Greetings and welcome to the Clean Energy Fuels' Second Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Tony Kritzer, Director of Investor Relations for Clean Energy Fuels. Thank you, Mr. Kritzer, you may begin.

Thank you, operator. Earlier this afternoon, Clean Energy released financial results for the second quarter ending June 30, 2017. 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-K filed August 30, 2017. 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. And with that, I will turn the call over to Andrew.

Thank you, Tony. Good afternoon, everyone, and thank you for joining us. I'm pleased to review our second quarter 2017 results. We delivered 88.4 million gallons to our customers in the second quarter, a 7% increase over 83 million gallons we delivered in the second quarter of 2016. Revenue in the second quarter was $81 million and we generated $3 million of adjusted EBITDA for eight consecutive positive quarter. This quarter did not include any VTEC contribution and our environmental credit contribution was lower as a result of the BP transaction was finalized in early April, and brought our cash in investments to $201 million at the end of June. The BP deal was a valuable a strategic sale of our upstream renewable biogas assets which solidified our long term supply with an ideal partner. That allows us to focus our efforts on selling our renewable biogas through our national station network to our customers who are looking to benefit from operating their fleets on the cleanest renewable fuel available. We understand that the future transportation and heavy-duty transportation in particular is moving towards renewable energy solutions. Since we introduced Redeem three years ago is growing in every year as a percentage of our overall volume including last year when accounted for nearly 20%. Renewable fuel will continue to be increasingly larger portion of the gallons that we delivered to our customers especially in California were 135 our stations deliver Redeem. We see ourselves as innovators in cleaner transportation solutions and are responsible for moving more freight and more people in vehicles powered by the clean renewable fuel that we deliver. The 60 million gallons Redeem we delivered last year is the equivalent of removing close to 3,000 polluting diesel busses were close to 80,000 cars on the road. I'm…

Thank you, Andrew, and good afternoon to everyone. Overall, our second quarter financial results were in line with our expectations. Keeping in mind, this was our first quarter subsequent to the sale of our upstream biomethane assets to BP for $155 million. As I pointed out in our last earnings call, as a result of the BP transaction, we expected an $8 million to $10 million reduction in quarterly revenue with an expected margin per gasoline gallon equivalent of $0.25 to $0.29 along with additional reductions in SG&A of approximately 500,000 per quarter compared to our first quarter SG&A. We were within those parameters for the second quarter and should trend within those same parameters looking to the next two quarters of 2017 not considering any unusual or unforeseen events. Our volume growth in the second quarter of 7% compared to a year ago resulted from growth in CNG, offset partially by lower bulk LNG gallons, while non-vehicle RNG gallon were flat. For CNG, we saw 11% volume growth led by refuse and transit sectors. Redeem volume for the second quarter was 19.7 million gallons. Our revenue for the second quarter of 2017 was $81 million versus $108 million in 2016. In 2017, our revenue was lower partially due to lower environmental credit revenue in the amount of $9 million as a result of the BP transaction, also 2017 doesn't include VTEC revenue and 2016 had $6.5 million of VTEC revenue. Our construction revenues were down $9 million from a year ago, due to fewer large full station projects in 2017. Our compression revenues were down from a year ago but relatively flat to the first quarter of 2017. As Andrew pointed out, there have been some positive signs are emerging in Europe including a recent compressor order out of…

Yes, sir. At this time, we will be conducting a question-and-answer session. [Operator Instructions] The first question comes from Eric Stine with Craig-Hallum. Please go ahead.

Everyone. I was wondered if you could start with Redeem and BP, I mean I know it's been a few months but maybe how your view of their commitment has evolved here over time? And I'm also curious what cap-and-trade and then LCFS extended to 2030, I mean how do you think that impacts their investment? I mean have they discussed some sort of acceleration as a result?

Eric, thanks. I mean I think that the cooperation in the early going here with BP has been excellent. This new deal that we have with LAMTA really extended and increased not getting too much detail, the deal that we did because it required even more volume and we've done that through BP. We're working closely with BP as they've worked on some new supply arrangements that we've been very involved with. And so, I've seen - so far it's been a very nice partnership. Remember what made so much sense to us is that having them invest and be responsible for the upstream and invest that capital really peers nicely with us on the downstream, I mean with all the supply they had and with the supply that we lined up that that we avail ourselves. Remember without the downstream, without our stations, really it doesn't work. That's how you monetize it. So we - so far it's been an excellent partnership.

Got it.

As it relates to - think if I got all your questions on cap-and-trade. There's a recent study out we can get you Eric by some of them follow us, some on the biomethane business and renewables in the state of California, over time it looks like there's potential for there to be 2 billion gallons of biomethane annually produced from different sources and this would be all kinds of sources in the state of California. And having the cap-and-trade program and frankly the Low Carbon Fuel Standard which is sort of possible, those are in separate piece of legislation. Having those two pieces, we extended by the legislature to 2030. I think really gives certainty to that this is going to be the de-carbonizing of California is going to continue. You remember you don't have to go back, but a year ago, when the prices were a little wobbly and Low Carbon Fuel Standard because people weren't sure if it was going to be re-opt or not. So this gives stability for those looking to make investments on the transportation side and certainly on the production side. So I think it boards well. In fact if you look, I don't want to say this is - this could be a fluke, but since that's happened, the prices of oil carbon fuel standard have actually firmed here in the last week or so, last four or five days and some of the most trends have been. So, I think it's probably a good thing for the stability of the business going forward.

Yep. Good. Thanks for that. Just thinking about customers, I mean I guess I asked this, I don't know if you're able to share but for context of how it's growing but also something that we can distract going forward but number of customers on Redeem today versus maybe what it was a year ago?

You know it's one that - we have a list Eric and in fact I tried to mention, I don't know if I mentioned in my formal remarks, maybe I meant to, I have already now. I asked the same thing is to break out our fleet customers. Now, remember, today and people are surprised by this, I was in a meeting just the other day with the mayor of a major city here in the Southern California and he was unaware that all of our customers in California receive Redeem. So it's that 135 of our stations and so this would pick up many fleets, but separate fleet contracts in California today is about 25 and a very large, right. So they're from some of our largest refuse customers to some of the largest municipals to UPS and FedEx and others. So if you go back about a year, I can remember one of the goals for our renewable division two years ago used to have two major customers under contract and now we have 25. And I imagine if you add in all of our public vehicles and fuel, taxi cap, fleets and others that are getting our renewable fuel would be four or five times more than that probably closer to 100 fleets. So it's getting to be something that's more normal for us and it's certainly sought out by our customers. That's why we mentioned it quite a bit today because as we look out in the future, we see the handwriting on the wall, we see what's going on in terms of electric and sustainability efforts. And the great news for natural gas is we have a product that's here today that can do the nation's work, we can do it in a renewable way really cleaner than really anything else.

Right. Got it. Maybe last one for me, I obviously been following the cleaner action plan at the ports, pretty closely and what came out recently, there's been a lot of talk about SB1 and the port saying that it limits to some extent what they can do through 2023 and saying no it does not. Just curious how you think over that stand today and how you think that plays out here between now and say November when I think they're supposed to finalize the plan?

Yeah. It's a good question for those on the call there aren't quite as steeped in it, I mean SB1 was a piece of legislation that got passed that had some provisions in it. That said that's that the State Air Resources Board couldn't do, couldn't add certain equipment to trucks for the next several years. And that was done as part of the legislative recipe in order to pass a gas tax, increase fuel tax year in California. And some - but what's very clear in the law in Senate Bill 1 is that while carb can't for instance mandate new traps, new heated catalysts on trucks for the next frankly 18 years. It doesn't stop anybody from passing a new, it doesn't pass, it doesn't even stop car passing a new emissions standard and it certainly doesn't in cumber the local air districts or even car from passing different local rules and it doesn't impede the port of LA or other local jurisdictions from passing indirect source rules or other things to be able to clean up their air. So what we're seeing and I want to be a little careful here, we're seeing somewhat of a confusion and we're seeing some that would rather not maybe be aggressive hiding behind SB1 saying that there it's - they are unclear that how we might have apply. But the California Resources Board has said verbally and has been quoted in the newspaper saying SB1 does not prohibit them from adopting local, it doesn't negate their authority. There have been several different air quality regulators asked for that in writing and we expect to see that from ARB. I think that will help maybe give some comfort to the port of LA and Long Beach as they begin - as they continue to work under plan.

Okay. Great color. Thanks, Andrew.

Yeah.

The next question is from Pavel Molchanov with Raymond James. Please go ahead.

Hey, thanks for taking the question. Same question that I asked three months ago which is we're getting into kind of tax reform discussion in DC and VTEC I'm sure will come up, what is the latest that you're hearing on how the VTEC will go into the broader reform conversation?

Yeah. Pavel, as you know we follow that pretty closely. And this legislation and then some of the items on the administration's agenda it's been a well ride, as you know now we're focusing on tax reform. I think it's becoming more clear to many that grand tax reform is probably not in the cards but there is some reduction of rates perhaps reduction of repetition of dollars is likely to be the majority piece of legislation and what's being called tax reform as be reduction of rates. And I don't believe and of course I don't know maybe it'll happen, but we - our people in Washington and others don't really believe that you're going to see kind of grand tax reform. In which case, those that we're talking to or working with think that there's a chance and there's probably a likelihood that some of the tax extenders which VTEC happens to be one of many would likely continue on that it would probably late in the session would need to be addressed. There's always been a sense of these things weren't really handled correctly that they should probably be addressed. That would mean they get redone and retroactive to this year and then the prospectively as well. That's kind of what I think if you were to handicap it today, that's real dangers businesses doing that, but I think we're probably in a situation where it's more likely today than it was three months ago that it will be dealt with and extended and past.

Okay. And then turning to the electric bus question, a lot of headlines regarding the LA Metro starting to diversify their fleet and I think back in June they talked about kind of a transformative plan through 2030. What's the latest on how you understand that to be?

Yeah. We've been as you know involved in that the watching that closely and making sure that people understand how clean natural gas is as well as part of that. They did go ahead in the way I understand about here a couple weeks ago, they went out and let two different buses I think one of them is 60 footers and some 40 footers on electric. About 95 buses I think out of their 2,200 or so. And these will be I believe, you probably know better I do I believe BYD and Proterra, the electric bus manufacturers, there are going to go into kind of a test fleet here over the next I think soon I don't know when they take delivery six months or so. And the way I understand that those will be on certain routes and certain of their operations for the next few years and they'll be looked at to see how they perform. Now, last week I believe that they did pass something that said it was a little more open ended and so eventually they'd like to move to electric future 2030. But there is - there'll be a lot, there's a lot here, I don't know that I'd go to the bank today and say that 2030 we'll run entire electric fleet. There is a requirement by the way when you put a vehicle on the road today is the way the FTA works, I think it has the same service for 12 years. So I happen to think Pavel and you I've talked about this a little bit is that eventually and most people don't realize that Federal Transit - the buses are paid in large part by the Federal Government. And so while 85% to 90% of a bus…

I appreciate it guys.

Okay. Thanks.

The next question is from Robert Brown with Lake Street Capital Markets. Please go ahead.

Good afternoon.

Hey, Rob.

Just wanted totalk a little bit about your compression order in Spain, what's the sort of European market development for natural gas and is that a - for the start of more orders on the compression side in Europe?

Yes. Thanks, Rob. It's been interesting, we've - as you know, we've been on the compressor business, we've done a lot of stuff in China, South America, Colombia, I mean Peru also, recently in North Africa and so we've seen these kind of markets going to ebb and flow. The latest one is Europe. And what's interesting to me and I was talking this morning to the CEO of Westport is this diesel, this realization of diesel gotten to be a real problem in Europe, I think has given a lot of people pause and a lot of these countries pause, but it's really ignited in other look, more robust look in natural gas and of course with imported with LNG imports on the rise, more gas available in Europe today and their idea to move away from diesel. We're seeing a lot of activity in Europe which we're very happy with. We've competed well on that first deal with in Spain. There - we've competed with two other compressor companies we were favorable in this big package. If we do well, we hope that in the Spain we get chance at some more with them. We're seeing other activity in Germany and France and Great Britain. So it's Western market for us that we like, we compete well with our Canadian compressors, it's a little bit more familiar to us and Southeast Asia and Indonesian and some other places where we've sold. And so we're pretty upbeat about what we're seeing there. Now, compression is the numbers, we're still challenged in parts of the world. And so I guess the good news is we're seeing a nice uptick in Europe.

Great. Thank you for the overview. Then in the margin per gallon, you have $0.25 in the quarter but just talk about the trends in that number and where you see that sort of the remainder of the year and into next year?

Okay. Rob, yeah. So well I'll say that we'll stay within that expected range which was $0.25 to $0.29 but I do believe that the $0.25 really has an opportunity for upside because there were some items one in particular was lower LCFS pricing that depressed that a little bit. So I'm pretty hopeful that that could move up within that range as we go forward.

Okay. Okay, good. And then Andrew, maybe could you elaborate a little bit more about your thoughts about, we looking at the business in areas that are maybe not performing as well and your thought there?

Right. Thanks. So we look at just like any business a person does, we look at our business ongoing. And for us it's really looking at our networks, our customers, how our networks are hanging together, how our stations are operating. That changes over time airport, vehicles, I mean look we've had to rationalize and look at our airports stations and change our business model a little bit because taxi cabs went out of business for the most part with Uber and they were one of our biggest customers a few years ago. So, this is something that's ongoing for us. We bought stations 20 years ago from the Southern California gas company from SoCalGas and over time, we closed a lot of those stations just because we needed stations in different places. I think we're at a point though with the low oil environment and frankly the strength of our business and recurring revenue stream. That is probably is a really good time to look a little bit more closely at our stations and look to see where we might optimize, where we may close, rationalize some of our operations. We don't want to do anything and it's - when you're introducing a new market, you want to be careful, you don't kill the golden goose here. So we don't want to ruin the business but we're going to embark really the second half of this year on looking really closely at couple of our business units and how we've got them structured and also our stations. We're doing a very careful review of stations. It would surprise me that we closed some that they are just aren't operating like we think we'll relocate some. And so something that stay tuned for in the third and fourth quarters, but we're going to take a really tough look. We understand we have to get our operating income some point here. And so we're at a position be able to do it, it's going to take a little bit and looking at our operations, going to - it could be and our expense side is going to key to that.

Okay. Thank you. I'll turn it over.

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back over to Andrew Littlefair for closing remarks.

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

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.