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Edited Transcript of CLNE earnings conference call or presentation 12-Mar-19 8:30pm GMT

Q4 2018 Clean Energy Fuels Corp Earnings Call

SEAL BEACH Mar 15, 2019 (Thomson StreetEvents) -- Edited Transcript of Clean Energy Fuels Corp earnings conference call or presentation Tuesday, March 12, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Andrew J. Littlefair

Clean Energy Fuels Corp. - Co-Founder, CEO, President & Director

* Robert M. Vreeland

Clean Energy Fuels Corp. - CFO

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Conference Call Participants

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* Eric Andrew Stine

Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst

* Pavel S. Molchanov

Raymond James & Associates, Inc., Research Division - Energy Analyst

* Robert Duncan Brown

Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst

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Presentation

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Operator [1]

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Greetings. Welcome to Clean Energy Fuels' Fourth Quarter 2018 Earnings Conference Call. (Operator Instructions) Please note that this conference is being recorded.

I'll now turn the conference over to Robert Vreeland. Mr. Vreeland, you may begin.

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Robert M. Vreeland, Clean Energy Fuels Corp. - CFO [2]

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Thank you, operator. Earlier this afternoon, Clean Energy released financial results for the quarter and year ending December 31, 2018. 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 risk, 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 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 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.

With that, I will turn the call over to our President and Chief Executive Officer, Andrew Littlefair.

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Andrew J. Littlefair, Clean Energy Fuels Corp. - Co-Founder, CEO, President & Director [3]

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Thank you, Bob. Good afternoon, everyone, and thank you for joining us. I'm pleased to report that with the close of 2018, results of multiple strategic operational and financial initiatives that we put in place have begun to pay off with positive results. We believe this momentum will continue through 2019, and I will explain why.

In the fourth quarter of 2018, we delivered 98.7 million gallons, a 14% increase over the 86.4 million gallons in the same quarter in 2017, and we believe this trend will continue into 2019. For the entire year, we delivered 365 million gallons, a 4% increase over 2017. Our revenues were $96 million in the fourth quarter versus $89 million in the fourth quarter of 2017. Our fuel volume revenue in the fourth quarter increased 21% to $78 million versus $65 million in 2017. Again, we see this as very positive for our core business exiting 2018 where we saw a decline compared to last year, although not out of the ordinary, was in the station construction sales business, which tend to go in cycles on a yearly basis. We did complete 49 station projects in 2018, and we're still actively building and selling station projects for our customers as they continue to invest in natural gas. But in middle year, our focus continues to be in fuel volume growth at our existing infrastructure, first and foremost. The initiatives that are helping drive much of these solid returns are: expanding our leadership position in the rapidly growing renewable natural gas market, leveraging our existing nationwide fueling infrastructure and strengthening our financial position, allowing us to continue to focus on both top and bottom line growth.

First, let me talk about our Redeem RNG business. If you follow our company, you have seen a string of announcements over the last 6 months about more customers signing up for this fuel that not only has a positive impact on cleaning up today's dirty air problems, but more impressively, it can have a tremendous effect on long-term carbon emissions that are at the center of the discussions surrounding climate change. When calculating the entire energy supply chain, including the source of electrons put on the grid, operating a vehicle on Redeem is cleaner than even electric battery, in most cases. And as clean as Redeem is scored, it's also important to note that the cost to customers is significantly less than what they would pay for diesel, which is under attack for the harmful impact it has on air quality. Many refuse companies around the country see the benefits of turning the waste they deliver to landfills into the cleanest fuel available to power their fleets. No other company personifies this more than Republic Services. Republic has been a leader for years in converting their landfill sites into clean fuel production facilities. The company recently extended a fuel agreement for Clean Energy to provide Redeem at Republic fueling stations, across 21 states around the country for 5 additional years. This means thousands of Republic service trucks will operate in a fuel that is expected to reduce their CO2 emissions by 1.3 million metric tons over the period of the contract, which is equal to taking 283,000 cars off the road or planting 22 million trees. Many other refuse companies have recently signed Redeem fueling agreements with Clean Energy. Municipalities are also realizing the benefits of Redeem with recent fuel agreements by the cities of Long Beach, Montebello, and Fresno, California, Spokane, Washington, and Riverside County, California. Trucking companies are exploring the need to switch to cleaner alternative fuels and are realizing the easiest and most cost-sufficient way to achieve the changes regulators are demanding is with Redeem. Overseas freight, MDB Transportation, TTSI and other trucking companies have recently deployed trucks equipped with the new Cummins Westport engine and being powered with Redeem in the ports of L.A. and Long Beach. The new 0 emissions natural gas engine is getting great reviews by these first adopters. The new Redeem customers have allowed us to grow our volume from 20 million gallons in 2014 the first full year we offered the renewable fuel to 110 million gallons of Redeem in 2018. The increase in Redeem volume for 2017 to 2018 alone was 40%. As you probably know, other companies are getting into the RNG fueling business, which frankly, we see as a positive endorsement for the potential of this market. When we first began selling Redeem, we were in the RNG production side of the business as well, owning and operating production facilities. In March 2017, we sold those facilities to BP for $155 million, which could reach $180 million with some earnouts in order to focus on our core strength of marketing and selling natural gas as a vehicle fuel. We then entered into a long-term supply agreement with BP. And over the next 1.5 years, both companies realized the benefits of this arrangement, so much so that we broadened the relationship in the fourth quarter last year by increasing the RNG fuel supply amount, allowing Clean Energy to accelerate and expand the distribution of Redeem. Redeem volumes increased 13.8 million gallons in the fourth quarter alone compared to 2017. We are now able to confidently market Redeem across the entire country to municipalities and private fleets and it's becoming clear that owning a downstream fueling infrastructure will be a big advantage in this expanding market. We are so bullish on the acceptance and growth of Redeem that a few weeks ago we announced our own long-range sustainability goals that included a commitment to flow carbon-free Redeem to all our stations by 2025. This is especially interesting to note because Clean Energy will be fueling its customers with 100% renewable, nonfossil energy, 20 years ahead of California's goal of transitioning the state's power supply to 100% renewable energy. This will allow all of our customers to easily and inexpensively achieve aggressive low-carbon goals well before our EV counterparts.

In the second half of last year, we announced a new and exciting approach to attract the heavy-duty trucking market to expand their fleets with natural gas. This cannot have happened without the financial backing of our new partner and largest shareholder Total. The biggest obstacle to trucking fleets making the switch has been the incremental cost of the natural gas engine and fuel system. This new program, we call Zero Now, does away with that by allowing companies to lease or purchase a new natural gas heavy-duty truck equipped with the cleanest engine in the world at the same price as a diesel truck. In addition, these fleets will be able to purchase renewable natural gas fuel at a significant discount to diesel at our extensive network of existing fueling stations that can accommodate heavy-duty trucks. That network was extended during the fourth quarter of last year with 3 additional truck stop stations in partnership with Union Gas along Canada's busiest trucking corridor in Ontario. Our sales team is currently in conversations with most of the largest trucking companies in the country about this offer. We have already signed several deals for new natural gas trucks and have many more in various stages of execution for truck and fuel purchase agreements. I know some have expected announced deals right out of the gate, but the discussions that we are having with these fleets are about deals that take delivery of real, road-tested, reliable, 0 emission trucks, which will fuel at our existing network of stations, providing a clean renewable fuel. And all of that takes time as each fleet has specific tractor specifications as well as lanes to identify for their operations. This process realistically has 8 steps from initial contract to final delivery and decisions representing hundreds of thousands of dollars, if not many millions. We are dealing with very smart operators who understand what is proven technology and what is hopeful. And almost without exception, virtually everyone has expressed strong interest in our Zero Now offering as it mitigates their company's risk to enter into a green solution that is reliable, tested and has the range needed for heavy-duty trucks. It's very different than putting down a refundable deposit of a few thousand dollars on a concept heavy-duty truck that may or may not come to market any time in the near future and having access to an appropriate fueling infrastructure that may or may not be built at a price that won't bust any budget.

Another initiative that we began several years ago was to strengthen our balance sheet and turn the company towards sustained profitability. While we have consistently increased our revenues, we have dramatically streamlined our CapEx and SG&A, allowing us to reduce our convertible debt from a high of $545 million to $50 million, which is not due until July of 2020. At the same time, we ended the quarter with $95 million in cash and investments. Our operating results continue to trend positively, considering 2018 GAAP operating income of $4 million compared to an average operating loss of $65 million per year on a GAAP basis over the last 3 years. Below the operating line, the other item I'd like to highlight is our significantly reduced interest cost. We're exiting 2018 at a $6 million to $7 million run rate of annual net interest expense compared to net interest expense of $13 million to $16 million for 2018 and 2017, and down from a high of $44 million in 2014. This is all contributing to our goal of exiting 2019 on a path to net income. Looking forward, specifically to 2019, we provided guidance on GAAP net loss and adjusted EBITDA, and I know Bob will cover that in more detail in his remarks in a moment.

Let me close by saying as proud as we are about our performance in 2018, we are excited about what we are already accomplishing this year and plan to continue that momentum. We heartily embrace the discussions which are taking place at all levels of government and in business about what needs to be done to tackle serious environmental issues. Natural gas has already played a significant role in putting us on the right track. But powering more vehicles with it, especially renewable natural gas will only accelerate the progress. As I've said before, no other company is better positioned to take advantage of this shift than Clean Energy and that is truer today than ever. We have worked hard to put all the right pieces into place for customers to easily make the switch to the cleanest fuel in the world.

And with that, I'll hand it over to Bob.

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Robert M. Vreeland, Clean Energy Fuels Corp. - CFO [4]

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Thank you, Andrew. Our financial results for the fourth quarter and full year 2018 were in line with our expectations. We ended 2018 within the range of our guidance on adjusted EBITDA, SG&A and margin per gallon, and we were better than our guidance on our GAAP net loss, even if you adjust for the unrealized gain on our Zero Now fuel hedge of $10.3 million recorded in the fourth quarter.

I'll discuss our 2018 outlook at the end of my remarks. Our volume growth in the fourth quarter of 14% above last year came from CNG and LNG, both benefiting from incremental Redeem gallons related to our expanded BP relationship. CNG volume also increased as a result of growth at NG Advantage and from our refuse sector. In addition we saw growth in bulk LNG deliveries compared to a year ago. Redeem volume grew 55% in the fourth quarter to 38.8 million gallons versus 25 million gallons a year ago. Our revenue for the fourth quarter of 2018 was $96.2 million compared to $89.3 million in the fourth quarter of 2017. The 2018 fourth quarter revenue included $10.3 million in unrealized gain on our Zero Now fuel hedge, while last year included $5.9 million of revenue from our previously consolidated compressor subsidiary that is now an equity investment and no longer reported in revenue. Volume growth and to a lesser degree, higher effective prices per gallon in the fourth quarter contributed to the 21% or $13.7 million increase in volume-related revenue over last year noted by Andrew in his comments today. Our overall gross profit margin in the fourth quarter of 2018 was $36.6 million compared to $25 million last year. 2018 includes the $10.3 million of unrealized gains on Zero Now fuel hedge, while 2017 includes $1.1 million of margin from our formerly consolidated compressor subsidiary. Otherwise, our 2018 gross profit margin increased due to increased volumes. We delivered $12.4 million incremental gallons in the fourth quarter of 2018 versus 2017 at an effective margin per gallon of $0.264 versus $0.26 last year. This incremental volume at a consistent margin per gallon drove an additional $3.3 million in gross profit margin for the fourth quarter of 2018 versus 2017. The fourth quarter of 2018 benefited from higher Redeem renewable natural gas sales and increased LCFS credit revenue compared to 2017. Our SG&A of $20 million in the fourth quarter of 2018 was $3.8 million or 16% lower than a year ago, reflecting the continued savings from our cost reduction efforts, put in place in the second half of 2017. We also recognized $4.8 million in earnout income associated with our sale of biomethane assets to BP in the first quarter of 2017. This was the second year of a 5-year earn out. Our GAAP net income for the fourth quarter of 2018 was $6.9 million compared to a GAAP net loss of $28.3 million a year ago or an improvement of $35.2 million. The unrealized gain on our Zero Now hedge favorably impacted 2018 by $10.3 million while last year included $6.5 million in charges related to the deconsolidation of our compressor subsidiary and an impairment charge of $7.3 million associated with our LCFS credits. Still a significant improvement in 2018 despite these notable items. Our adjusted EBITDA for the fourth quarter of 2018 was $12.7 million compared to a negative $9.7 million in 2017, or an improvement of $22.6 million, due to better operating results and the absence of various charges in 2018. We ended 2018 with more cash and investments than debt, and this after paying down $185 million in convertible debt. As Andrew mentioned, we ended 2018 with $95 million in cash and investments with $50 million in convertible debt due in July of 2020.

The only other debt we have is equipment and facility financing of $34 million, primarily at NG Advantage. As expected, we generated positive operating cash flow in 2018. I'll point out also that our operating cash in 2018 exceeded our purchases of property and equipment. We continue to be diligent in our focus on generating cash as we move forward. Looking forward to 2019, we will see continued improvement in our financial results as we grow volumes on top of our existing infrastructure. One important point to note is that our guidance here does not include alternative fuels tax credit revenue. Our results for 2018, of course, included the alternative fuel tax credit related to 2017 and while we believe the alternative fuel tax credit will be enacted in some form, we're not including it in our 2019 guidance. Having said that, we still see improvement in our financial results, and if the alternative fuel tax credit is enacted during 2019, those revenues and margin would be incremental to this guidance. In 2018, the alternative fuel tax credit related to 2017 was about $26 million. Our volumes are anticipated to grow in the low double digits and our effective margin per gallon for 2019 is expected to be within a range of $0.24 to $0.28, which is a similar effective margin we are seeing today but for 2019 on much higher volumes. Our volume growth will drive incremental gross profit margin. Our station construction sales are expected to range from $25 million to $30 million in 2019 as we see similar patterns of steady smaller value projects in 2019 as we saw in 2018. Our 2019 SG&A is expected to range from $73 million to $79 million, consistent with 2018, but this will also be supporting higher volumes and allow the incremental gross profit margin to drop to our bottom line. GAAP net loss for 2019 is expected to range from $12 million to $18 million. 2018's GAAP net loss was $3.8 million but included $26.7 million of alternative fuel tax credit, which is not considered in my 2019 estimate. Also, I'm not including any estimate of unrealized gains or losses related to our Zero Now fuel hedge in our expected GAAP net loss for 2019. Adjusted EBITDA for 2019 will be in the $50 million to $55 million range, again without the alternative fuel tax credit. On a comparable basis to 2018, without the alternative fuel tax credit, this is around a 60% improvement in adjusted EBITDA. We are expecting positive cash flow from operations for 2019 as well. And depending on the financing put in place with NG Advantage for its capital projects, we expect operating cash flow to exceed our purchases of property and equipment for 2019.

All in all, we see 2019 as a year to grow volumes at the same time, being able to maintain our capital expenditure and cost structure at or near our 2018 levels. And if the alternative fuel tax credit is passed into law, it's incremental on top of what we believe is a good plan for 2019.

With that, operator, we'll now open the call to questions.

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Questions and Answers

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Operator [1]

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

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Robert Duncan Brown, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [2]

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Congratulations on nice growth in the quarter.

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Andrew J. Littlefair, Clean Energy Fuels Corp. - Co-Founder, CEO, President & Director [3]

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Thanks, Rob.

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Robert M. Vreeland, Clean Energy Fuels Corp. - CFO [4]

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Thank you.

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Robert Duncan Brown, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [5]

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Just wanted to get a little clarity. Is that growth driven much by the Zero Now program? Or is the growth from that program still yet to come?

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Andrew J. Littlefair, Clean Energy Fuels Corp. - Co-Founder, CEO, President & Director [6]

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That growth would still be yet to come because remember those are new contracts with new truck builds and trucks to be delivered. And so it's mostly from our core business and from our Redeem.

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Robert Duncan Brown, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [7]

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Okay, great. And then on Zero Now, what's sort of the size of the truck fleets that are looking at this and size of the rollouts that are being contemplated?

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Andrew J. Littlefair, Clean Energy Fuels Corp. - Co-Founder, CEO, President & Director [8]

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Well, in terms of the size of the fleets that we're calling on, you could -- as you know, Rob, as you could imagine, they're big fleets, right? So we're calling on fleets. I think you're asking about the other part of this question. But we're calling on large fleets that have thousands of vehicles, right? And -- but we're also -- we also find interest in fleets that aren't of the largest of fleets but are very aggressive, right? We often find that those trucking fleets that are trying to gain business from -- some of the largest fleets are those truck fleets that are between 500 and 1,000 units, so we call in those as well. But we are out talking to -- I think we would all consider to be very large fleets. I think that as you're looking at what is the size of the deals that we're talking about, is probably your real question is, it's between 20 trucks and 100 trucks -- 100 units. Let's face it, this is a new product. It's a new engine product. It's -- some trucks buy -- some fleets may be purchasing upwards of what I'll mention, it could be upwards of 1,000 units in a year. But it's unlikely that they're going to take a bite that big at first. And so most of the deals we're working on are, I would say they are not [TET]. We've move beyond the test stage. This is commercial, right? And so they're looking at 20 trucks to 50 trucks and that sort of size, and some that we're working on are as large as 100 units.

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Robert Duncan Brown, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [9]

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Okay. That's great clarity. And then on your margin per gallon, did that include this onetime gain? Or the gain on the -- or was that after the gain?

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Robert M. Vreeland, Clean Energy Fuels Corp. - CFO [10]

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No. No, it doesn't.

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Operator [11]

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The next question is coming from the line of Eric Stine with Craig-Hallum.

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Eric Andrew Stine, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [12]

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Just sticking with the Zero Now program, and I know that this may be plays it out a little bit longer term. But I think if my math is right, this specific program that Total is backing is 2,500 trucks. Given the value proposition there, the interest you've got, can you just talk about their desire or potential to expand that? Or maybe other financing vehicles that you may use to expand that given that there might be significant uptake.

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Andrew J. Littlefair, Clean Energy Fuels Corp. - Co-Founder, CEO, President & Director [13]

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Well, let's fill it up first, right? I -- We've always talked about the -- and I've talked with some well-known financial advisers to the company and would be kind of household names, they basically said, listen, this is really commercial that this is good paper. That you're doing a commercial truck lease with very large well-heeled fleets. And that as you begin to fill up this and rollout these -- this paper, that there will be interest in this kind of financing. And so I have talked to my partners at Total and try to keep them interested. And once I fill up the first $100 million, I'll be back at their door for another. But let's see how we do on the first. And -- but I like to think that there's -- this isn't really rocket science here. I mean what is new -- financing of the trucks, there's a lot of room in there between the price of natural gas and diesel. And so it is -- it enables -- it makes this economic. And what is unique and what is very appealing to these fleets is what we've put in place with our friends at Total, which is this fuel hedge. Never really before has anybody put in place a bipad fuel hedge, fuel hedging, diesel [by area] in the United States and natural gas at delivery points and locking in this kind of discount for an extended period of time of up to 5 years. That is unique. That is very appealing to these customers. It's a little complicated because it's not exactly the way they buy stuff now. And it does require them as they look at, let's just say, in my example, I was talking to Rob a minute ago, at 20 trucks or 50 trucks. Now I am asking them to commit to fuel for 50 trucks for 5 years, right? Now they're enjoying a, potentially, up to $1 a gallon savings on every gallon for those 50 trucks for 5 years. So it's very appealing. But it is different and it is a little bit unique. And -- but this is unique to us. And it is unique to our deal with Total. And really, at this point, we haven't had any customer say that they don't like that. So we're -- it's taking a little longer than I'd like because, as I mentioned, we felt -- that's why I mentioned it in my remarks, we are asking people to commit to going out and buying trucks and spending millions of dollars on trucks and committing to fuel. So we're not asking people to buy cell phones here or put in a $2,500 deposit or something. This is real money. And so it has to go through all the due diligence, and you have to spec trucks and you have to work with the truck dealers and with the engine manufacturers and goes on and on. So it's complicated, but it's real, and it's really commercial and it's kind of exciting.

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Eric Andrew Stine, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [14]

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Yes, absolutely. And maybe just turning to the volumes. I think this is your highest volume level and maybe first double-digit volume year-over-year increase in 2 years. Obviously, Redeem a big part of that. And I may have missed it, but did you give a Redeem target for 2019 as part of your goal to be 10% plus?

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Andrew J. Littlefair, Clean Energy Fuels Corp. - Co-Founder, CEO, President & Director [15]

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We didn't. We didn't. But I think, and Bob, and unless Bob corrects me here on the public call, I think it's safe to be -- say, Rob, that we feel like we're going to enjoy good growth in 2019, and it'll probably be in line with what we saw in 2018. So I think if you used a 40% growth rate for Redeem for 2019, I think we'd be able to make -- oh, Eric, I'm sorry, it's Eric. I think a 40% growth rate for our Redeem in 2019 is probably a good number, and we hope we can do better than that. But I think that will get us going.

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Eric Andrew Stine, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [16]

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Okay. And then just last one, I mean maybe longer term, you've got your goal now to be 100% RNG by 2025. I mean, are there any hurdles you see to that now that you've got BP backing that. I mean is that something where -- that's just based on demand for your customers, and I mean what is your confidence that you will have the supply to handle that?

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Andrew J. Littlefair, Clean Energy Fuels Corp. - Co-Founder, CEO, President & Director [17]

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We've talked about this before, I think on these calls, is that I see that -- as long as the regime and the credit regime stays in place, which we see in California as being locked in for a decade, and I don't see anything really changing at the federal level for quite a while. There's a lot of renewable natural gas coming to market. And I think California alone, over the next few years, will be able to produce up to a couple billion gallons of renewable natural gas. That'll take a few years to do. And of course, we're talking about supplying next year 400 some-odd million nationwide for whatever it is if you do the math. So I think the country can get into the several billions of gallons of renewable natural gas as these dairy farms and wastewater treatment plants and landfills and renewable sources get tapped. It's very viable, and when you start comparing it to what's necessary to do this other stuff that people talk about, there isn't anything that's as commercial and as environmentally friendly and available as this. I hope as we're beginning to see this now in the Port of L.A., I'm kind of switching over to trucks, we're seeing more trucks being introduced into the port right now. And they're all getting renewable natural gas. And when you look at that, that new -- brand-new American-made 12-liter engine, that's 90% less NOx and is using renewable fuel, which right now is probably 75% less carbon, and when more low CI gas comes in the port, it'll even be better than that, there isn't anything that can touch that for the economics. And I think that as that happens, the lightbulb is going to begin to go off and people will say, wow, America has got a lot of renewable natural gas, has a lot of -- look, over time, I think we'll be ahead of the crowd and it's our goal to be all renewable, but the country will benefit because you can use a lot of this and blend it, right? I mean a lot of others will -- get to be 50% renewable and it's still dramatically cleaner than anything else out there.

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Operator [18]

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The next question is from the line of Pavel Molchanov with Raymond James.

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Pavel S. Molchanov, Raymond James & Associates, Inc., Research Division - Energy Analyst [19]

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I know we've talked about this every quarter and here we are more than a year after the last time, Congress extended the Tax Credit, I know it's not in your guidance and rightly so. For 2019, obviously, we saw the Grassley-Wyden bill getting introduced a few weeks ago. Just thought I'd get your latest thoughts on the outlook for that passing, and anything you're hearing from the Hill?

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Andrew J. Littlefair, Clean Energy Fuels Corp. - Co-Founder, CEO, President & Director [20]

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Yes. Pavel, you follow as close as anyone, and I do too. We are feeling -- as I always say, and it's sort of the Wild West out there in Washington. We feel pretty good that the extender package and the alternative fuel taxes in some of those different tax extender tax packages, we think it's going to happen. I think it was, as you note for those on the call, that actually Senator Grassley and Wyden, so bipartisan put in on the Senate side, which is not exactly where it would necessarily start but put in a tax package that had some extenders in it and the alternative fuel tax was in there so that's obviously a good sign. We see this increasingly as a bipartisan issue, a recognition at those that we're talking about in house Ways and Means and also on the Senate side that they need to get this resolved. I think, Pavel, what it would -- I think it's going to happen in 2019. I'm not sure which vehicle it gets hooked to and when, but we are very confident, as best we can be, that it's going to happen this year. I think what we're probably seeing is that it would be retroactive, right? So it'll take place for what, for...

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Robert M. Vreeland, Clean Energy Fuels Corp. - CFO [21]

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'18.

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Andrew J. Littlefair, Clean Energy Fuels Corp. - Co-Founder, CEO, President & Director [22]

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'18 and '19. I think there's a sense that going forward, as Senator Grassley has talked about on the bio fuel tax credit as well. This probably needs to be a, over time, a phase-out of this tax credit that we need to get some certainty for the industry to be able to help move these -- to help with these fuels. And that my guess is, you're going to see that there's going to be a tax bill that will deal with retroactive a year and forward for this 2019. And then there's probably going to be an effort later this year, I think, to look at some sort of 5- to 7-year phase-down where the alternative fuel tax and some of those other taxes will begin to phase down over time. And that would be a good thing. And it would give -- provide certainty for the industry and for our customers. And so answer to your question, yes, I think we're going to see the alternative fuel tax soon. And then I think, stay tuned, later in the year there you may see how it gets addressed in the future.

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Pavel S. Molchanov, Raymond James & Associates, Inc., Research Division - Energy Analyst [23]

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Okay. On the service revenue line, obviously, there is quarter-to-quarter choppiness always, but it does seem like that's kind of struggled even as your product sales have improved. So any sense of what that picture will look like in 2019? I know you're -- I didn't think you're giving any specific guidance for services, but any color on that would be helpful.

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Robert M. Vreeland, Clean Energy Fuels Corp. - CFO [24]

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Okay. Yes. Well, so part of that choppiness is related to -- certainly year-over-year is related to the fact that our compressor subsidiary had service -- a fair amount of service revenue that was in that number. And so that was in '17 and it's not in '18 because now it's down as equity investment. And then as of late, I would say that, that service, that quarterly service revenue is fairly steady, and we would see it being somewhat steady to slightly growing, if you will, into '19. So there's nothing really notable.

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Andrew J. Littlefair, Clean Energy Fuels Corp. - Co-Founder, CEO, President & Director [25]

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Does he mean construction?

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Robert M. Vreeland, Clean Energy Fuels Corp. - CFO [26]

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No, service. Just O&M, our whole O&M.

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Andrew J. Littlefair, Clean Energy Fuels Corp. - Co-Founder, CEO, President & Director [27]

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It's growing.

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Robert M. Vreeland, Clean Energy Fuels Corp. - CFO [28]

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Yes, it's growing and -- but we've noted in our comments a couple deals that were not renewed and those were in service related. But frankly, that area is -- we continue to see good growth because it really involves a lot of the refuse and the transit. And that's -- that area is, from a volume standpoint, is all growing. So that should -- that'll come through in the top line as well.

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Pavel S. Molchanov, Raymond James & Associates, Inc., Research Division - Energy Analyst [29]

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Okay. Just a quick question in the sources of revenue table. What is other that added $2.7 million this past quarter?

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Robert M. Vreeland, Clean Energy Fuels Corp. - CFO [30]

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Yes, most of that is -- we had some natural gas trucks that we had acquired and sold.

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Pavel S. Molchanov, Raymond James & Associates, Inc., Research Division - Energy Analyst [31]

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Okay. Got it.

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Robert M. Vreeland, Clean Energy Fuels Corp. - CFO [32]

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If you recall back in some filing, we had acquired about 140 natural gas vehicles, and we've put those out into our network.

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Andrew J. Littlefair, Clean Energy Fuels Corp. - Co-Founder, CEO, President & Director [33]

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I want to talk about -- I want to mention that, Pavel, because I think that's kind of interesting because it's something that comes up once in a while. There was an occasion where we saw about 145 trucks that had basically lost the contract that they were operating on. And we moved in and bought those trucks at about $65,000 apiece. They were a couple of years old, had a couple of hundred thousand miles on them generally, well maintained, but -- very large fleet. We bought all those trucks, and we sold those to fleets with -- at our fueling network. And what I thought was interesting is that we were able to sell those trucks better than what the residual value would have been. There is always a question of what the residual value is of these natural gas trucks. And people that are looking at us, oh, I just don't know if there's going to be a residual value after 4 or 5 years. Well, these beat, and we got -- we sold these trucks into our fueling network at the same price that we bought them. So we weren't trying to make money, we were trying to get the gallons appropriately put back into the -- into our network, which we did. And those trucks brought a very good value.

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Robert M. Vreeland, Clean Energy Fuels Corp. - CFO [34]

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And we don't have anymore.

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Andrew J. Littlefair, Clean Energy Fuels Corp. - Co-Founder, CEO, President & Director [35]

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Yes, we're out of them.

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Robert M. Vreeland, Clean Energy Fuels Corp. - CFO [36]

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So we're not expecting that on a go-forward basis.

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Andrew J. Littlefair, Clean Energy Fuels Corp. - Co-Founder, CEO, President & Director [37]

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But that's what that one was.

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Operator [38]

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We have reached the end of the question-and-answer session. And I will now turn the call back over to Andrew Littlefair for his closing remarks.

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Andrew J. Littlefair, Clean Energy Fuels Corp. - Co-Founder, CEO, President & Director [39]

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Well, thank you, operator. I want to thank everyone for participating today in today's call, and I look forward to updating you on our progress next quarter.

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Operator [40]

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