Clean Energy Fuels Corp.
Q1 2008 Earnings Call Transcript

Published: 19 May 2008

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Clean Energy Fuels first quarter earnings conference call. During today’s presentation all parties will be in a listen-only mode. Following the presentation the conference will be opened for questions. (Operator Instructions) This conference is being recorded today, Thursday, May 15, 2008. I would now like to turn the conference over to Ina McGinnis of ICR. Please go ahead.

[Ina McGuinness:]

Thank you, Operator. Earlier this afternoon Clean Energy released financial results for the first quarter and is March 31, 2008. If you have not received the press release, it is available on the Investor Relations section of the company’s website at www.cleanenergyfuels.com. This call is being webcast and a replay will be available on the company’s website for 30 days. Before we begin we would like to remind you that some of the information contained in the news release and on this conference call consists of forward-looking statements that involve risks, uncertainties, and assumptions that are difficult to predict. Different reflecting expressions reflecting optimism and satisfaction with current prospects, as well as words such as believe, intend, expect, plan, anticipate, and similar variations identify forward-looking statements but their absence does not mean that a statement is not forward-looking. Such forward-looking statements are not a guarantee of performance and the company’s actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in the risk factor section of Clean Energy’s Form 10-K filed with the SEC on March 19, 2008. These forward-looking statements speak only to the date of this release and the company undertakes no obligation to publicly update any forward-looking statements to reflect new information, events, or circumstances after the day of this release. Participating in today’s call for the company are President and Chief Executive Officer Andrew Littlefair and Chief Financial Officer Richard Wheeler and with that I’d like to turn the call over to Andrew Littlefair.

[Andrew J. Littlefair:]

Thank you, Ina, and good afternoon, everyone. I’d like to begin today’s call by discussing the extremely dynamic environment in which we are currently operating. Fleet operators continue to experience extremely challenging times with record oil and diesel prices with no real signs of a significant reversal of this trend in sight. We all know oil prices have reached $126 a barrel and while natural gas prices have increased as well we are still seeing about an 11

[Richard R. Wheeler:]

Thanks, Andrew. For the first quarter of 2008, our revenues increased to $29.9 million which is up from $28.2 million in the first quarter of 2007. Adjusted margin for the first quarter of 2008 was $8.6 million which compares with $7.7 million in the first quarter of 2007. Our net loss for the first quarter of 2008 was $5.4 million or $0.12 per share which compares to a net loss of $0.9 million or $0.03 per share in the first quarter of 2007. The two largest contributors to our increased loss between periods were the gross margins on our fixed price contracts which I will discuss in a second, and the increase in our SG&A expenditures between periods. In the second quarter of 2008 we incurred an additional $2.5 million of stock-based compensation expense, an increase in marketing expenses of $1.3 million, primarily related to supporting the California bond initiative Andrew mentioned earlier, and the salaries and benefits increase of $1 million primarily related to the hiring of additional employees and pay raises. Non-GAAP loss per share in the first quarter of 2008 which excludes employer-related stock-based compensation charges was $0.07 per share and was $0.03 per share in the first quarter of 2007. Our volume was 17.6 million gallons in the first quarter of 2008 compared with 17.8 million gallons in the first quarter of 2007. As we referenced on our last call, we had a couple of lower margin customers that we did not renew between periods and new customers and fleet expansions at our existing customers made up a majority, but not all, of the lost volume. Let me highlight the improvements in our adjusted margin per gallon between periods which increased from $0.43 per gallon to $0.49 per gallon. The economics of our remaining volumes actually improved between periods. As I mentioned earlier, one element that impacted our financial results in the first quarter of 2008 was a decrease in our gross margins on our fixed price sales contracts which was caused by the increased cost of natural gas during the period. When natural gas prices increase, our margins on these contracts get squeezed. This scenario will also likely present itself in the second quarter if natural gas costs continue to increase through the second quarter as of today. The good news here, however, is this impact will be drastically reduced in the second half of 2008 when our largest fixed price contract expires on June 30 of this year. They have responded to an RFP for the contract beginning July 1, 2008 and we are awaiting word on the awarding of this contract. Once this contract expires, our operating results will improve significantly as we will no longer have the drag on our actual margins from this contract which is currently being fulfilled at a loss based on current natural gas prices. Adjusted margin attempts to approximate the results that would have been reported if the underlying futures contracts related to our fixed price and price cap contracts would have qualified for hedge accounting under SFAS No. 133 and were held until they matured. Non-GAAP EPS in essence calculates EPS excluding non-cash stock-based compensation charges that have related tax benefits. Both of these metrics are discussed in more detail in our press release that we issued earlier today. With that, Operator, please open the call to questions.

[Operator:]

Thank you. Ladies and gentlemen, at this time, we will conduct a question and answer session. (Operator Instructions) Your first question comes from Brian Gamble - Simmons and Company

[Brian Gamble:]

I was hoping to talk a little bit more about the contract that you signed recently. I know you gave volumes around one of them but was hoping maybe to get a couple additional details of your opinion on potential volumes either for specific contracts or maybe for the lump of four together as to maybe be a little more discreet about the volumes for each individual one.

[Andrew J. Littlefair:]

Let me just refresh here. Brian, do you have specific ones in mind?

[Richard R. Wheeler:]

He’s thinking of the ones we just kind of ran through.

[Brian Gamble:]

Fresno, Brookhaven, you gave the volumes for Las Vegas but then San Fran, the lot of them together.

[Andrew J. Littlefair:]

Brookhaven is about 750,000 gallons moving up. Fresno I think we mentioned what it was. What are the other ones here?

[Brian Gamble:]

I guess the San Fran is the only other one with the volume.

[Andrew J. Littlefair:]

The way that you should think of taxicabs is sometimes is more than this, but just about almost everywhere in the United States a single shift taxicab uses 5,000 gallons per vehicle per year. Sometimes it’s more than that but that’s a good rule of thumb.

[Brian Gamble:]

Okay, that’s fair, and then in looking at the City of Phoenix contract and that rolloff at the end of June, any additional details you can provide on what type of timing they’re looking at for making a final decision and when we’ll know that you guys are definitely the supplier going forward there?

[Andrew J. Littlefair:]

That really is... It should be any time. It’s within the window right now, Brian, of when they said they would let us know and we could hear something I think in the next week or two. They’ve got to decide something soon, though.

[Brian Gamble:]

That was my thinking as well. It seems like the longer it drags on, the more likely that you guys are the winner there. Is that fair?

[Andrew J. Littlefair:]

We’d like to think that we provide a very good service with them over time and have a long track record with them and we’ve worked through supply issues over time and other things and we’d like to think that we should receive favorable consideration and have every reason to expect so. So keep your fingers crossed in the next week or two.

[Brian Gamble:]

And then one final question was something, could you break out the LNG and the CNG volumes for the quarter?

[Andrew J. Littlefair:]

I’m going to have Rick... We’re still at about 60/40 but let me see if Rick can be a little bit clearer on that.

[Richard R. Wheeler:]

LNG was 6.0 million gallons. CNG was 11.6 million.

[Operator:]

Your next question comes from Robert Brown - Craig Hallum

[Robert Brown:]

You had mentioned I think last quarter a number of stations that you had in process. I’m just curious where that kind of stands this quarter and maybe a perspective on your pipeline.

[Andrew J. Littlefair:]

Thank you, Rob. Last quarter I told you that we had 20 stations in process at the time. That number actually right now is kind of in that apples to apples comparison is 21. We literally have dozens, I don’t want to put exact numbers on it, but substantially more than that that we have in various stages. Some of those are very soon to be signed contracts and then others would be a little further out. We’ve never seen a backlog as robust as we currently have. We have compressors on order in order to be able to meet this need and that are actually being produced for us now so we feel good about it and the backlog continues to grow.

[Robert Brown:]

Is there a typical sales cycle here or is this kind of a Q4 volume that comes in? Is it 2009? What is the best way to kind of gauge this strong pipeline?

[Andrew J. Littlefair:]

You’re going to get some of this pipeline is obviously going to accrue into this third and fourth quarter. A substantial portion of the pipeline will show up very late this year and in 2009 and some beyond. I think the sales cycle is important to mention because it’s part of the reason we’ve had a little slippage. There is a kind of a long sale cycle in this business. It takes a while to build these stations as I think you know and it takes a while for the customer to order the trucks and train their people and get it into the field so it’s a longer sales cycle than some businesses, anywhere between 6 and 9 months.

[Robert Brown:]

You had mentioned you were working on some other international opportunities. Could you just give us a little more sense for what you’re thinking there and get a little more sense on what international --

[Andrew J. Littlefair:]

We’re careful here because it has to make sense for the company and we have such great, as my Board reminds us and certainly Boon does, we have never seen the stars aligning quite like they are now even in the United States certainly with the heavy duty trucks and with the cost of diesel and the continued pressure on carbon and all the things that we’ve talked about. We’ve never seen our backlog as big, we’ve never seen certain markets coming to us like they are now. But on the other hand, we are the largest in the business in the world and we’re being asked to look at various markets. I, for instance, just to give you an example, recently got back from Thailand. It’s breathtaking what’s going on in Thailand. The king there made a decree about a year and a half ago. Since then they’ve built 100 stations. They want to build 700 more. They’ve already converted 32,000 taxis and other moving and heavy duty and you’re seeing the same sort of thing happen in other places. Some of those places may fit us, some may not. So we’re looking at it hard but we’re also mindful of the fact that we’ve got a lot here as well, so that’s about all I can say about it right now, but we’re looking at it closely.

[Operator:]

Your next question comes from Rupert Merer - National Bank Financial

[Rupert Merer:]

Gentlemen, with the high cost of corn, do you see anything happening on the Federal level that may change the ethanol mandate or the [v-tech] and if so, what’s the natural gas lobby looking like and what’s the chance of getting some kind of Federal mandate for natural gas fuel?

[Andrew J. Littlefair:]

Rupert, that’s a good question. I was just talking to our Federal office this morning. You know, the Farm Bill passed and the Farm Bill recently passed but it didn’t have any of the extensions in it for ethanol or for us. It really got to be difficult politically so it just did kind of the basic farm issues. We have every reason to believe and still believe as do the other alternative fuels that [v-tech] will get extended in the future and not sure what form that’ll take. There has been some talk that there could be an energy tax title later in this Congress and that would likely be a vehicle for extension of [v-tech] and I think the Congress is generally supportive of doing what it can to continue to push the alternative fuels. You know, ethanol has really come under pressure with corn prices and with the associated concern about food prices in the United States and other places around the world. The Sub-Committee on Air Quality, I think it’s the Sub-Committee On Air Quality and Energy of the Commerce and Energy Committee, last week had hearings where they looked at the renewable fuel standard. You recall, this is where they really, that Congress four months ago mandated a increased volume of in the standard of ethanol to be put into every gallon. I think Congress on both sides of the aisle have decided that that really has been a problem. So there’s been lots of discussion about twisting or opening up that RFS to include other fuels more like what we used to ask for which was alternative fuel standards. So I think that natural gas will end up getting inserted into a new tweaking if you will of the RFS.

[Rupert Merer:]

When do you think would be the first opportunity to see a tweaking of the RFS?

[Andrew J. Littlefair:]

Well, you know, they’re having hearings on it now. I don’t think I want to start predicting when Congress is going to pass it up but they’re talking about it now. You could probably go online to those committees and actually see what’s been set. So it’s out in Congress. People are talking about ethanol and now other things in lieu of ethanol so it’s in play .

[Rupert Merer:]

Just a housekeeping question here. We saw a bit of an uptake in SG&A. I know some of that was lobbying efforts and some from the stock compensation but should we expect the run rate in SG&A in Q1 to continue or should we be modeling that as coming off a little bit?

[Richard R. Wheeler:]

Rupert, you know we don’t provide guidance. I will say that the California bond initiative, we will be incurring the bulk of those expenditures in the first half of the year because in theory by then will have incurred the expenses if we are going to continue to support it which I think we will, in order to get on the ballot in November. The stock-based compensation should be pretty flat through the rest of the year contingent on the Board issuing any new stock options which is always a potential but the other stuff should stay relatively consistent with where its at so the big flux is probably just going to be the marketing and the lobbying expenses as we’ve mentioned in the past.

[Rupert Merer:]

Can you give us a quick update on where your outstanding liability is on your fixed price contracts either a dollar value or a gallon value?

[Richard R. Wheeler:]

You’ll see in the Q which obviously is getting filed today, as of March we’re predicting, based on prices as of March 31 that we’ll incur between $6.1 million and $7.5 million to satisfy those obligations.

[Operator:]

Your next question comes from Marvin Loh - WR Hambrecht.

[Marvin Loh:]

On the Port transactions, what’s the latest in terms of a best-case resolution kind of as you see it and maybe if I could flip the coin there, what would the worst case situation be? I know that there’s been a lot of conversations going on and depending on who you read, some of this stuff is very difficult to resolve while others think that it’s something that could just be done fairly quickly.

[Andrew J. Littlefair:]

As I’ve said before, Marvin, it’s complicated because they’re really trying to change the way people at the Port have operated, trucking companies and others, so it’s had lots of pieces to it. In fact, right now the Port of LA and Long Beach, the trucks are rolling today that have been funded and have been approved by the City Council and approved by the Port, the contracts have been approved, they’re actually fueling at our station today, so that I guess is good news but that process to get those first trucks really rolling, there was 17 steps in that process. Now will that process get shorter and will they be able to do it much more efficiently? Yes, no doubt about it. They had to certify... When somebody got the money, it had to go before the City Council, the contracts had to be dealt with, this was the first time. Then even when that was all approved, then they had to show the old truck that they were literally going to drill a hole in the block, then they had to certify how that was going to be done, and this had never been done before. But I feel confident that while it’s been a bit bureaucratic, the ports are trying to put in place a process. We are meeting a procedure that will facilitate a lot of trucks being put on the road. We haven’t seen any loss in the interest and the enthusiasm behind the ports in doing this, it’s just been kind of bureaucratic. So worse case is that things stays a little slow for the next couple of months as these next RFPs get answered and the next kind of series of trucks get sold into the process but I feel like it’s kind of underway now. I think the worst is over. Of course many of you saw in the Wall Street Journal yesterday an article about the NRDC and the Teamsters looking at perhaps filing a lawsuit about the lack of a employee driver program in the Port of Long Beach versus the Port of LA. We think that will get resolved and we don’t think that we’re... I guess we think that with NRDC liking the clean truck program, they’re going to do everything they can to make sure that the program stays in place. So there are more shoes to drop I am sure in this whole thing but it looks to us like it’s coming along.

[Marvin Loh:]

So how many trucks are kind of on the road now, and are all of them just exclusive to Long Beach then?

[Andrew J. Littlefair:]

The first fleet is just now put ting the trucks on the road and I don’t have an exact number, but it ‘s a small number. This is really of that first hundred. The second fleet that’s taking 50 of those is just... I think they’re right behind them into next week and now they’ve gone out to bid and they’ve gone out to other trucking fleets and those orders are coming in now, so we’re beginning to see kind of a next phase of more normalized orders.

[Marvin Loh:]

Jumping around a little bit here, as you look at all of this capital that’s being deployed in building what sounds like a very robust pipeline which has got to be real encouraging, what about the capital needs? You mentioned the potential capital raised about $40 million in the K. What’s your view on that these days and the timing around it?

[Andrew J. Littlefair:]

Go ahead Rick.

[Richard R. Wheeler:]

We’ve actually updated looking at that number. One nice thing that’s really helping us out is the IRS c hanged the rules regarding when we can collect the [V-tech], the $0.50 per gallon we get. They accelerated that where we don’t have to wait to get the bulk of it annually when we still had our income tax return. We now can get it quarterly when we fill out our Federal excise tax returns. That’s helping us to the tune of $12, $15, $17 million. That’s helping a lot. That coupled with the fact... Some of these projects just are a little bit subject to kind of timing delays and permitting and all that good stuff. Some of that slid out of touch. The new number you’re going to see in our Q is we’re anticipating we need about $14 million the rest of the year to fund our business plan. We are first going to go out and try to get debt to fund that cash need and then to the extent that we can’t get debt for some reason then we would look at some other equity fund raising option.

[Marvin Loh:]

Have some of the recent announcements, and I guess Brookhaven is the one that stands out, are they using any of your financing to buy their trucks?

[Richard R. Wheeler:]

More for funding of the stations. They kind of handle the trucks themselves. We may get a little bit involved on the back end of financing but typically they kind of handle the bulk of the truck financing where we use our capital more on the station side. In the case of Brookhaven, we’re actually working with the bank to try to do a lease deal for that capital which will obviously help, kind of a can-do the debt facility route we’re looking for, so our first blush is we would rather have somebody else use the capital but obviously where we need to we will. Obviously the nice thing is that corresponds into higher margin because we’re going to make sure we get a return on that capital so it all kind of works out but whatever the customer wants to do, we’re willing to structure something that makes sense for them that works for us.

[Marvin Loh:]

Just one last quick question. How am I supposed to look at the fact that we’ve had two quarters of sequentially declining volumes now? I kind of understand the loss of some of those accounts in the first half of ’07 but from a sequential basis I wouldn’t have expected a decline, particularly when generally I think it was a lot of people’s understanding that as your contracts became older you would expect volumes to actually increase as they bought more trucks, converted larger percentages of their fleet to natural gas type of vehicles.

[Richard R. Wheeler:]

Absolutely. One thing to keep in mind, the first quarter, February is a short month which surprisingly has a fairly significant impact on us. The other thing is some of our customers are lumpy and as good examples, we have some industrial customers in the LNG side of our business that just depending upon their production processes or their testing cycles, they may or may not buy a lot of product from us in a particular period and it just so happens in the fourth quarter, some of those customers did buy a lot of product from us and they didn’t buy as much in the first quarter of ’08 so there’s a little bit of lumpiness in there, a little bit of February. Another thing that also kind of hits us and again it’s kind of along a lumpy explanation, is the transit agencies just depending upon timing of buys and when we get trucks there and how full their tanks are, those numbers can swing semi-significantly between quarters just depending upon how full their tank happens to be at the beginning of a period versus the end of the period or next period etc. So there is a little bit of built-in flux kind of in the way some of this works that you’re kind of seeing that just happens to be going against us this particular quarter.

[Operator:]

Your next question comes from Ron Oster - Broadpoint Capital

[Ron Oster:]

Not to dwell on the volume number but I guess following on that question, are you seeing growth from your [Gustine] customers as they add new trucks like you previously thought might happen or is that not occurring as quickly as you might of thought?

[Andrew J. Littlefair:]

We’re seeing it and it kind of dovetails into what Rick said. We’re seeing it for instance in San Diego. We’ll see it in Phoenix. I mean, they’re taking delivery of buses now. It‘s kind of funny. Often though when they take them, they get them into their yard, I mean literally 30 and 40 of them, and then they begin to decal them and so they kind of do it in batches often times, so we’re seeing several of our big transit customers taking new product. We’re seeing certainly all of our refuse customers, many of them, taking the add in trucks. So we’re seeing our existing customers add.

[Ron Oster:]

Then with regards to your LNG supply agreements you have with Williams and Exxon Mobile, I believe those are, the expiration is at the end of June? I was wondering if you could give us an update there with regards to if those have been re-negotiated or exactly where those contracts stand.

[Richard R. Wheeler:]

They are both up at the end of June. We’re talking to them as we speak. The interesting thing is just kind of figuring out how that factors in once we get the Boron plant up and going as far as our supply need. We’re just trying to weigh all that and figure out how that’s going to shake out. But the good news is we’ll certainly have adequate supply for our customers. The other big one, the SES deal in Arizona, that one, the plant’s being built, so obviously we’ll be taking supply out of there as well. We’re just trying to sort through all that and figure that out as we speak.

[Ron Oster:]

Would you expect these re-negotiated terms to impact your margins or would you expect similar terms to what you had previously?

[Richard R. Wheeler:]

Don’t know on the specific terms other than in theory we should be okay going forward because we won’t have any fixed price deals going forward or we don’t have futures contracts so we would obviously factor in whatever the rates are we’re going to pay from the supplier when we were calculating the price for the customer. Obviously to the extent it’s index plus, that just gets passed through, so it shouldn’t impact our numbers.

[Ron Oster:]

And on the ports, Andrew I believe you’ve said previously you thought around mid-year you might start seeing about 100 trucks per month roll out. Can you kind of give us an update there? I know it’s slipped a bit. When you might expect to see more of a steady rollout or what your outlook is there?

[Andrew J. Littlefair:]

I’ve been a little ahead of myself I guess on this. I still think that when you see it come, and I still think middle of the year is good, that you’ll see this 100 a month kind of number. I still think it’s a good number. I think it’ll happen in the middle of the year. I do know for instance that one of, I’m not going to give a lot more color on it, but I know one of the larger fleets at the port has ordered 130 trucks. That’s a big deal, so that kind of fits my 100 a month deal, and I think that’s the way it will roll out. That’s about the way the industry, at least right now, can respond, and that’s about as fast as I think you’ll see the process work from the port’s point of view.

[Ron Oster:]

And then with regard to Peru, I think you said previously you have intentions to open up additional stations down there. Any update with regards to timing on the next one or two stations?

[Andrew J. Littlefair:]

No update on that other than we are working on it. We’ve got two or three different ways that will happen. We’ve got a couple green fill locations that we’re negotiating on now, and we’re also working with large [Wickwood] retailer there to do it at little bit faster way. So we’re continuing to pursue that. We’ve got compressor units in stores to be able to respond quickly to that and in fact we have our general manager for Peru here in our offices this week as we’re working on that.

[Ron Oster:]

Last one, Rick, I know you mentioned the $14 million funding required. Is there a CapEx number that you have for this year?

[Richard R. Wheeler:]

Yes, it’s all in the Q, let me look through it. Off the top of my head, CapEx $54.6 million 2008 to construct our natural gas fueling facilities and that’s exclusive of our plant which we anticipate will be roughly $50 million this year to finish it up. Those are the CapEx numbers as we sit here today.

[Ron Oster:]

And does that incorporate the 20 stations or is there more built into that number?

[Richard R. Wheeler:]

That would factor them in.

[Ron Oster:]

The 20 or an additional --

[Richard R. Wheeler:]

Additional target stations that we just haven’t identified yet that will come out of that pipeline we were talking about earlier.

[Andrew J. Littlefair:]

Ron, it covers the 20 plus.

[Operator:]

Your next question comes from Graham Madison - Lazard Capital Markets.

[Graham Madison:]

A lot of my questions have already been answered, but just a couple. Have you seen just given that the outlook is just getting increasingly better for natural gas vehicles, have you seen any pick up in the number of competitors out there or other players looking to get into the market?

[Andrew J. Littlefair:]

You know, we’re hearing rumors here and there of a few. We haven’t seen anything substantial. But it seems like there are some others sniffing around the business. We’ve heard that on the LNG side. We haven’t seen a dramatic yet but I think it will happen. As I’ve said before, if it goes the way we think it’s going to go, you’re going to have some other people get in this business. That doesn’t bother me for a couple of reasons. We’re way ahead of our competitors and we’re working with some of the nation’s largest fleets and have contracts with them and we’re at key locations already and the market’s huge. When I mentioned just kind of casually the regional trucking market, I don’t have the exact number off the top of my head, but that’s many billions of gallons. So there’s a lot of room in there for others as well as just us.

[Graham Madison:]

Then also, as you’re starting to work with the bigger fleets, are you seeing more opportunities for sort of pull through contracts where you’re working with a company in one area and then other regions are starting to come in and look to it?

[Andrew J. Littlefair:]

With the same company?

[Graham Madison:]

Yes.

[Andrew J. Littlefair:]

Yes, we see that. We’re doing that right now with UPS for instance and others. Sure. We’re seeing it in the refuse, some of the major refuse companies, that’s certainly the case, where we’re in California and other parts of the country where they serve. We’re seeing it with some of the trucking companies that we’re talking to right now.

[Graham Madison:]

Just one final question. Are there any thoughts of potential acquisitions out there just for some of the smaller players or is that anything that you guys have looked at in the past?

[Andrew J. Littlefair:]

You know, we’ve done it in the past and we’ve looked at it and we continue to look at it. There aren’t that many that I think we believe would be strategic, but there are some opportunities out there and we look at them.

[Operator:]

Your next question comes from Eric Stein – Northland Securities.

[Eric Stein:]

A lot of my questions have been answered but just a couple quick ones. On the LNG stations at the ports, I know you opened your first one in December. On the last call talked about being in various stages with the next two. Is your plan still to be at five within the next 18 months or is that kind of being timed based on that the ports were taking a little bit longer?

[Richard R. Wheeler:]

It’s a good question. Obviously we try to adjust it to hit the timing but these things take a while so that hasn’t changed. In fact, we may even have added a couple strategic locations in the Inland Empire since we last spoke that we think need to be built. We’ve made progress on those other two. We’ve gotten through some contract issues on the next very large ones. It’ll be the largest LNG station every built and we’re very excited about that. That’ll come on I think with very nice timing with the rollout of these trucks. So the plan still hangs together. Maybe it’s expanded a little bit.

[Eric Stein:]

This is just Peru and internationally. The CNG station opened I know. Once it’s up and running and at full levels you’ve said 5 million GGEs a year is a good way to think of that. Other stations and other plans there and in other countries, would that be considered large or what’s a good volume to think of just as a general rule?

[Richard R. Wheeler:]

The 5 million is a good number and it’s really predicated on having three pieces in Peru and all these countries are a little different but in Peru for instance, at that station, that contemplates taxis, which we’ll just call it the light duty sector. Then it also contemplates some stationary sales. In Lima you’ve got some large manufacturers that want to use natural gas and so we’ll be hauling natural gas in tube trailers that are already on station there. That should start very soon. Then the third component there is that station is built to handle transit buses, city buses, which Peru wants to do. In fact, when I was down there just I don’t know, two weeks ago, whenever it was, they finished kind of their rapid bus lane freeway down the middle of their kind of freeway area, so that’s kind of coming in place. The west port engines have made it to the country so that bus volume will begin to pick up. So my point is there, that station is somewhat unique. Some stations we’ll build down there won’t have that kind of volume. They’ll still be very profitable but they won’t maybe be a transit station. Our experience you know though and our expertise is doing some larger heavy duty stations. We know how to do that. So we’ll tend to tilt toward that where we can because of the volume. But like in Thailand, it’s really light duty right now and so if you were to look at that, those volumes won’t be quite as high. They’re very busy stations. It’s awesome to go there and see 200 cars in line, but they’re not taking 50 gallons at a pop like a transit bus, they’re taking three. So I’d say 5 million is on the high end and usually they’ll be lower than that, 1.5 million would be a good station.

[Operator:]

Your next question comes from Jack Walker – Peninsula Capital Management.

[Jack Walker:]

Rick, I wanted to see if you could give us a little more granularity on some of the recent contracts you’ve announced and specifically given where natural gas prices closed today, almost $11.50, and then CF, what kind of pricing are you able to negotiate on a long term basis?

[Richard R. Wheeler:]

The great thing about our deal is that even if gas is $11.50 or $12.00, when you do the divide by 8 math to get it into per GGE equivalent, let’s just say that’s $1.20, and take that number, add on $1.00 to cover costs and some nice profit and add on another $0.25 or $0.30 to add on to cover taxes, just for fun add on another $0.50, that gets you up to $3.00 per gallon which is still $1.50 cheaper than what people are paying for diesel in and around LA. So we’re kind of the benefactors of just having a cheaper fuel in that there’s so much room between what we can charge and still make good margins relative to what their options are from looking at gas and diesel that we’re not getting huge squeezes on our deal. We’re still making good margins. In fact, our adjusted margin per gallon actually went up between periods so we’re being able to capitalize on that spread between oil and natural gas that Andrew mentioned earlier.

[Jack Walker:]

Excellent and Andrew I also wanted to follow up on a comment you made earlier on the call about regional trucking fleets possibly entering the market. Where do you stand in conversations with those customers and is there a potential to see one of those contracts in 2008?

[Andrew J. Littlefair:]

I think there is potential for that in 2008. We’re meeting with a lot of them. The sales team is meeting with them, I’ve met with them personally as well. Keep in mind that until recently you didn’t have a product for them. The industry did not have really a suitable Class A over-the-road type, I would consider regional trucking engine. You do now and as I mention these others that are responding to the port, sometimes I use port as kind of a code word for regional trucking. A lot of the same people that haul out drayage out of the port, they also do regional trucking. So if it makes sense for the ports, it’s also going to make sense for these regional haulers, and as I’ve talked to some of these regional haulers, you know over the years, most of their business models, they’re able to pass through the fuel costs. They don’t, many of them, I’m not saying all of them, I’m not a trucker either. But many of the trucking fleets didn’t take much fuel risks or were able to pass onto their customers. Well their customers are very sensitive now from when diesel went from $2.80 to $4.60 and it’s creating a great deal of pressure, so the best thing we could have for our business is when we have the trucking fleet’s customers like Wal-Mart, like these other companies like that, coming back to the trucking company and saying, “Hey. What else you got for me? Are there other solutions here?” So one of the things that you’re going to hear more and more from us is you know when you really look at heavy duty vehicles, natural gas is the only economic answer, solution, that’s out there, and people are beginning to figure that out. Boone was very good at talking about to 2000 people in Las Vegas on this very subject, and you know, it is biodiesel. Sure, you can create in the United States a couple billion gallons of biodiesel and that’s it, and it’s more expensive than diesel. So when a trucking firm looks at the future and they really begin to believe that diesel’s going up and it’s going to be more expensive, natural gas is the only solution, and we have it today, and it works in an engine that they’re used to running. So I think there will be some of those announced in 2008 and we’re very excited about it.

[Jack Walker:]

Excellent news. In the past you guys have done a really excellent job framing out what the opportunities have been with your different fleet operations, be it taxis or refuse trucks. You want to take a stab at what the addressable market might be for the regional truckers?

[Andrew J. Littlefair:]

I don’t want to throw out big numbers. It’s a big market. It’s probably bigger than all the other markets.

[Operator:]

Your next question comes from Eric Swergold - Gruber & McBaine Capital Management.

[Eric Swergold:]

I’m not sure I totally understand the business model. If I look at where natural gas prices have gone sequentially, quarter, and year over year, sequentially up about 20% and year over year up about 25% and looking at revenue growth and the range of low single digits roughly over the last five quarters, does that mean you’ve lost roughly 20% of your volume meaning if natural gas had not been up 20% to 25% over the last year, would we be seeing revenue declines of 15% to 20% for the company?

[Richard R. Wheeler:]

It’s a good question. I guess I don’t think of it that way. The only reason it’s a semi-hard question to answer is there’s so many components. We’ve got fixed pricing, index plus pricing, we have retail pricing, and the revenue on all those is impacted --

[Eric Swergold:]

Well, price times volume equals revenue, so if price went up 25% and volume went down a lot --

[Andrew J. Littlefair:]

For instance, what Rick’s getting at, remember Phoenix. Largest customer, you lose money in every gallon you sell there, so that impacts what you’re asking. I mean, right now you’re losing $0.40 a gallon on every gallon you’re pumping there. Now thank goodness, as we said earlier, that comes off in June, so we’re done with that one, and so that has a great deal of impact on what you’re seeing.

[Eric Swergold:]

So if natural gas prices were to retreat back to where they started the year, what would that do with your revenue forecast for the remainder of the year?

[Richard R. Wheeler:]

t would take it down, and again, keep in mind, revenue oscillates and fluctuates based on the price of natural gas, which is why we focus more on margins which is where I was going there. If natural gas goes up and we’re in an index plus situation with our customer, the price and the revenue is going to go up or down based on the price of natural gas. Yes, whatever our margin per gallon is, that’s what we’re going to be making in both those scenarios. So that’s why we don’t 100% focus on the top line of revenue. We look more toward what’s our margin per gallon, which is also why we put out that adjusted margin per gallon statistic because that shows you what this business from its true operating perspective under a normalized situation where we would have held onto our futures contracts relative to our fixed price deals, what our operating results would have looked like. So we look at it more from a margin perspective, not a revenue perspective because of a lot of the time we just pass on the cost of natural gas to our customers.

[Eric Swergold:]

Okay, and if you look at it from a margin perspective, then do you hedge case by case contracts? I mean, theoretically on the Phoenix contract, is the reason you lost $0.40 a gallon because you weren’t fully hedged? You only hedged part of the long term contract, or what’s the reason you would have that kind of loss?

[Richard R. Wheeler:]

You might want to call so we can go through this but we’ve had some historical hedging practices where we basically got out of some contracts that we originally had which is causing us to be in the situation where we’re at today. Going forward we have a new policy whereby we won’t be in this predicament today and if we do offer a fixed price deal to a customer going forward, we will purchase the underlying futures contracts, lock in the economics, try and qualify for hedge accounting under 133, therefore you’ll see a normalized operating margin in our numbers going forward and we won’t be economically exposed to a situation where natural gas prices are going to increase.

[Operator:]

Your next question comes from Ron Oster - Broadpoint Capital..

[Ron Oster:]

Just one quick follow up. I was wondering with these 20 stations you have under construction, is there an average volume you can put on these stations or just trying to get some visibility with regards to volume growth we might see from these 20 stations once they’re at full capacity.

[Richard R. Wheeler:]

No and that’s tough and that’s kind of why we focus more on volume in general, and the reason for that is a lot of the newer stations where you’re building are going to be bigger and are going to generate more gallons per dollar. The biggest and best example of that is the port station. In the case of a port station which will obviously be in the LNG side of our business, those can be 3 million, 4 million, 5 million LNG gallons a year and those cost $1.5 million or $2 million relative to a CNG station that for that same $1.5 million, it may do 1.5 million or 2 million gallons a year just simply because it’s limited by the amount of compressor capacity that it has at the site and that’s because it can only compress gas so fast so --

[Ron Oster:]

Can you tell me based on your current fleet, your current network of stations, what the average is per station?

[Richard R. Wheeler:]

I guess we could do the math by just taking our gallons and dividing by 170 stations we have. The problem there is a lot of our old legacy stations are very small and are kind of nodes on certain taxi networks in certain cities around so you could certainly do that but I’m not sure it’s going to be representative of where we’re at from an operating perspective today nor where we’re going to be going forward.

[Andrew J. Littlefair:]

You know Ron, don’t, this is dangerous, because I don’t want you to multiply this times 20 because that’s Rick’s point, that some of those are the LNG stations, they’ll do a few million gallons, but you don’t build stations in today’s world, I mean some of the older stuff we have, you don’t build stations today that won’t do 400,000, 500,000, 600,000 gasoline gallons in light duty, you just wouldn’t do that, and they’ll be more than that.

[Operator:]

Ladies and gentlemen, that does conclude our Clean Energy Fuels first quarter earnings conference call. Thank you for your participation. This call is available for replay. If you would like to access the replay, you may do so at any time by dialing 303-590-3030 and entering in the passcode number of 3868622. You may also dial 1-800-406-7325 and entering in the passcode number of 3868622. Again those numbers are 303-590-3030 and 1-800-406-7325 and the passcode number again is 3868622. Ladies and gentlemen, ACT would like to thank you for your participation and you may now disconnect.