Tag Archives: director

South Jersey Industries’ (SJI) CEO Michael Renna on Q2 2015 Results – Earnings Call Transcript

South Jersey Industries Inc. (NYSE: SJI ) Q2 2015 Results Earnings Conference Call August 7, 2015 11 AM ET Executives Ann Anthony – Treasurer Michael Renna – President & Chief Executive Officer Stephen Clark – Senior Vice President & Chief Financial Officer Jeffrey DuBois – Executive Vice President Marissa Travaline – Director Investor Relations Operator Good day, ladies and gentlemen, and welcome to the Q2 2015 South Jersey Industries Earnings Conference Call. My name is Scoda, and I’ll be your operator for today. At this time all participants are in listen-only mode. Later we will conduct a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to your host for today, Ann Anthony, Treasurer. Please proceed. Ann Anthony Thank you. Good morning and welcome to the conference call for SJI’s second quarter fiscal 2015 results. I’m Ann Anthony, Treasurer for South Jersey Industries. And I’m joined today by members of our senior management team, including Mike Renna, President and CEO of SJI; Steve Clark, our CFO; Jeff DuBois, President of South Jersey Gas; and Marissa Travaline, our Director, overseeing Investor Relations. As you may know, we issued a news release this morning announcing the results we will be discussing on the call today. That release includes an in-depth review of earnings on both a GAAP and non-GAAP basis using our non-GAAP measure of Economic Earnings. This measure eliminates all unrealized gains and losses on commodity and on the ineffective portion of interest rate derivative transactions. It also adjusts for realized gains and losses attributed to hedges on inventory transactions and for the impact of transactions or contractual arrangements where the true economic impact will be realized in a future period. The news release is currently available on our website at www.sjindustries.com, in the Newsroom section. Throughout today’s call, we will be making references to future expectations, plans and opportunities for South Jersey Industries. These remarks constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual future results may differ materially from those indicated by these statements as a result of various important factors, including those discussed in the company’s Form 10-K on file with the SEC. We assume no duty to update today’s statements should actual events differ from expectations. Also note that our 2014 numbers have been adjusted to reflect the impacts of the stock split that occurred on May 8. With that said, I’d like to turn the call over to our CFO, Steve Clark, to detail our year to date and second quarter 2015 results. Stephen Clark Thank you, Ann, good morning to everyone on the call and thanks for joining us. As we stated in the release, earnings were impacted by a write-down of our investment in cost associated with the central energy facility that previously served the former Revel property in Atlantic City. We’ve discussed on previous calls Revel’s bankruptcy and closing in mid-2014 in a long drawn-out sale process that was completed in April of this year. Since our central energy facility is the logical source of power for the Revel property, we anticipated that our contract provides heating, cooling and power to the facility would be renegotiated to some reduced level with the new owner. Unfortunately, the new owner has shown little to no interest in reopening Revel or striking a deal for energy services. While we remain ready to provide service to Revel, a lack of any recent and meaningful progress toward this new deal awarded the write down we took in the second quarter. This write down reflects our investment in central energy facility of Revel. It does not include the value of our cogeneration equipment located within the facility as we expect to be able to repurpose that equipment to serve better customers. Now, let’s review results. Year to date, economic earnings totaled $60.8 million. Excluding the year to date Revel related write down of $11.1 million, operating results would have reflected economic earnings of $71.9 million for the first half of 2015, as compared with $76.2 million for the first half of 2014.The remaining variance between These year over year periods largely reflects the significant contribution to economic earnings from our wholesale gas marketing business in the first quarter of 2014, which directly resulted from the Polar Vortex we experienced in the early part of the year. The variance also reflects a reduction in investment tax credits from solar development. First the second quarter, economic earnings totaled $1.9 million in 2015. Excluding the write down of $10.9 million for the quarter, operating results would have reflected economic earnings of $12.8 million as compared with $10 million in the second quarter of 2014. The biggest drivers of the quarterly improvement in operating results between 2014 and 2015 are contributions from our utility due to infrastructure investment and customer growth, as well as significantly improved performance from our wholesale commodity business. Actual economic earnings per share through June 30, 2015 were $0.89 as compared with $1.16 for the first six months of 2014. For the quarter, economic EPS totaled $0.03 as compared with $0.15 in the prior year period. Excluding the impact of the thermal facility write down, 2015 economic earnings per share would have totaled $0.19 for the year to date and $1.05 for the second quarter. Now, I will detail the results of specific areas of our business, noting those business lines or segments where the write down had a major impact on economic earnings. Within the utilities, South Jersey Gas’ net income for the first half of 2015 was up 15% at $47.8 million as compared with $41.5 million for the first half of 2014. For the quarter, utility net income was $5.2 million, significant increase over the second quarter of 2014 contribution of $3.8 million. This improvement reflects the benefits of last year’s rate case, our accelerated infrastructure programs and customer additions. Infrastructure investments under our accelerated programs totaled $28.7 million year-to-date and added an incremental $1.7 million of net income for the first half of 2015. With planned investments of nearly $65 million for 2015, our AIRP and SHARP programs will continue to reinforce our system for the replacement of bare steel and cast-iron gas main and the replacement of low pressure gas main with high pressure main along barrier islands. Also worth noting, we are moving forward again in our pipeline project to provide natural gas to the BL England electric generation station and enhance service reliability to customers in the southernmost portions of our operating territory. In May, South Jersey Gas filed an amendment to our 2013 project application still pending with the New Jersey Pinelands Commission. The amended application highlights the enhanced reliability and environmental benefits this project will provide customers across the region. We remain optimistic of the compelling benefits of this project to all residents in Southern New Jersey or ultimately result in its successful completion. Customer growth continues to be significant, up over 6,400 customers [or 1.8%] for the 12 month period ending June 30, 2015. On an annualized basis, these customers will be worth approximately $1.7 million of net income in future years. Our growth continues to benefit from strong conversion activity with nearly 2,800 new customers coming from conversions during the first half of 2015 and a target of 6,500 for the full year. I do want to point out that the collection of deferred gas cost from the winter of 2014 combined with the extremely cold winter this past year has resulted in high receivable balances as of the end of June, which in turn have resulted in higher receivable reserves of the utility. We boosted reserves by roughly $800,000 for the quarter or $500,000 after tax, reflect a situation that we will continue to monitor closely. Now, I’ll move over to the non-utility side of our business and discuss results from South Jersey Energy Services and South Jersey Energy Group. Energy Services largely reflects our energy production assets within Marina Energy and our energy project joint venture Energenic. Energy Group reflects our wholesale gas and retail gas and electric commodity business activities. The first six months of 2015, these non-utility businesses contributed a combined $13 million as compared with $34.7 million in 2014. Year over year variance stems from two major events, first being the previously noted write down of our central energy facility assets, second is the non-recurring benefit to our wholesale business realized from the Polar Vortex in the winter of 2014 that drove gas volatility and ultimately net income in the first quarter of that year. Reduction in solar ITC also played a smaller role in the year over year decline. In the second quarter of 2015, our non-utility businesses reflected a loss of $3.3 million as compared with economic earnings of $6.2 million in the prior year period. We will take a look at the other drivers of these results as I detail each of the business lines. Beginning with South Jersey Energy Services, this part of our business directly absorb the full write down noted previously. However, for the purpose of comparing operating results in the context of this discussion, I think it is more meaningful to [prevent] economic earnings that exclude the impacts of the write down, which amounted to $11.1 million for the first half of the year and $10.9 million for the second quarter. With this in mind, economic earnings for the first half of 2015 for South Jersey Energy Services, excluding the write down, were $15.7 million as compared with $20.8 million for the same period in 2014. For the quarter, results were $6.9 million as compared with $10.1 million for the second quarter of 2014. Lower levels of ITC recorded for both the 2015 year to date and second quarter periods accounted for the majority of the variance. First quarter 2014 Polar Vortex related performance in our wholesale gas marketing business and 2014 earnings from our energy facilities serving Revel were obviously not repeated. Excluding the impact of the write down, operating performance from our CHP business line reflected economic earnings of $2.6 million per year to date, as compared with economic earnings of $4.9 million in the first half of 2014. For the quarter, operating performance for this business produced economic earnings of $300,000 as compared with $1.5 million in the second quarter of 2014. In addition to legal costs incurred and income loss from operations at Revel, 2015 did not see a repeat of the benefits incurred from optimizing these assets, here I’m specifically talking about the energy production assets, around extreme gas price volatility that existed during the winter of 2014. Going forward, we expect our operating projects to be steady and positive contributors to economic earnings. Turning to renewables, our solar operating performance improved by nearly $400,000 year over year. This is reflected in our year to date solar economic earnings of $15.1 million, which included investment tax credits of $17.3 million as compared with the prior year economic earnings of $17.5 million, which contained ITC of $20.1 million. For the second quarter, solar contributed $7.2 million, including $7.1 million of ITC, as compared with $9.8 million that included $9.6 million of ITC in the prior year period. The increase in 2015 solar energy production, particularly in the second quarter, has not yet been fully recognized in earnings due to the timing of certification of renewable energy certificates, particularly as it relates to Massachusetts. That certification process can take up to six months. We expect to see those benefits in the second half of this year. We do expect to see improved operating performance through year end. We remain on track for full year SREC production of 135,000 SRECs. SREC values in New Jersey continue to strengthen, spot market price is now around $237. We also remain very active in the Massachusetts market, where SREC spot market values are closer to $465. For the first half of 2015, our landfills produced a loss totaling $2.3 million as compared with a loss of $2.2 million in the prior year period. However, the second quarter saw operating performance improve their reduced loss of $900,000 in 2015 as compared to a loss of $1.3 million for the second quarter of 2014. We remain optimistic that the operational initiatives implemented over the last two quarters will help drive continuing improvement for these projects. Turning to South Jersey Energy Group, the commodity segment of our business, the first half of the year reflected solid performance with economic earnings totaling $8.5 million as compared with $13.9 million for the first half of 2014. These results reflect a benefit price volatility associated with the 2014 Polar Vortex. As we told you to expect on previous calls, performance for this business improved significantly in the second quarter. This segment contributed $671,000 as compared to a loss of $4.3 million in the second quarter of 2014. With the declining drag from what’s profitable legacy marketing contracts that began rolling off at the end of March and the contributions from the two fuel management contracts that are currently active and with another pending to commence later this year, we expect continued improvements from this business throughout 2015. Finally, taking a look at the balance sheet, our equity-to-cap ratio was 43% at the end of the second quarter, as compared to 44% in the second quarter of 2014. We use our dividend reinvestment plan to issue equity and we’ll continue to do so in 2015 in support of our significant capital programs. We also [indiscernible] $300 million of deferred tax benefits related to our investments that we expect to realize between now and 2020 that will support our goal of delivering – delevering the balance sheet. At this time, I’ll turn the call over to Mike to discuss the forward view for our business. Michael Renna Thanks, Steve. Good morning. As Steve highlighted in his comments, the write down of our investment in the energy facilities serving Revel mitigated much of the positive performance for the quarter. I think most of the detail around that transaction is already been articulated here today, as well as within our earnings release and 10-Q filing. The one think I’d like to add is that we’re encouraged by what we see happening in Atlantic City, we look forward to the day when the former Revel property, part of the City’s broader success, but ultimately we decided that the best thing for our company is to look forward. Doing so will allow us to fully focus on strengthening the business lines that are the foundation of our growth. Businesses, that after backing out the impact of Revel, actually supported economic earnings per share growth 4% to 8% in 2015. In an emphasis on earnings quality, we look forward to continued strong performance in our utility, increase contributions from our commodity businesses, stable performance from our operating energy production assets. As we move forward, we do so with a model that emphasizes our regulated businesses and those areas of our non-regulated business. We have a demonstrated ability to compete and succeed. Most importantly, we will remain confident in our ability to deliver economic earnings of $150 million by 2020. I think focusing on earnings from operations provides a meaningful year over year comparison performance, while also highlighting the strong potential for our business overall. Year to date performance of our utility highlights the potential of South Jersey Gas, increase its contribution to SJI earnings from roughly 60% to 65% to upwards of 70% to 75% as we approach 2020. Significant customer growth fuelled by the compelling economics of natural gas as the heating fuel, we expect to add an incremental $11.8 million by 2020. Accelerated utility infrastructure investment is projected at nearly $350 million over the next five years, adding roughly $18 million in incremental net income by 2020. These initiatives combined with the benefits from new CNG infrastructure, the development of a reliability pipeline to serve BL England, construction of a liquefier at our Nat LNG storage site and a future rate case position our utility for an incremental net income contribution of roughly $13 million again by 2020. On the non-regulated side, strong margins in our commodity business, commencement of at least five new fuel management contracts and improving operating performance across our energy production assets support earnings contributions of $30 million to $40 million by 2020. Most importantly, this growth is targeted without reliance on investment tax credits from renewable projects, coming instead from expanded and improved performance across our core businesses. Finally, we expect our investment in the Penn East pipeline to contribute at least 10% of total net income by 2018. This fully subscribed pipeline is being driven by [climates] of more than 800,000 decatherms from regional utilities and utility affiliates, and is expected to be in service by late 2017. While there is certainly vocal opposition to some pipelines, including Penn East, we expect the overwhelming benefit will provide the region to ultimately overcome the opposition. Before we conclude, I’d like to highlight strategic priorities we shared during the second quarter’s AGA conference. As we work toward our goal of achieving $150 million in economic earnings by 2020, we’re committed to strengthening our balance sheet, maintaining a lot to moderate risk profile, perhaps most importantly improving quality of earnings to ensure that the foundation of our business is built on regulated, repeatable, and reliable income streams. Thank you. Now, I’ll turn the call back to the operator for Q&A.

Atmos Energy’s (ATO) CEO Kim Cocklin on Q3 2015 Results – Earnings Call Transcript

Atmos Energy Corporation (NYSE: ATO ) Q3 2015 Results Earnings Conference August 06, 2015, 10:00 PM ET Executives Susan Giles – VP of IR Kim Cocklin – CEO, President and Director Bret Eckert – CFO and SVP Analysts Brian Russo – Ladenburg Thalmann & Company Charles Fishman – Morningstar Research Spencer Joyce – Hilliard Lyons Operator Greetings, and welcome to the Atmos Energy Fiscal 2015 Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Susan Giles , Vice President of Investor Relations for Atmos Energy. Thank you Ms. Giles. You may begin. Susan Giles Good morning, everyone. Thank you for joining us. Our speakers this morning are Kim Cocklin, President and CEO; and Bret Eckert, Senior Vice President and CFO. There are other members of our leadership team here to assist with questions as needed. Our earnings release, conference call slide presentation and our Form 10-Q we filed last night are available on our website at atmosenergy.com. We will refer to just a few of the slides during this live call, but we’ll take questions on any of them at the end of our prepared remarks. As we review these financial results and discuss future expectations, please keep in mind that some of our discussion might contain forward-looking statements within the meaning of the Securities Act and the Securities Exchange Act. Please see Slide 21 for more information regarding the risks and uncertainties we consider in making these forward-looking statements and where to go to get more information on these risks and uncertainties. Now I would like to turn the call over to our President and CEO Mr. Kim Cocklin. Kim. Kim Cocklin Thank you very much, Susan, and good morning everyone. We certainly appreciate you joining us this morning and your continued interest in our company Atmos Energy. Yesterday as you are aware we reported consiolidated net income of about $56 million or $0.55 per diluted share. For the first nine months of fiscal 2015 the reported consolidated debt income was about $292 million or $2.86 per diluted share. Company’s performance during the quarter offers yet another confirmation at our long-term strategy to grow by investing in the safety and reliability of our regulated infrastructure continues to generate consistent operational and financial results. As a result we are pleased to increase our fiscal 2015 earnings guidance to a range between $3.10 from the previously announced ranges between $2.90 and $3.05 per diluted share. Bret will provide a little bit more color around that in his remarks. The execution of our strategy has also allowed us to strengthen our financial position and this was recognized was Fitch when they upgraded our long-term debt rating to A from A minus on July 1. Our debt capital ratio of June 30 was 45.5 % and all liquidity remained strong with over $1 billion of capacity available from our credit facilities. Yesterday our board declared our 127 consecutive quarterly cash dividend. The indicated annual dividend rate for fiscal 2015 is a $1.56 per share. I’m going to turn the call over to our CFO Bret Eckert for more detailed discussion of the results. Bret. Bret Eckert Thanks Kim, and good morning to everyone. Slides 2 and 3 detail reported net income an income excluding net unrealized margins to the three and nine month periods of fiscal year 2015 and 2014. Earnings excluding unrealized margins for the current three month were $55 million or $0.54 per diluted share versus $46 million $0.45 per diluted share in prior year quarter. Earnings excluding unrealized margins for the current nine months were $287 million or $2.81 per diluted share compared with $259 million or $2.69 per diluted share of last year. Remember last year’s nine months results included the favorable impact was significantly colder than normal weather. Slides 4and 5, provides financial highlights for our regulated operations. In the quarter rate increases lifted distribution gross profit by $16 million and about $62 million for the current nine-months. At APT approved GRIP filings in fiscal 2014 and 2015 listed margins by over $9 million in the quarter and $37 million for the nine-months. However, period-over-period results in our distribution segment were negatively impacted that by weather that was 31% warmer than the prior year quarter and 9% warmer than the prior year nine-months. This reduced gross profit by about $1 million for the quarter and $9 million for the nine-month period. On non regulated segment is detailed on Slide 15 and 16, delivered gas increased in both the quarter and year-to-date period driven by stronger per unit margin offset by a slight decrease in delivered gas volumes. Other margins decreased about $3 million in the quarter and $17 million in the current nine-month as less volatile market conditions created few opportunities to capture incremental gross profit compared to the same periods one year ago. Shifting now to the income statement O&M increase by about $7 million in the quarter and about $18 million for the current nine-months. As we expected both period of experience higher levels of pipeline maintenance writeaway expenses despite a very wet spring that impacted the amount of maintenance that could to be performed. We do anticipate the maintenance expenses to continue and accelerate fourth quarter as the whether rise out. In addition, the current quarter saw increased employee related costs associated with the timing of the recognition of higher variable incentive compensation expense as a result of increased operating results these increases will partially offset by lower legal expense. Interest charges decreased by $4 in the quarter and about $10 million for the nine-months primarily due to replacing the $500 million of 10 year debt with $500 million of debt at a lower rate back in October 2014. Details of capital spending represented on Slide 6, over 80% of our capital expenditures were associated with safety and reliability spending, as we activated CapEx increased by about $115 million current nine month period compared to one year ago. Moving now earnings guidance for fiscal 2015 and you may want to turn to Slide 18 where we’ve detailed revised contributions from our regulated and our non-regulated operations as well as selected expenses for the year. As Kim mentioned, we have tightened and slightly increased the earnings guidance range for fiscal 2015 with earnings per diluted share now expected to range from $3 to $3.10 excluding unrealized margin. We now project regulated operations generate net income in the range of $290 million and $305 million and non-regulated operations to generate net income in the range of $14 million to $18 million. The updated guidance primarily reflects stronger than anticipated consumption in our distributions segment. This increased consumption levels not only reflect the impact of colder than normal experienced during the winter heating season, but also higher than anticipated residential and commercial consumption level following the winter heating season. We also expect higher realized non-regulated gross profit as a result of the improved delivered gas performance. Consolidated O&M expense is now expected to range from $525 million to $535 million driven by increased regulated pipeline maintenance activities and higher employee related variable incentive compensation expense. Turning to Slide 28, we now anticipate the annual operating income impact for rate outcome implemented in fiscal 2015 to range from $85 million to $95 million. This is slightly different than our original projection largely due to increased customer consumption experienced in the prior fiscal year. As a result, test period revenues were higher which reduced the size of requested rate increases. Thank you for your time and now I’ll hand the call back over to Kim. Kim Cocklin Thank you very much for that report, Bret. Our performance again confirms that what we’re doing is working. We are experiencing very good results all around both operationally and financially as we strive to become the nation’s safest gas utility. We’ve fostered good relationship with our regulators who are tasked with balancing the needs to consumers and businesses like Atmos Energy and we’ve also built and established partnership with them as well as our customers, employees, in the cities we serve. Our regulated operations as Bret said continue to provide stable and predictable earnings for the enterprise. As of August 5, rate outcomes and incremental differals that provided annual operating increases of about $87 million thus far in fiscal 2015. Rate actions that are filed and pending total about another $9 million of requested annual operating increases. We expect to file another three to four cases this fiscal year that combined that would request anywhere from $15 million to $20 million of additional increases to operating income. As you are well aware safety is our number one priority and it does require significant investment both capital and expense. As gas prices remain low for the foreseeable future, the price dynamic continues to facilitate the investment we’re committed to making. This year we’ll spend from $900 million to $1 billion of capital to fortify our system. You’ve heard this bfore, we may sound like a broken record or you might think you are watching the movie Ground Hog Day, but we have been and will continue to delivery on our promises and commitment. Investing in the safety and reliability of our system is the highest and best use of our capital. These capital investments should grow rate base by 9% to 10% and earnings per share by 6% to 8% on an annual basis and provide a projected total return to shareholders of between 9% and 11%. In November, we’ll look forward to meeting with you and communicating our refreshed five year plan, which will provide projections through fiscal 2020. We certainly appreciate your time this morning and now we’ll take any questions that you have, Kevin. Question-and-Answer Session Operator Thank you. [Operator Instructions] Our first question comes from the line of Brian Russo with Ladenburg Thalmann. Please proceed with your question. Brian Russo Hi, good morning. Bret Eckert Good morning, Brian. Brian Russo Just in terms of the increased guidance, if you kind of back into the EPS for the reg or non-reg, it looks like it’s split fairly evenly $0.05 of EPS increase on reg another $0.05 on regulated side. Is that just sustainable or is it related to weather and it’s not – and it shouldn’t really re-occur when meeting is the base earnings power $0.10 higher now than it was previously? Bret Eckert Well as we had said last call Brian it’s few questions, we expect weather to weather consumption to contribute about $0.04 to $0.06 to earnings in fiscal 2015, we talked about the delivery gas business with the slight increase in our guidance that really is driven by the delivery gas business, we see per unit margins strengthened though in end of the year expecting margins in the $0.10 to $0.11 range you see in margins closer to the $0.11 to $0.12 range and that is really what is causing the lift in that business. So we’re only coming out with guidance for fiscal 2016 as we announce our full-year results in November but those are the main drivers of the increase in earnings this year. Brian Russo Now the increase in unit margins on the non-reg side, is that sustainable? Bret Eckert That’s a good question Brian. I mean we didn’t experience that same performance last year from them and this year was then the trend increase for their margins and we’re also seeing increased consumption in on the regulated side of the business. I think that there is some traction that is being gained nationwide by energy consumers that are recognized that natural gas is an extremely good purchase and it continues to lead the way. So we’re seeing that, they are seeing some of that in the industrial sector but and the other thing is that their delivered share gas focus is continuing to emphasize providing additional value to customers that are willing to recognize that value. So they’re being the non-regulated group of being a little bit more focused on the selection of who they’re serving and so they are high-grading their customer base which has translated at least this year into those better margins that we’re seeing. So we’re going to continue to have that strategy of emphasizing service to customers that are recognizing the additional value they bring to the table in terms of just all of the energy services that are available and then providing the premium product in the form of natural gas that they are getting. But so some folks are willing to pay up right now because of the competitive edge that gas brings to their product and their process. Brian Russo Got it okay and then just the it looks like you’ve got about 55% equity ratio, can you talk about maybe the trends you see there, is that kind of a good target trend lower as you raise that financial CapEx? Bret Eckert We continue today, we are committed to kind of growing this spending of $900 billion to $1.1 billion through 2018 in a balanced form. The 55% is the product to the equity issuance we did back in February of 2014. Brian Russo Okay. And then just lastly the upcoming regulated pipeline, GRC filing I think it is December 2016 any – can you just comment what are the major drivers there and I think we should be aware of that this time? Bret Eckert Generally there are no unusual drivers; it is going to be a typical rate case with the focus on cap structure, on return and on service levels and rights. But it won’t be anything unusual. Brian Russo Okay, great. Thank you very much. Bret Eckert Thank you, Brian. Operator Thank you. Our next question comes from the line of Spencer Joyce with Hilliard Lyons. Please proceed with your question. Bret Eckert Spencer? He dropped off, lost Spencer. Operator Our next question comes from the line of Charles Fishman with Morningstar. Please proceed with your question. Charles Fishman Good morning. The variance on O&M which were attributed to the employee incentive plan is that something you just recognize that in the third quarter that is not ongoing, we won’t see that next quarter, is that correct? Bret Eckert You recognize an incentive comp base on your initial targets and then with revision of the guidance upwards with only come in higher, on the quarter once you change that is when we catch up on the higher level of expense and so this time we got recorded in the third quarter. Charles Fishman Okay, got it. And then the second question was Bret you made the comment that you were experiencing higher consumptions following the heating season, I appreciate if you have add some color to that total whatever you can . Bret Eckert Yeah, we have seen, through the nine month period consumption higher than historical norms coming through and so we have always got consumption driven by weather and then you’ll just got a modest consumption consumer will use on a average degree day and we have seen that be higher than historical norms continue into the first nine months of this fiscal year. Charles Fishman Whats going on? Bret Eckert And it’s hard to highlight exactly what’s driving consumer consumption patterns, but we have seen higher consumption this year. Kim Cocklin Charles, I mean that’s kind of national, nationwide circumstance we flipped it some of the tests that are coming out we looked at AGA statistics that recently came out I think last week or two weeks ago and it indicated the better reversal of the trend for declining use of natural gas and for the last two years running there has been an increase in the consumption trend by residential customers. Again, I think, the traction associated with our industry getting out a little bit and promoting the competitiveness in the abundance and the environmental qualities of natural gas. Charles Fishman Okay. Bret Eckert Certainly in the competitive against other alternative fuel sources. Charles Fishman Okay, thank you for that. Kim Cocklin The industry and I think you know we are just experiencing because we were, one of the biggest R&D utilities on the planet. Charles Fishman Okay, thanks a lot. Operator Thank you. [Operator Instructions]. Our next question comes from the line of Spencer Joyce with Hilliard Lyons. Please proceed with your question. Spencer Joyce Let’s try out this again user error on my part. I apologize. Kim Cocklin Okay. Bret Eckert Well first mistake of the year for you. Spencer Joyce Yes, I got to say so keeping with the Bill Merry movies it is clear that the Cinderella story continues to execute here, nice quarter. Right, what becomes of the broken it is and another one when that comes to mind on if you are not in the stock by the four tops? What in the world applies with what is the sector doing? Kim Cocklin It is flattish, it is mostly interest rates on say, we are kind of drawn to tough comp of where lot of the stocks ended last year, but optimistic here is we look towards the back half. Spencer Joyce Yes. I guess to be long-term. In any case just want to kind of have question from me, we are inching kind of ever closer here to the endpoint of kind of standing 2018 guidance if you will, but I know we are still a couple of years out but can you talk about any clarity that maybe developing as we look maybe towards the tips of the decade here and potentially when we can see you all maybe roll that target out another year or two? Bret Eckert Great question, Spencer we do plan in November when we released earnings of fiscal 2015 to come out and extend that plan to four, five years through 2020, we have launched the plan updated the plan last in 2014 to 2018 we didn’t want to getting practice of rolling out another year, every year. So we kind of do it every two years but we will put out revised plan or updated plan if you will through 2020 we will put guidance out there, guidance range out there in 2020 and as we talked before imagine for 2018 we continue to see the ability to invest at these levels enhancing the safety into the liability for systems. So we expect that in our analyst meeting in November. Spencer Joyce Perfect, we will eagerly await that roll out there. Again good quarter and nice year, shaping out to be a good one. That is all I have. Kim Cocklin Thanks Spencer. End of Q&A Operator Thank you. There are no further questions at this time. I would like to turn the floor back over to management for closing comments. Susan Giles Thank you, Debin. I just want to remind you all recording of the call is available through November 4 and I am here if you have any additional questions. Thank you so much for joining us. Bye, bye. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited. THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS. If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com . Thank you!

Clean Energy Fuels (CLNE) Andrew Littlefair on Q2 2015 Results – Earnings Call Transcript

Clean Energy Fuels Corp. (NASDAQ: CLNE ) Q2 2015 Earnings Conference Call August 5, 2015 04:30 PM ET Executives Tony Kritzer – Director, IR Andrew Littlefair – President, CEO & Director Bob Vreeland – Senior VP, CFO & Accounting Officer Analysts Rob Brown – Lake Street Capital Laurence Alexander – Jefferies & Company, Inc. Aaron Spychalla – Craig Hallum Capital Group Operator Greetings, and welcome to the Second Quarter 2015 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 Mr. Tony Kritzer, Director of Investor Relations. Thank you. You may begin. Tony Kritzer Thank you, operator. Earlier this afternoon, Clean Energy released financial results for the second quarter ending June 30, 2015. If you did not receive the release, it is available on the Investor Relations section of the Company’s Web site at www.cleanenergyfuels.com, where the call is also being webcast. There will be a replay available on the Web site 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 August 5, 2015. These forward-looking statements speak only as of the date of this release. The Company undertakes no obligation to publicly update any forward-looking statements or supply new information regarding the circumstances after the date of this release. The Company’s non-GAAP EPS and adjusted EBITDA will be reviewed on this call, and exclude certain expenses that the Company’s management does not believe are indicative of the Company’s core business operating results. Non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP, and should not be considered as a substitute for, or superior to, GAAP results. The directly comparable GAAP information, reasons why management uses non-GAAP information, a definition of non-GAAP EPS and adjusted EBITDA, and a reconciliation between these non-GAAP and GAAP figures is provided in the Company’s press release, which has been furnished to the SEC on Form 8-K today. Participating on today’s call from the Company is President and Chief Executive Officer, Andrew Littlefair; and Chief Financial Officer, Bob Vreeland. And with that, I’ll turn the call over to Andrew. Andrew Littlefair Thank you, Tony. Good afternoon, everyone. And thank you for joining us. I’m pleased to review our second quarter 2015 operating results with you today. We delivered 74.4 million gallons this quarter, up 15% from 16.8 million gallons we delivered in the second quarter of 2014. Revenue was $86.9 million in the second quarter versus $98.1 million a year-ago. Revenue decreased primarily due to three factors. Our overall effective price, which is primarily driven by lower natural gas commodity prices drop by $0.10 per gallon compared to the second quarter of last year. A simple way to think about this is when applied a 74 million gallons, this affected our revenue by close to $7.5 million. And as I told you last quarter we had $9.1 million in construction projects that were essentially complete at the end of the first quarter, but we’re still unable to recognize about $6.4 million of the revenue. This particular construction projects is part of a larger facility. Our portion is complete and we’ve been paid, but we’re waiting for the completion of the remainder of the facility to be able to recognize the revenue which we anticipate in the third quarter. And lastly our Clean Energy Compression subsidiary was somewhat challenged due to the global decline in oil prices, the strength of the U.S dollar and a slowdown in China, all of which contributed to softened international sales. However, they improved their gross margin over last quarter by almost $1 million and continue to make progress on their product standardization. The first of their standardized units are in production now. The impact of these three factors affected our top line by roughly $19 million. Fortunately, because of our volume growth, we had incremental revenues from fuel sales of $8 million, which help offset that impact. In spite of lower oil prices, which have been challenging our recurring revenue model — let me back up, in spite of lower oil prices which have been challenging, our recurring revenue model continue to show growth. Our margins remain relatively intact to $0.27 and fuel volumes grew 15% year-over-year. For many of our customers, volatility is much an issue as fuel price and we still offer an economic value proposition with a cleaner fuel. Along these lines with economic and clean fuel benefits, adoption continues and we see significant investments across the entire natural gas vehicle industry and in our sectors. New vehicles and platforms are coming to market and being developed including the new commenced Westport 6.7 liter engine and the CWI 9 liter near zero NOx engine. Additionally, Quantum Fuel Systems just launched a high capacity CNG fuel module last week. We’ve also seen the incremental cost of natural gas trucks continue to come down, partly due to our tank programs with agility and chart. In trucking, in the first half of the year, we’ve began fuel 700 new trucks and open 15 truck friendly stations in 11 states and we plan to open 10 more by year-end. In total, we now have 208 truck friendly stations open across 31 states in British Columbia. These include Corridors, the I-5 and Highway 99 between northern and southern California. On the I-40 from LA to Oklahoma City, the I-10 from LA to Jacksonville, the I-20 from LA Birmingham going through Dallas and on the I-95 from Jacksonville to Richmond and CNG tractors can now go from Washington DC through Philadelphia, New York, and Boston. We now fuel close to 3,000 Class-8 heavy-duty trucks nationally. We recently our demo truck programs where we lend new CNG or LNG trucks and box trucks to potential customers. Our goal is to provide as many fleets as possible with the opportunity to test drive these natural gas trucks, if they have a positive driving experience on top of enjoying the benefits of a cheaper and cleaner fuel. The demand for these trucks has been strong and there are currently 93 fleets on the waiting list to demo the trucks in both our core and trucking segments. In our refuse market, the momentum continues. We have completed 17 station projects to date and we anticipate we will complete 36 refuse station projects by the end of the year. We’ve added nine new contracted projects to our refuse pipeline in last month alone. It become almost a requirement for refuse companies to convert at least part of their fleets to natural gas in order to stay economically and environmentally competitive. We currently fuel over 9,000 refuse trucks daily. In our transit market, in the second quarter, our customers ordered or added 224 buses to their fleets. This equates to over 3 million gallons annually. We announced the Big Blue Bus of Santa Monica has become one of the country’s first municipal transit authorities to convert its entire fleet to our Redeemed branded renewable natural gas that is 90% cleaner than diesel and is the cleanest transportation fuel commercially available. In addition, to Big Blue Bus, UPS previously committed to fueling which Redeem for a portion of its heavy duty fleet as part of their plan to drive one billion miles using alternative fuel by the end of 2017. We comment Big Blue Bus and UPS for their commitment to using cleaner fuel and we look forward to working with other major companies and fleets who value that same commitment to sustainability. For the first six months of the year, we saw a 21 million gallons of Redeem and we’re on track to double what we delivered in 2014. Across all our markets, we’re working with over 950 fleet customers representing close to 42,000 vehicles that we fuel on a daily basis. On NG Advantage, we’re pleased with the volume growth, having delivered over 10 million gallons in the first two quarters. We are expanding our station in Milton, Vermont to add 30% more contracted capacity. This is the second significant upgrade of that station in the past year to meet demand of contracted volumes. On the policy front last week, the Highway Trust Fund Legislation was passed by both houses of Congress and was signed by the President. Within the bill is a provision to equalize the federal tax in LNG to an energy equivalent basis with diesel and gasoline. The result will lower the tax in LNG by $0.17 per diesel gallon equivalent effective January 1, 2016. Additionally, 26 state legislatures have already taken similar action to equalize transportation fuel taxes. Across the country we’re seeing the development of robust grant programs to support fleets to dock natural gas. Here in California, Prop 1B funding will provide $65,000 per truck for fleets to qualify. The Prop 1B funds totaled over $260 million, which will become available later this year and will be allocated throughout 2016. So far this year, we’ve received $40 million in grant funding for 17 stations and 546 natural gas vehicles in 25 states. Regarding our balance sheet, at the end of the second quarter, we had a $182 million of cash and investments and we’re on track with reduced CapEx program of $59 million. We are focused on the 2016 convertible notes which are due at the end of August of next year. We have flexibility with different options including cash, stock, or a combination of both and we’re in regular communication with the noteholders. We plan to file a universal shelf registration statement of $500 million in the coming days to replace our expired shelf. We don’t have any immediate plans to use the shelf, but we think this is good corporate practice and gives us the tools and flexibility should we needed. And with that, I’ll turn the call over to Bob. Bob Vreeland Thank you, Andrew, and good afternoon to everyone. It’s my pleasure to go over our financial results for the second quarter ended June 30, 2015. Overall, we made progress in the second quarter, mainly our adjusted EBITDA improved by $3 million from negative $5.6 million in the first quarter of 2015 to negative $2.6 million in the second quarter of 2015, and slightly less volume in the second quarter. And we improved our adjusted EBITDA by $2 million over the second quarter of 2014, despite lower revenues in 2015 compared to 2014. Now I’ll go over some specifics for the second quarter of 2015. Starting with volume, compared to the second quarter of 2014, as we reported, volumes grew by 9.5 million gallons or 15% over the second quarter of 2014. Refused increased 27%, trucking increased 19%, together transit and fleet services increased around 5% and our industrial sector more than doubled to a little over 6 million gallons. When compared to the first quarter of 2015, I want to point out that volumes were down in the second quarter of 2015 by a net 2.7 million gallons as a result of fully finishing our involvement with our former biomethane plant in Dallas, effective mid April of 2015. On a year-to-date basis, through June 30, our volumes are up 20% or 25.4 million gallons over 2014. Our revenues of $86.9 million or $11.2 million last — then a year-ago which is principally a function of lower fuel prices driven by lower commodity costs, the timing of station sales and our compressor business. Lower fuel prices represented about $5.6 million of the decline in revenue. Fewer stations completed and recognized represented about $5.2 million of the decline. As Andrew mentioned, we still have one large station being deferred to the third quarter from the first quarter. Lower revenue at Clean Energy Compression Corp of about $8.1 million, reflects the general softness in the international marketplace as previously mentioned. These declines in revenue were partially offset by 7.9 million in higher revenues from the 9.5 million incremental gallons in 2015 over 2014. It’s important to note that our effective price per gallon declined $0.10 per gallon from a year-ago, while our effective costs per gallon declined $0.08 for a net impact of $0.02 on margin per gallon. So this has a fairly significant impact on revenues at $0.10 a gallon and less of an impact to our margin. Now moving on to margin, our gross margin per gasoline gallon equivalent was $0.27 in the second quarter of 2015 compared to $0.29 in the second quarter of 2014, and $0.28 in the first quarter of 2015. The decline of $0.02 from 2014 was attributed to a volume mix, a higher concentration of incentive programs that are tied to fuel deals in 2015 and some pricing squeeze from today’s low price environment. Offsetting these margin pressure was another solid quarter of our RIN credits at $2.9 million associated with our sales of Redeem, our renewal natural gas. All in all, we’re holding steady on our gross margin per gallon and are rather fluid pricing environment. As Andrew mentioned, we saw gross margin improvement of around $1 million from our Compression Corp in the second quarter when compared to the first quarter of 2015. This was mainly from cost controls and a focus on selling core products versus larger custom build projects. However, the challenge remains due to a soft demand internationally as we’ve mentioned. Our SG&A spending remain under control at approximately $29 million for the quarter, a decline of 16% from a year-ago and a 4% decline from our most recent quarter. Our cash investments totaled $182 million at June 30, 2015. We continue to control capital expenditures as planned. We spent $26 million on CapEx in the first six months of 2015 compared to $62 million spent on CapEx for the first six months in 2014. NG Advantage is about $10 million of the $26 million spent in 2015. So on a comparative basis; you’re really comparing $16 million to $62 million or a $46 million reduction while volumes are growing. As I mentioned, our adjusted EBITDA for the second quarter of 2015 was negative $2.6 million. The improvement of $3 million over our first quarter of 2015 was primarily from improved margins at the Compression Corp, station sales and lower SG&A spending. We improved by $2.1 million compared to 2014, despite a $11.2 million less in revenue in the second quarter of 2015 versus 2014. In comparing to the second quarter of 2014, our adjusted EBITDA was negatively impacted by lower station sales and Compression Corp revenue in 2015 that positively impacted by our increased volumes between the periods as well as our reduced spending on SG&A. Now we’ve seen improvement in our quarterly adjusted EBITDA and we expect to continue to leverage our station and cost infrastructure and grow volume such that we expect these improvements to adjusted EBITDA to continue. It is unlikely we will get a positive adjusted EBITDA for the full-year, but it is still possible. However, we anticipate getting to positive quarterly adjusted EBITDA by the end of this year as we make steady progress, growing volumes, and leverage the infrastructure of our business. And with that, operator, we will open the call to questions. Question-and-Answer Session Operator At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Rob Brown from Lake Street Capital Markets. Please go ahead with your question. Rob Brown Good afternoon. Andrew Littlefair Hi, Rob. Bob Vreeland Hi, Rob. Rob Brown Could you just give us little more color on the pipeline of sort of new fleets or just in fleets expanding to natural gas? I know a number have been testing it, but where is that at with oil, it’s obviously slowed down but has — are people still moving forward, are they evaluating it? Where are things at with the lower oil price in the pipeline? Andrew Littlefair Yes, Rob I’m glad you asked that question, because we haven’t had any current customers leave the program or turn back the keys with their natural gas truck. Let’s face it, lower, lower diesel price and oil prices, those customers that are on the fence has given them even more to think about. However there is still lots of new fleets coming to the program. We just this last week, we — and I can’t go through all their names with you right now, but we’ve had about eight or nine new fleets, field more trucks. I think our demo truck program where we got really 90 some odd fleets in the queue to test those vehicles. I think it’s very encouraging. So we have seen good examples of our current customers UPS and Waste Managements and others continue to order vehicles and that really hasn’t slowed. We just have to put more in the pipeline and get more people exposed. We still have, I think it’s important to remember, we still have an economic offering. And in this last nine months or so since the oil has done what’s its done, the incremental cost has come down significantly on these trucks, as I mentioned in my remarks. But we’ve seen concrete examples of the incremental cost on the 12 liter truck going from somewhere around $40,000 somewhat to $22,000 to $25,000 and so that’s been very helpful. So we’re still able to save customers and we’re between $0.75 to over $1 a gallon. So the economic proposition is still there. We’re still getting new people to sign up. Rob Brown Okay, good. And then it sounds like refuse has become sort of the standard to having natural gas. What’s sort of the thinking on when that can happen in trucking, is that — I know its hard to predict, but are you still in a path to having that ultimately be the case in trucking where everybody [multiple speakers]? Andrew Littlefair Yes, I haven’t lost any optimism for what I think is going to happen. To me it’s impressive that UPS hasn’t bought a diesel truck in two years. I mean look, this is the one world leader in terms of logistics and has one of the largest fleets, and haven’t bought a diesel truck in two years. So to me that’s very telling. We’re still having some of our big shipper friends, Unilever, MillerCoors, Procter & Gamble and others requiring their contracted carriers to move to natural gas. This year you’ll probably feel about as many new heavy duty Class A trucks on natural gas as you will refuse trucks, and so — but it’s a much larger market. And so I still remain very optimistic that we’ll get on a much higher penetration rate, of course having fuel at higher price is the delta one, the delta increases, it will make it that much more compelling for fleets. But I don’t know, I can’t give you a time Rob, but we’re still saving these guys money and its still pretty impressive. As I mentioned in my remarks there’s still a lot happening in the business, there’s new models coming to market, there’s new engines coming to market. I quickly went over it, but the Cummins 9 liter and next year sometime the 12 liter of low NOx engine, I think that’s a game changer. Now you’re talking about an engine that’s almost 10 times cleaner now and the future of the low NOx has occurred. And so that really makes us competitive when we put it that with the renewable fuel. Its one of the cleanest vehicles on the road in the world. And so investments continue to be made, our customers are building stations and ordering vehicles. Rob Brown Excellent. That was a great review. Thank you. Andrew Littlefair Thank you. Operator Our next question comes from the line of Laurence Alexander from Jefferies. Please proceed with your question. Laurence Alexander Good afternoon. Could you help with a couple of things. First, I think was a quarter or two ago you mentioned that seeing some competitors likely being forced to shut capacity or slowdown their project build out. Have you actually seen that play out, and how are you seeing the competitor dynamics right now? Andrew Littlefair Well, as we talked I think before Laurence, well there is a lot of people that are in “fueling business” as we’ve reviewed before some of them are regional, some of them are partnerships with utilities, some of them are relatively small compared to us. Yes, I mean we’ve seen just recently in the last couple of weeks, we’ve seen few different smaller competitors either out searching funds or being put up for sale. Look, this is a difficult business and if you only have four fueling stations at light duty convenient stores, this is tough. Because now you’re going up against really small fleets and light duty gasoline vehicles, so it’s difficult. So I would say yes, we’re seeing a consolidation. You go back with me Laurence and think, I don’t know six months ago, boy there was a lot of companies talking about building — getting ready to launch 100 stations and those kind of thing, but you don’t hear anything about that anymore. So there are some larger competitors that are still proceeding that we will. We’ll build more station projects this year than we did last year close to 70 and some of our other larger competitors [indiscernible] gain and a few of these others, they’re continuing. But I think for some of the smaller companies this is a difficult environment. Laurence Alexander And then with the tax changes that have been passed and also the draw up in the truck premium back with the envelop it looks as if the truckers are getting about one and half year payback. Andrew Littlefair I think that’s fair. Laurence Alexander Are you hearing that from your customers as well? Andrew Littlefair Yes, I think that’s fair. I mean it depends on exactly the price that they’re paying. But there was a time we’re even a little bit better than that. Of course it all depends on how much fuel. I was kind of figured you’re using a 20,000 gallon annual truck. We have some customers right now, one that’s taking delivery of 12 trucks as we speak; they use 37,000 gallons annually — a year per truck. But if you use that 20,000 one, we’re still able to save these guys close to $1 a gallon, and so you’re somewhere around a year and a half. That depends on the tank pack as you’re putting in place, but we’ve seen significant reductions in the price of these trucks. So anywhere in the less than two years, year and a half area, I think this still makes a lot of economic sense. Laurence Alexander And then just one last one if I may, if you had 100% conversion of your pipeline, do you have any sense for what the gallon opportunity is that’s embedded in your existing target? Andrew Littlefair Wow, it would be a big number, right? So I don’t know that you want me to quote that. But I mean its — well… Laurence Alexander Yes, actually I just got a sense for, without changing anymore minds if you just change the … Andrew Littlefair Yes, well if we just got the 200 or so fleets that we’re working with and that began to really kind of do what the refuse guys have done over time and go from 10 to 100. I mean you’re talking about 10s of 1000s of trucks. So we’re working with very large customers and they have the ability to take big numbers of vehicles. That’s why I like, when I mentioned these 950 fleets and that business sound like a very big number, but that 950 fleets, I’m just kind of guessing on top of my head, that probably deals with — that probably would get you into a million or couple of million vehicles at that 950 fleets. So we’re dealing with the right people and it’s just the matter of getting them comfortable with the experience, matching that up with the infrastructure and that’s happening. I went through that in my remarks, when you begin to look and we have these maps and if you ever want to have those, you can let us know. But we have these maps that show coverage across the country and its pretty impressive now that the coverage you get 300 miles away from our stations these are overlapping umbrellas if you will and you’ve covered most of the country. So you’re able now to deal with lots of corridors, lots of trucking where there’s an off a lot of regional trucking that happens in the country that go from Houston to Dallas and places like that, and so we’ve got that infrastructure in place today. Laurence Alexander Okay. Thank you. Andrew Littlefair Yes, you bet. Operator Our next question comes from the line of Eric Stine from Craig Hallum. Please proceed with your question. Aaron Spychalla Hi. Good afternoon, it’s Aaron Spychalla. Thanks for taking the questions. Andrew Littlefair Sure. Aaron Spychalla Maybe first on Mansfield, can you give us an update there and the JV for bulk fuel hauling. How many stations do you guys have inside the fence now and what does the pipeline look like there? Andrew Littlefair Okay, well now you know that our Mansfield joint venture ride is the bulk fuel hauling joint venture. So that’s really targeted at people that are — the trucks that are going in and out of terminals. So we just got started with that. Our first station opened in Doraville, Georgia in November and I’m pleased to report its now doing 40,000 gallons a month which is a nice start. We’ve got two other locations that we can’t — I can’t mention the names right now but two other locations where we’re just finishing up the contracts with other fleets where they’ve committed to go. Now I will say this, that particular segment bulk fuel hauling. Now as you’re dealing with people that are hauling gasoline and diesel and in some places in the country, diesel has dropped significantly. So we’re having to work very hard and being very aggressive on pricing to make sure that those still will happen. But I think what we’ve seen is we proved out the model, it’s a good segment for us, we’re with the best in the business which is Mansfield and those — we’ve always figured that we would build a few more this year and I hope that we get those things launched too shortly — those new stations. Aaron Spychalla Right. Thanks. And then, could you maybe provide some color on the AB 857 legislation and what that might mean for your business if we continue to see that move forward? Andrew Littlefair Right. Well for those on the phone, it’s the piece of California legislation. So when it gets tied into the cap and trade funds, there’s a big part of money now in California and its getting to be I mean large, I mean we’re now talking as much as a couple of billion dollars, AB 857 would, starting in 2018 to 2023 would make available $100 million a year for natural gas heavy duty trucks. So it’s significant for us. We like — we’re working hard on that now. We’ve got very good support in legislature. We get up to $100,000 of grant money per truck when we have that low NOx truck, that’s why I’m so excited about the potential of what Cummins Westport is doing on that low NOx truck that really puts us way ahead of what diesel can do and other fuels can do. So we’re excited about it. It’s not done yet, but it’s significant. That does bring me to just highlight that Prop 1B, I mean the Prop 1B money is slopping around right now. Its $260 million, it gets [indiscernible] out to the air districts in California, San Joaquin, the Bay Area, the South Coast. We have our sales people working with fleets right now. That money was being coordinated by their resources board and I think maybe the California Energy Commission, that money will get distributed out to the air districts and then the fleets submit for it, and that is underway and it’s significant for us. Aaron Spychalla Good. Thanks for taking the questions. Andrew Littlefair Okay. Thank you Operator Mr. Littlefair, there are no further questions at this time. Would you like to have any closing remarks? Andrew Littlefair Sure, operator and everybody on the call, thank you for dialing in this afternoon. We look forward to updating you on our progress in the next quarter. Thank you. Operator This concludes today’s teleconference. Thank you for your participation. You may disconnect your lines at this time.