Clean Energy Fuels Corp (CLNE) 2015 Q1 法說會逐字稿

Greetings and welcome to the Clean Energy Fuels' first-quarter 2015 earnings conference 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 Relations. Thank you, Mr. Kritzer. You may now begin.

Thank you, operator. Earlier this afternoon, Clean Energy released financial results for the first-quarter ending March 31, 2015. 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 statements are not a guarantee of performance and the Company's actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in the Risk Factors section of Clean Energy's Form 10-Q filed May 11, 2015. These forward-looking statements speak only as of 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 exclude certain expenses that the Company's management does not believe are indicative of the Company's core business operating results. Non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP, and should not be considered as a substitute for or superior to GAAP results. The directly comparable GAAP information, reasons why management uses non-GAAP information, a definition of non-GAAP EPS and adjusted EBITDA, and a reconciliation between these non-GAAP and GAAP figures, is provided in the Company's press release, which has been furnished to the SEC on Form 8-K today.

Participating on today's call from the Company is President and Chief Executive Officer Andrew Littlefair; and Chief Financial Officer Bob Vreeland. 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 2015 operating results with you today.

We reported 75.2 million gallons delivered this quarter, up 27% from the 59.3 million gallons we delivered in the first quarter of 2014. Revenue was $85.8 million in the first quarter versus $95.3 million a year ago.

Revenue decreased primarily due to three factors. We had $9.1 million in construction projects that were essentially complete at the end of the first quarter, but the revenue could not be recognized. Most of this money is in the bank, so this is just a timing matter. Lower natural gas commodity prices, which in turn affected our revenue by $3.7 million.

And finally, IMW was a challenge, as we told you it would be on our last call, due to a global equipment slowdown resulting from declining oil prices, as well as the strength of the US dollar, which impacted our international sales. Despite all of this, our margins increased $0.02 to $0.28 per gallon. And because of the increased volumes, our fuel sale revenues increased by $8.4 million.

Despite the decline in oil, we continue to see significant investments across the entire natural gas vehicles industry. Just last week, I attended the Alternative Clean Transportation Expo in Dallas, and there were several major announcements that will continue to develop and strengthen the NGV industry.

Rush Enterprises, the largest truck dealership network in the country, announced a new venture to manufacture, sell, install and service new lightweight compressed natural gas fuel systems for Classes 6 through 8 trucks. Cummins Engine Company and Agility Fuel Systems announced a strategic partnership that will include hardware and software technology development between Cummins' natural gas engines and Agility's fuel tanks.

Cummins Westport announced it will begin testing their spark-ignited natural gas engine, which is capable of producing near-zero NOx emissions years ahead of the 2023 EPA requirement. Ford Motor Company announced that in 2016, the F-150, the best-selling vehicle in the country, will come with a gas-prepped engine. And Ford and Landi Renzo announced they will be offering new F-150, F-250 and F-350 natural gas trucks aftermarket.

Power Solutions International acquired Powertrain Integrators, which will give PSI much greater reach into GM onroad engine and platform capabilities. This will open up new opportunities for them through Freightliner, GM and other OEM offerings. And last month, Peterbilt introduced two new models of LNG powered truck configurations to their lineup of natural gas vehicles.

One silver lining of these lower oil prices is that the industry has responded by working to reduce the incremental cost of natural gas trucks, partly due to our tank programs with Agility and Chart. In certain truck configurations, we have seen tank and engine prices come down more than 25%. This is great news, as it is helping to drive adoption.

Turning from the market to the specifics of Clean Energy, we made progress across all of our market segments in the first quarter. In trucking, Raven Transport is deploying 115 additional heavy-duty LNG trucks. This is a great example of adoption from a long-haul, multi-state trucking customer. They will now be fueling 184 LNG trucks at 14 Clean Energy stations in eight states throughout the Southeast.

We signed an agreement with Potelco in Washington to fuel 75 heavy-duty LNG trucks. We opened two additional truck-friendly stations in Arizona and Kansas City to support 58 CNG trucks for Seaboard Transport. We signed an agreement with Dean Foods to build a private CNG fueling station to fuel 64 trucks at their Oak Farms dairy plant in Houston, Texas. We've also expanded our fueling agreement with Dillon Transport, who currently operates over 200 CNG trucks, and we expect their volume with us to triple year-over-year.

In our refuse market, we are building a third CNG station for Burrtec Waste in California. We completed a new station in Tampa for Progressive Waste for their 75 new trash trucks, and we are building a fourth CNG station for Waste Pro in Sanford, Florida to support their 90 new trash trucks.

Led by our customers Waste Management and Republic Services, we believe the refuse industry is picking up the pace over previous years. We should build over 35 station projects for our customers this year, a record number. And we expect a record number of trucks to be deployed. Currently, we fuel about 8,900 trucks for our refuse customers each day.

In our transit market, Dallas Area Rapid Transit added 63 new CNG buses. They now operate a natural gas fleet of 568 buses and 232 paratransit vehicles that fuel at the four stations we built for them. We built a private station for Torrance, California's municipal fleet of 35 trash trucks and 29 transit buses.

In our fleet services market, we opened our Orlando Airport station, which can accommodate vehicles ranging from passenger cars to buses to heavy-duty trucks. Year-to-date, we've completed 16 station projects for ourselves and our customers in our various market segments.

Let me now spend a moment on IMW. As we mentioned on the last call, we anticipated that they would be challenged in the first quarter. Some of that is due to the global decline in oil, which softened their sales, and some of that is due to the strength of the US dollar. However, we have rightsized the business and made significant product enhancements.

We standardized our compressor design, which will decrease our time to ship and make our manufacturing more efficient. So while IMW was somewhat of a drag in Q1, it is getting better in Q2. There is still global demand, and we recently received orders from China, Vietnam, Eastern Europe, Canada and Mexico. IMW remains strategically important for us as we account for roughly 20% of their production for our own station builds.

Turning now to our renewable fuels division, last week, UPS signed an agreement to purchase our Redeem-branded renewable natural gas fuel at their stations in Sacramento, Fresno and Los Angeles. We estimate that these three stations will provide approximately 1.5 million gallons of renewable fuel annually to roughly 400 CNG vehicles that UPS has deployed in California.

This was a significant step in the expansion of our Redeem business. As you know, we have been supplying Redeem to all of our public stations in California since launching it about a year-and-a-half ago. Over the last six months, municipalities, universities, and now UPS -- the largest logistics company in the country -- have signed long-term deals to guarantee they will receive renewable natural gas that is rated 90% cleaner than diesel.

This deal sends a strong message to the transportation industry. UPS continues to be a leader in the deployment of natural gas vehicles with their recent announcements of increased orders of both LNG and CNG of over 800 tractors and 600 delivery vans. In fact, UPS is on record saying they haven't purchased a diesel truck in the last two years.

We sold 8.9 million gallons of Redeem in the quarter compared to 2.8 million gallons during the first quarter of last year. Redeem is a nice contributor to our margin and revenue, and we continue to be very bullish on the growing and environmentally-relevant business.

Our new virtual CNG pipeline business, NG Advantage, has made solid progress. They were recently rewarded -- awarded a contract to provide compressed natural gas to International Papers' Ticonderoga, New York paper mill, which we expect to add at least 5 million gallons this year. This is a significant opportunity for NG Advantage, and we look to expand this business as new opportunities emerge to lower our customers' fuel costs while meeting with their environmental goals. Our two stations that support NG Advantage accounted for over 4.7 million gallons combined in the first quarter.

Regarding our CapEx plans for the year, we are still on track to spend $38 million for Clean Energy and $21 million related to NG Advantage growth opportunities. Remember, this is down from $87 million last year.

At the end of the first quarter, we had $220 million of cash and investments on the balance sheet. Overall, our core business is doing very well, with growing volumes and expanding margins in a relatively difficult environment. Although there was pressure on EBITDA this quarter, I want to reiterate that we still expect to be adjusted EBITDA-positive for the full year.

And with that, I'll turn the call over to Bob.

Thank you, Andrew, and good afternoon to everyone. It's my pleasure to go over our financial results for the first-quarter ended March 31, 2015. I'll address some highlights as well as some of the challenges.

The financial highlights of the first-quarter fall into four areas -- volumes and the associated increased revenue; margin per gasoline gallon equivalent; SG&A spending; and cash flow. The growth in volume of 27% over the first-quarter of 2014 came from all of our sectors, the most notable growth coming from the following: the trucking increased 35%; refuse increased 24%; transit increased 14%; and our industrial sector more than doubled.

From a product standpoint, our fuel gallons increased 29%, and our gallons associated with operating and maintenance services increased 28% compared to the first quarter of 2014. Revenues related to gallons delivered increased 15% or $8.4 million when comparing the first quarter of 2015 to the first quarter of 2014.

Our margin per gasoline gallon equivalent was $0.28 compared to $0.27 in the first quarter of 2014, and compared to $0.26 in the fourth quarter of 2014. This gain in margin is attributed to product mix, essentially more fuel gallons; declines in natural gas costs; and additional RIN credits.

Our SG&A spending remained under control at approximately $30 million for the quarter, an improvement of nearly 10% over a year ago, and flat with our most recent quarter. On cash flow, we collected all of our 2014 volumetric excise tax credit in March, which contributed to our positive cash flow from operations of $20.9 million for the first quarter of 2015. As Andrew mentioned, that put our cash and investments at $220 million at the end of March 2015.

Now the challenges we faced in the quarter were the anticipated lower revenue volume from IMW; the timing of revenue recognition on station sales; and, to a lesser degree, the impact on revenue of price declines from lower commodity costs. IMW revenues were impacted by a slowdown in orders on the international front and the government sectors, due to low oil prices and the strength of the US dollar. Also, when comparing IMW revenue between the first quarters of 2015 and 2014, IMW's first quarter of 2014 was exceptionally strong, due to a large custom project in process at that time, and other orders that carried over from 2013, which we knew would not be repeated in the first quarter of 2015.

On our station sales, we had three large station projects that did not meet our revenue recognition and accounting requirements, and thus will be recognized in the second, possibly third quarter, depending on certain external factors outside our control. This was about $9.1 million in station revenue that was deferred outside the first quarter, in which Andrew indicated as well, as most of that has been collected.

On the price front, we will always have certain fluctuations in pricing. This first quarter saw some rather meaningful price declines, driven by the lower gas commodity costs. That impacted our topline revenue by $3.7 million when compared to 2014, although most of this did not drop down into our margin, due to the lower cost.

Our adjusted EBITDA for the first quarter of 2015 was negative $5.6 million compared to negative $6.8 million in the same period in 2014, despite having $9.5 million less in revenue in the first quarter of 2015 versus 2014. We were positively impacted by our increased volumes and steady margin per gallon between the periods and negatively impacted by the lower station sales and IMW revenue.

We expect quarterly adjusted EBITDA to improve as we continue to leverage our station and cost infrastructure and grow volumes. We still expect to be positive adjusted EBITDA for 2015.

From a balance sheet perspective, the most notable change from December was the collection of the volumetric excise tax credit. We also have done some financing of capital expenditures, principally CNG trailers supporting our industrial sector, namely NG Advantage.

Now we generally get a question on our convertible notes coming due at the end of August 2016, in the amount of $145 million. As a reminder, these notes are payable in cash or common stock at our election. We continue to actively address these notes and we are evaluating a variety of alternatives.

In addition to the equity aspect available, we also have over $500 million in unencumbered long-term assets, along with our own internally-generated cash as we look forward toward positive EBITDA and the possibility of further VTEC or asset sales. The key takeaway here is we are actively addressing this matter and we have a variety of choices. Our goal is to satisfy the notes in an effective manner while maintaining adequate cash and operational flexibility beyond August 2016.

And with that, operator, we'll open the call to questions.

(Operator Instructions). Eric Stine, Craig-Hallum.

Wondering if you can just talk about what you're seeing from shippers in the market, what role that played in the Raven deal? And what role that's playing in some of the other contracts out there?

Yes. Eric, you know, that continues. Just for our friends that maybe aren't quite as familiar, recall that shippers -- and we use that term to be companies like Procter & Gamble or MillerCoors, these are large consumer companies that may not have their own trucking fleet, and they actually go out and hire a contract fleet -- contracted carriers for them.

And, as you know, we've talked to dozens, if not more than 100 of these companies, trying to make sure they understand the sustainability gains with natural gas, and also the cost of the fuel. And we do it now in a constructive manner with our trucker friends, because obviously, the shippers and the truckers are very close.

And so we continue to see these shippers, Eric, move forward. Procter & Gamble, as you know, I think has a 20% mandate in place for its carriers. Raven fits in there. They do some Procter & Gamble work, as I think they also do some for MillerCoors. We've seen MillerCoors be very aggressive, wanting to have hauling in a lot of their different breweries move in this direction.

Kroger has their own fleet, but they also have been very aggressive. So we continue to see these shippers -- Colgate-Palmolive, Home Depot, and others. I think it's going to be a bigger and bigger move, because there are savings on the fuel and there's great sustainability gains to be had.

They want to do it in a constructive manner with their hauler. They have to have good relations with their trucking company, but on the other hand, they pay for the fuel. So we continue to see the shippers move in this direction and work with their truckers.

Got it, okay. And then on that Raven deal, I know that that enabled you to -- or at least that was your anchor fleet to open another three to four stations. Just curious how that deal -- you know, having those stations in place has changed conversations in that area of the country, and just what you see going forward?

Yes, I mean -- and I think to the extent that some people thought we'd obviously built a lot of stations and didn't -- haven't had them open yet because of the slower deployment of trucks and the kind of the year delay on those trucks, but you know what? The Raven is a perfect example.

If we didn't have those stations built right now, they wouldn't have made that deal -- they wouldn't have been able to make that deal and have those routes to satisfy the Procter & Gamble business. And so, it totally changes the discussion. And it means that right now, as Raven begins to take those, delivery of those trucks, we are able to open these stations that are previously where we spent the capital, and we are ready to open them in a matter of weeks, not in a matter of a year, if you had to build them from scratch.

One other thing I think is important on the Raven deal -- and, of course, these are LNG trucks -- a lot -- we've seen a lot of urban kind of regional haulers use compressed natural gas, and we fuel an awful lot of those. This is really one of the biggest deployments of real long-haul trucks. These are irregular routes, going overnight, hitting many different cities. And our network is able to accommodate that.

So, LNG is a very good fuel for that. And I think that's why Raven went with the 115 LNG tractors.

Got it. Maybe just sticking with the LNG stations, you've now got a number of cold LNG tank solutions in the market for spark-ignited. Is that -- are there actual instances where that enables you to open a station on 20 trucks versus kind of the historical levels, more like 30-plus?

Well, yes, we -- in fact, we have kind of altered our position where -- this is for LNG, of course -- where we can open those stations now with 20 trucks. And in fact, we've done it with less; we've done it with 15. So -- which is nice, because that is -- that's kind of in the wheelhouse in terms of the number of trucks that these guys are beginning to take. And it allows us to open stations.

We've opened -- in the first quarter, we opened another four plus one mobile, was five; we opened actually a station Friday which adds to that number -- six, and plus three more mobile fuelers. So we are able to open them now for 20 trucks. And as I said earlier, we can open them in a matter of weeks when we are ready to go.

Okay, thanks a lot for taking the questions.

Okay. Thanks, Eric.

Carter Driscoll, H.C. Wainwright.

First question, just given the depressed prices for several quarters, I'm sure, maybe hopefully, you're thinking the competitive environment has maybe waned a little bit. And you've obviously purchased some stations in the past.

Has your thinking changed, there might be some strategic assets or stations in particular out there that you might be able to cherry-pick, or maybe even a group of stations? And how that does or doesn't fit in with your current CapEx plans? And then, obviously, with the bullet payment you have due next August.

Well, right. And I think that the downturn in oil prices has probably put some strain on players that maybe have a few stations, and they might be a few truck-friendly stations in a given region.

We have a history of trying to take advantage of those opportunities when we see them. As you know, we bought stations from SoCalGas and Public Service Colorado, and Lone Star Gas and Brooklyn Union Gas. So we made acquisitions from time to time.

I think you will see a couple packages come up. And I can't say much more about that right now. We obviously have to weigh whether or not we think they are appropriately loaded, or if they help our network. You know, we have 257 stations that we own; I guess we actually co-own about 10 of those. And then we operate another 301.

So when you look at a network, I think our next largest competitor maybe has 70 or 80. So, there will be occasions where there may be a node or two that will fit in nicely.

And if a couple of these bigger packages come up, we will look at them. You're right, we have to weigh our cash and where our stock price is, and our ability to take that on. And we have to make sure that it's going to fit our network.

Some of these smaller players and smaller stations that might be situated at a convenience store, it doesn't really fit our model. So we want to be careful on what we look at.

Right. No, that makes a lot of sense. And then you've seen a lot of -- well, you've seen some activity in terms of moving more towards the leasing model and trying to get a -- maybe a discount on the fuel or have it amortized within that leasing price. Can you maybe update us on your efforts in that regard with your partnership? And then I have one more follow-up, if I may.

Okay. Well, we've been doing that for a long time. I mean, you probably -- I mean, we actually did some of the deals like that; in fact, Boone talked about it, and we did some with school districts 15 years ago. So this is something that we've looked at for a long time.

As you know, we have a partnership, a relationship with GE to do that. We've -- they're -- of course, that arm is for sale right now, but it's business as usual. Our sales team and theirs are canvassing about 150 different fleets. We've had 46 different proposals from customers through the GE lease with our fuel wrapped into that. We've actually made a handful -- it's a little better than that, I think about 10 of those deals have actually consummated.

I think in the leasing scenario right now, as you're looking at -- at least what we saw a little bit with GE, with that -- with the downdip in the fuel price, it put some pressure on guys who are out leasing diesel product to really scratch their head and wonder if they want to now go lease a natural gas truck. But I think it's -- you know, one of our competitors recently announced a deal like this -- it's a good way to go.

There's enough fuel savings in there where you're really able to put somebody into a natural gas truck in a similar -- same price as a diesel truck, where you're offsetting the incremental, and you're able to make it up with the fuel price over time with the fuel contract. So it makes a lot of sense. And we -- it's part of our package. Our 80 salesmen all have this as one of their tools in their bag. And so, yes, you'll see more of it.

Okay. And then maybe if you could just give us an update on -- well, maybe not an update, but maybe your qualification of what you've learned with the NG Advantage structure right now. What's been maybe ahead of schedule? What's been maybe behind schedule? Or in terms of signing up customers, has that been faster or slower, maybe even kind of the average size of what you've done so far? I know it's been relatively few in number so far, but if you could just qualify how you're performing in that.

Yes, well, we're very pleased with NG Advantage. And even in this tighter oil environment versus fuel oil -- because you know we are competing with fuel oil mostly in that. And we're still able -- NG Advantage is still able to offer 25% to 30% savings.

So the International Paper, this is different than the trucking business where there's thousands of fleets and millions of trucks, and all over the place. There's a more defined geographic location, and also there's only 10 or 15 International Paper plants. Now they're huge consumers of fuel, and we're very proud of that International Paper deal, because I mean, in that one deal is 5 million gallons.

And -- so we are really very focused in NG Advantage of those type of customers. They're in the Northeast; they're in the middle Atlantic. And we are pleased the way that's going.

We've signed up several more customers since we acquired that business. In fact, it's a high-class problem. We are getting ready to be out of capacity at those two stations that we have, one in New Hampshire and one in Vermont. We're going to have to add capacity to it. So, yes, we have high hopes for the way that business continues to develop.

Okay. And maybe just squeeze in one more and I'll ask kind of the ubiquitous question. From a trucking perspective, have you seen any noticeable shift between CNG and LNG? Is it really still more of a return to base focus for CNG, and longer haul more focused on LNG? Do you still have that (multiple speakers) --?

Well, I still think that's the case. I mean, I've been clear on that -- we like the way we are positioned because we do both. And you know, I think right now we are at 70% LNG and -- or, I mean, 70% CNG and 30% LNG. Obviously, we've had some big wins recently on a couple LNG fleets.

I do think that when you're in an urban environment, return to base, you know what? CNG is probably the right fuel. And when you are a longer haul over the road, irregular routes, LNG is going to make a lot of sense for fleets. And so we are well-positioned to do both.

A lot of our truck-friendly stations, about half of them now of the ones that we've built, have CNG as well as LNG. So, it's whatever the customer needs. But I think you are right. Over time, longer haul will probably shift a little bit toward LNG. And, I think return to base, in urban environments it's pretty tough to compete with the CNG. I think that will be the preferred fuel.

Yes. Okay. I'll get back in the queue. Thanks for taking my questions.

Okay. Thank you.

Rob Brown, Lake Street Capital.

On your Redeem business, what's sort of your gallon capacity in that business? Can you continue to grow that sort of without limit? Or is there a limit there?

Well, if you've ever heard our man that runs that business, Harrison Clay, he'd tell you -- he will give you very large numbers. I mean, if you look at the country, and you look at digesters and agriculture and landfills, you can get to some very large numbers. I mean, many tens of billions of gallons.

So I think -- in fact, I was talking with Boone about this about a week ago. He wondered how big could that business really be? It's pretty large. Now there will be certain areas where it will make more sense, and maybe too far away from the transportation market or too far away from the grid to be able to put that fuel in. I think it can be very large.

We expect to grow our Redeem business -- more than double it this year. And we are now bringing in more third-party gas than we ever before with certain deals that we are doing. So we're bringing in lots of fuel. The advantage that we have over many others in this business is that we have the stations to be able to get this into the transportation fuel. So that gives us a leg up.

So we have some fairly large third-party producers that are bringing this fuel, and they want to get it to us to be able to get it into our transportation network. That's where you get the full value of this, is to be able to get it out of the landfill or get it out of a digester, but get it into the vehicle tank. And we are uniquely positioned for that.

So, we are beginning to see more and more traction where, for instance, LA MTA is going out to look for Redeem. Well, they use 50 million or 60 million gallons a year. So you're beginning to see fleets recognize the importance of being able to use, really, the cleanest commercial fuel available in the country -- in the world, for that matter.

So, we like it. Our customers, as evidenced by UPS and others, like it and understand it. When they look at wanting to be sustainable -- and I know this sounds touchy-feely when you start to talk about sustainability, but they are serious about it, these big companies -- it's one of the most impactful things they can do to hit their sustainability goals. And so -- yes, we -- it adds revenue for us and adds a nice margin for us, and our customers like it.

Okay, great. Thank you. And then you mentioned the Agility deal a little bit. Where are you at with that? How many sort of trucks have you sold there? And how is that being received in the market and your customer?

Right. So, the -- just for everybody else, Rob, we have made some -- we call them tank deals, right? So we made some deals with Chart and Agility, where we have been able to get some special pricing for Clean Energy customers. We passed that pricing on to the customers. We've -- our first offering with Chart was oversubscribed, and so we're moving on to the next tranche of LNG tanks there.

Agility, as you know, it wasn't signed as early as the Chart one, so we're just kind of getting going on that. But I'll tell you what, it's one of things I mentioned in my remarks is, when you are able to really bring 20%, 30% out of the cost of a tank package, you get your customer's attention. And it's meaningful, and it really offsets this reduction in the savings between diesel and natural gas.

So it's very meaningful. And I have no doubt that over the course -- especially with this new deal with Cummins Engine Company and Agility, that really makes this, I think, even a better offering. And I have no doubt that we will -- before the year is out, we will make substantial progress on moving through all those tanks.

Okay, good. And then last question, just sort of big picture. What's sort of your latest thinking on the penetration rate in the trucking market this year with the current commodity environment? I guess the refuse market as well?

Well, the refuse market -- and I'm out of the business of predicting how many trucks, right? So you're going to have to -- if you want truck numbers, you're going to get that from Cummins or somebody that's a little closer to it.

We haven't seen, Rob, a fall-off. And, in fact, I think if you put in the big UPS order for the 2015, I think we're going to all be pleasantly surprised that it's holding up very well. We haven't seen customers -- the few customers that we had that have been on the fence, are still on the fence.

And -- but the customers that -- the 600 or 800 or so that we have in our pipeline, we haven't seen anybody run for the exits because of this. They know that the price of the oil and diesel is volatile.

I think, frankly, we've already seen the price come up. Here in California, diesel is about $3.30-some-odd-cents; in other parts of the country, it's lower. Gasoline, of course, is up dramatically nationwide and here in California. So we are seeing the price kind of come back.

I really think that with these big investments that you've seen, these companies and the more product that's available and more product offerings, I feel pretty good about the way that the adoption rate is going.

We see more customers taking more trucks. And we still have some that are starting out with a 10 or 15, but you know, the Raven is a good example, where they had 75 trucks and now they're taking another 115. They're talking about taking even more. Dillon Trucking is a very good example and what UPS has done. You know, Ryder has quietly fielded 900 natural gas trucks. And Penske, I think, is up to a couple-hundred.

So you're beginning to see these really major fleets continue to take trucks. And so, obviously, much higher oil price and diesel price would probably give more acceleration to it, but I feel pretty comfortable that we are -- it's going along pretty well.

Okay, great. Thank you.

Noah Kaye, Northland Capital Markets.

Thank you for taking my question. Just wanted to follow-up on the question on Redeem. The RIN markets for cellulosics continue to be valuable, as you start to expand this part of the portfolio. Can you talk a little bit about where your margins are at right now for Redeem?

And how much of that is coming from the credits? Is there a way to think about that?

Yes. Well, I mean, certainly, part of that margin comes from the credit. We won't probably go out and get into exactly what that margin is. But the thing is, is that with the Redeem, those credits, there is a real market out there. That's one of the things that we've really seen driving this whole product line, is that with the -- you know, being 90% cleaner to diesel, and the whole renewable sustainable environment, it's driving a lot of big players to say they want some of it.

And so that's making the credits a very valid -- there's a very valid fluid market for that. And so it kind of factors in there like we are doing most all of our other fuel deals, where we've got kind of the cost of gas plus. Right? And so that factors into the equation.

It's just I can't tell you exactly what that number is, but it's meaningful. And it aligns with the flow of gas. So it's not kind of a separate credit that's dangled out there. It's as we fuel, those credits are generated. And so it goes right lock-toe in step with the flow of green gas, as we call it.

And there's plenty of runway, in your view, for the growth of biogas within that tranche of the RFS, correct?

Correct. Yes. That's -- one thing is the supply -- so the supply market is -- there's definitely supply out there, absolutely. And it's plentiful. I mean, there's a lot of landfills out there that are producing a lot of methane that's just going up in smoke and burning into the atmosphere. And so that's where the supply is coming from. And we are a good taker of the supply because of our distribution network.

The methane has to be upgraded to your pipeline quality biogas, correct?

Well, right, I'm sure.

So you are -- but you believe that there's plenty of biogas supply out there for takers? So is this basically a takers' market for you right now? Or are you supply-constrained in any way?

We are not supply-constrained at the moment. But I mean as folks realize that they're going to put kind of essentially almost the same natural gas into whatever they're fueling, but yet this is renewable, truly renewable gas, that's 90% cleaner than diesel, then all of a sudden it starts to get pretty attractive. Now -- and so there's a lot of economics that surround all that, but -- because these plants are pretty substantial that you put on these landfills and buries and whatever it is to capture this stuff. But the supply is kind of -- is growing.

Obviously, Noah, if you had -- for instance, in this -- in the California market or Southern California market, if the LA MTA, which is the largest transit fleet in the United States, if they shifted over to biomethane -- we would like to think Redeem -- well, that would be 60 million gallons, right, annually that would show up. And so that would make a big impact on the availability. But right now there's plenty of supply available.

Okay. And final point --

It's more than what people would imagine.

Okay. Great. Finally one unrelated question. You touched on NG Advantage and obviously the transportation market. Can you give us an update on the rail opportunity, what you're seeing out there? Any major tenders coming? How would you kind of characterize that market opportunity?

Right. I think the rail opportunity is going to be very large. And as we've discussed on these calls before, it's a 3 billion or 4 billion gallon annual market with just a handful of players. I know one of the top-tier players has 6,600 locomotives that, on average, use 800 gallons a day. So you're talking about significant usage -- and savings.

What I can tell you is right now, the two -- the only two locomotive manufacturers in the US are both bringing natural gas product to market. And three -- at least three, maybe four, but I know for sure three of the Tier 1 rail companies are all in tests. Now one of them, I think, is a little further along than the others, where they're out actually on open track with four different locomotives right now.

So, yes, they are moving along. Of course, these are long-lived assets; the locomotives are 30-year assets. So you're going to see a lot of the fleet be converted. I'm told right now that they are feeling pretty comfortable they can get to 70% displacement; that is, they would use 30% diesel and 70% natural gas. That's significant savings.

And so, yes, it takes a while. There's Federal Railway Administration rules and there's a couple other groups they've got to go through in terms of the LNG tank car tenders. But all of this is doable and all workable. And I think you will see the rails in the next year or so begin to bring this into their fleet in a meaningful way. I think, frankly, it's going to go faster when it goes than the marine.

And you expect this will be an LNG opportunity rather than CNG?

Yes, it will be LNG. And just so I am clear, but we are not really allowed to say too much here, is we are working with all those Tier 1 firms right now.

Okay, great. Thank you so much for the color.

You're welcome.

Andrea James, Dougherty & Company.

Thanks for taking my questions. The gallons delivered were up nicely sequentially and year-over-year at a better mix. The question is how much of that is tied to some of the recent announcements you've made? Or I guess put another way, what's sort of the time between you announce something like the Raven or the most recent UPS deals, and when it shows up in the numbers?

Well, I'll let Bob -- let me tell you what I think it is, and then Bob, if he has something that I'm not quite familiar with. So like the Raven, we haven't seen any volume yet. We have some existing business with Raven, but those new 115 haven't been delivered yet.

So, it kind of depends, I would say, anywhere between -- it kind of depends on what they've ordered. And you're talking about it from the time they are willing to let us announce or the fleet is willing to announce, by the time they receive a truck, that can be three or four months.

Now the UPS -- let me make a caveat there -- the UPS volumes, those trucks are fueling already in Southern California. And so that could start immediately.

And when we made a recent -- I don't know that we have an announcement, but we made a recent addendum to our national fuel agreement with Dillon, well, Dillon Trucking is already running trucks. And so now they're going to begin to use three or four of our other stations. So that will come on immediately.

But when it's a new ground up, they have to get those trucks -- we may have to build a station and so there is a lag.

It's gradual.

It's gradual.

So we'll see some of it, but it doesn't all hit at once, but it's moving.

The other thing that we see is in the -- it's just a little bit more mature, Andrea, is like refuse. There's a very established pattern of when they go before their companies and they do their budgets, and then they order their trucks, and when they begin to take delivery of the trucks.

That's why we always kind of see a little bit of a lull over the wintertime in the first quarter. And then they begin to -- because they do their budgeting, I think, in like September or something, then they begin to take all those trucks, begin to show up March through kind of the third quarter. And so we see kind of a bulge coming on the refuse side.

And how many stations are you guys operating now?

Well, we operate 500-and -- over 550, 557, I think. We own about 257 and we operate about 300.

And America's Natural Gas Highway, how many of those are open?

So there are about 40 as of a few days ago; there's about 43 of those open right now.

And that's double year-over-year?

Yes.

And how many are like kind of built but ready to go?

50.

Okay, so you're almost -- you've almost --

We are making headway. And we've got eight more that will be open, that are already slated to be open by the end of August. And then we have about another four that are kind of a little bit -- we are just waiting to sign those deals. And there will be others this year.

So I hope -- you know, we can't control this exactly; it kind of depends on the adoption rate of the trucks -- but I hope that, over the course of the year, we'll get another 20 or so open. So then we will be down to where we only have about 20 to go or so in that number.

Okay. And then forgive me this one, your diluted shares outstanding fell a little bit. Can you please remind us again what that's tied to?

It's exercise of options -- and how much are you talking about? During this quarter or kind of from last year? Like the year-over-year?

Well, yes (multiple speakers) a little bit. Go ahead.

Because we had a -- back in late 2014, we took out about 4 million shares related to a warrant with GE. So -- and just the accounting treatment was -- we determined that that -- those shares wouldn't be in our outstanding shares. So there was about 4 million that just kind of came out at the end of last year.

So when you compare, say, this year to last year, same quarter -- you're seeing that fairly significant number come out of our shares, which was just kind of an accounting entry, if you will.

Got it. And even sequentially, they're down a little bit too?

Yes. And that's from -- that's just normal exercise activity of options on that, yes.

Thank you. Appreciate it.

Pavel Molchanov, Raymond James.

Thanks for taking the question. Of your volumes in Q1, how much came from NG Advantage?

What's in the industrial? What's your industrial number?

Yes, close to 5 million, just a little shy of 5 million. I think it's like 4.7 million or --.

Okay. And that reflects a full quarter of your ownership or majority interest, I should say?

It does.

It does.

Okay. And on the -- when I look at the income statement, the minority interest income that this quarter looks like a positive $380 million, I assume (multiple speakers) -- $380,000, I'm sorry. Yes, indeed. That includes the debit for external owners of NG Advantage?

Correct. That's what it relates to.

Okay. And any other kind of variable interest entities in there?

No.

In that minority interest line?

Correct.

Okay. That's all I had, guys. Thank you.

Okay. Thanks.

There are no further questions at this time. I would now like to turn the floor back over to management for any closing or additional remarks.

Thank you, operator. And thank you, everybody, for joining us today. We look forward to updating you on our activities in the next quarter.

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