Clean Energy Fuels Corp. (CLNE) Q1 2015 Earnings Report, Transcript and Summary

Greetings, and welcome to the Clean Energy Fuels First Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only-mode. A brief question-and-answer session will follow the formal presentation. [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 am 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 millions 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 a $9.1 million in construction project that were essentially complete at the end of the first quarter, but the revenue cannot be recognized. And 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 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 international sales? Despite all of these 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 and stall and service new light weight compressed natural gas fuel systems for class VI through VIII trucks. Cummins Engine Company and Agility Fuel Systems announced strategic partnership that will include hardware and software tech natural gas engines and Agility Fuel tanks. Cummins Westfort announced that it will begin testing their spark ignited natural gas engine which is capable of producing near zero Nox emissions years ahead of the 2023 PA requirement. Ford motor company announced that in 2016 the F150, the best selling vehicle in the country will come with gas prepped engine. And Ford Landi Renzo announced they will be offering new F150, F250 and F350 natural gas trucks after market. Power Solutions International acquired power train integrators which will give PSI much greater reach in the GM on road engine and platform capabilities. This will open new opportunities for them through freight line or GM and other OEM offerings. And last month Peterbilt introduced two new models LNG powered truck configurations to their line up of natural gas vehicles. One silver lining of this lower oil prices is that the industry is responded by working to reduce incremental cost in natural gas trucks. Partly due to our tank programs with Agility and Chart. In certain truck configurations we've seen tank and engine prices come down more than 25%. This is great news as it helping to drive adoption. Turning for 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 long haul multi state trucking customer. They will now be fueling a 184 LNG trucks at 14 Clean Energy stations in eight states throughout the South East. 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 Food to build a private CNG fueling station to fuel 64 trucks at their Oak Farms Dairy plant in Houston, Texas. We have 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. And in our rough use 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 year. We should build over 35 stations projects for our customers this year, a record number. And we expect a record number of trucks to be deployed. Currently, we feel about 8,900 trucks for our refuse customers each day. In a transit market, Dallas area rapid transit added 63 new CNG buses. They now operate a natural gas fleet of 568 buses in 232 para transit 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 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 challenge in the first quarter. Some of that is due to the global decline in oil which soften their sales and some of that is due to the strength in US dollar. However, we have right sized 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 IMW was somewhat of a drag in Q1, it is getting better in Q2. There are still global demands and we recently receive 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've been supplying redeemed all of our public stations in California since launching it about a year and 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% clean than diesel. This deal sends a strong message to the transportation industry. UPS continue to be 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 nice a contributor to our margin and revenue and we continue to be very bullish on the growing an environmentally relevant business. Our new virtual CNG pipeline business NG Advantage has made solid progress. They are recently awarded a contract to provide compressed natural gas to international papers by 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 cost 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 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, everyone. It is 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 under four areas. Volumes and the associated increased revenue, margin for 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 cost and additional RIN credits. Our SG&A spending remain under control at approximately $30 million for the quarter, an improvement of nearly 10% over 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 upward our cash and investments at $220 million at the end of March 2015. Now the challenges we face in a 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 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 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 accounting requirements and thus will be recognized in the second possibly third quarter depending on certain external factors outside our control. This was about $9.1million in station revenue that was deferred outside the first quarter and which Andrew indicated as well, most of that's 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 cost. That impacted our top line revenue by $3.7 million when compared to 2014, although most of this did not drop down into our margin and due to the lower cost. Our adjusted EBITDA for the first quarter of 2015was 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 in 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 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 encumbered long-term asset along with our own internally generated cash as we look forward towards positive EBITDA and a possibility of further VETC 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 will open the call to questions.

[Operator Instructions] Our first question comes from the line of Eric Stine with Craig Hallum. Please proceed with your question.

Hi, everyone. Wondering if you can just talk about what are you 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. That continues. Just to -- for our friends who maybe aren't quite as familiar recall that shippers, we use that term to the companies like Procter and Gamble or MillerCoors, these are large consumer companies that may not have their own trucking fleet and they actually go out and hire contracting fleet -- contacted carriers for them. And as you know we talked to dozens if not more than hundred of these companies trying to make sure they understand the sustainability games by natural gas and also that the cost of the fuel. And we do it now in a constructive manner with our trucker friend because obviously the shippers and the truckers are very close. And so we continue to see the shippers, Eric, move forward. Procter and Gamble as you know I think has 20% mandate in place for its carriers. Raven fit in their -- they do some Procter and Gamble work as I think they also do some for MillerCoors. We have seen MillerCoors would be aggressive wanting to have hauling at a lot of their different breweries move this direction. Kroger has their own fleet but they are also been very aggressive. So we continue to see these shippers Colgate Palmolive, Home Depot and others. So I think it is going to be a bigger and bigger move because they are savings on the fuel and there is a great sustainability gains to be have. They wanted to do 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 enabled to you -- that was your anchor fleet to open another three to four stations. Just curios how that deal has -- having those stations in place has changed conversations in that area of the country and just what you see going forward?

Yes. I mean I think to the extent that some people thought we obviously build lot of stations and didn't have -- we haven't had them open yet because of the slower deployment of trucks and the kind of year delay in 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 and 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 at our previously where we spent the capital and we are ready to open them in a matter weeks not in a matter of year if you have to build it from scratch. One other thing I think is important the Raven deal and of course these are LNG trucks. We are not-- we have seen a lot of urban kind of regional haulers use compressed natural gas and we feel a lot of those, this is really one of the biggest deployments of real long haul trucks. These are irregular routes going over night, 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 150 LNG tractors.

Got it. Maybe to sticking with LNG stations, you have 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?

Yes. We in fact we have kind of altered our position where -- this is for LNG of course, where we can open those station out with 20 trucks. And in fact we have 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 to open stations. We've opened -- in the first quarter we opened another four plus one mobile five, we opened actually a station Friday which adds to that number six and plus three more mobile fuelers. So we are able 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.

Thank you. Our next question comes from the line of Carter Driscoll with HC Winrate [ph] Please proceed with your question.

Hi, guys. How are you? First question just given the depressed prices for several quarters, I am sure maybe hopefully you are thinking the competitive environments maybe waned a little bit and obviously purchasing 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 have few stations and then they might be a few truck friendly stations in a given region. We have a history of kind of take advantage of those opportunities when we see them. As you know we bought stations from SoCalGas Public Service Colorado, Lone Star Gas and Brooklyn Union Gas. So we made acquisition from time to time. I think you will see a couple of packages come up. 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, 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 network, I think our next largest competitor maybe has 70 or 80. So if there will be occasions where there maybe an order to that will fit in nicely and if couple of these bigger packages comes up, we will look at them. You are right we have to weigh our cash and or stock prices and our ability to take that on. And we have to make sure that's it is going to fit our network. Some of these smaller players and smaller stations, they might be situated at a convenient store; it doesn't really fit our model. So we wanted to be careful on what we look at.

Right. Now that makes lot sense. And then you have seen lot of -- well you have seen some activity in terms of moving more towards the leasing model and trying to get maybe discount on the fuel or have it amortized within that leasing price. Can you update us on your efforts in that regard with your partnership? And then I have one more follow up if I may.

Okay. Well, you know we've been doing that for a long time. I mean you probably - I mean we actually did some of deals like that in fact Boone talked about it, did some with school districts 15 years ago. So this is something that we looked at for a long time. You know we have partnership, relationship with GE to do that. 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 GE lease with our field rep into that. We've actually made handful so better that I think about 10 of those deals have actually consummated. I think in the leasing scenario right now as you are looking at, at least what we saw little bit of GE with that with the down deep into the fuel price. It put some pressure on gas or diesel product to really scratch their head more and if they wanted to now go and leasing that for gas truck. But I think it is -- one of our competitors recently announced deal like this. It is good way to go. There is enough fuel savings in there where you are really able to put somebody into a natural gas truck at a similar same price as a diesel truck where you offsetting the incremental and you are able to make it up with the fuel price over time with the fuel contract. So it makes a lot of sense and it is part of our package, our 80 sales men, they all have this is one of their tools in their bag and so yes we will 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. We are very pleased with NG Advantage. And even in this tighter oil environment versus fuel because we are competing with fuel oil mostly in that but we are still able NG Advantage is still able to offer 25% to 30% saving. So the international paper, this is different than the trucking business where there is thousands of fleets and millions of trucks all over the place. There is more defined geographic location and also there are only 10 or 15 international paper plants. So now they are huge consumers of fuel and we are very proud of that international paper deal because I mean in that one deal is 5 million gallons and so we are really very focus NG events of those type of customers. They are in the North East, they are 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, fact you know it is a high class problem. We are getting ready to be out of capacity those two stations that we have one in New Hampshire, one in Vermont. We are going to add capacity to it. So 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 expertise --

Well, I still think that's the case. I mean I have been clear, we like the way we are positioned because we do both. And I think right now we are at 70% LNG, I mean 70% CNG and 30% LNG. Obviously we had some big wins recently on a couple of LNG fleet. I do think that when you are in an urban environment, return to base, CNG is probably the right fuel. And when you are longer haul, over the road, irregular route, LNG is going to make a lot of sense for fleet. And so we are well positioned to do both. Lot of our truck friendly stations, about half of them now the ones that we both have CNG as well as LNG. So it is whatever the customer needs. But I think you are right, over time longer haul will probably shift little bit towards LNG and I think we turn to base in urban environment, it is pretty tough to compete with the CNG. I think that would be the preferred fuel.

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

Good afternoon. 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 ever heard our man who runs that business, Harrison Clay, he will tell you to, he will give you very large numbers. I mean if you look at the country and you look at digesters and agriculture and land fill, you can get to see very large numbers. I mean many tens of billions of gallon. So I think in fact I was talking with Boon about this about a week ago, he wondered how big could that business really be. It is 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 at this year. And we are now bringing more of third party gas we ever before with certain deals that we are doing so we are bringing a 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 in the transportation fuel. So that's give 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 into our transportation network. That's where you get the full value of this is to be able to do get on the land fill or get out of digester but get into the vehicle tank. We are uniquely positioned for that. So we are beginning to see more and more traction where for instance LAMTA is going out to look for Redeem at least 50 or 60 million gallons a year. So you are beginning to see fleets recognize the importance of being able to use really the cleanest commercial fuel available like 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, I know this sounds touchy feely when you start talking about sustainability but they are serious about it, these big companies. So it is one of the most impactful things they can do to hit their sustainability goals. And so, yes, it adds revenue for us and it adds 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 sorts of trucks have you sold there? And how is that being received in the market and your customer?

Right. So just as everybody else Rob, we've 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 pass that pricing on to the customers. We've -- our first offering with the Chart was over subscribed and so we are 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 are just kind of getting going on that. But I'll tell you what is one of the things I mentioned in my remarks is when you are able to really bring 20%, 30% out of the cost of the tank package, you get the customers' attention. And it is meaningful and it really offset this reduction in the savings between diesel and natural gas. So it is really meaningful and I have no doubt that over the course -- especially with this new deal with Cummins Engine Company. Agility that really makes this I think even a better offering. And I have no doubt that it 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, I am out of the business to predicting how many trucks right. So you are going to have to -- if you want truck numbers you are going to get that from Cummins or somebody that's little closer to it. We haven't seen Rob a fall off. And in the fact that I think if you put in new big UPS order for the 2015, I think we are going to be all pleasantly surprised that it is holding up very well. We haven't seen customers -- that the few customers that we have that have been on the fence are still on the fence. And but the customers that, this 600 or 800 so that we have on our pipeline, we haven't seen anybody run for the exits because of this, they know that price of oil and diesel is volatile. I think frankly we've already seen the price come up here in California diesel is about $3 and $0.30 some odd, the other parts of the country it is lower. Gasoline, is 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 have seen these companies and there are products that are 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 the 10 or 15 but the Raven is a good example where they had 75 trucks, now they have taken another 115. They are talking about taking even more, deal in trucking are very good example. What UPS has done. You know, Ryder is quietly fielded 900 natural gas trucks and Penske I think it is up to a couple of hundred. So you are 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 is going along pretty well.

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

Thank you for taking my question. Just wanted to follow-up on the question on Redeem. The RIN markets for Cellulosics that 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, probably go out get into exactly what that margin is but the thing is that with the Redeem those credit there is real market out there. That's one of the things that we really seen driving this whole product line is that with the -- being 90% cleaner to diesel and the whole renewable, sustainable environment, it is driving a lot of big players to say they want some of it. So that's making the credits a very valid -- there is a very valid fluid market for that and so it is kind of factors in there like we are doing most all of other fuel deals where we've got kind of cost of gas plus right. And so that factors into the equation. It is just -- I can't tell you exactly what that number is but it is meaningful. And it aligns with the flow of gas. So it is not kind of separate credit it is dangled out there. It is 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 that the supply -- so the supply market is -- there is definitely supply out there, absolutely. And it is plentiful. I mean there are a lot of landfills out there. They are producing a lot of methane they 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?

Right.

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 are going to put kind of essentially on the same natural gas into whatever they are fueling, but yes this is renewable, truly renewable gas. 90% cleaner than diesel then all of a sudden it start to get pretty attractive. Now and so there is a lot of economics, it surrounds all that but for these clients are pretty substantial that you put on these landfills and dairies whatever it is to capture the stuff but the supply is growing.

Obviously, Noah, if you had for instance in this -- in the California market or Southern California market, if the LAMTA which is the largest transit fleet in the United States, if they shifted over to bio-methane we would like to think for Redeem, that would be 60 million gallons right annually that we would show up. And so that would make a big impact on the availability. But right now there is a plenty of-- there is plenty of supply available. It is 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 is a 3 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 are talking about significant usage and savings. What I can't tell you is right now the two -- the only two locomotive manufactures in the US are both bringing natural gas product to market. And three at least three may be four, but I know for sure three of the tier one rail companies are all in test. One of them are think is little further along than the others. Well, they are out actually on open track before different locomotives right now. So, yes, they are moving along of course these are long-lived assets; the locomotives are 30 years assets. So you are going to see a lot of the fleet be converted, I am told right now that they are feeling pretty comfortable they can get to 70% displacement i.e. they reduce 30% diesel and 70% natural gas. That's significant savings. And so yes it takes a while, there is a Federal Railway Administration rules and there is a couple other groups they 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 on next year or so begin to bring this into their fleet in a meaningful way. I think frankly it is 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 unclear but we are not really allowed to say too much here. We are working with all those tier one firms right now.

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

Hi, 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 then Bob if he had some that-- I am 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 are talking about from the time they are willing to let us announce or the fleets willing to announce by the time they receive a truck, that could 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 can start immediately. And when we made a recent-- I don't know that we have an announcement but we made recent addendum to our national fuel agreement with Dillon. Well, Dillon trucking is already running trucks and so now they are going to begin to use three or four of other stations, so that we'll come on immediately. Well, when it is a new ground up they have to get those trucks, we may have to build the station and so there is lag, gradual, it is gradual

So we will some of that but it doesn't all hit at once but it is moving.

The other thing that we see is in just a little bit more mature entry is like refuse, there is a very established pattern of when they go before their companies and do their budgets and then they order their trucks. So when they begin to take delivery of the trucks, that's why we always got to see a little bit of low over the winter time in the first quarter and they begin to -- because they do their budgeting I think like September or something, then they begin to take all those trucks, begin to show up March through kind of the third quarter. So we seek kind of bulge coming on the refuse side.

And how many stations are you guys operating now?

Well, we operate over 500 to 700 I think. We only 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 few days ago, there are 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 already slated to be open by the end of August and then we have about another four that are kind of little bit -- we are just waiting to sign those deals and there will be other issues. So I hope we can't control this exactly. It is kind of depends on the adoption rate of the trucks. But I hope that over the course of the year we will 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 is exercise of options and how much you talked about? During this quarter or kind of from last year like the year-over-year?

Well, yes it was like little bit. Go ahead

We had back and late 2014, we took out about 4 million shares related to a warrant with GE and just the accounting treatment was -- we determined that -- those shares wouldn't be in our outstanding share 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, you are seeing same quarter -- you are seeing that fairly significant number come out of 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. That's just normal exercise activity, lot of options or not, yes.

Thank you. Our next question comes from the line of Pavel Molchanov with Raymond James & Associates, Inc.

Hi, guys. 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 little shy, probably over 5 million.

I think it is like 4.7 or --

Yes, 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 the positive $380 million, I assume that -- $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.

There are no further questions at this time. I'd 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.