about the potential, and you're right. We're still looking at all the details, but it appears that the two large companies there, Gazprom and Rosneft, are going to be involved in building these stations and we hope to be a key supplier to both of them as they begin to develop these natural gas fueling stations.

Great. Thanks for that.

And then you mentioned how many stations you guys have built and the ones you are going to roll out here. But as of now, how many do you see yourself opening throughout 2014 as the 12 leaders roll out?

Well, as I discussed a couple weeks ago, we are going to try to open as many as we can and that will be paced as we begin to see those trucks roll out. We're going to open a few here in the next really few weeks.

We have opened a couple here just recently, but over the coming months we will begin to continue to open them. We have some coming up in April and some more in May.

These trucks are continuing to be produced, as we discussed on that last call. It takes a few months for them to get to the customers.

And so it's our hope is open dozens of them this year, and we'll see how the truck deployments go, but I think you should keep in mind, a lot of those will be -- this will be towards the latter part of year rather than the beginning, but it's certainly our goal to open as many as we can.

Right. Thanks. And then last question.

Just looking at LNG volumes this quarter, is there any typical seasonality that was in there? Just saw that it was down quarter over quarter slightly.

Yes, there is. As we talked about before, we lose some volume during the third quarter to the fourth quarter. Just a lot of our transit properties that run in hot areas like Phoenix burn a lot of LNG running their air-conditioning units. That obviously doesn't recur in the fourth quarter.

A lot of times transit agencies, which we saw this fourth quarter slide off a little bit, just as they're running fewer routes around and through the holidays. And we also had some one-off sales that were in the third quarter that didn't recur in the fourth quarter.

So, a little bit of the lumpy side of our business was down a bit in the fourth quarter. So, it's kind of a combination of all three of those.

Thanks. I will hop back in the queue.

Thank you.

Thank you. Our next question comes from the line of Rob Brown with Lake Street Capital Markets. Please proceed with your question.

Good afternoon.

Hello, Rob.

Could you give us a little more color on your CapEx plans for 2013? What bucket does that include? And how much of that would include the LNG that's [at production] capacity you might be adding?

Right. Let me hit on the big numbers and then Rick can break it down.

I think it's in the stuff that we filed, some of it is. Right now, the top number that we've got is $135 million, is the number for 2014.

That's stations, right? So, currently as we talked about, we got about $20 million or so for core stations that we figure on building. When I say core, remember, Rob, that's our bread and butter. That's airports and some refuse stations, stations that we would own.

We have currently got on the map 26 truck stop stations. Those are going to be CNG and LNG. That's about $40 million.

We acquired those CNG In A Box units that I talked about that in the last call. We decided about 65 of those. Those are ready to go and be deployed, and that's about $18 million.

When you look at the LNG projects -- so this is about right now a place holder in our CapEx budgets, about $25 million to $30 million -- that would be for the LNG liquefaction plants. It would be our part of the contribution for those new greenfield plants that we would be building with GE.

Now, we're still working on those. We're still looking at the need, when we need to pull the trigger, when and if we need to deploy that capital this year, and how much of that we need to put in first. So, that's a number that could go down. And then we have some other trailers and some other IT expense, and that rounds out to about $135 million.

Okay. Great. Thank you.

Thank you. Ladies and gentlemen, our next question comes from the line of Laurence Alexander from Jefferies. Please proceed with your question.

Good afternoon.

First question -- on the biogas, can you just reconcile? I think you said that biogas volumes were about 14 million. And I think in the 10-K you highlight RNGs at about 10.5. So, is it flowing through the RNG line? Or is some of it being allocated to CNG as well?

Are you talking about for the year?

Yes.

10.5.

It is 10.5? Okay. As you look towards --

It all goes through our RNG line.

Perfect.

That's our three plants. One in Dallas, the one we opened in Michigan at the end of last year, and then the one we're about to open in Tennessee in about a month or so.

Okay. And as you look towards the expansion plans into 2014-2015 in that category, are you seeing any changes in willingness by potential partners to co-invest with you or to help accelerate the buildout? Or how has your thinking evolved on that?

Well, that's an excellent question.

We have seen other parties in the business approach us to talk about co-investing with us. [And] other large industrial gas companies suggested that they might fund the capitol to develop these. So, we are looking at all those options.

Would there be a timeline for possibly seeing some material developments on that front?

We do. One of the things I mentioned in my opening remarks -- and this is part of that business -- but we are securing third-party supplies of RNG that we're running through our system. And that's a very important business for us and doesn't require really any prudent personnel to speak of and certainly no capital.

We're uniquely positioned to be able to take this biomethane that's being produced by others and run it through and capture those RINs and California low-carbon fuel credits and we share in those. And so that's a nice revenue stream for us.

Now, on building other projects, I would love to have you sit down sometime and talk to Harrison Clay, who runs that business unit for us. He has a million things in his bag of tricks all the time.

Because of what we have been able to do in bringing these really big first IBTU projects to market successfully, we get to look at many deals; and Harrison's got three or four different deals he is evaluating closely now.

So, yes, there will be more projects in the pipeline.

And also, can you expand on that in terms of, given your experience on these particular types of projects and the scale at which you have been operating to date, is there a way for you to participate internationally -- for example, with the [erie] industrial gas players, where you provide some additional skill sets and participate on a small scale in some of their projects? Or is there something like that, that can develop over time?

I think it could. We try. We just finished a board meeting here in California in the last couple of days.

We're in a terrific market. IMW gets to participate around the world, sell compressor units -- that's how we participate in those markets: selling CNG compressors. But when we look at our fueling business, and really the RNG business, we're in a great market.

We're working now with the major players in the US, refuse companies that own the landfills, Republican Waste. We're talking with those companies about doing some high BTU, more high BTU projects with them.

So, I really feel like we're in a great sandbox and it's really difficult for the [sides] of CERF to begin to participate. Though we've had discussions in China and we've talked to our friends in Russia, but that just gets a little far afield from us.

I am not so sure at this point in time that we really bring a whole lot to those industrial gas companies. They're big companies and they have a lot of capability in these other places where we really don't.

We are on the cutting edge here in the US. A lot of things we have done with our biomethane business, with CERF, we have really blazed the trail with EPA and certifications and other things. So I think we are very well positioned here. But I'm not sure that at this point it makes sense for us to take our eye off the ball and move out around the world.

Thank you.

Okay.

Thank you. Our next question comes from the line of Carter Driscoll with Ascendiant Capital. Please proceed with your question.

Hello, guys.

Let me talk, maybe IMW, for a second. I think in the last call you talked about the China Gas deal maybe having a small impact in 4Q. Just want to confirm that you did book something there?

And then maybe talk about the progression as you move forward with them and how you expect that to roll out over the next several years? And a couple of follow ups.

Carter, I got distracted here as I was talking to my fellow over here just getting an update on China Gas. We're pleased -- I think your question was how are we doing on the China Gas deal.

The China Gas -- we signed that deal over time about $160 million worth of those. The way that works is they then order them, and over time, because we've done business with them now for several years; that's one piece. It depends on what happens going on in China, and how they develop other cities, where the revenue put in stations.

So, since we made that announcement a few months ago, we have taken orders towards that $160 million deal. We've taken -- I think we are in process of about 20 of those stations right now.

Those continue and they begin to ramp up here in this next -- in the second quarter. So, obviously, we always push to try to get those orders in and do -- faster is better for us. They have their way that they go about it.

And then maybe just switching gears a little bit -- Mansfield. I think you had a couple of regional deals with them. Can you talk about how that relationship has evolved over the last --?

Yes. Thank you.

The Management, we're real pleased with the Mansfield relationship. We've spent the last few months improving our sales process and improving communication between the Mansfield sales team and ours.

We, as you know, took over the Mansfield operations and at the last part of this last year we completed 20 of the Mansfield deals that they had gotten, and we got them and built 20 of the Mansfield locations. So, we feel good about that.

We are making joint sales calls with them with several large customers. We are beginning to build our first station in the bulk fuel hauling space with them now, with Mansfield, which we're very excited about. That's a new vertical for us.

And so that -- we're pleased with the relationship. It's growing. We're in very close communication with the senior team at Mansfield. So, yes, we have high hopes for how that's going to develop.

And then Westport last night talked about their expectation, maybe looking a little conservatively, but talked about 3% to 5% penetration for 2014, which would imply somewhere on the order of 6,000 to 10,000 magnitude. Your view point versus that?

I know maybe in the last call you were thinking it could be as high as 10,000. Is there maybe a production bottleneck? Or are people extending the trial periods at all? How do you decide LNG, CNG debate that's been raging?

What do you think the uptake is in the back half load of this year? Are there production bottlenecks that you're seeing? Are there any type of elongation of the process to make a decision to actually go from a handful to maybe (inaudible)?

Just some color there would be helpful, I believe.

Yes, well, you got a lot of questions in there.

I am not aware, Carter, of any bottlenecks. I think it really is -- it's orders. And this is new; and these fleets -- I guess if there is good news here, we're seeing an expanding interest from the number of the fleets. But I would say it's handfuls.

We work with these fleets that have great numbers of trucks that serve them, the shipper companies; but when we really get down to it, they want to test these and we knew that's the case, and so you're seeing handfuls, not hundreds.

Obviously, UPS has been at this a long time. They've been in -- I think at [Mason Environmental], which is 20 years ago or so back in the old days, we sold CNG vans to UPS, 1,500 -- and I'm going back 20 years.

So UPS knows natural gas, they've been in the business a long time. They understand it. They were early testing these trucks and that's probably why they were able to feel comfortable stepping up to buy those or order those close to 1,000 LNG trucks. But others haven't been at it as long.

So, they're going to want to test these and I get asked the question a lot: well, how long? Well, they put some miles on these. They want to see these units in service for 6 months or 9 months.

So, I really think our job, obviously, is to try to get somebody to order as many as possible. But it's to get the breadth and get the experience and get as many fleets tested as possible; and that's where we really are. I don't think you have any bottlenecks; it's just orders.

I don't know if Westport last night -- I didn't see where they mentioned production levels right now. I know at the latter part of last year we were around 500. So, I think the number 3% to 5% is a good number. That puts it in the 6,000 to 10,000 number. I am of course hoping for the higher of those.

Okay. I appreciate the color. I will get back in line. Thanks, gentlemen.

Thank you.

Thank you. Our next question comes from the line of Colin Rusch with Northland Capital Markets. Please proceed with your question.

Thanks so much.

Can you talk a little bit about purchasing patterns at individual stations? Have you seen any real material changes at given sites in terms of customer flow and the product that they're buying?

Well, we service lots of different products. So, if you're talking about refuse, we're seeing new stations and we're seeing them bring refuse, adding refuse trucks at locations that may have started out with 20. And so we see that tick up.

We see in our transit, which was interesting to me, because transit properties are slow moving, but a lot of our transit properties have added buses, as I mentioned -- Las Vegas.

Now, on the highway, we're still early. But if you go back and look at what we've said at Las Vegas, we've seen increased trucks deployed, for instance, at our Las Vegas Angus station. I think that originally really started with 40 some-odd trucks, and now it's closer to 80.

So, that's the game here, is to open those stations, at least for us. If it's an LNG station, we are going to try to open them with about 20 trucks, and then the opportunities -- once you have, let's say, one or two fleets enable you to open a station -- which is realistic, on the way these guys are ordering trucks. I'd say a handful; it's not usually two, it's often a little bit more than that.

A couple fleets would get you to open -- one or two fleets will enable you to open a station. Then, we have a software package. All of our salesmen have our assigned stations in the heavy-duty trucking market. We have a five-mile radius to go out, and once you have an open station, be it a CNG or an LNG, then it's easy for somebody to test one or two trucks.

And you build the volume that way until you get a larger purchasing. We saw this in refuse in 2008, with a handful of players buy 10 and 20 trucks, 10 trucks to test. And it really wasn't until they had about a year in that you began to see something that looked more like a normal purchase cycle.

Until you got a couple years in, and then you saw them really understand it, and that's when Waste and Republic really began to buy a big percentage of what they did. And we fully expect that will be the case here. And you have major fleets, Walmart and these others are testing now; and they're buying new trucks and they're testing. That's what needs to happen, so we're very excited about that.

Great.

And then can you just give us an update on the maturities on the balance sheet within the cycle here? Where you are at with payments, and what should we expect here as we go into 2014?

Well, the nice thing is, we just made our last payment on the IMW acquisition here recently, so that's all done now. The other nice thing is, we really don't have a lot of debt coming due for a couple of years.

Once we get past 2014, and we look at 2015, 2016, and 2017 -- and I'll talk about the converts separately in a second; there is only a couple million bucks due on some of our bonds that we floated as part of our RNG facilities. So, we really don't have a lot, just from an ongoing perspective.

From the converts, there is $145 million that's due in 2016; and then there is another $300 million in 2018 and $100 million thereafter. So, all of our convertible notes are a few years out. Until we get there, there is really only a few million bucks of debt service from a principal perspective until then.

Perfect. And then just one final question.

As you look into the first quarter and second quarter, can you just talk about gross margin trajectories? Make sure we got that right, and given the mix of [silver] that you're seeing out there, and costs.

Well, it's a tough one to answer. We don't give guidance. I have to be a little careful.

A lot of it's going to be just predicated on how much this trucking volume gets out there and going, and how much ends up in our retail bucket. As you talked about, it's not going to be time in the next couple quarters, but hopefully it will certainly be something.

The other thing it will influence is just the credit values that we generate from the low carbon fuel standard as well as the rent perspective. As you saw this quarter, it shaved about $0.03 or $0.04 off our margin line.

So that could add back anywhere from, if they stayed where they're at, $0.00 per gallon up to maybe $0.02 a gallon. So, that's a little bit up in the air. I don't have a crystal ball to say what those are going to be. So we'll just kind of have to wait and see on that.

Okay. Perfect. Thanks, guys.

Thank you.

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

Hello, guys. Good afternoon. Thanks for taking my question.

I was wondering if you could quantify the margin uplift from the 14 million Redeem gallons? I see you reported about 2.5 million in RINs and LCFS credits. So is the right way to think about that maybe $0.05 per gallon margin impact in the quarter from your Redeem sales?

I think it's more like $0.03 or $0.04-ish. When I did the math, because I went from $0.35 to $0.31. So, it can't be $0.05. So, I'm not exactly sure what you're looking at. But the way I did it, I figured the impact was about $0.03 a gallon overall.

Okay.

In all the gallons.

Right. On all the gallons.

Yes.

Okay. And then, for 2014 are you looking to sell 15 million gallons for the whole year? Or is that 15 million per quarter?

Of Redeem?

Of Redeem, yes.

I think it's more for the year.

Okay. And then, finally, I think, Andrew, you said that 13 of your highway stations have CNG capacity. Could you talk about how many more highway stations you're looking to add compressors to? And I guess, is that with the acquisition of CNG In A Box, acquisition was for to add CNG capability to your highway stations? Thanks.

Yes, it's a combination, Matthew, of both. Some of those are not CNG compressors, but some of them are -- most of those are LCNG. All of those truck stops can be for about, as I have said before, for about $600,000 can be -- could flow compressed natural gas, where we're taking the LNG and making CNG. So, that's nice.

Though you make an excellent point, which is -- and Mitch Pratt and his team, we're looking at certain locations where customers want natural gas -- CNG and the CNG In A Box gives us nice -- and we also have product from IMW that can fit that as well -- but the CNG In A Box are built and they're ready.

A couple of CNG In A Boxes at a truck stop, given that there is space, and that sometimes can be a challenge, and given that there is gas pressure, is a very nice answer to add CNG quickly, based on customer demand at these locations.

And then we are happy to do that. We're not inclined to go slap in CNG at every single truck stop yet until we see customers want it. The first time you see a customer -- essentially almost the same 15 or 20 trucks at a location -- and you got CNG there, that's easy to do.

Okay. Thanks.

Okay.

Thank you. Our next question comes from the line of Rob Bennett with Dougherty & Company. Please proceed with your question.

I am on for Andrea James.

Given that natural gas fuel and adoption seems to be showing traction, can you give us some outlook on your profitability schedule or guidance for 2014?

No. We don't give guidance. So, Andrea put you up to that? Is that right, Rob?

Nice try. She sent you in here to take that one on the chin?

Rob, seriously, we don't give guidance. This is a volume game, right?

And so when you have heard me go over this before, but volume is going to be key, loading up these stations. And once you get them open and you begin to flow volume through them, it really impacts us quickly. But we haven't said exactly when we turn the corner and when that's going to be, but it's a function of the volume.

All right. I appreciate that. Figured it was worth a shot.

I think it's a good try.

Good effort.

Thank you. Our next question comes from the line of Chris McDougall with Westlake Securities. Please proceed with your question.

Hello, gentlemen. Thanks for taking the question.

Sure.

Touching back on the CNG In A Box, you said you had 65 of those, and you had bought them for $18 million? Is that right from my notes here?

That's right. Plus, in that we got a couple other stations that --

A lot of them had already been deployed in station. We got those two stations as well. So, technically we got 67.

Okay. Great.

And then so, just to give you an idea of the potential impact on those, what, if you had a reasonable utilization on them, could you see out of those units on an annual output basis?

It's a little tricky -- I'm looking for help here -- because it all has to do with what the pressure is, and that will determine Scfm. These are 400 horsepower. So, you put one or two of them together, you have a relatively large station that can do what -- 10 diesel gallons a minute, and would be 1,000 cfm.

Yes.

It would be about 1,000 cfm. So, when you do it that way, that -- depending on the inlet again, that could produce 500 gallons now.

So, CNG In A Box, that name sounds quaint and sounds real small, but they're not small, because they have large horsepower motors in them. If you put three of those together, which would not be unusual, you would have a robust truck stop.

They are well suited for a ready-mix market where you might have 13 mixer trucks. They're good for -- there is an awful lot, many thousands of trash trucks, maybe even thousands of locations, where you don't have 100 or 200 trash trucks in a given area, but you have 15 or you have 18. CNG In A Box, the CNG In A Box would be good for that.

It will be nice to put two of those together for a medium-sized starter kit for behind the gate. Those will be very well-suited for the [bull] calling that we're going to be doing from Mansfield. So, we like the capability, but it's going to depend on the location and the inlet pressure as well. And all CNG depends on that.

Sure. And then shifting gears dramatically to the marine market. Just if you could expand a little bit there on what you see? The timing is probably a little ways out, but just your expectations there? And how the pricing will be set and such, for that?

Well, I think you're exactly right. I mean, the marine market is exciting. I spoke at the world LNG conference. A lot happening around the world.

Engine manufacturers, ship builders, big companies looking at this -- big shipping companies. I think you're going to see this happen, and you're seeing it happen around the world. As you know, we're trying to nail our first deal down off of Florida, and we don't have that done yet; but that could be the first one.

These are big volumes, though. A ship could use half a million gallons a week. And so at these locations where these will be built, you're going to have to base load these, because they require an LNG plant. So, you're not going to go spec marine terminals or LNG plants for ships.

The lead time on ships and slots and dry docks is long, but several of the big ship guys have already now got spots and ordered re-powering of ships. So, I think it's going to happen. I think you're right. It's not dissimilar to rail.

These are long-life assets. They are companies that have been around a long time. They are looking at these markets very seriously.

All the major rail players, the major locomotive manufacturers are hip deep in this now, but it takes a while to work through the regulations. It takes a while in the marine to work through the Coast Guard and all that. But we're cautiously optimistic about the way that market, what we call the high horsepower market, will work.

Thanks, gentlemen.

Yes.

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

Good. Thank you, Operator.

Significant progress took place during 2013. In the long haul, trucking has transitioned to natural gas. And we believe we're 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 Lowe's, 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 in the established refuse transit and fleet services fueling markets and our superior capabilities in station construction and operation, we believe we are well-positioned to take advantage of this historical ship.

Thank you for your continued support; and I look forward to reporting to you on our progress next quarter.

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