Clean Energy Fuels Corp.
Q3 2014 Earnings Call Transcript

Published: 24 Oct 2014

[Operator:]

Welcome to the Clean Energy Fuels Third Quarter 2014 Earnings Conference Call. (Operator Instructions). I would like to turn the conference over to your host, Tony Kritzer, Director of Investor Relations. Please go ahead, sir.

[Tony Kritzer:]

Thank you, operator. Earlier this afternoon Clean Energy released financial results for the third quarter ending September 30, 2014. If you did not receive the release it is available on the investor relation section on the company's website at www.cleanenergyfuels.com where the call is also being webcast. There will be a replay available on the website for 30 days. Before we begin we would like to remind you that some of the information contained in the news release and on this conference call contains forward-looking statements that involve risks, uncertainties and assumptions that are difficult to predictable. 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 October 23, 2014. 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, Rick Wheeler. With that, I’ll turn the call over to Andrew.

[Andrew Littlefair:]

Thank you, Tony. Good afternoon everyone and thank you for joining us. I'm going to keep my prepared remarks short today and focus on the key drivers of the business rather than provide a laundry list of deals we completed. In the third quarter we delivered more gallons than any other quarter in the company's history growing our volumes 22%. This growth is across the board and includes our established businesses like transit and refuse and our new business like trucking. All told we reported 68.5 million gallons delivered during the quarter up 22% from the third quarter of 2013. We also generated a 103 million of revenue in the third quarter up from $86 million or roughly 29% excluding VETAC. This quarter our adjusted EBITDA was negative $2 million, which is a 57% improvement over last quarter. We've made steady progress towards adjusted EBITDA breakeven over the first three quarters of this year. Recall our adjusted EBITDA was negative $6.8 million in the first quarter, negative $4.7 million in the second quarter, and negative $2 million this quarter. So you can see that we're getting very close and we're on the path to profitability that I’ve been discussing. We have recently completed two important strategic moves with NG Advantage and Mansfield. With our most recent accusation of a controlling stake of NG Advantage, we will deliver large volumes of natural gas to energy intensive customers beyond the reach of a pipeline. We believe this will be a high growth market for us, and the proceeds from our investment will be primarily used to prefund growth CapEx for the company for the next two years. NG Advantage will be a complementary business with our installed compression infrastructure, and is also attractive to some of our existing locational customers, who will be able to utilize cheaper natural gas for both their vehicles and their facilities. I would also like to take a moment to provide some more background on the Mansfield joint venture announcement we made earlier in the quarter. For those of you who are not familiar, the bulk fuel hauling market, and that is the delivery of gasoline and diesel, uses about 3 billion gallons of diesel a year. Mansfield Energy is the largest behind the gate fuel provider in the country, and they have strong partnerships with over 900 petroleum hauling carriers nationwide, hauling for them every day. With this new venture, Mansfield will work with their haulers to transition their fleets to natural gas. We just opened the first partnership station in Atlanta. This is a very attractive new vertical for us, because similar to our refuse market, these fuel haulers operate out of centralized fueling hubs and consume a lot of fuel on their dedicated routes. We plan on opening several more stations for this bulk fuel hauling market over the next year. In Transit, Refuse and Fleet Services, I want to highlight another year of 20% year-over-year aggregate growth. In the quarter, we opened six stations in six states for our refuse customers to bring our year-to-date total to 19 refuse projects. So far this year we have completed 49 station projects for ourselves and our customers in our various market sectors, and we have about 28 additional station projects under construction, which should be complete by year end. In transit this year, we signed up bus fleets or have done major upgrades in Dallas, Tampa, Kansas City, Las Vegas, El Paso, and Long Beach, along with seven others. These new transit partners contributed to us delivering more gallons than ever before in that sector. We continue to see strong interest and growth at transit agencies across the country. In our heavy duty trucking market, we see more fleets testing and ordering more trucks, and we expect engine orders to grow over last year. So while this particular market has been a little slower to develop than the industry initially anticipated, we continue to sign new fueling deals and open stations for customers, and are seeing existing natural gas truck fleets increase their orders. I think it's worth emphasizing that the recent dip in oil prices doesn't eliminate our significant economic advantage over diesel. While oil prices have dropped 20% since June, natural gas prices have also come down over 13% during that time frame but diesel prices have only dropped 6.5%. So our fuel still offers substantial savings. Plain and simple, our customers save more money using natural gas as a fuel. The more fuel they use, the more they save. The biggest hurdle to widespread adoption is the incremental cost of the trucks. With higher volume, the incremental cost will come down. We are still in the early stages and we're working with all of the leaders in the natural gas fueling space to bring down the incremental costs of the trucks. This includes leasing programs, LNG, tank and cylinder deals, network fuel deals, and dealer education. We also now offer a low-cost option to modify fleet maintenance facilities. We are doing whatever it takes, and will continue to do what it takes to provide solutions for our customers. Recently, we announced a deal with Dillon Transport, which is one of the largest truck deals we have ever signed. We will be opening three truck-friendly public CNG stations to support Dillon's growing fleet of 200 natural gas trucks which are anticipated to consume 2.5 million gallons of fuel per year once they are fully deployed. This is an example of the type of deals we're working on that enables us to continue to open stations for customers across our network. Remember that this is a new market but is growing, it has momentum. And it'll keep growing. As Joel Feucht Caterpillar's General Manager of Natural Gas engines said recently, it is not going nearly as fast as the hype people expected, but it is probably going faster than most people appreciate. I would like to provide an update on our capital program for the remainder of the year and into next year. We're on pace to spend approximately [$85] [ph] million in CapEx this year. As you all know, we have already invested in building the initial network of stations across the country, and we feel is well-positioned to meet current demand and future demand. As we look forward to next year, we believe our CapEx will likely decrease, and we will be discretionary depending on specific customer needs. We are now acutely focused on continuing to open those stations with anchor fleet customers, and increasing utilization at existing stations. At the end of the third quarter we had $265 million of cash on the balance sheet. We’re going to continue to watch our overhead, be disciplined with our capital and grow our volumes. With that I will turn the call over to Rick.

[Rick Wheeler:]

Thanks Andrew. Before I review our financial results, I would like to point out that all of my references to our results will be comparing the third quarter of 2014 with the third quarter of 2013 and the first nine months of 2014 with the first nine months of 2013, unless otherwise noted. Volumes rose to 68.6 million gallons during the quarter, up from 56.4 million gallons a year ago. For the quarter, our CNG volumes were 47.6 million gallons, our RNG volumes were 3 million gallons and our LNG volumes were 18 million gallons. For the first nine months of 2014 volumes increased to 192.7 million gallons, up from 158.9 million gallons. One thing to keep in mind when looking at our LNG volumes is two of our big legacy transit customers are in the process of converting their LNG buses to CNG buses. As they do this, our LNG volumes are decreasing, and our CNG gallons are increasing. In the third quarter of 2014, this transition caused our LNG volumes to decrease by 800,000 gallons and our corresponding CNG volumes to increase by 800,000 gallons. So factoring this into our LNG gallon change between periods and also factoring in a reduction of 800,000 gallons, in our one-off LNG sales that can be lumpy; our LNG volumes were up 19% between periods. Included in this number is an increase in our LNG trucking volumes between periods of 900,000 gallons. For the quarter, revenue increased to $103.4 million, up from $86.3 million for the first nine months of 2014 revenue increased to $296.8 million, up from $267.5 million a year ago. When comparing our numbers between periods, please note that the quarter ended September 30, 2013 included $6 million of volumetric excise tax credit, or VETAC revenue, and the first nine months of 2013 included $38.1 million of VETAC revenue. We did not record any VETAC revenue in 2014 as the law for VETAC expired December 31, 2013. Adjusted EBITDA in the third quarter of 2014 was minus $2 million, compared to adjusted EBITDA of $4.2 million in 2013, which included $6 million of VETAC revenue. For the first nine months of 2014, adjusted EBITDA was minus $13.5 million, compared to $35.4 million last year. Please remember the first nine months of 2013 included $38.1 million of VETAC revenue, and also included a $15.5 million gain on the sale of our vehicle conversion subsidiary, BAF and a $4.7 million gain on the sale of our ownership interest in our Peruvian joint venture. On a non-GAAP basis for the third quarter our reported loss was $0.27 per share. This compares with the non-GAAP loss of $0.16 per share in the third quarter of 2013, which included the $6 million of VETAC revenue. For the first nine months of 2014 our non-GAAP loss per share was $0.86 and was $0.19 per share in the prior period. Again please remember the first nine months of 2013 included $38.1 million of VETAC revenue, and also included a $15.5 million gain on the sale of the BAF, and 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 noncash or non-recurring charges or gains, which are not core to our business. Adjusted EBITDA and non-GAAP EPS are described in more detail in the press release we issued earlier today. Our net loss on a GAAP basis for the third quarter was $30.1 million, or $0.32 per share. This compares with a net loss of $18.8 million, or $0.20 per share. For the first nine months of 2014, our net loss on a GAAP basis was $91 million, or $0.96 per share. For the first nine months of 2013, our net loss on a GAAP basis was $34.7 million, or $0.37 per share. Our gross margin this quarter was $19.4 million, which compares with $31.5 million in 2013. For the first nine months of 2014, our gross margin was $68 million compared to $100 million in 2013. The gross margin for the third quarter and the first nine months of 2013 included $6 million and $38.1 million in VETAC revenues respectively. In the third quarter of this year, IMW encountered some manufacturing and production issues with a large mining power project in Australia and recorded a $4.7 million loss on the project during the quarter, which obviously had an impact on our overall margin number. Our margin per gallon on our fuel sales this quarter was down a penny from last quarter to $0.28 per gallon. Our SG&A expenses were down $6.2 million from the second quarter of 2014. On July 1st of this year, we initiated an effort to cut our SG&A costs over the last half of the year and it has been effective. It is nice to see these efforts having a positive impact on our financial results. The cuts have pretty much been implemented by September 30. I anticipate our SG&A number in the fourth quarter would be relatively consistent with the third quarter, before the impact of including NG Advantage's SG&A costs, and our results for the fourth quarter. Our interest expense is up between periods primarily due to the interest charges we are incurring on our convertible notes that we issued in September 2013 and the Canton bonds we issued in March 2014. Our cash balance including restricted cash and short term investments totaled $265.1 million at September 30, 2014 which we have available to fund our future cash needs. With that operator, please open the call to questions.

[Operator:]

(Operator Instructions) Our first question comes from the line of Rob Brown, Lake Street Capital Markets. Please proceed with your question.

[Rob Brown:]

First on your SG&A expenses nice progress there in getting them lower. But you said that should continue as a run-rate without adding NG Advantage, can you give us a sense of what NG Advantage would add to that?

[Rick Wheeler:]

Probably a couple million dollars a year of SG&A and then we may ramp that up a little as we hire additional salesmen, and expand the reach of that business and opportunity across the country, but it is in that magnitude.

[Rob Brown:]

And then second on the, I think you talked last time about the heavy duty truck business. What sort of the number of fleets that are trying Natural Gas at this point, or working with you at this point and where are they at in their thinking about transitioning to bigger fleet rollouts?

[Andrew Littlefair:]

This is the same question we have dealt with a few times. The fleet number continues to grow. I don't have that right on the tip of my tongue. Last time I think I told you 230 different fleets we are working with. I know that as I got briefed, we reviewed a strategic, at a senior meeting that we had here the other day, there were more fleets I had not seen before on our list. I know that list continues to grow. I’ve noticed that of those that have taken a handful of trucks kind of in the beginning, we're seeing some of those come back with larger orders. I wouldn't say that they're still, that they're normal buying type numbers yet, but we have seen kind of the numbers begin to tick up from what I would kind of consider really test kind of numbers, just a handful, to for instance, the Dillon one the other day we announced, he has taken 86 new trucks and that's obviously, he's already operating about 100 some odd trucks. We like that when we see those fleets that have some experience now begin to move their numbers up.

[Rob Brown:]

I know you said things were going a little slower, but what is sort of your thought on looking into next year? How do you sort of see this maybe relaxing a little bit and people start ordering more from their trial period? What is sort of your view on timing at this point?

[Andrew Littlefair:]

Rob, it's hard. I wish I could answer those things for you, I will crystal ball it for you. But our experience in the refuse market is one that I just have to draw upon. We saw what happened there, and I would say this is kind of going like that. These guys take, and listen - someone made a good point on our team this morning. After all, this is what these guys do. They operate trucks. So they take this very seriously. This is not like they are just trying out a different desk chair or something. This is what they operate and how they make their money. It shouldn't surprise any of us that they're wanting to make sure that these things work right, and that it fits their duty cycle. And so like we saw in refuse, they start out with a handful, and then they begin to get more confidence, and then begin to add to other areas, and it begins to go up. I think you're going to see that next year. I like the fact that we’re working with hundreds of fleets. I am hoping that next year's numbers, though I'm not going to give you one, I think next year's numbers should be greater than this year. In the refuse business, if you can draw any comparison there, it went from 3% in the first year, or 150 trucks out of 5,000 new ones to 8, and then it went to like 10 or 12, and then it went 20, 25, and it went up that way. Let's hope that's what happens here. I would say Rob, just finally on that, it sounds like the experience has been pretty good on the way these trucks are operating. They're not quite as efficient as the diesels, and so that is something that we continue as an industry to work on. But they are still affording the operators great savings per mile and per gallon. I'm optimistic that you're going to continue to see this market grow and grow.

[Operator:]

Thank you. Our next question comes from the line of Eric Stine, Craig Hallum. Please proceed with your question.

[Eric Stine:]

On the Mansfield JV, you talked about the one station opening soon, and opening a handful over the next year. Wondering longer term what you think that opportunity could potentially be, and then just also once one of those stations is up and rolling, I mean is there kind of an approximate number of trucks you would expect to utilize that station?

[Andrew Littlefair:]

Typically and I'm now laying out my business plan for everybody to hear, but typically these locations, and that is why we like it, it's not too dissimilar as I said in my remarks, as refuse. These trucks go to terminals, right? They go to the rack where they pick up gasoline and diesel. We know where they go every day. The opportunity here is to put these stations either at those terminals, or darn close to them, where those trucks go back, in many case they go there once or twice a day. There are hundreds of these locations around the United States. We have a team working very - our Clean Energy team along with the Mansfield guys, working very closely together. They've cataloged a lot of these terminals. They've put down which ones they think are the best near term opportunities. And we think we'll bring on several more next year and that'll be the case each year for the next few years. It's a big market. I don't know exactly how fast it'll go. The nice thing Eric, in this, is working with the Mansfield folks we're not going to spec these stations. These are going to be base loaded on day one. They will start just like the one is in Georgia. I think it is base loaded with 20 or 25 trucks, and it'll grow up to about 40 here very quickly. They'll come on and contribute almost immediately.

[Eric Stine:]

Maybe then just turning to NG Advantage, just thoughts on a little bit longer term what you see as the overall volume opportunity beyond Pembroke and Milton in replicating those locations elsewhere?

[Andrew Littlefair:]

Right, let me give you kind of a, just what - this is a little new to us. Not as new to the NG Advantage folks. I'm very proud of what we're doing there. You have got to give credit to Tom and Mary Evslin that started that business; they really spotted a great opportunity for those people that were not on a pipeline. They have a really nice, attractive offer to people that don't, that aren't on pipelines. They're able to really save these industrial customers 40% from using fuel oil. The customers, the nice big fat customers that you like to look to as you begin to develop these other locations are those that use 250,000 gallons of fuel, or a fuel spend of somewhere between $750,000 or $1 million a year. That's a customer that you would begin to look at citing a location. And then, Eric, you kind of fill in with smaller, still good sized fuel users, but you might build a station that would base load a big station, which may be a paper plant or pulp/paper facility. You fill in the regional hospital, and some of the aggregate guys that are nearby. As we look at the areas that we see right now in New England, we believe there's probably something close to 15 BCF of demand that is not on a pipeline. So a big market for us, New York, the adjacent New York area is probably that size and larger. So it's big, a pretty good sized volume for us. So we're very excited about it, we think we can help NG Advantage grow faster. We like this combination because not only can we sell our compressors into those facilities, but it also really allows us to use some our existing infrastructure in that part of the world that is underutilized, that we'll be able to tap into and move some fuel, to probably a little bit smaller industrial users, but wow, if you used your compressor that's really sitting pretty quiet at nighttime, that might be fueling trucks during the day, and are able to put several thousand gallons in a night, that station it just looks wonderful. So we’re pleased with what we see. We're starting a study in other areas that have similar terrain, similar pipeline penetration, and types of industries. We're going to stay focused at first, rather than run all over the country. There are locations like this all over the country, Arizona, California, but we know right now where we have existing infrastructure and where we're, we have good capability and we have presence with sales people and technicians on the ground. We can augment what NG Advantage is doing, and I think speed it up.

[Eric Stine:]

Just to clarify, the margins on that would be better than where your margins stand today?

[Andrew Littlefair:]

That would be right, Eric. We're not going to get into the exact, but I guess as you look at -- no, and I appreciate that -- but they're good margins. Over the years we talked about sort of the transit margins and the fully retail margins. They're not quite retail but they are healthy margins compared to some of our skinnier margin businesses.

[Rick Wheeler:]

North of average.

[Andrew Littlefair:]

And Rick just said they're north of our average margin that you're seeing there today, for instance.

[Operator:]

Thank you. Our next question comes from Laurence Alexander with Jefferies & company. Please proceed with your question.

[Laurence Alexander:]

Two questions, can you give an update on what percentage of your customers are currently operating on contracts versus retail, and any differences that you are seeing in selling prices? Secondly, as you have had ongoing discussions with potential new anchor fleets, are the terms that they're looking for changing in any significant ways, are they becoming sort of more interested in taking on risks themselves, or are the size of the fleets changing? Can you give us some sense of how that discussion evolving?

[Andrew Littlefair:]

Sure. Rick on the first part of his question, in terms of contract versus retail. I know the retail is in the 20 some-odd percent range.

[Rick Wheeler:]

Yes, I was going to say 10%, 15%, 20% it varies, but it is in that magnitude. The rest of it is contracted.

[Andrew Littlefair:]

I would think though, Laurence, as you kind of think in the future, and we open up more and more of these truck stops, some of that will have a higher percent, some of that will be under contract, right? Because people will agree to give them a volume discount, so there may be a contract. Others of it will be retail. So I think what I have always said, though we are doing well in transit and other places, I think over time the retail component of it will go up some, as compared to where it is today as we penetrate the heavy duty trucking market over time. That number should continue to go up. Pricing, obviously, depending on what your customer wants, depending if you building them a station, or if they're asking for a fuel discount. Pure retail is higher than our contract prices. So that was the first part of your question. The second part of your question, let's see --

[Rick Wheeler:]

Yes, exposure on the commodity. Really we have not seen much if any desire to get into the fixed pricing contracts from our customers. So I think they're kind of okay with floating with the market. Certainly on the Natural Gas side we feel pretty good about the pricing and those types of thing.

[Andrew Littlefair:]

Certainly our customers they like the notion that we -- and we think it's a strength of ours that we have a network, right? Many of them are seeking a price throughout our network and that has one pricing element to it. Some customers are wanting their own stations. Some of them are willing to spend money and do it themselves. Others are asking us to build it for them. So every fleet is a little bit different. Those fleets that tend to have their own vehicles, Laurence, they typically are the kinds of operators that like to have their own equipment, have their own fueling stations in their back yard. Typically they want to deploy their own capital to do that. But a lot of fleets don't do it that way. So that's where our retail struck stops come into play. And other regional locations where's they're happy to fuel. So I don't if that helped you at all. It's a little bit of everything out there.

[Laurence Alexander:]

I guess the other questions, as you think about the build out of the NG Advantage network, how much of a sort of direct synergy is that with your existing fleets, or is it more that it's going to build out in parallel to your current customer base?

[Andrew Littlefair:]

It's somewhat different. There are some places where is it overlaps. For instance, our Pembroke station happens to be on a piece of property next to Associated Growers, where they have 60 or 80 trucks running out of there every day and they've already taken delivery on the first Natural Gas truck. And it would seem to me I hope, it would natural for them to begin to phase in natural gas trucks, because they have to drive by it on the way out of their facility. So there will be locations like that. I mentioned in the remarks and maybe it was not that clear, but we're doing business now with the ready mix folks. We're beginning to see ready mix fleets turn over to Natural Gas and fueling stations in at places where ready mix trucks are based. Also aggregate guys are also candidates for this, for NS Advantage and the virtual pipeline. There will be an overlap there certainly. There will be an awful lot of opportunities for industrial, where a paper plant may have a trucking fleet, but the plant itself uses a lot of fuel, and they may not have a fleet where it makes sense. A regional hospital is a good candidate for the NG Advantage solution, and they don't have a fleet. There will be occasions where our trucking fleet, where there's a nice overlap, but there will be an awful lot of it where it won't overlap.

[Operator:]

Thank you. Our next question comes from the line of Andrea James with Dougherty & company. Please proceed with your question.

[Andrea James:]

I guess what was your reaction when Volvo said they would slow down their engine development? Were you disappointed and did it change your plans at all for opening up the America's Natural Gas highway stations?

[Andrew Littlefair:]

No, of course we're disappointed. We want as I have said before, we want more product. We want Navistar to the come to the market; we want Volvo to come for the market. I always recall back to my Chief Operating Officer, Mitch Pratt, has been with me now 13 or 14 years, he joined me that long ago. That was the day that Cummins announced they were getting out of the Natural Gas engine business. So we over time have seen these OEMs come and go, depending on what they are facing and see how they perceive the market. Of course we wanted Volvo to come with a 13 liter engine without getting into too much detail, and talking out of school about Volvo. We know that the Volvo folks in Europe are very much interested in Natural Gas engines. We also know that the Volvo USA was pretty comfortable with putting a 12-liter Cummins into the Volvo, and just had not quite bought into the program quite like the folks in Europe. We wish it would be there. I think over time it might. I never say never on those things. Those things have a way of changing as they begin to watch the market. Once upon a time there was three or four Natural Gas heavy duty engine manufacturers making engines for trash trucks, and then it just went to Cummins, and there was only one body manufacturer, and now there are nine. We will just have to watch. Has it changed anything for us? No, it hasn't. We would like more engine product on the market, but it hasn't changed anything. The one exception I would take as to what Volvo said, is they talked about they're putting this on hold because of lack of infrastructure.

[Andrea James:]

Yes. There's plenty of it -- they were only thinking they were going to make 500 of the trucks in the first year.

[Andrew Littlefair:]

We can fuel all of those in two or three of our stations. I'm not sure that's exactly right. We are ready and hoping that Volvo and others and we continue to have dialogue with all of those companies and we hope that they will be back in the market.

[Andrea James:]

I appreciate the history and then also the acknowledgement of the infrastructure comment because I thought the same thing. And then it just seemed for me a silly question, but the falling price of crude. Your stock has been trading in line of crude, right? Is that fair.

[Andrew Littlefair:]

Right.

[Andrea James:]

Is it affecting your conversations as a whole?

[Andrew Littlefair:]

No, and you've said this before, maybe last quarter or some time, you just said we are just kind of trading. And I think everybody in our space is really trading very closely to the crude. We still see today, I don't know exactly where Natural Gas closed, but earlier today, it was still oil versus Natural Gas was 21.2 to 1. So we still have a tremendous advantage comparing diesel to Natural Gas. When you look at diesel today gosh, we are still seeing pretty expensive diesel out here in certain parts of the country. Gasoline has come down greatly. But if you look at our business, and we look closely at diesel, we're seeing $3.66 diesel price that we're competing with. And so we, in most places we're still able to offer, if not that full magic $1.50 a gallon we're darn close to it, $1.40 – $1.35 and so there is still a tremendous savings per gallon and savings per mile. I think the market, since they're trading that way, I think they're not fully appreciating that our economic advantage is really still in place. Now look you go to $50 or $40 oil or something then it probably changes for a minute. But where we are today, we have not seen that impact that much.

[Operator:]

Thank you. Our next question comes from the line of Caleb Dorfman with Simmons & Co. Please proceed with your question.

[Caleb Dorfman:]

First question, just referring back to the volume, I know last week you had a preannouncement that your CNG volumes we 50.6 million gallons and I think Rick said there were 47.6 million gallons. What's the difference?

[Rick Wheeler:]

Basically that 50 was our CNG volumes and our Redeem compressed natural gas volumes that we deliver to our customers. Those Redeem natural gas volumes; they get eliminated in our gallon totals, because it is Clean Energy Renewable Fuels, our subsidiary selling them to Clean Energy so they don't show up. So it is just a little different way of presenting our CNG volumes, but they were over 50. It was a record. We felt darn good about it, but just to avoid that confusion in the future, we're not going to do that anymore, we are just going to go with our traditional CNG definition.

[Caleb Dorfman:]

Okay and thinking about the bio-methane volumes, seems to be stuck at 3 million gallons for a while. When are we actually going to see growth in that business because I know that we hit 3.6 million gallons back in Q4?

[Andrew Littlefair:]

Right. So we should see those volumes begin to tick up. We had trouble with a couple of our operating facilities, some weather related. One of them was slow to come up. The other had some operating problems. You're exactly right, we've been flatter than we would like. We are about 3 million gallons below where we thought we would be at this time. The good news is that we have them all back-up and running and we have got our new plant in Tennessee now running well. Our Mission facility that had its share of problems is now back running. Not quite back to where it was, but it's pretty close. Our McCommas, our Dallas facility is off its peak, but it is about 95% of where it should be. So you'll see those volumes come up some. Where we're making pretty good head way, is we are also adding, as Ricks alluded to, also adding a lot of third party volumes and in selling that as Redeem and that's growing significantly as well. I think last year we sold 14 million of those gallons, closer to 20 million this year. So you're right, those production facilities have been a little bit snake bit. But they're back now on line and I think you're going to see those tick up.

[Caleb Dorfman:]

I know you wanton to provide guidance, but is there any road map for how fast and how much we should expect those volumes to grow, if you just indicated that you thought you would be 3 million gallons ahead of where we are right now?

[Rick Wheeler:]

No, on your intro of we do not provide guidance. No. I think tattoo answered your own question there.

[Andrew Littlefair:]

If you look back at where they're peaking that should have been closer to where they should have been operating and if you go back and look at that, one of those wasn't finished yet. So now that's on, without giving you a number to shoot at, you can go back a little bit and look at what we’re doing now and figure out where they should be. They'll be up from where they were.

[Caleb Dorfman:]

Okay, final question. How do you think about your longer term financing needs? You have a maturity coming up in 2016?

[Andrew Littlefair:]

We're feeling comfortable about it, but we're going to be careful. We’re going to continue to look at reducing on the expense side. We were successful this year in trimming some. We're going to do that again. We're going to try to be good stewards of the money that we are spending. We are going to make sure that we are right sizing our organization for the market that we see. There is more work to be done there. The CapEx -- we don't want to peg a number as we sit here today, but it'll be less than it was this year. As you look at it, I wouldn't expect that we would spend, there are always, could have something come up but I don't think that you should think that we would spend anywhere near what we spent this year. So the burn rate on the capital side should be quite a bit, substantially less. The way we look at it, we're in pretty good shape to get through 2016. We are also doing some things. We’ve some assets that I think we might be able to do some things with to create a little bit of cash. And we're feeling really comfortable that we should be able to get through 2016 easily. The volume is coming up nicely. We should have plenty of cash on hand to handle that, and also fund our CapEx in 2015 and 2016, and gets us somewhere into 2017.

[Operator:]

Thank you. Our next question comes from the line of Pavel Molchanov with Raymond James. Please proceed with your question.

[Pavel Molchanov:]

We’re two weeks away from the election; not asking to you opine on the politics, but what do you think is the prospect of getting a VETAC reinstatement in the lame duck session?

[Andrew Littlefair:]

We follow that pretty close, as you know. It looks to us like, and you remember VETAC is part of the bigger, broader extenders bill. It's I don't know, a $68 billion to $72 billion package. We are a very small part of that. Our folks there look at this a lot. It looks today, as we sit here, that the alternative fuel, VETAC stuff is in that broader extended package. It looks to us like there is pretty good bipartisan support for the extender package. If you're not going to overhaul the tax code, there will be a need to do the extenders and make them retroactive for 2014 and 2015. As we talk to the leadership, Senate Finance Committee, and actually the House leadership, it looks to us like everybody is sort of in tune or thinking that there's a good possibility that the VETAC and the tax extenders would get dealt with in the lame duck. Having said that, there is also a recognition, depending on how the leadership changes and the Senate changes, or not, that it may be that the wouldn't take up the tax extenders until early in 2015. But I feel good that at least there's support for it to get it done. If it happens in the lame duck, of course, I would like that better, but it may not. It may drift off into -- usually they don't do much in January, my guess is it would be if it missed the lame duck, it would be February or early March. But predicting what's going on up there is pretty difficult, but I think there is good support for it.

[Pavel Molchanov:]

On the Redeem RNG business, obviously the EPA came out a couple months ago, and said that it qualifies for cellulosic RINs, has that driven demand at all? Or is that irrelevant from the standpoint of your customer base?

[Andrew Littlefair:]

I'm not an expert on all of the ins and outs of what's happening there at the EPA and how the pricing. I think they haven't set those numbers yet. We don't know what those sort of new values will be for that cellulosic.

[Rick Wheeler:]

Classification.

[Andrew Littlefair:]

And so they have not done it yet. They have not set them. So we don't know what it is, I think it's generally good for us all the way around. It gives us, makes our fuel more valuable. And our customers are liking it and so I think it all bodes very well for that, for our business.

[Operator:]

Thank you. Ladies and gentlemen, I would now like to turn the conference back over to Andrew Littlefair for closing comments.

[Andrew Littlefair:]

Good. Thank you operator and thank you everyone for joining us today. We look forward to updating you on our progress next quarter. Thank you.

[Operator:]

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