Clean Energy Fuels Corp (CLNE) 2014 Q1 法說會逐字稿

Greetings and welcome to the Clean Energy Fuels first-quarter 2014 earnings call.

(Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tony Kritzer, Director of Investor Communications. Thank you, you may begin.

Thank you, operator. Earlier this afternoon, Clean Energy released financial results for the first quarter ending March 31, 2014. 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, should, anticipate and similar variations identify forward-looking statements, but their absence does not mean that the statement is not forward-looking.

Such forward-looking statement are not a guarantee of performance and the Company's actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in the Risk Factors section of the Clean Energy's form 10-Q filed May 8, 2014.

These forward-looking statements speak only as the date of this release. The Company undertakes no obligation to publicly update any forward-looking statements or supply new information regarding the circumstances after the date of this release.

The Company's non-GAAP EPS and adjusted EBITDA will be reviewed on this call and excludes certain expenses that the Company's management does not believe are indicative of the Company's core business operating results. Non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP, and should not be considered as a substitute for, or superior to, GAAP results. The directly comparable GAAP information, reasons why management uses non-GAAP information, a definition of non-GAAP EPS and adjusted EBITDA and a reconciliation between these non-GAAP and GAAP figures is provided in the Company's press release, which has been furnished to the SEC on form 8-K today.

Participating on today's call from the Company is President and Chief Executive Officer, Andrew Littlefair; and Chief Financial Officer, Rick Wheeler. With that, I will turn the call over to Andrew.

Thank you, Tony. Good afternoon, everyone, and thank you for joining us. I'm pleased to review our first-quarter 2014 operating results with you today. We reported 59.3 million gallons delivered for this quarter compared to 49.9 million gallons in the first quarter of 2013.

Gallons delivered were up 24% when excluding the 2.2 million gallons delivered and first quarter 2013 by our former Peruvian joint venture, which we sold in March of 2013. We also generated $95.3 million of revenue in the first quarter of 2014, which was up $66.8 million a year ago or 43%, when excluding the VETC revenue, which we had in the first quarter of 2013 but didn't have in the first quarter of 2014.

As you know, we built up our fueling infrastructure and in-house capabilities over the past couple of years to get a jump-start on our competition in anticipation of the 12-liter engines coming to market and demand increasing. We know it was the right move. As a result, today, we have 96 truck-friendly fueling stations open, which is four times as many as our closest competitor.

In doing so, we have put some pressure on our numbers. From an adjusted EBITDA perspective, we were negative by $7 million this quarter. If you were to take our rough average of about $0.30 margin per gallon that we have seen recently, we need to add about 23 million gallons to close this gap.

To think about it another way, this is roughly a 10% volume increase from where we are today on an annual basis. If you look at our historical volume growth rates of closer to 20%, we believe this is well within reach. We are extremely focused on getting this Company to profitability and we are close.

Keep in mind, we have already deployed the capital to build out the Bay Station infrastructure and scale-up the capabilities of the Company. Our CapEx pending going forward is essentially discretionary.

Last quarter I said that our CapEx target for 2014 was approximately $135 million. After a quarter under our belt and having raised capital at the subsidiary level to fund our RNG capital needs for the year, we believe a more accurate CapEx figure for 2014 is between $75 million and $85 million.

We are committed to being disciplined with our capital to align our investments with the pace of the market. Additionally, our cash SG&A has come down 8% as a percentage of revenue, excluding the VETC between periods, and it is something that we are continuing to work to reduce.

As I mentioned on our last call, the release of the Cummins Westport 12-liter engine has been the catalyst for heavy-duty trucking industry to begin its transition to natural gas fueling. I was pleased to hear Westport announced last week that sales of the engine are doing well.

In addition to the new engine availability, we are pleased to see the introduction of new natural gas sleeper a cab options from Kenworth and Freightliner at Mid-American Truck Show in March. These sleeper cab options are well suited for the many fleets that drive longer distances.

Just two days ago, executives from Kenworth, Volvo, Mack, and Freightliner were on a panel at the ACT Expo and all gave glowing reports about the sales and performance of the 12-liter. I was fortunate enough to be a keynote presenter at the ACT Expo, which is the largest alternative transportation conference in the country.

I was incredibly impressed with the turnout; 3000 people and hundreds of companies in the natural gas space. There were literally 12 heavy-duty trucks on display, which is a dramatic increase from two a couple years ago.

While we are excited with the natural gas engine and model developments, we recognize that our fleet customers are taking the necessary amount of time to properly test and get comfortable with the 12-liter, both CNG and LNG. All of us would do the same.

As I see this market unfolding, we want to make sure all these fleets know that we have a very robust network of stations that can fuel heavy-duty trucks. As I mentioned a moment ago, it is important for everyone to understand the real scope of our national truck station network, America's Natural Gas Highway.

Today we have 96 stations across the country that are open and are truck-friendly. No other company can make can come close to making that claim.

I am pleased to highlight this week's announcement that Kroger, the country's largest grocery retailer has chosen to partner with Clean Energy as they begin to transition their large fleet to natural gas. Kroger has placed an order for their first 40 LNG trucks, which will fuel at a private station we are building for them in Clackamas, Oregon. These trucks will serve their network of stores in that region and are expected use 1 million gallons annually.

Additional trucking fleet announcements we made during the quarter include the signing of EPES Transport Systems, one of the preferred carriers for Lowe's Home Improvement Centers. EPES will be deploying a fleet of LNG trucks to haul goods for Lowe's out of their Valdosta, Georgia distribution center and will be fueling at our Valdosta station.

We opened our station in London, Ohio to support the growing national presence of our customer, Raven Transport, who continues to prove their leadership through their commitment to sustainability. We signed on Cardenas Markets, a California-based supermarket chain that has ordered 15 CNG trucks and fuels throughout our Southern California network to serve their stores in the region.

Our long-time partner, Saddle Creek Logistics, which continues to demonstrate their commitment to sustainability, is working with us double the size of their Lakeland, Florida CNG station, so we can accommodate an additional 25 CNG trucks on order. Saddle Creek already operates one of the largest fleets of CNG trucks in the country, with over 115 trucks in their fleet, and have announced they will have over 200 within a year. We are proud to be their fuel supplier.

We are pleased to continue to support UPS and their growing fleet of natural gas trucks with their announcement on Tuesday that we will be fueling 15 additional heavy-duty UPS trucks between our stations in Jacksonville, Florida and Los Angeles. We're now fueling 230 UPS trucks daily at nine of our stations across the country. Lastly, we are proud to support US Foods, one of the nation's largest food service distributors, who has ordered 19 CNG trucks to be based in San Antonio, but will be fueling throughout our station network in the Texas triangle.

Switching gears to the more established markets, we continue to see strong growth in transit, refuse, airports, fleet services during the first quarter. I will quickly touch on some highlights from each of these markets.

In transit, a few months ago we announced our award for operations and maintenance contract of the four CNG stations we built for Dallas Area Rapid Transit. We are pleased to report that these stations fueled over 1.3 million gallons in the first quarter of this year.

DART is currently operating 186 CNG buses and 112 light-duty CNG vehicles. They expect to take delivery of another 185 CNG buses during the second quarter. Again, DART should consume approximately 6.5 million gallons per year once their bus fleet is fully in service.

Additionally, we just opened our first of three CNG stations for Sun Metro, the large El Paso, Texas transit agency we acquired through our partnership with Mansfield. This station will serve the city's transit, para-transit and refuse fleets. The other two sites will begin fueling in May.

In total, these sites should consume approximately 4 million gallons a year. The agency also extended its LNG supply agreement with Clean Energy for the next two years.

We were selected to build an LNG station and supply LNG fuel for Anaheim resort transit, which operates an existing fleet of 35 LNG buses for Disneyland and the surrounding area. The five-year contract is expected to add approximately 500,000 gallons annually.

In the East, we completed construction of a CNG station for Hillsboro Area Regional Transit in Tampa, Florida. Over the next five years HART will replace their entire diesel-powered bus fleet with CNG.

In Canada, we completed and commenced operations of BC Transit's new CNG station in Nanaimo, British Colombia. The station will fuel the 50 buses currently operated from that transit depot.

We have a 17-year operation and maintenance contract for the Nanaimo station. And also TransLink ordered an additional 45 transit buses to fuel at their Clean Energy-operated station near Vancouver, British Columbia.

Now on to refuse. Nationally, our refuse market continues to thrive and expand. We will build or upgrade a dozen or more stations for Waste Management and Republic Services this year, of course, the two largest solid waste companies in the US. Combined, Republic and Waste Management are now operating approximately 5,500 natural gas refuse trucks.

This quarter, we executed an agreement with Progressive Waste, the nation's third-largest solid waste company, to design, build and operate the new private time-fill CNG station on their property in Tampa, Florida. In California, long-time customer CR&R is adding 24 new CNG trucks to its fleet in Perris, California, where we also signed a low-carbon fuels credit management contract.

Other California customers adding CNG refuse trucks to their fleets included Vertex Waste, the City of Glendale, the County of Sacramento, Recology, South San Francisco Scavenger and Ware Disposal. All together, these independent solid waste customer orders on the West Coast are expected to add 0.5 million new gallons with these purchases.

In Arizona, we finished construction of a private CNG station for the city of Mesa's new fleet of CNG refuse trucks. Scottsdale, Tempe and Tucson, all Clean Energy customers, continue to add trucks. All told, our refuse customers deployed 230 new trucks in the first quarter.

In our airport and fleet services market we just celebrated the grand opening of a new station at New York's JFK Airport. The station will provide fuel for the Port Authority of New York and New Jersey, New York City Department of Sanitation and numerous other fleets operating at or around the airport.

The Port Authority recently ordered 58 medium-duty trucks to operate at the three New York area airports JFK, LaGuardia and Newark. Importantly, with the addition of the JFK station, we now have CNG stations at each of those airports. We began construction of a new CNG station at Orlando International Airport and the station is expected to be completed late in the second quarter of 2014.

We recently purchased six existing CNG stations from PECO, a Philadelphia regional gas utility, and are making strategic upgrades to those sites to fuel the growing number of fleets in Pennsylvania transitioning to CNG, including PECO's own fleet. In late March, Pennsylvania's governor, Tom Corbett, announced the awarding of 25 grants totalling $7.7 million to fleets converting to natural gas. Of the funds granted, over $3 million was awarded to Clean Energy customers using our stations, both CNG and LNG.

Our long-time customer, AT&T, has taken delivery of approximately 900 CNG vans, trucks and sedans it bought last year. The vast majority of these vehicles fuel with Clean Energy at our public stations. We anticipate well over 1 million new gallons from AT&T this year.

SuperShuttle, one of our first customers, and the nation's largest shared ride van operator, continues to expand their use of natural gas with an additional 70 CNG vans that will operate at Northern and Southern California airports. In Las Vegas, customers have ordered over 100 new CNG vehicles, including 40 limousines and black cars for MGM resorts, and 65 new taxis and buses from Bell Transportation that will fuel at our public stations.

Bell, impressively, currently operates 180 natural gas vehicles and is expected to have over 300 in its fleet by the end of the year. Finally, the State of Colorado ordered 81 light- and medium-duty CNG vehicles that will fuel in our Denver-area network of public stations.

We have had a long history of starting new markets. We were the first Company to develop the refuse market, the first to build natural gas stations at airports, and the first to develop stations for the heavy-duty trucking market.

Now, I would like to mention to attractive new markets that we are pursuing. The ready mix truck market and the bulk fuel hauling market.

Due to the economic downturn and resulting slowdown within the construction industry a few years ago, there is a large pent-up demand for new cement mixer trucks now that the economy and construction activity have rebounded. Many ready mix fleets across the country are exploring CNG trucks. We are already fueling several of these companies and we expect this market to flourish as these companies continue to replace their old fleets.

We're also expanding our relationship with our partner, Mansfield Energy to form a joint venture, which will focus on the bulk fuel hauling truck market. Currently they have two fueling sites in development near their fueling terminals in Georgia and Tampa, and hope to have at least a half-dozen locations in development by the end of the year.

Helping to support our growing CNG market is our compressor subsidiary, IMW. The first quarter has seen a success with IMW's strategy to accelerate growth in proven international markets by establishing in-country sales resources across four continents and seven countries.

Early results from these efforts include delivering the world's largest mother-daughter station, offsetting a significant portion of a large mine diesel requirements in Western Australia. IMW also manufactured, installed and commissioned the largest compressed natural gas mother station site in China, and signed a contract to produce the country's largest daughter station. In addition, IMW had its best quarterly margin since we purchased the Company four years ago.

In our biomethane business, we achieved a significant milestone in March with the first production and sales from our third biomethane facility located outside of Memphis, Tennessee. We also now entered into agreements that cover eight additional biomethane production facilities that will be flowing Redeem to our stations in the coming months.

As a reminder, Redeem is the first commercially available natural gas vehicle fuel that is 100% renewable and up to 90% cleaner than diesel. 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 first quarter of 2014 to the first quarter of 2013, unless otherwise noted. Volume rose to 59.3 million gallons during the quarter, up from 49.9 million gallons a year ago. Also keep in mind, the first quarter of 2013 included 2.2 million gallons related to our Peruvian joint venture that we sold in March of 2013.

For the quarter, our CNG volumes were 39.4 million gallons, our RNG volumes were 3.2 million gallons and our LNG volumes were 16.7 million gallons. As a reminder, when we sell gallons of Redeem to an existing customer, those gallons are not incremental to our volume totals, but are rather a sale of the original gallons to our customer, whereby we have replaced the traditional natural gas with renewable natural gas.

In doing so, it allows us to capitalize on the credits available when selling a renewable fuel into the vehicle fuel market. To date, all of our Redeem sales have been to existing customers.

First-quarter revenue increased to $95.3 million, compared to $93 million. When comparing our numbers between periods, please note that the first quarter of 2013 includes $26.2 million of volume metric excise tax credits, or VETC revenue, that was not included in the first quarter of 2014, as the legislation for be VETC expired on December 31, 2013. Pulling this amount out, revenue increased $28.5 million between periods.

On a non-GAAP basis for first quarter, we reported loss of $0.30 per share. This compares with non-GAAP earnings of $0.03 per share in the first quarter of 2013.

Adjusted EBITDA in the first quarter of 2014 was minus $6.8 million compared to adjusted EBITDA of $20 million in 2013. Again, please remember the first quarter of 2013 adjusted EBITDA and non-GAAP earnings per share amounts include an additional $26.2 million of VETC revenue.

In addition, the first quarter of 2013 also included a $4.7 million gain on the sale of our ownership interest in our Peruvian joint venture. 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 first quarter was $28.6 million or $0.30 per share, which includes a non-cash gain of $4.5 million related to valuing our Series I warrants, non-cash stock-based compensation charges of $3.4 million, $0.3 million in foreign currency losses related to our IMW purchase notes, a $0.5 million write-down on holdback shares we expect from Westport Innovations related to our sale of BAF, and $0.1 million in additional lease exit charges related to relocation of our headquarters. This compares with a net loss of $3.9 million or $0.04 per share, which includes a non-cash loss of $0.5 million related to valuing our Series I warrants, non-cash stock-based compensation charges of $6.2 million and foreign currency losses of $0.2 million on our IMW purchase notes.

Our interest expense was up between periods, primarily due to the interest charges we are incurring on our convertible notes we issued in June 2013 and in September 2013. Our gross margin this quarter was $23.6 million, which compares to $42.3 million. Gross margin for first quarter 2013 includes $26.2 million of VETC revenue.

Our margin per gallon on our fuel sales this quarter was down $0.04 from prior quarter to $0.27 per gallon. The decrease was primarily from an increase in natural gas costs related to the extreme cold weather conditions during February and March that impacted our LNG production costs, all the way across the country at our Boron plant in California. We are looking into ways we can fix this issue prospectively.

Our cash balance, including restricted cash and short-term investments, totaled $330.7 million at March 31, 2014. With that, operator, please open the call to questions.

(Operator Instructions)

Our first question comes from Eric Stine with Craig-Hallum.

Hi, guys, it is Aaron Sypchalla on for Eric. Good afternoon. First, could you guys talk about how many of the Highway stations you have with CNG capability as of today? And what that gets to here in the near-term?

And then remind us on what the margin profile of those CNG volumes are, in relation to the LNG margins that you guys have? And how that might trend over time?

Right. The way I talked about it here this afternoon is, you have 96, it's a little bit different way to think about it, Aaron. I think, over the last quarter, couple of quarters, we haven't done a good job of reminding everybody how big our network is. We casually mentioned that by the way, we have 400 or 500 stations.

I think it's important for everybody to realize as you really look at it, 96 of the stations that we have, that we built, today, 96 of our stations of that bigger number, are truck-friendly. They can take Class A trucks.

26 of those, what you are probably thinking of, are previously-announced Highway stations that certainly have LNG. Out of those 26, about 17 of those have CNG as well.

When you look at that number 96 that I want you to really think about, they all have natural gas. All of them have natural gas, they all have CNG except about 10 or 11 of those.

As I have tried to remind people, we are the leader in CNG. We are the leader in LNG. But we fuel an awful lot of trucks everyday on CNG, as well as LNG.

On the margin side, I'm going to ask Rick to help a little bit, but I was doing a little math here while you were doing the second part of that question. I think you are asking the different margins from CNG versus LNG?

Our margins are more dictated by the type of sale, not necessarily CNG or LNG, i.e. if it's retail sale, if it's an O&M sale, or whatever, that dictates more the margin profile. Within that, CNG is typically a little better than LNG within the various buckets.

Okay, good. That's what I was getting at, making sure that those non-OEM volumes, even when they're CNG, are still at a much higher margin number than we see in the financials that we see today.

Right. They are, yes. I think, Aaron, some people assume that CNG had worse margins. Actually it probably had better margins.

Exactly. That's what I was trying to clarify. Second piece, on the liquefaction side with what you guys announced on Hawaii earlier this quarter.

Can you size what that opportunity could be for us? And what that looks like over time? Also, talk about what else you guys are seeing from an opportunity standpoint on similar fronts to that.

Sure. Yes, so Hawaii Gas, we are pleased to do that first shipment. Hawaii Gas, there is the electric company over there and there's the gas company. The gas company wants to get themselves in a position where they could be doing, I think it is about six to eight containers more a week, I guess.

Eventually, they would have almost 20, 25 containers in a rotation there. There is still some work to do there. I think we feel pretty comfortable that we are in a nice position because of the location of our LNG supply.

It is good business. It is not huge business. However, the electric company has an even more bold idea. They've asked people in the business to think about a couple of thousand containers in rotation. 1 million gallons a day.

That will take a long time to do. There is a lot of hair on that one. It requires ships and all sorts of stuff, but it is containerized.

Those are interesting for us. Of course, with our position out here on this coast, there are some other opportunities like that, that are bubbling up in the Port of Oakland, as well.

Broadly, because we have our capability and our plants and our supply agreements with 13 LNG suppliers now in different parts of the country to support our trucking business, we get to look at a lot of deals. This winter we did some stationary one-off sales to utilities with LNG for system reinforcements. We are pleased with that. It was good business; came at a difficult time for utilities. We were rewarded for that.

We are just in the process of finishing a couple of big natural gas fueling stations that will do off-system sales up in the New Hampshire area, and in Maine, and in upstate New York. They are really large. Those would be different.

We are very close to signing a couple of deals with some very large asphalt guys that want to use natural gas instead of fuel oil and diesel fuel. We are seeing those opportunities pop up.

Of course, in the heavy-duty, the high-horsepower area, we are currently supplying LNG fuel for three of the major rail companies, as they are testing LNG locomotives. Also as we talked before, we are in a mud wrestle to try to win a deal down in Florida to be able to build a plant to fuel ships and send fuel down into the Caribbean. A lot of things are happening around the world in high-horsepower, rail, marine and this stationary sales.

Good. Definitely sounds very good. Thanks for the answers. I will hop back in the queue.

Thank you.

Our next question comes from Rob Brown with Lake Street Capital Markets.

Good afternoon.

Hey, Rob.

Westport's started to sell more 12-liter trucks. Could you give us a sense of where those engines are in the process in terms of when they start to fuel from you? When will you see more and more of those hitting your network?

Rob, maybe we went through this a little bit last quarter, but I have been educated on this a little. There is a lag between the time that somebody orders an engine. That order gets fulfilled at the factory and then it gets shipped to the OEM. Then it gets configured either CNG and LNG at the factory or at a third-party location. Then it gets shipped to the dealer and prepped. Then it gets shipped to the customer and it gets prepped again.

Rob, I kind of think the way we have seen it and we're learning a little bit here. We've always known there was a big lag on the trash trucks because those are more hand-built. It looks to us like it is about a four-month lag between the time somebody puts in that order and that truck is beginning to drink some fuel.

We are pleased that the numbers appear to be ticking up. Those trucks are beginning to show up and fuel with us.

Last year, as you know, Rob, those trucks really, the 400-horsepower,12-liters, really didn't leave the engine production facilities until late August. So we weren't seeing them until the very end of the year.

Yes, okay, great. Thank you. And you mentioned the Mansfield deal. What is the size of that in terms of potential trucks and volume?

That is an interesting business. As we work more and more with Mansfield, we have two lines of businesses with them.

We are integrating our sales forces to do behind-the-gate sales. They sell about 3.5 billion gallons of fuel behind the gate to people that hub and spoke, and fuel up in their backyards.

They're dropping off diesel or gasoline. They do it for states and trash customers, some of the same people we do.

We are working with them as those customers want to go to natural gas. They sleeve us into that offering. That's one piece of our Mansfield relationship. That was part of that deal that we announced last year.

This is exciting and it's one that Mansfield folks know very, very well. This is people that go to terminals and pick up fuel and then dump off that fuel somewhere else and come back. It is a big business.

You'll have terminals where they'll literally have 900 to 1,000 trucks that operate out of there, that go once or twice a day. Mansfield themselves have 900 different carriers that they work with on a daily basis that haul fuel to them.

They have great reach into working with their partners and friends, long-time fuel hauling associates. It gives us a unique opportunity to really bring those people and educate them, bring them to the party pretty fast and locate those fueling stations and terminals where these guys are already going. And where Mansfield, frankly, is one of the bigger customers.

We are starting out with two. We've got them under construction already. We hope to have six more.

These fueling locations are all over the United States. In fact, in Chicago, to do the job properly, you'll need to have four or five of those locations, just in the Chicago and environs.

I don't have hundreds of millions or billions of gallon-type figure for you, there's tens of thousands of these fueling trucks. It is a pretty big market. It is an exciting one for us.

We have the product ready to go. It can be CNG or LNG. The first two that we're doing are going to be CNG. LNG tractors work. Some of these guys are pretty weight-sensitive, so the LNG makes sense as well. It is a neat new market that really is just now starting.

Okay, great. Last question. You mentioned a gallon volume to get breakeven. What does that equate to in terms of number of new trucks that need to come into your network?

I told them that it's going to be Rob Brown to ask that question. (laughter) To get me right back to the truck counting deal. ( laughter) Think about it this way, 23 million is -- and a truck uses, we're seeing these early adopters use 20,000. So that's 1,000 trucks.

Maybe backwards the math and divide by 15,000 or 20,000 gallons, whatever you like, per truck. And come up with some numbers.

So it's not -- the way we think about it, to me it's very manageable. We are trying to show, folks, that there is a pathway here, to how this all comes together.

Okay, great. Thank you.

You're welcome.

Our next question comes from Jeff Schnell with Jefferies.

Clarifying on the margin question earlier. Today CNG gallons are higher margin or on PAR with LNG. Is it safe to assume LNG gallons going forward on America's Natural Gas Highway will be a higher-margin product for Clean Energy?

No, again it depends if they're retail. Which in theory, everything on the Highway should be a retail-type sale. We will give discounts, x cents retail price off, et cetera.

If you're in the retail world, in CNG and LNG, typically CNG is a better margin. Both of those fuels in the retail world are our best margins, as opposed to when we are in O&M world, where we're providing various services and we're not providing, perhaps, the fuel and everything else.

That is where the margins start coming down on both LNG and CNG. Does that make sense?

Yes. And then there has been a lot of talk about cold fuel or saturated fuel. I was curious if you guys had a take on what will be most prevalent at stations.

And if you're seeing any differentials in the cost, either for sourcing or it or for the consumer? And if consumers are agnostic or have actually been choosing one versus the other?

Okay, the general of thumb is, colder is better. The reason for that, and we have a little leg up here, is because we've been doing some work on our station deliveries.

We've been doing some work on how we off-load our fuel at our LNG locations and our plants. We have a little advantage, as we're really able to produce some pretty cold fuel.

The reason why that is, you get more on board. Therefore you get more range.

Right.

And the new short tanks are really receptive to this colder fuel. I think you will see a general effort, a new greenfield station to be built. Colder is better.

Got it, thank you.

Our next question comes from Carter Driscoll with Ascendiant Capital Markets.

Hey, guys.

Hey, Carter.

A CapEx question. If I recall what you'd framed out last quarter in terms of what you're going to spend versus number I thought you'd highlighted. I think you talked about $135 million, but the core number was closer to $80 million.

First of all, has anything changed in that core number, I think you allocated somewhere around $20 million for the core stations, about $40 million for truck stops, and then I think close to $20 million for CNG-in-a-box. Has anything changed there or is that still what you are thinking today?

Is that number you also quoted in context with the $75million to $85 million after what you already spent this quarter? Or is that in addition?

The $75 million or $85 million is for the full-year. We basically spent been $45 million-ish through the first quarter. In that, is the $18 million we spent for the CNG-in-a-box units? We anticipate we will spend another $40 million or so over the last three quarters.

As far as the buckets go on the stations. I'd say the only thing that may have come down from what we originally thought was some of the LNG stations. That is a timing issue.

Also a lot of the business that we are seeing is starting to fill up at our existing stations. At the beginning, we had to allocated a lot of capital for new-type projects.

Those, for whatever reason, aren't necessarily materializing. Because as I said, people are using the existing stations. Based on that timing and the need, that number has come down.

And then what you have to do with GE, is that in that bucket?

Certainly is. We are in the process of evaluating the timing of when we're going to need those GE plants. We want to make sure that we are synched up to: A, we get plants in the right locations, and B, we get them timed up so that we basically have the supply when we need it.

We're looking at that right now and we're talking with those guys. Because those are our partners; they basically want the same thing.

We're working with them to see what makes sense as far as when we're going to need to spend those dollars. That is a little bit up in the air right now, but we are thinking that may get pushed out a little bit.

Okay. Maybe shifting gears a little bit back to the IMW. Can you talk about any potential progress you made with the deal you signed with Russian Machine? I know it was going to start off slowly. And then also talk about any progress or movement on the China Gas deal?

Sure. Let me talk about this. We've made steady progress. In fact, the President of our IMW subsidiary sent it over to Russia here, I think, next week.

We've made steady progress with them. We've made steady progress on certifications, which were necessary in Russia for our equipment.

That, frankly, is what I think I talked about last time. This is for in preparation of these big RFPs coming out, Rosneft and Gazprom and a couple of others.

We've sold some units to Russian Machines, but just a handful. We are really in the bullpen, though, working to make sure we are well-positioned with Russian Machines as our partner there. We want to try to be successful for a big slug of these orders coming from those two big companies.

Those RPs haven't been released yet, but supposedly any time. We are watching it close and we're working it.

China Gas, we are making good headway in China. We have that ongoing deal where we are producing stations at their request.

You remember, that was about $160 million piece of business over a few-year period. We got a good order, then it kind of slowed down a little bit. I'm told this morning, as I asked about this very thing, where we stood.

These things ebb and flow a little bit in China. It looks like it is now beginning to pick back up again. Though, hardly a day goes by, that we don't continue to hear more and more interest in China for CNG and LNG stations.

In fact, we had, I won't use their name, we had one of the largest companies that's in that business, here in our offices here. They said that they had already built, I think it was 250 LNG stations. The had a couple hundred CNG stations.

They thought in the next year or two that they could see that they needed 4,000 more. So we are working it over there. China Gas is a big player. I hope, as that continues to grow, we'll get more and more of that.

Last question, Rick, back to the impact of the very cold winter on Boron. Do you guys have any concrete plans about how you potentially mitigate that?

And then how that plays into what you do on an ongoing basis for the fuel you scare from third parties? In terms of, I'm assuming, (technical difficulty)

The nice thing is, I don't think we really need a hedge. We may just have to change how we buy our gas at Boron.

That one was very surprising, really unique. Obviously the weather was extremely cold all across the country, which caused significant upward pressure on the price of natural gas, such that it even came all across the country and lifted the price in California. That's what caught us off guard a little bit.

I think it's just a matter we need to go back and look at how we buy our natural gas that supplies the Boron plant. If we can fix it that way, great. If not, we always do in theory, we could hedge to the extent we start to see some higher prices showing up in the winter or the colder months.

Good news is it's not that difficult of a fix. It is just something that we never really contemplated. It hasn't really happened that way before. (multiple speakers) Popped up, so it -- Something we'll make sure it doesn't happen again.

For the most part, at our stations where we are buying natural gas, we are pretty well protected. Because we are purchasing that gas from utilities on monthly basis.

So these spikes, be it hurricanes or some of these others, we may see it smooth over time a little bit if it goes up, but we can respond. This one caught us -- now, we did what we could to mitigate it.

For instance, we shut the plant down. We stopped producing for a while rather than buy really expensive spiked gas. This was just one of those freakish winter things that was tough to manage.

So yes, we're on it. We have a guy in charge of gas purchases. He has been working on this thing since it happened to us.

Would it be fair to say that given what your expectation is for your margin per DG, the differential was due to this spike for Boron from 30 to 27? Or are there other factors?

The vast majority, yes. It was pretty much just the cold.

Okay, thank you. I'll get back in queue.

You bet.

You next question comes from Collin Roche with Northland Capital Markets.

Hi, thanks, guys. Can you talk a little bit, or actually quantify the operational efficiencies you are getting from the changes you are making in the stations? How much are you saving in terms of the cost of operating the stations?

That's a broad question. We work on that all the time on point of sale. But on what I was talking about when I was referring to, is Mitch Pratt, who's our Chief Operating Officer. We have been working hard.

We had a phenomenon, that we were creating some increased head pressure when we were offloading LNG into our stations and, frankly, warming up the fuel, and therefore venting some fuel that you really would rather not do. We worked on some things to be able to mitigate that.

We worked on some things to be able to take -- remember we are in early phases here with these stations. Some of them don't vent at all and never will because they are selling a lot of fuel everyday.

For instance, the Port of LA, we don't vent fuel there and haven't, really since day one. Because we opened up with hundreds of trucks. We have almost 1,100 or 11,000 trucks there so that isn't an issue.

In some of these early stations we opened, we're trying to be good environmental citizens. We don't want to vent fuel. They been working on a couple of different recirculation techniques and other things to do something with the fuel.

In fact, it is kind of working out well that some of our vent gas is finding its way into our LCNG and in our compressed gas operations at those same stations. Those are some of the things we are doing. Volume, though, at a lot of these stations will take care of most of this.

Perfect.

We are doing things. We do things at our CNG stations all the time in order to try to reduce electricity cost, and all sorts of different things. It is ongoing.

Okay. And then the approach on CapEx, it sounds like a slowly shifting approach to how you are spending. Could you talk about what is going on internally in terms of your three- and five-year plans in terms of the CapEx spend? And how we should be thinking about target time for reaching profitability?

I know you've talked about it a little bit. What are you guys thinking internally in terms of how you want to grow this business from a paging standpoint as we look out three to five years?

Right. I think if you -- some people have been nervous or impatient. Really, I haven't been really one of t hose. I've seen these markets grow before.

This one and the heavy -- let's talk about the heavy-duty truck market. Let me back up. Our core markets have been growing and growing steadily. Our transit markets are picking up; our airport markets have been picking up.

They're growing in the 20%-some-odd range. They have and they will and they'll continue. We are pleased with that.

This new big heavy-duty truck market, it is new. It is just getting going. Frankly, it was about a year later than we had anticipated. And so if there is a criticism here of me, is we got those Highway stations put in place early.

Our job right now is to open a lot of those stations this year. We feel good about that. We know by having those stations in place, it's really given us an ability to change the discussion between the shippers and truckers.

We are very comfortable with what we have done. But we also want to make sure that we are deploying the capital the best way we can. We don't need another 25 or 30 spec truck locations out there right now.

Now, we still have a whole bunch of stations that we think we want to build and our customers want us to build them eventually. We talk about locating things at production facilities and distribution centers. I think all those are going to happen. We want to make sure we time that up with the adoption of these trucks.

I think what you are seeing here is us just wanting to make sure we are good stewards of the capital. We're sitting on $300 million of cash. We don't need to pull the trigger at Christmastime on two LNG plants where we have to contribute $25 million or so each.

We haven't been working with our friends last week for two days at GE. We haven't lost enthusiasm for them. We will build those plants. I feel confident of that. We just ask to work with them, a little flexibility to push them out, to make sure they come onboard when we need them.

That is some of what you've seen there. When we look out to 2015, 2016, we put some sort of adoption rate that we think on these trucks, you are going to have all of your stations loaded.

You're going to require a new station to be built. We will have to pull the trigger on those plants so that they are ready to go by the end of 2016, early 2017, because you're going to be out of LNG in the country.

The way we look at it is if we are prudent, the $80 million spend or so, $85 million, whatever it is this year, I think will go a long way right now on our carpet. We're building 70 some odd stations.

Some of those are for customers; many of them are for our own account. We are opening those stations that we've built.

It should provide us plenty of capital with that kind of continued CapEx spend for 2015 as well. You should be able to make it all the way through 2016.

We have, and we think by that time, your volume will be up, and you'll be in a position where you'll be able to avail yourself with some other kind of financing. As you know, we are not that interested in wanting to dilute our shareholders anymore.

We want to make sure we are here for the finish line. We see that in 2016, it is going to be much different picture and have much better visibility, even in the next six or eight months. We want to make sure that we have plenty of capital to respond.

Perfect. Thanks a lot, guys.

Yes.

Our next question comes from Caleb Dorfman with Simmons and Company.

Good afternoon, gentlemen.

Hey, Caleb.

It's nice to see the volume growth this quarter. Can you give us a bridge from the Q4 volumes to the Q1 volume? Breaking out any of those one-time sales to the utility customers? How much of that additional growth was organic growth at existing stations versus the new stations?

Absolutely. The one-off number, just to get that off of the table is probably 800,000 or 900,000 gallons between the fourth quarter of 2013 and the first quarter of 2014. So basically we were up about 3 million gallons over the prior quarter.

A lot of that was refuse trucks. A good chunk of that was with existing customers, but also some new. Our friends at Waste Management Republic just added a lot of trash trucks in the first quarter, which is great.

As Andrew mentioned, DART, the O&M contract, started in the first quarter of 2014. That kicked in another 1.3 million gallons into the actual bucket. That was certainly good and an uplift.

The other thing that was nice is we opened several talking stations. 9 or 10, right? Those stations opening up with new and existing customers adding trucks, our trucking volume's had a nice up-tick.

The nice thing was it was an across-the-board increase in a lot of different sectors. Certainly it was encouraging for us.

I know that you are always hesitant to provide guidance, but do you think it's think still appropriate to think that most of increase in volume this year will still be a second half event? Because of the timing of the ANGH Stations and the trucking fleet?

Yes. That's how we think about it.

Okay. Then, you called out the number of actual UPS trucks that you're fueling right now. Across all of the America's Natural Gas Highway fleet, how many trucks do you have fueled?

I don't know. It's is a good question because it is kind of how you slice it and dice it. We have some of our America's Natural Gas Highways, it starts out here in the West Coast in Southern California. We got 1,000 trucks at the Port.

Caleb, it's a good one. Let us do a good work on how many -- It's going to be in the couple thousand range. 2,500 I bet you. Maybe even more.

Okay, so UPS is actually a fairly small percentage?

You know what I like, and what we see happening, I'd love to see every fleet in America ordering 300 or 400 trucks for their fleet. What we are seeing and it's interesting to me, is right now, we have about 230 to 250 fleets now testing this new 12-liter engine.

It's CNG and LNG, which is way up from where we were before. You are seeing a great deal of breadth. Some of these players buy thousands of trucks. I like that.

I would be more concerned if we only really had 30 new fleets fooling around with this. Just our Company we know of about 250.

I don't know percentage gain, but over a couple of years ago it would've been a handful. It has grown dramatically. A lot of people are testing it now.

That is helpful. And then finally, do you have any same-store sales growth number for those ANGH stations which have been opened, say, six months or a year? Those ones which were established; they started with 20 trucks. Are they gaining more trucks fueling at those stations?

Not really. Still a little early for that. A lot of them are just opening now or just recently opened.

To be fair with those, we want to give them a little time so our sales team can work the area around the stations to grow the volumes. That is one thing we have done.

Once a station opens, we task our sales team with starting to call all the fleets within, say, a 5- or 10-mile radius of that station to try and load it with additional trucks and volume as soon as possible. I think we want to let those run their course a little bit and see the fruits of those efforts. Then maybe we can contemplate looking at that down the road, perhaps.

Thank you gentlemen.

Thank you.

Our next question comes from Chris McDougall with Westlake Securities.

Hello, gentlemen. Thanks for all the positive updates.

Sure, good.

Let's touch on a few things. The IMW quarter, certainly a good quarter from the commentary and when I scan through the Q on. How sustainable is this performance? How much of the gross margin pick-up is driven from volume versus mix?

On the IMW side, the margin pick-up, I would say more -- a lot is due to their efforts of turning the business around and getting efficient on the production, making sure they understand their costs and pricing products right. A lot of the things, our capable and able COO, Pratt, has been working with them on, starting to come to fruition, which is good.

Also getting more business. I'd say it's a combination. They're starting to get a lot of really good international opportunities. Their sales efforts are starting to pay off. So that is good. The other thing that's embedded in there is once you do get producing at higher volume levels, that is great from a margin perspective because your utilizations gets better.

One thing I think we forget about, is over the last year or two we expanded our China production facility. We expanded British Columbia production facility. When you do that and don't put a lot of volume through there, it has a draining effect on your margins.

Once you start putting more volume through there, it helps your margin. It is a confluence of all of those, which has helped on the IMW side. All of our efforts are starting to come to fruition.

Back on the core business, you talked a lot about CapEx. I appreciate updated guidance. How quickly can you ramp up or down the station CapEx, excluding the potential LNG plant or something? For station CapEx?

That is easy. You can spend away on that stuff. What I like about this, this isn't really that new for us.

I think we've done the right thing. We've tried to tell the investor community the big number. We did it last year. I think we said our CapEx number was going to be $167 million or $180 million and we came in $60 million less than that or so, didn't it, Rick?

This isn't something we haven't done before. We want you to know, when we look at our whole bench of things that we can do and that we think we're going to need to do. Sometimes you just don't get them all them all done, because the calendar runs out on you.

What I like about this business is the stations. Other than those plants, as you correctly identified, these things are $1.5 million clips, or $2 million things. So you want to slow it down? You'd stop it.

We don't have anything really here that like a -- and I'm not picking on them, but this isn't like a Cheniere. We're committed to build a $5 billion plant and we just have to grin and bear it. We can really adjust this where we want to spend it and when we want to spend it.

We have a bullpen right now, of projects that aren't on, what we call, our carpet. That means, they're not in engineering, design, permitting, or construction.

We have 70 -- we finished 11 already this year. We think we got about another 59 that we will likely get done or more this year. That's just gone four in the last week.

There's another 70 or 80 projects right behind that. Those will begin to percolate in and we will make decisions on those. Some of those are for customers, some of them are for us.

That number can grow quickly if we want it to. And if we need it to.

On the other side, you could cut maybe six months out?

Yes. I'm sorry. The other thing I was going to say is, the business really has, from a station perspective, essentially no maintenance CapEx. Our maintenance CapEx budget is probably $1 million or $2 million a year.

So to that, all of our CapEx is in essence, discretionary. And we can go after specific projects or those types of things, which is good. To your point, we, in theory, could cut it off. Worst case, tomorrow, if we wanted to. And have that couple million dollars that we would need to spend.

Okay, great. Thanks. Lastly, Andrew, if you could give us a little bit of color on the competitive environment? There are a number of names out there and some announcements and stuff.

But if you could characterize it, maybe sequentially, if it is getting much more competitive? Or about the same? Or any other color would be great. Thanks.

It has been fun for me to watch, because for a while people used to say, you don't have any competitors. That would lead one to believe that if you don't have any competitors in business, there is no real business. That has changed, by the way.

I think over the last couple years, there's probably 50 new companies that have announced they're in this business. Some of them are very small. Some of them are regional. Some of them are offshoots of utilities. Some of them are, I would say, probably difficult on the capital side.

Some of them are not, though. Some of them are large. Some of the ones that we saw big things to talk about a couple of years ago. There was one that said he was going to build 1,000 stations. He was a very well-known company for a billionaire out in the Southeastern United States.

They are not in the business anymore. They went from 1,000 to zero. We do see some people come in and make some announcements. There was one yesterday or today, I think, where they are projecting how many stations they're going to build over the next two years. A lot can happen in two years.

There has been a lot of announcements. A lot of people saying they are going to get into the business. Some of this stuff will shake out.

But I would say, you're right, there is a lot more competitors. There aren't that many competitors in the LNG side of the business. Most all the rest are in the CNG side.

And then many of them are regional in nature. It gives us a little bit of an edge with many of them, because we can respond to a nationwide fleet, where others have a tougher time doing that.

But there's definitely a lot more competition today. That's a good thing. It's a very big market.

I talked at this Expo. When you look at our core markets of refuse, trash, airports, and that is about a 6 billion gallon annual market. You then put on the regional and over-the-road trucking market, that's another 25 billion or 30 billion gallons.

Then you add in marine, which is 6.6 billion; and rail, is 3.6 billion; and mining is 1.6 billion. This is a big market so there's lots of opportunity. Lots of places for people to participate.

Okay. Thank you very much, gentlemen.

You're welcome.

Our next question comes from Matthew Blair with Macquarie.

Good afternoon. Andrew, I think you mentioned that of the 26 open Highway stations, 17 are now providing CNG. Can you clarify? Are those stations connected to pipeline natural gas? Or are they all making CNG from an LNG base? Thanks.

I'm looking at one of my guys, my operating guy down here. Some, but the majority of them are LCNG. The majority of the 17 of the 26 that have both capability, of those particular Highway stations, they are LCNG. Of the other 70 truck- friendly stations, those are all CNG, and they are all pipeline.

Got it, okay. Sorry for another margin question, but isn't the margin opportunity on the LCNG going to be a lot less? Because that is CNG that has been both liquefied and compressed? Compared to, say, like a retail CNG gallon or retail LNG gallon?

Yes. It's got less margin. The real challenge is the LNG part of it. You don't have a lot of compression costs and a lot of costs in the LCNG. Thank goodness.

You are doing another step there. And it's costing you a little bit more but it's surprisingly, Matthew, not what you would expect. It's not on the same scale as compressed natural gas starting from scratch.

Okay. Finally, Rick, could you provide the IMW gross margin? I think the revenue was around $22 million. I'm not sure if you provided the gross margin yet?

2.6. Excuse me, that was the change over last quarter. 4. 4.0. That was a record for them.

Great. Thanks, guys.

Thank you.

Our next question comes from Rob Bennett with Dougherty and Company.

Hello, I'm on for Andrew James. Congratulations on the volume.

Thanks.

Two quick questions. Can you talk a little bit more about UPS and its trajectory or plans?

Well, I can only tell you what I think they have announced and you would have to ask them. I believe on the heavy-duty side, I haven't heard much change at all in the reported order of the 985 that they started with last year. They have taken some last year, they're taking them now.

I can't give you how many they have taken, but no one's told me that that's changed much. What I think I heard recently was, and I think it's accurate, that they are not really buying any diesel trucks in 2014. That seems to be in place.

I know it's stepped up on the buying some propane vehicles for their medium-duty package fleet and also other CNG vehicles. Bless their hearts, they continue to really show leadership there, and it is impressive what they are doing.

Great. Thanks for that. You said you need about 23 million gallons to get to EBITDA breakeven. I know you have a pipeline of shippers that you are talking to for fueling contracts. Does that current pipeline get you to the striking distance of 23 million gallons?

Yes. I think it does. Rick won't say that, but --

We'll say yes, we just won't tell you when. ( laughter).

See, the way I look at it is, traditionally, generally, all right, there could be an exception here. We been growing around 20% some odd. We did 217 million gallons last year. 214. So if you put a 20% on there, that's 40 million some odd gallons.

The whole point of that was just to show everybody that we're not that far away. If you take 23 million gallons at $0.30, that's $7 million. So that covers our adjusted EBITDA shortfall.

Hopefully you can see from the math Andrew just went through, we're looking at our totals and growth rates, and what we've done historically or this quarter. Look at some numbers, we're not that far away.

I think a lot of a lot of times people think we need hundreds of thousands of trucks, or this and that, when it is really thousands to get, hopefully, to some sort of breakeven from an operating perspective. After that it all becomes incremental and upside.

I wanted to give a little color on -- it's the stuff we talk about too. Obviously, we are focused on that. We understand that at some point we got to start making money in addition to getting this thing going.

Now it is going, we're focused on that. Just wanted people to know. That is what that was all about.

Great, appreciate the color. Thanks, guys.

If I could, I wanted to say one more thing about IMW. A lot of times people forget. They, during the quarter, sold Clean Energy $5.8 million worth of compressors and equipment. It does not show up on our numbers. That all gets eliminated because they are subsidiary and we own them.

So there's a lot of other economic value, in addition to the operational and other things that they bring to the table, that they produce. It gets masked and covered up a little bit. That's another thing to think about. And then also, the guys up there are really doing a good job. I guess I stopped everybody. (laughter)

I'm sorry, I apologize.

No, that's okay.

I didn't realize. I thought you may have -- did this questioner conclude?

Yes.

Our next question comes from Pavel Molchanov with Raymond James.

This is Justin Jenkins on for Pavel. I think most of mine have been answered, but thanks for taking the questions anyway. The first one I have is more of a clarification in regards to the figure you mentioned that you'll need to add 23 million gallons from current levels to reach adjusted EBITDA positive. That was on a quarterly basis for both gallons sold and EBITDA? Is that right?

Yes. Again, if we had 23 million more gallons at $0.30, that would have been $7 million more of margin/EBITDA.

Got you. Thank you.

That's where that quick math comes from.

Right, okay, thanks. Back to CapEx plans. I know you've touched on this a bit already, but do those figures provided for the full-year effect station build-out plans at all? I suppose, secondly, when do you think you'll be in better position to provide what 2015 spending may look like?

We're building what we think we need right now. As I just indicated, it actually ticked up in the last week. There hasn't been some dramatic down-shifting or cutting of the inventory of stations or a pull-back. I hope that wasn't what you got out of this.

It's wanting to make sure that we're timing them correctly. We are still slated to build 70 some odd stations, probably, this year. It is still very busy.

2015, we haven't really said it, but we've told people, and I think I've said it before, it would be a like- number. Of course, if the whole industry goes bananas, we will respond accordingly. That's a very good thing.

But we envision you would have a CapEx spend in 2015 that would be similar to this year's. We see that sort of need to continue. This business is growing pretty fast.

Yes, we view that as a good thing. If we need to spend the money, that means the trucks are starting to show up, the gallons are showing up, and the volume's showing up. And we need it.

As we alluded to earlier, we can control the timing and how much and when and all that good stuff, on the CapEx side. And we have $300 million-some. We fell like we are in pretty good position on that.

Got it. Appreciate clarity, guys.

Okay, sure. Thank you.

I'd like to turn the floor back to Andrew Littlefair for closing remarks.

Thanks, operator. And thank you all for listening today and for your continued support. We look forward to reporting to you on our progress next quarter.

Thank you. Ladies and gentlemen, this concludes today's conference. You may now disconnect your lines at this time. Thank you all for your participation.