Greetings, and welcome to Clean Energy Fuels' Third Quarter 2017 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Tony Kritzer, Director of Investor Relations. Mr. Kritzer, you may begin.

Thank you, Operator. Earlier this afternoon, Clean Energy released financial results for the third quarter ending September 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-Q filed November 2, 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 excludes certain assumption -- excuse me, 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. I'd like to begin our call today by reviewing several important and strategic actions we took in the third quarter. We believe these actions will enhance our competitive position and result in continued improved financial performance in 2018. The first action we took in the third quarter was to rationalize some of our unprofitable legacy stations. We have procedures and systems in place, which continually assess the profitability of our stations. And there's variability in each station, but we identified those stations, which either have volume that has been cannibalized or are too costly to operate and have been unprofitable. As we expanded our station networks, some stations find themselves surplus. Most of these are legacy stations that were acquired from utilities years ago and do not have the required volume associated for them. As you know, we have 575 stations and we will be stuttering 42 stations. Given the profile of these stations, most of the volume will shift to our other stations and should remove $3 million to $4 million in annual drag. Closing these stations will result in a charge of $33 million. The second action we took was to cut our SG&A by approximately $15 million or 16%. We expect that these cuts will begin to benefit our bottom line in the fourth quarter and more substantially in early 2018, but will result in a $3 million charge in Q3. We remain very optimistic with the continued growth in the refuse, transit and trucking markets, but we are mindful of our resources as we target those markets. We are confident that with the smaller yet motivated sales team strategically located around the country, our focus construction unit and efficient support services will continue to capture a large share of the growing alternative fields…

Thank you, Andrew, and good afternoon to everyone. The third quarter was a unique quarter for the company. As Andrew pointed out, the positive actions we've taken to better leverage our ongoing fueling business and improve operating results and cash flows looking forward. These actions taken in the third quarter resulted in incremental charges of $74 million related to asset impairments, valuation adjustments and additional operating expenses. Without these incremental charges, our net operating results were in line with expectations. It's also important to point out that only $4 million of the $74 million is expected to result in cash outlays in the future. We've taken these actions to strengthen our financial results and cash flows given the environment we're in today in the alternative fuel space. Fortunately, we have the critical mass and strong recurring volume to allow us to streamline operations and eliminate stations without disrupting our fueling network footprint. These actions will change our financial model going forward, but primarily beginning in 2018. For our Clean Energy compression subsidiary, in light of our strategy to position that entity as more of a stand-alone organization, able to participate in an industry consolidation, we assessed various asset group, which resulted in $38 million of write-downs and impairments. These assets primarily consisted of older model inventory and legacy intangible assets. We've also taken additional cost-saving measures at Compression Corp, which will benefit both gross margin and SG&A going into 2018. As Andrew discussed, our station rationalization and SG&A reductions are expected to improve our operating results, adjusted EBITDA and operating cash flows. Looking forward, our margins will remain within our range of $0.25 to $0.29, but with a better chance to move to the upper end of the range. Keeping in mind that a penny increase in our effective margin…

[Operator Instructions]. The next question comes from Eric Stine with Craig-Hallum.

Great to see the actions taken today. So I was wondering, I mean, lots of moving parts and I apologize lot of numbers in your prepared remarks. So how should we think of the impact to EBITDA? Whether it's on a quarterly or an annual business and it sounds like that this would start in 2018?

Eric, thanks. This is Bob. I appreciate that there are quite a few moving parts on this. And what I'll say on that is looking at even this year, we have a lot of numbers going on with large gains and then these charges and, I think, you can look at this year and even come out to somewhere in the mid-teens in terms of an adjusted EBITDA. But we see that actually next year, probably getting -- approaching $30 million. And so, I'll kind of go there. I think it can -- there's maybe an upside there, but it's -- that's in kind of a range, not a big range and about $30 million is what it is, where we see it going. And [indiscernible] annually, I don't have the quarters kind of broken up. yes, It puts us in a good position from operating cash flow standpoint, which in the past, we have enjoyed the credits from the VETC. So we're doing that without the VETC.

And just to clarify, I believe, Andrew, your expectation was that, I mean, a lot of these volumes will just go elsewhere. I mean, these are not lost volumes. You'll just be -- they'll just be volumes at different stations with your fleet customers. Is that the way we should think about it?

Yes, that's right. I'm not saying that you're going to keep every single gallon. But I would say, you'll keep the vast majority of it. So you won't really have much volume impact at all. We just find that some of these as we built bigger and better stations -- other fleets stations, some of these are lighter duty stations that have really become obsolete and it takes a while to -- for that to become clear. And it takes a while for us to move customers off to other stations that have been built. So really, yes, you're right, Eric. That volume will move off to the rest of the network. We have saved this money, and it drops [indiscernible].

Right. And you were talking about LCFS and nothing in the current quarter. Can you just give some clarity into what you're working through in confidence that whether it's fourth quarter or beginning of 2018? If that matter is resolved, then you can start recognizing [indiscernible].

Yes, It's an administrative matter that's at the ARB, Air Resources Board, and they're required under the regulations and the laws, the low carbon fuel standard to review all the participants like us and how they generate credits in given credit generation activities. And so we're in that process right now. So they've kind of access to hold our account while they take a look at it. So that's what's kind of frozen us for this quarter. We're in active discussions and reviewing activities. This has to do with our plans and other things of how we're generating and what -- the kinds of carbon intensity, frankly, that we are getting. So we think that will get resolved here. This is all kind of new ground, right, and they want to make sure that people are abiding by the rules. We think we are. And so I'm guessing, Eric, that, that should get resolved here in the next month I'm hoping. And we've had several back and forth with them and we're making some progress on it. That will become clearer, I think so.

The next question comes from Rob Brown with Lake Street Capital Markets.

Just some further color on the station closing out. What sort of markets are they? Are they truck stations? Are they cab stations? I mean, can you give us a sense of what types of markets?

Right, they are -- essentially, Rob, they are older stations, many of them have been built by our friends in the utility industry. Over the years, I mean, going back to the very beginning, we've taken over utility networks as a way to really get the franchise. We started that way in Southern California. And we've had a habit over the years of taking network and reducing numbers of stations. High grading those stations, if you will, to get the right ones in the right places. Reusing that equipment. That's the case here. I want to be a little careful because we're working with some of our customers and others right now. We closed stations already as we've said. We've identified all of them to close and we're in the process on some. There are some where we're still working through it. Some of them are in the Northeast, some of them are in Pennsylvania and some of them are in New York. And there are pieces to larger networks where we've since infilled those networks with larger fleet stations. And so we have better stations nearby. That's kind of what's going on. There are 6 stations, which you would consider truck locations that are part of our truck network that we've decided to impair. That doesn't necessarily mean, right, that we've -- we're pulling the station out, but could in the future. But we're impairing 6 of our stations that were truck stations that were in the Rocky Mountains, really in the mountains, mountain of Northwest, where we really as we've looked at it, we need a 15-liter to be able to load those stations -- a 15-liter engine to be able to conquer the hills in those areas. So those are stations that we've taken another hard look at. But for the most part, those will be the only one's that would be truck stops. The rest are really smaller stations that were built for light-duty vehicles that were coming out of utility industry and probably are average 10 years old and something like that.

And then on the port program, you mentioned some activity there. I guess, what's your latest thinking on the port opportunity in the next 2 to 3 years here for nat gas trucks?

Well, it's literally happening the -- you followed it, Rob, a little bit for others on the call. This is an ongoing effort to clean up the port of Los Angeles and Long Beach. It's very large. It focuses on shore power and on ships and on yard, moving equipment and cranes. I think, when you look at it over a longer period of time, this is a $13 billion kind of program. Just to refresh everybody, the Port of LA and Long Beach is the dirtiest air quality in Los Angeles. Los Angeles has the dirtiest air quality in the United States. So it's a problem. And a lot of the problem comes from shifts, but the majority of it comes from the trucks that operate out of the port. So one part of this Clean Air Action Plan is the truck piece. They've been -- we've been working on it very closely with the port commission and the staffs of the port of LA and Long Beach, ARB and Air Quality Management District, all these people that are involved in the trucking associations. This has been underway really for 9 months, I think, started probably even last -- late last year. There's been a draft plan, then there was another draft plan and, essentially, what's been laid out is that by 2035, the vision is that a lot of the shore equipment and crane equipment and automation, loading in ships and all will be electric as well as the vehicles. This is aspirational, I think, but that's been sort of the goal at 2035. Well, we have problem today, right? So now what happens, that's one good goal. So the draft plan that's being discussed, literally as we speak, there's 100s of people down there at the port…

Great. That was a great overview.

That was too detailed I know, but now you know all I know.

That sounds great. And then in general, sort of what's your thoughts on the market trends, diesel fuels going up. You've talked about some additional tax, significant tax that are in California. What sort of the market demand changes more recently with these fuel prices going up in California?

Well, it's interesting. I mean, not a day goes by that you haven't seen more about diesel. And, obviously, with the price of oil scooting up a little bit and certainly with the tax just got put in place on November 1 here in California, you're now seeing the average price in California something like $3.27 for diesel. I think, you'll see another nickel on that actually tonight, overnight, probably sort of could be closer to $3.30, $3.35. So let's move back up always. National prices lowers more like $2.75 to $2.80. So we're beginning to enjoy some room, Rob, with the price advantage again. We're able to offer our customers some good Delta between diesel and natural gas that's beginning to cooperate. But there's a lot of pressure on the diesel industry. I recently got in the last 3, 4 weeks visited with 3 of the largest truck manufacturers, the CEOs of those companies. They're very familiar with the natural gas product. They sell a lot of it now. They'd like to sell more. They're looking at electric alternatives in the future, but they do admit that it's for heavy duty. They see that there could be some room for medium duty or sprinter like delivery vans, but as they look at heavy duty, they know that there's great deal of challenge and they recognize that the natural gas is available today. And they're very interested hearing from the customers about the renewable fees. So we're aware and I think that the natural gas option is going to -- certainly as we start hearing and seeing some more evidence of what's happening with electric, I think that natural gas options going to look that much more appealing and I think the pressure is just -- I think, you're just beginning to see the pressure on diesel. I mean, there is country after country and city after major cities are putting really stringent rules on diesel. And I don't see that stopping.

The next question is from Pavel Molchanov with Raymond James.

As I am sure, you saw the tax bill was just unveiled today in Washington. And there is no mention in there of the VETC, although there are some Clean Energy credits that are getting restored. Any sense of why they would, for example, restore the fuel cell credits? And a few of the other types of ITC, but not the VETC and not the biodiesel?

Yes. I don't know why those are in there -- and for others on the phone, you know the tax reform bill was put out today in the house. It's clear that there's going to be other tax vehicles associated with this, Pavel. So, I think, probably that our peace, you recall, I was going through this, but the VETC is very small compared to some of these other taxes. And it's really been embedded into a bucket of other tax extenders. I guess, our view hasn't changed much since you asked this question last time, is we still -- we -- our envisioning that this bill will deal with corporate and personal income tax rates that probably the work -- the total reform work is not going to be finished. And there's going to be an omnibus type of bill that needs to be done to kind of piece together the other parts of the Tax Code. And I'm guessing that when you get down toward the end here, it's likely that this extender bill will come along that will have some unfinished business in it. Our folks that we're dealing with, still believe that if there is a vehicle like that, that comes along, then there is a good chance that our tax credits will be in there.

Okay. And as for housekeeping item, after your write-down this quarter, what will depreciation and amortization expense come down to? So it's been running around $14 million, $15 million. How low will that get?

Yes. Will probably have -- it'll be around $6 million, $7 million annual impact reduction.

Okay. Got it. Very clear.

So maybe a couple million a quarter kind of thing.

This concludes the question-and-answer session. I would like to turn the floor back over to Andrew Littlefair for closing comments.

Thank you, Operator. Thank you, everyone, for joining us on the call this afternoon. We look forward to updating you on our progress in the next quarter. Thank you.