Greetings and welcome to Clean Energy Fuels Second Quarter 2019 Earnings Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded.I would now like to turn the conference over to your host Mr. Bob Vreeland, Chief Financial Officer. Thank you. You may begin.

Thank you, operator. Earlier this afternoon, Clean Energy released financial results for the second quarter ending June 30, 2019. 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'll 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 the Clean Energy's Form 10-Q filed today. These forward-looking statements speak only as 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 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.With that, I will turn the call over to our President and Chief Executive Officer, Andrew Littlefair.

Thank you, Bob. Good afternoon, everyone, and thank you for joining us. The second quarter of this year demonstrated that our continued focus on increasing our fuel volume proved to be fruitful with an 11% increase over the same quarter in 2018.We deliver just shy of 100 million gallons in the second quarter which equates to 1.1 million gallons of natural gas fuel being delivered to our customers across the country every day of the quarter.To put the growth and acceptance of natural gas fueling in perspective, we delivered 700,000 gallons of fuel in our first full year of business and almost entirely in one state. Our financial performance continues to improve through the second quarter as well with $72.3 million in revenue which is slightly up over a year ago.But what I would point out is that our operating results continue to improve as we add volumes on lower operating interest cost, which in the second quarter resulted in positive operating cash flow. What is propelling our fuel volume growth is that more, more customers are realizing the incredible benefits of renewable natural gas.You've heard me report multiple times that are Redeem branded RNG is an easy way for fleets to capture tremendous environmental benefits both long-term carbon reduction and short-term pollution at our existing natural gas fueling infrastructure while remaining highly competitive with fleets operating on diesel.One of the most significant advancements and the acceptance of RNG is the announcement that UPS made in the second quarter that they would be purchasing 170 million gallons of Redeem from us through 2026 making the largest RNG vehicle fuel purchased ever.The significance of this move by UPS, one of the largest logistics companies in the world and a company that has been at the forefront in aggressively finding ways to…

Thank you, Andrew. Our volume growth and financial results for the second quarter of 2019 were in line with our expectations and we maintain our volume and financial outlook for the full year 2019.This assumes RIN pricing recovers from the more recent significant decline that occurred in June and that LCFS pricing remains consistent with what we've seen so far in 2019. Our volume growth of 11% in the second quarter compared to last year came principally from CNG, while LNG volumes were slightly ahead of last year.We continue to benefit from our growth in the delivery of Redeem related to our expanded relationship with BP and beginning in the second quarter deliveries of Redeem under our new UPS contract.Redeem volume grew 62% in the second quarter to 39 million gallons versus 24 million gallons a year ago. Our revenue for the second quarter 2019 was $72.3 million which included a $600,000 non-cash gain on our Zero Now fuel hedge. Last year second quarter revenue was $70.5 million which included $1.4 million in alternative fuel tax credits.Our volume related revenue exclusive of the fuel hedge gain increased $3.2 million or 5% year-over-year due principally to our volume growth, partially offset by a lower effective price per gallon due to following natural gas prices which is a benefit on the cost side of the equation, a decline in RIN prices and the mix of fuel sales.Our effective price per gallon in second quarter of 2019 for all volumes delivered was $0.66 per gallon compared to an effective price of $0.70 per gallon delivered in the second quarter of 2018 and $0.84 per gallon in the first quarter 2019.But again, to the extent that our revenue has lowered by the effective following natural gas prices, we also see a benefit in our…

Hi Bob. Hi, Andrew, hi, Bob.

Hi, Eric.

Hey first. So on the Zero Now Financing program, I'm just curious as you think about end of 2019, is that something where we should still thinks about a couple thousand trucks rolling out for that, and then also just a follow on. Just curious what the conversations are like with fleets. I know that earlier this year you really had to educate people about the program and that they could have a fixed discount to diesel. Just maybe where that stands now?

Thanks Eric. When we talked about the number of a couple thousand trucks, 2500 trucks, we were kind of doing the math on the facility that we -- the $100 million facility that we put in place with -- hold on one second we have errand phone here. That was really the math that we did through the facility that we rent with Total. But I still think that number is a good number.Now as Eric, we've talked to you before. It's -- we won't see the volume on a couple of thousand trucks by the end of this year. But I'd still like to think that toward the latter part of this year and probably the early rolling into January I still like to think that couple thousand trucks little more would still be a number that we'd like to move on. As I said just roughly in my remarks, I mean we're -- our sales force is literally contacting dozens and dozens. We've contacted really about 100 of the largest fleets and we're in ongoing negotiations with dozens of those.We've literally had of those 100 please just a handful, so they really rather not go forward right now. So, as I described in a call a couple of times ago that this is a -- this does take a while and I get a lot of questions on just what is the process. There is education involved. There's education on understanding the portion of their fleet that might be -- might be ready to work overlaying that on our fueling network, then going out and specking a truck, getting a price on the truck then becoming educated on the fuel hedge, which by the way they really like. Most of the fleets out they are not hedging their…

Good. And maybe I'll just stick with heavy-duty trucking. But in terms of Redeem just curious, obviously a pretty significant announcement from UPS, and has that -- have you noticed any uptick in terms of trucking interest because of that. And I would also and just to follow-up there, just love to hear any thoughts on maybe year-over-year comparisons in terms of number of fleets using Redeem versus last year?

Okay. Well, the UPS. Announcement, UPS is proud of what they've done here. And they as you know in the announcement it was UPS. So, look, UPS is a worldwide leader in logistics and transportation. And so, what they are doing people watch. And so, I'd say, the answer to your question is yes. We've had a lot and it's why I talk to so much about the Redeem and today's remarks, our customers are interested in getting the Redeem.It is really for us. That's a good thing because it's a differentiated fuel for us, and we're leader in it. And it's really captured the attention of a lot of fleets. Yes. We talk about natural gas. But we more often not end up getting them over to the renewable, because they see they get it kind of a double bang for their buck. And the U.P.S. announcements really helped. Eric I know you pay attention to this but a lot of our listeners maybe don't, but there's been a lot of trade stories about UPS and their renewable RNG purchase that they did.And 170 million gallons of any fuel is a lot of fuel. And so it was significant and people have noticed it. Yes. More fleets today than last year are using Redeem and we see it -- we see the uptick and I guess as Bob said in our remarks I mean our Redeem volumes up 60% or so year-over-year. So it's a good. It's a bright spot in our business and good margin business. And so, we'd like to make sure everybody understand. And what? The reason I keep talking about is because there is confusion. There is focus on electric that that somehow is the Holy Grail, but what people are beginning to understand and this UPS. thing makes them understand. It is -- wait a minute there's something else here and it's available today it's actually cheaper. And it's a drop in fuel into the existing network of fueling stations that are out they're not, but ours but others.So that the renewable fuel which is better than electric and lower on carbon, and so we need to tell that story because it's a strong one and it's good for America's who got a lot of renewable fuel out there.

Absolutely. Okay. Thanks for all the detail.

You bet.

Our next question comes from line of Rob Rowe with Lake Street Capital Markets. Please proceed with your question.

Hi. Good afternoon.

Hey, Rob.

Just sticking with UPS contract, when does that start to rollout and how does that ramp impact volume going forward?

We've started already and it started really last month…

Kind of late April late.

Late April. So it's been in process. We're seeing those volumes hitting now. It ramps up, I'm going to have to defer to Bob here. I think we get it about 17 million gallons of it so this year. And then it goes up to next year to around 25 million to 27 million gallons. So it's in that range and then it kind of rolls at about that level for the next few years.

Yes. And so those -- I mean those gallons are in. Those gallons are in our are fuel gallons if you will.

Okay, great. Thank you. And then on the RIN situation, what sort of your pricing expectations in the guidance? Or how do you view that market kind of playing out over the next four months?

Well, let me start and then Bob can talk about how he have it in there. So,there's two pieces that are important for us is the RIN, right, which is the federal. And the reason Clean Energy is in a pretty good position here is because you don't get the RIN unless you get it in the fuel, if you get this bio methane into the fuel tank, right? And that's how we, so, why we're an important component with our partner BP on this renewable fuels, because we have the filling infrastructure and the customers.So there's the federal piece which is the RINs and then there's the low carbon fuel standard credit which is out here in California. And I guess in Washington and Oregon and other states we're looking at it. RIN pricing has gone down quite a bit. There's an oversupply and it's gone down. We don't -- you don't see it all the numbers in the second quarter because it started out higher. But it's come down from $1.50, $1.60 to $0.70. So it's cut by 60% or 70%. So we're watching that really closely.We think that will take care of itself in the latter part of the year and early next year as we believe the EPA will adopt a RVO number that will better balance the supply and demand. And so we think the RIN pricing will go back up. In the meantime, the low carbon fuel standards at historic high, and so we benefit from that. Now we get more RINs when we do lose low carbon fuel standard. But it's kind of it's a nice balance for us. Bob, I don't know if you have any thing that you'd give.

Yes. I mean just kind of specifically, first, I mean there's a lot of variables within our delivery of Redeem, and so it's hard to just pinpoint one element, one variable and when we deliver Redeem. But from a pricing, a RIN pricing in the first quarter we saw averages between dollar -- closer to $1.80. The second quarter that number was closer to maybe a $1.30. But now we've also seen $0.80. And looking forward in my comments, I'm factoring in something kind of between that average of Q2 and Q1. It starts to take in $1.50 or so is really kind of an estimate on the pricing.But again, we have a number of decisions that we go through on the delivery of Redeem and with the volume, with optimizing it in the best locations, all the various stations as .well as what the different splits are with the supplies. And all of that factors into how we ultimately perform on delivering our Redeem..

Okay. Great. Thank you for that. I'll turn it over.

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

Thanks for taking my question. Let me start off with one about the income statement, revenue specifically. I know that the linkage between gallons and product revenue is always rather loose because of different mix issues. But it feels like this quarter kind of the product revenue per gallon was on the low side relative to what it has been historically. Is that a fair statement?

It is a fair statement. And -- so I kind of brought out the reasons behind that really. And there's a number of things. I mean most of the time we're impacted by what's going on with natural gas prices. So, you kind of get the product impact, but you also get a favorable impact on the cost side of the equation. You have that in there. Then we did see some decline in the RIN values as we -- as Andrew noted, it wasn't a full extent, but certainly it was lower. And then the mix just kind of the fuel mix can you know where the fuel is delivered and the type of fuel drives it.But overall, our net performance is better. So I mean we continue to really look at our margin per gallon. I know the revenue number is kind of a -- is a difficult one to always peg, but ultimately it's what we're making on all the gallons that we're selling. And our and our financial-- our operating margins are improving, because we're adding more volume. And that all starts with volume. You don't do much without the volume. So that's what our focus has been and making sure the economics are improving.

Okay. That's fair. You commented about the high cost of electric trucks. If we broaden the conversation to buses that economics make maybe comparable, but clearly there are more and more bus fleets, municipal bus fleets that are pursuing a partial or a full electrification. I think L.A. Metro would be a notable one within your sales mix which particular or maybe you can give an overall percentage of customers have a policy of shifting their fleet towards electric buses? I'm specifically referring to transit fleets.

Right. So as I look at the future of our business it's not transit for us, Pavel. You and I've kind of adjusted on this before. That's not the future of this business. These just everybody on the call, transit properties are funded 90% by the federal government. So the reason you're seeing electric buses being produced and being sold into federal transit fleets because of the economics of the transit bus. You couldn't force that on the public on the private sector. So it's being done in transit properties where the federal government's pick up the 90% tariff. So the other day, Pavel, I was talking to senior administration officials that fund transit buses,And just wanted to make sure that I understood and they understood what that all means. Is that today you can -- the federal government pays roughly 90% of a $925,000 electric bus or a $450,000 CNG bus. But the feds are picking up the difference. So guess what? States now, California has decided that they want to push a rule to require transit properties to go all electric because that's really their thing their mantra. And so I was telling the administration that said guess this is an unfunded mandate in the reverse order. The state now is forcing Los Angeles to go to electric buses by 2035 and you guys, you the federal government get ready to pick up the tab for.And I have a feeling, Pavel, I'll watch out, because I don't think this is good policy. I don't think its good government. I don't think it's going to work. But here's what I do know is it won't work in the private sector with trucks. So as I look at our future it's over the road trucking, that's the 35 billion gallon…

Yes. I appreciate the perspective. What portion of your current gallons go to transit customers?

Well, let's say, it's about 100 million gallons, since about 100 million for a refuge. It's kind of in that sort of breaks down that way. If you kind of look at our gallons. And those are service gallons for us. But it's in that kind of size, a little more of them.

Okay.

Yes. I'd say it's a little more. I mean maybe 115, but it's kind of in that -- it's sort of in that range. But once upon a time it was a larger it was a larger percentage, but these other markets will end up eclipsing it.

Because buses -- they keep their buses 12 years. They buy on order of the FTA and they just don't turn over the fleet as fast.

Okay. Appreciate it.

You bet.

Thank you.

There seems to be no further questions left in the queue. And I'd like to pass the floor back over to management for any closing remarks.

Well, thank you everyone. We want to thank you for listening today on this call this afternoon and look forward to updating you on our progress on the next quarter. Good afternoon.

This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day.