Tag Archives: internet

WGL Holdings’ (WGL) CEO Terry McCallister on Q2 2016 Results – Earnings Call Transcript

WGL Holdings, Inc. (NYSE: WGL ) Q2 2016 Earnings Conference Call May 5, 2016 10:30 ET Executives Doug Bonawitz – Investor Relations Terry McCallister – Chairman and Chief Executive Officer Vince Ammann – Senior Vice President and Chief Financial Officer Adrian Chapman – President and Chief Operating Officer Gautam Chandra – Senior Vice President, Strategy, Business Development and Nonutility Operations Analysts Mark Levin – BB&T Sarah Akers – Wells Fargo Operator Good morning and welcome to the WGL Holdings’ Second Quarter Fiscal Year 2016 Earnings Conference Call. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only-mode. [Operator Instructions] The call will be available for rebroadcast today at 1:00 p.m. Eastern Time running through May 12, 2016. You may access the replay by dialing 1-855-859-2056 and entering PIN number 97338125. I will now turn the conference over to Doug Bonawitz. Please go ahead. Doug Bonawitz Good morning, everyone and thank you for joining our call. Before we begin, I would like to point out that this conference call will include forward-looking statements under the federal securities laws. Forward-looking statements inherently involve risks and uncertainties that could cause our actual results to differ materially from those predicted in such forward-looking statements. Statements made on this conference call should be considered together with cautionary statements and other information contained in our most recent annual report on Form 10-K and other documents we have filed with or furnished to the SEC. Forward-looking statements speak only as of today and we assume no duty to update them. This morning’s comments will reference a slide presentation. Our earnings release and earnings presentation are available on our website. To access these materials, please visit wglholdings.com. The slide presentation highlights the results for our second quarter of fiscal year 2016 and the drivers of those results. On today’s call, we will make reference to certain non-GAAP financial measures, including operating earnings of WGL Holdings on a consolidated basis and adjusted EBIT of our operating segments. A reconciliation of these financial measures to the nearest comparable measures reported in accordance with Generally Accepted Accounting Principles, or GAAP, is provided as an attachment to our press release and is available in the quarterly results section of our website. This morning, Terry McCallister, our Chairman and Chief Executive Officer will provide some opening comments. Following that, Vince Ammann, Senior Vice President and Chief Financial Officer will review the second quarter results. Adrian Chapman, President and Chief Operating Officer will discuss key issues affecting our business and the status of some of our principal initiatives. And in addition, Gautam Chandra, Senior Vice President, Strategy, Business Development and Nonutility Operations is also with us this morning to answer your questions. And with that, I would like to turn the call over to Terry McCallister. Terry McCallister Thank you, Doug and good morning everyone. Our non-GAAP operating earnings for the second quarter is shown on Slide 3 in our presentation were $89.5 million or $1.78 per share compared to $101 million or $2.02 per share in the second quarter of 2015. On a non-GAAP basis, consolidated operating earnings for the first six months were $148.7 million or $2.96 per share. This compares to $159 million in the prior year or $3.18 per share. The decrease in operating earnings in the second quarter primarily driven by lower results on retail energy marketing and midstream operating segments partially offset by higher results at our regulated utility and commercial energy systems operating segments. At the utility, earnings were higher year-over-year primarily due to strong customer growth and rate recovery related to our accelerated pipeline replacement program. We added approximately 11,300 active average utility customer meters year-over-year, which represent an annual growth rate of approximately 1%. We also remain on track to equal last year’s record spend on accelerated replacement program of $113 million. These investments immediately impact earnings and have been a driver of improved results in the utility since the start of these programs in 2011. On the utility regulatory front, Washington Gas filed an application with Public Service Commission of the District of Columbia in February to increase base rates. Filing addresses rate relief necessary for the utility to recover its cost and earn its allowed rate of return. We also continue to anticipate the filing of a rate case in Virginia in the near future and Adrian will talk more about these developments shortly. On the non-utility side of business, as previously mentioned, our commercial energy systems business delivered improved results. We continue to seek earnings growth driven by the distributed generation assets that we own across the country. We remain on track to invest a record $200 million in this area in fiscal 2016. We have also seen more activity locally in our energy efficiency contracting business. Retail energy marketing segment delivered lower results compared to second quarter of 2015. This was expected given the unusually high asset optimization results in 2015 and our expectation of more normal levels in 2016. Midstream energy services also realized lower earnings in 2015 partially due to the effects of warmer weather on current market prices. Given our results in the first six months and our earnings outlook for the remainder of the year, we are affirming our consolidated non-GAAP earnings guidance in the range of $3 to $3.20 per share for fiscal year 2016. I am now going to turn the call over to Vince who will review our second quarter results by segments. Vince Ammann Thank you, Terry. Turning first to our Utility segment, adjusted EBIT for the second quarter of fiscal year 2016 was $153.9 million, an increase of $1.5 million compared to the same period last year. The drivers of this change are detailed on Slide 5. We continued to add new meters. The addition of 11,300 average active customer meters improved adjusted EBIT by $2.3 million. Higher revenues from our accelerated pipe replacement programs also added $3.1 million in adjusted EBIT. Lower operations and maintenance expense improved adjusted EBIT by $4.4 million. Offsetting these items, lower margins associated with our asset optimization program reduced adjusted EBIT by $2.7 million. The unfavorable effect of changes in natural gas consumption patterns in the District of Columbia reduced adjusted EBIT by $2.6 million. Reduced revenues related to the recovery of gas inventory carrying costs due to lower gas prices decreasing the value of our storage gas balances reduced adjusted EBIT by $600,000. Other miscellaneous items reduced adjusted EBIT by $2.4 million. Turning to the retail energy marketing segment, adjusted EBIT for the second quarter of fiscal year 2016 was $8.4 million, a decrease of $18.7 million compared to the same period last year. On Slide 6, you will see the primary driver of the decrease was lower natural gas gross margins. In the natural gas business, gross margins were $15.7 million lower driven by a decrease in portfolio optimization activity that returned to more historical levels during the quarter. The same quarter in the prior fiscal year showed outsized gains in this area that were not expected to recur in the current year. Electric margins decreased $1.1 million driven by higher capacity charges from the regional power grid operator, PJM that impacted the timing of margin recognition. These costs will decline in the latter half of the year. As stated previously, our retail energy marketing business has increased its focus on large commercial and government account relationships in both the electric and natural gas markets. As a result, the overall number of electric and natural gas accounts both declined this quarter 10% and 7% respectively compared to the prior year. However, indicative of our revised focus, electric volumes increased 7% versus the prior year and natural gas volumes were slightly higher versus the prior year. The increase in commercial load in both electric and natural gas continues to help offset the decline in mass-market customers on a volumetric basis. Operating expenses increased by $1.9 million primarily due to higher commercial broker fees. Next, I will move to the commercial energy systems segment. Adjusted EBIT for the second quarter of fiscal year 2016 was $2.3 million, an increase of $700,000 compared to the same period last year. The increase reflects growth in distributed generation assets in service, including higher income from state rebate programs and solar renewable energy credit sales as well as improved margins from the energy efficiency contracting business. We also saw improved results in our investment in solar businesses related to changes in the recognition of earnings from our solar partnership. These improvements were partially offset by higher operating and depreciation expenses due to additional in-service distributed generation assets and a $3 million impairment related to our investment in thermal solar project recorded during the three-month period. During the second quarter, our commercial distributed generation assets generated over 43,500 megawatt hours of electricity, which is sold to customers through power purchase agreements. This represents a 57% increase in megawatt hours compared to the second quarter of last year. As of March 31, the commercial energy systems segment has invested $449 million in distributed generation assets. Our alternative energy investments, which include ASP, Nextility, and SunEdison represent an additional $128 million of capital investments since inception. We now have approximately $577 million invested in total in this segment. Next, I will move to the midstream energy services segment. Results for the second quarter of fiscal year 2016 reflect an adjusted EBIT loss of $8.4 million compared to a loss of $3.1 million for the same quarter of the prior fiscal year. The decrease is primarily related to the recognition of losses associated with current market pricing. We anticipate these losses will reverse by fiscal year end as we realized the value of economic hedging transactions to be executed during the first two quarters and as certain contractual procedures approach resolution. Results for our other non-utility activities reflect an adjusted EBIT loss of $1.5 million compared to a loss of $800,000 for the same period for the prior fiscal year. Interest expense, primarily driven by long-term debt, was essentially unchanged at $13 million during the second quarter compared to $13.3 million in the prior period. As Terry stated earlier, we are affirming our consolidated non-GAAP operating earnings guidance in the range of $3 to $3.20 per share. This guidance does not include any potential impacts related to the decision in April by the New York Department of Environmental Conservation to deny the Section 401 certification for the Constitution Pipeline, except for the reduction in forecasted AFUDC related to the project. Our expectations for the regulated utility are modestly lower driven by higher O&M costs for system integration work and project expenses related to a new customer service system. On the non-utility side, we anticipate better than expected results in the midstream segment related to the impact of favorable spreads on storage earnings. These will be somewhat offset by lower results in the energy marketing segment as customer growth is expected to be lower than planned for the year. Please note that this earnings guidance includes dilution from the planned issuance of equity in fiscal year 2016. In November, WGL filed a registration statement and launched a program to sell common stock with aggregate proceeds of up to $150 million through an at-the-market or ATM program. WGL first sold shares under this program in February. During the second quarter, WGL issued approximately 466,000 shares of common stock under this ATM program for net proceeds of $31.5 million. I will now turn the call over to Adrian for his comments. Adrian Chapman Thank you, Vince and good morning everyone. I am pleased to provide you with an update on our utility operations and regulatory initiatives. In the District of Columbia, Washington Gas filed an application on February 26 with the Public Service Commission to increase its base rates for natural gas service, which would generate $17.4 million in additional annual revenue. The revenue increase includes $4.5 million associated with accelerated pipeline replacements previously approved by the commission and currently paid by customers through monthly surcharges. On April 27, the commission issued an order approving Washington Gas special contract with the U.S. Architect of the Capitol. This contract for natural gas service will generate annual firm revenues of $2.6 million and results in a reduction of the revenue deficiency in the pending rate case from $17.4 million to $14.8 million. As part of this rate case filing, we requested approval of the revenue normalization adjustment, or RNA. The District of Columbia is currently the only jurisdiction where we do not have revenue decoupling in place. In addition, the filing includes a new combined heat and power rate schedule, which sets forth the framework for the delivery of natural gas for CHP systems to provide flexibility for negotiated rates to better meet customer needs. Finally, in line with our initiatives in other jurisdictions, the filing also proposes new multifamily development incentives to help bring the benefits of natural gas to more residents in the District of Columbia. The application request authority to earn an 8.23% overall rate of return, including a return on equity of 10.25%. A procedural schedule was issued on April 26 by the PSC. Hearings are currently scheduled for October 2016 with the projected issuance of the commission final order in March 2017, which is consistent with their goal of issuing an order 90 days after the close of the evidentiary record. As a reminder, the last rate increase in the District of Columbia was approved in May 2013. In Virginia, we planned to file a new rate case with the Virginia State Corporation Commission on or before July 31. The filing seeks to allow us to rebalance our revenues, expenses and utility investment in the Commonwealth of Virginia and include in base rates the accelerated pipe replacement expenditures whose plant-related costs are currently being recovered in a surcharge. The anticipated filing would transfer approximately $19 million in accelerated pipeline replacement revenues from our current surcharge into base rates. Virginia has a 150-day suspension period, therefore placing new rates into effect for the winter of 2016-2017 subject to refund. Our last rate increase in Virginia was affected in October 2011. Also in Virginia, Virginia allows local distribution companies to recover a return of and return on investments in physical gas reserves that benefit customers by reducing cost, price volatility, or supply risk. Washington Gas entered into an agreement with the producer in May of last year to acquire natural gas reserves in Pennsylvania. However, the SCC of Virginia issued an order denying our gas reserve application. We are continuing our pursuit of a long-term reserve investment opportunity that will benefit our customers and address the issues that were raised by the SCC of Virginia in our previous filing. Once Washington Gas finalizes a new agreement with the producer, we will file a new application with the SCC of Virginia. I would like to now turn the call back to Terry for his closing comments. Terry McCallister Thanks, Adrian. I would now like to highlight a few recent developments and provide an update on the status of our midstream and our distributed generation investments. First, an update on WGL’s investment in the Constitution Pipeline project. On April 22, the New York State Department of Environmental Conservation denied the necessary water quality certification for the New York portion of the Constitution Pipeline. While we are disappointed, the partnership remains absolutely committed to the project and intends to challenge the legality and appropriateness of the New York decision. In light of the denial of the water certification and the anticipated action to challenge the decision, target in-service date has been revised to the second half of 2018, which assumes that the legal challenge is satisfactorily and promptly included. We are still evaluating any potential impacts to our financial forecast. As of March 31, WGL Midstream had an equity investment of approximately $40 million in the Constitution Pipeline project. Next, I will turn to our investment in the Central Penn line. Central Penn line is greenfield pipeline segment of Transco’s Atlantic Sunrise project. This project is on track and development activities are proceeding as expected. Central Penn line has projected in-service date to the second half of calendar 2017. WGL Midstream will invest approximately $411 million in the project. And as of March 31, WGL Midstream has invested approximately $51 million. Our third pipeline investment involves Mountain Valley pipeline project. The Mountain Valley pipeline is a proposed 300-mile transmission line through West Virginia and Virginia is designed to help meet the increasing demand for natural gas in the Mid-Atlantic and Southeast markets. Project is on track and development activities are proceeding as expected. Projected in-service date is December 2018. WGL Midstream plans to invest $228 million in the project. And as of March 31, WGL Midstream has invested approximately $13 million. In February of this year, WGL Midstream exercised an option for an $89 million equity investment in the Stonewall Gas Gathering system, representing a 35% ownership stake. WGL Midstream’s ownership interest is expected to decrease to 30% during fiscal year 2016, as certain other participants are expected to exercise the rights to invest in the project. The Stonewall system connects with Columbia Gas Transmission, an extensive interstate transmission line that reaches markets across the Mid Atlantic region. M3 Midstream serves as the majority owner and operates the Stonewall Gas Gathering system. The system initiated operations in November of 2015 and is currently gathering 1 billion cubic feet of natural gas daily from the Marcellus production region in West Virginia. Turning to our commercial energy systems business, our portfolio of distributed generation assets continued to grow this quarter. And as of March 31, we had over 134 megawatts of capacity in-service with an additional 63-megawatt contracted or under construction. WGL Energy recently received approval to build and operate over 15 megawatts of community solar gardens in Minnesota as part of the utility program mandates in that space. WGL Energy has secured subscribers for all of these community solar gardens under a – that are under contract and the target operational date is later in the fall of this year. This investment highlights WGL Energy’s continued strategy of growing its distributed generation assets portfolio by taking advantage of favorable legislation in states like Minnesota. Finally, we look forward to seeing many of you at the AGA Financial Forum in a couple weeks. And that concludes our prepared remarks and we will now be happy to answer your questions. Question-and-Answer Session Operator Thank you. The question-and-answer session will begin now. [Operator Instructions] We will take our first question from Mark Levin, BB&T. Please go ahead. Mark Levin Thank you, gentlemen. First question, as it relates to Constitution and maybe how to think about it, as it relates to your long-term guidance and what’s embedded in it, I realize you guys don’t want to quantify it quite yet, but maybe giving us some of the parameters at least to think about? Vince Ammann Yes. Mark, this is Vince. As it relates to our long-term guidance, we – at this point, wouldn’t expect to change that because we think the project is good and it’s worth going forward. So that’s the way we view it from a long-term perspective. What we have done in the short-term is, we have suspended the accrual of AFUDC and that’s just a prudent thing to do, as we are waiting to get this issue resolved. Mark Levin Got it, fair enough. And in your options with regard or the options with regard to Constitution and maybe the timeline as to how to think about how that would proceed? Terry McCallister Yes. This is Terry. I think it’s probably a little premature for us to know that. I think all the partners are looking at that and saying, what are the options, how would we go forward on that. And so I think we are probably just a little – you are probably just a little ahead of the curve for us to know exactly what that looks like, yes. Mark Levin Got it, fair enough. And then finally, just with regard to the gas reserve opportunity, is it reasonable to assume that you guys would be able to strike an agreement sometime this fiscal year. And then the second part to that would be, maybe some of the lessons that you learned from the first attempt? Adrian Chapman Mark, this is Adrian. I think as we have mentioned last quarter, where our target is still to get a filing out before the end of our third fiscal quarter. So I think we are still working towards that as an end result. And I think certainly the commission’s focus was looking at probably the length of the term of the reserve agreement. The 20-year term was a concern of theirs and just uncertainty about pricing in the future. They were – expressed some concern about the different perspectives on the reserves and the volumes in the reserves and what the depletion rates were. So there was some differences of opinion in the hearings about that and I think we just need to be able to give them some greater certainty as to what deliverability would look like, because for a given fixed investment, lower volumes would mean a higher price per dekatherm. So that was the primary concern that they had. So we are working to try to fill those issues, fill those gaps and give the commission comfort with some greater balance of risk associated with an investment. Mark Levin Got it, great. Thanks guys. I appreciate it. Operator And your next question comes from the line of Sarah Akers with Wells Fargo. Your line is open. Sarah Akers Thanks. Good morning. Terry McCallister Hi Sarah. Sarah Akers Can you go over again the reasons for the lower utility outlook this year and any sense of the magnitude of the change in expectations there? Vince Ammann I will take a stab at that Sarah, this is Vince. We haven’t – traditionally, throughout the quarter, we haven’t provided specific guidance for the operating segments by – as we go from quarter-to-quarter, just started giving out, as you know consolidated guidance. But the only issue that we are addressing here on the – and what we have discussed is a couple of factors. We continued to see some higher operating expenses in the field as it relates to just leak repairs and system integrity type works that we have been doing that was a little ahead of what we have planned for the current year. We also have seen some higher project expenses. We launched a new e-service portal this year and that’s sort of in advance of going live with our new billing system next year and we had some difficulties when we first launched that and we have spent some dollars to bring that system back to good working condition. So, those are some of the issues that we see that were pretty temporary just for this quarter. And as it relates to the initial guidance and where we saw things last quarter. So, those particular items shouldn’t continue significantly for the rest of the balance of the year. So it’s pretty much a second quarter phenomena that then just caused us to re-think where we were going to be for the rest of the year. So those are the items on the utility side. That’s all I can think of Adrian that is of significance. If you have anything else you want to add, I think. Adrian Chapman No, I think you covered it. Sarah Akers Great. Thank you. And then just one on the midstream, so it sounds like there is some unexpected strength there, do you view that more as one-time opportunistic margins or should that uplift sustain into future years? Gautam Chandra Sarah, this is Gautam. I would say that the up-tick that we saw in midstream is based on the market conditions that we saw in midstream this year that we were able to capitalize on. Now as we have mentioned before, our storage portfolio is a low cost portfolio. So we expected to have good returns in the long-term, but there are some up-ticks and downticks depending on the exact storage spreads in any given year. Vince Ammann Yes. I would only add Sarah, that as we have said – we saw in recent years, we certainly know we can make money on that storage portfolio when the weather is extremely cold and we have the opportunity to pull gas out of storage at real high margins. But what we saw this year is confirming our expectation, which is when the weather is warmer than normal. There is also opportunities to see the seasonal spreads get very significant. So we came out of this winter heating season with a significant amount of gas. As an industry, it’s still in storage and the production levels were still high. So essentially, we saw the front end of the curve come down quite substantially and then yet the pricing for next winter stayed pretty firm. So we saw some good spread opportunities, which is what we would expect when you have warmer than normal sort of winter. So yes, I think as the supply balances out with our country storage, we do see that this is a – the storage play continues to be a low-risk opportunity to create some margins from the value added by storage. Adrian Chapman Sarah, this Adrian. We also hedge forward to some level. When we see that opportunity, we will hedge forward. It’s kind of how big the opportunity, but a lot of it or some of it just lock in a fair amount of value and so when prices fell this last quarter and the forward value didn’t fall, we locked in some of that value. So that’s why we are projecting that pick up during the second half. Sarah Akers Okay, great. Thank you. Operator Again, I would like to remind everyone that you can listen to a rebroadcast of this conference call at 1 p.m. Eastern Time today running through May 12, 2016. You may access the replay by dialing 1-855-859-2056 and entering PIN number 97338125. There are no further questions at this time. And I will turn the call back to Mr. Bonawitz for any additional or closing remarks. Doug Bonawitz Well, thank you all for joining us this morning. And if you do have further questions, please don’t hesitate to call me at 202-624-6129. Thanks and have a great day. Operator This concludes our conference call for today. Thank you for participating. All parties may disconnect now. 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!

American States Water’s (AWR) CEO Robert Sprowls on Q1 2016 Results – Earnings Call Transcript

American States Water Co. (NYSE: AWR ) Q1 2016 Earnings Conference Call May 5, 2016 2:00 PM ET Executives Eva Tang – Senior Vice President, Finance, Chief Financial Officer, Corporate Secretary and Treasurer Robert Sprowls – President and Chief Executive Officer Analysts Jonathan Reeder – Wells Fargo Richard Verdi – Ladenburg Thalmann Operator Ladies and gentlemen, thank you for standing by. Welcome to the American States Water Company Conference Call, discussing the company’s First Quarter 2016 Results. This call is being recorded. If you would like to listen to the replay of this call, it will begin this afternoon at approximately 5 PM Eastern Time and run through Thursday, May 12, 2016 on the company’s website, www.aswater.com. Besides that the company will be referring to are also available on the website. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] This call will be limited to an hour. Presenting today from American States Water Company is Bob Sprowls, President and Chief Executive Officer; and Eva Tang, Chief Financial Officer. As a reminder, certain matters discussed during this conference call may be forward-looking statements intended to qualify for the Safe Harbor from liability established by the Private Securities Litigation Reform Act of 1995. Please review a description of the company’s risks and uncertainties in our most recent Form 10-K and Form 10-Q on file with the Securities and Exchange Commission. In addition, this conference call will include a discussion of certain measures that are not prepared in accordance with Generally Accepted Accounting Principles or GAAP in the United States and constitute non-GAAP financial measures under SEC rules. These non-GAAP financial measures are derived from consolidated financial information but are not presented in our financial statements that are prepared in accordance with GAAP. For more details, please refer to the press release. At this time, I will turn the call over to Eva Tang, Chief Financial Officer of American States Water Company. Eva Tang Thank you, Terry. Welcome, everyone, and thank you for joining us today. In today’s call, I’ll review the company’s financial results for the first quarter, and Bob will discuss the liquidity and capital resources. Golden State Water’s pending rate case, California drought-related matters, and our contracted services business segment at American States Utility Services or ASUS. I’ll begin with an overview of our financial results. For the first quarter, diluted earnings were $0.28 per share, compared to $0.32 per share for the same period in 2015. Of the $0.28 per share earnings for the first quarter, $0.22 was from our water segment and our electric and contracted services segment each contributed $0.03. Net income for the quarter was $10.2 million compared to $12.1 million for the first quarter last year. I’ll discuss major items that impacted our revenues and expenses for the quarter. In the first quarter of 2016, water revenues decreased by $5.2 million to $66.3 million, as compared to the same period in 2015. As of today, Golden State Water has now received a decision on its pending water general rate case, which will set new rates for 2016 through 2018. The revenue requirements for 2016, once the CPUC issues a final decision on the current GRC are expected to be lower than the 2015 adopted levels. Major items impact – impacting the decrease in revenue requirements for 2016, includes a significant increase in supply costs caused by lower consumption, much lower depreciation expense resulting from an updated depreciation study filed with the rate case, and decreases in other operating expenses, due to the company’s improvement in operating efficiency. As a result of anticipated reduction in the 2016 revenue level, we adjusted our water revenues downward by $5.8 million for the three months ended March 31, 2016, with corresponding decreases to supply cost, depreciation, and other operating expenses to reflect the sale of the position with with CPUC’s Office of Ratepayer Advocates. The adjustments to 2016 recorded while revenue also reflects Golden State Water’s position on litigate the capital budget and compensation-related issue in the pending GRC. These adjustment did not have a significant impact to pre-tax operating income for the first quarter of 2016. As the overall reduction in the water gross margin is mostly offset by the lower depreciation and other operating expenses, partially offsetting this decrease in water revenue, where rate increases generated by advice letter filing for capital projects approved by the CPUC in 2015. Revenue for electric operations for the quarter were $10.6 million as compared to $11 million for the same period in 2015. The decrease was primarily due to determination July 2015, of a supply surcharge to recover previously incurred energy costs. The decrease in revenues from this surcharge totaled approximately $700,000 for the quarter and was offset by corresponding decrease in supply costs, resulting a no impact to pre-tax operating income. The decrease in electric revenue were partially offset by CPUC approved fourth year rate increases for 2016, and the rate increases generated from advice letters for capital projects approved by the CPUC during 2015. Revenues for our contracted services business, ASUS decreased $1.8 million to $16.6 million for the quarter. The decrease in revenue was due to lower construction work in the first quarter of this year, driven largely by the timing of engineering and bidding activities. Construction activity is expected to increase in the remainder of 2016, as compared to the first quarter of 2016. The decrease in construction work was partially offset by increase in management fee revenues, as a result of successful resolutions on price redetermination received during the third quarter of 2015. As mentioned previously for the first quarter of 2016, the water segments gross margin was adjusted for both lower revenue and lower supply costs in articulated position in the pending water rate case. Our water and electric supply costs were $17.6 million, a decrease of $4.4 million for the first quarter of 2016. Any changes in supply costs for both the water and electric segments as compared to this office supply costs are tracked in balancing account, which will be recovered from always subject to our customers in the future. Other operating expenses increased by $806,000 for the first quarter of 2016, due primarily to outside service costs at electric segment, in response to power outages caused by severe winter storm experienced in January. In addition, there was an increase in conservation and drought-related costs and higher wages. Administrative and general expenses for the first quarter of 2016 were $20.8 million, as compared to $19.5 million for the same period in 2015. The increase was mainly due to higher legal and outside service costs at water segment incurred on the condemnation matters due to this first quarter. Depreciation and amortization expense decreased by $757,000, due primarily to the reduction in composite rate is related [ph] in the pending water GRC resulting from updated depreciation study. As discussed earlier, the lower depreciation had also been reflected in the lower water revenue. The decrease was partially offset by an increase at both the water and the electric segments due to additions to utility plant during 2015. Maintenance expense increased by $593,000, due to a higher level of maintenance performed in 2016 at a water segment. ASUS’s construction expense decreased by $1.3 million to $8.7 million during the first quarter of 2016, as compared to the same period in 2015, due primarily to a reduction in construction activity, as mentioned previously, again, we expect the construction activity will increase during the remainder of 2016 as compared to the first quarter of 2016. Interest expense increased to $5.6 million for the first quarter of 2016, as compared to the $5.2 million for the same period in 2015. This was due largely to capitalize the interest recorded at water segment during Q1 of 2015, resulting from the approval of an additional allowance for funds used during construction from advice letter filings. There was no similar filing during the first quarter of 2016. Income tax expense decreased by – $2.1 million to $5.8 million, driven by a decrease in pretax income, and lower overall effective income tax rate. This slide show the ETS bridge by business segment, comparing the first quarter of this year with the first quarter of 2015. For more details, please refer to the press release. With that, I’ll turn the call over to Bob. Robert Sprowls Thank you, Eva. I appreciate everyone joining us today. Moving on to Liquidity and Capital Resources, net cash provided by operating activities for the quarter, decreased by $10.9 million to $27.6 million as compared to the first quarter of 2015. The decrease in operating cash flow was primarily due to a reduction in cash generated by contracted services, due to the timing of billing and cash receipts for construction work at military basis during the three months ended March 31, 2016. There was also a decrease in customer water usage for Golden State Water, increasing the Water Revenue Adjustment Mechanism or WRAM regulatory assets. We implemented surcharges in March to recover our net WRAM balances for 2015. In addition, tax payments during the three months ended March 31, 2015 were lower, due enlarge part to the implementation of the tax repair regulation. In regard to Golden State Water’s capital expenditures, we are pleased with our first quarter spending of $29 million on company funded capital work. Our water and electric utilities continue to invest and maintain and improve the reliability of our systems. Our capital investment program in the critical factor in delivering consistent high quality services to our customers. We are on track to invest $85 million to $95 million in capital projects during 2016, which may change somewhat once the decision issued by the CPUC on the pending water rate case. In addition, Standard & Poor’s rating services recently affirmed an eight plus credit rating on both American States Water Company and Golden State Water Company. S&P also affirm the stable reading outlook on both companies. You were pleased with the affirmation as these ratings are some of the highest in the U.S. Water Utility Industry. While we continue to produce solid financial results in the first quarter performance was impacted by higher outside services and legal costs at our water segment, encouraged to defend ourselves against condemnation related actions and lower construction activity at our contracted services segment. However, we do expect construction activity at ASUS to increase during the next few quarters. In addition, we still wait to CPUC decision on our water rate case for years 2016 through 2018. As we discussed in previous quarters, we filed our general rate case in mid 2014 for all of our water regions and general office. The application will determine in rates charge to customers for the years 2016, 2017 and 2018. Golden State Water has settled with the CPUC’s Office of Ratepayer Advocates and nearly all of the company’s operating expenses, as well as the consumption levels used to calculate rates for 2016 through 2018, which reflect the State mandated in conservation targets. The primary litigated issues relate to our capital budget requests and compensation for managerial level employees. There are not certain win in 2016, the final decision will be issued. Once issued, rates will be retroactive to January 1, 2016. As Eva mentioned earlier, adopted revenues for 2016 are expected to be lower then the 2015 adopted levels. As you may know, a big part of the utilities revenue requirement is the recovery of projected expenses. By projected expenses for 2016 in the rate case were lower than the 2015 adopted expense levels. In particular, there was a decrease in supply costs, resulting from lower consumption projected, lower depreciation expense resulting from a new study and decreased in other operating expenses in 2016 through 2018 rate case cycle, due to our cost control efforts and improvement in operation efficiency. Because of the company’s efforts, we were able to propose significant increases in our capital investment with little to know effect on rates. As a reminder, we have also received approval by the CPUC to defer our electric general rate case and the cost of capital proceeding by one additional year. Both will now be filed in 2017. In regard to the drought situation in California, in February, the State Water Resources Control Board extended the governor of California’s executive order in possessing mandatory restrictions through October 31, 2016. In addition, the State Board amended the required reductions allowing limited allowances or warmer climate regions increased population growth as well as credit for certain drought resilient water supply investment. Currently all, but one of our water systems has met the revised conservation standards. Based on our drought response actions and customers conservation efforts to-date, we do not believe we will be subject to the State Board’s penalties for failure to implement a water shortage contingency plan. Golden State Water has been authorized by the CPUC to track incremental drought related costs, incurred in a memorandum account for possible future recovery. We are in the process of preparing to file for recovery of drought related items of $1.3 million incurred mostly in 2015. Incremental of drought related costs expensed until recovery is approved by the CPUC. Lastly as of April 26 of this year, the U.S. drought monitor estimate 70% – 74% of California in the rank of severe drought. This is down from 86% reported at the end of February. Increased rainfall and higher snow pack levels over the last few months that help the drought situation. Turning to our contracted services business that ASUS, construction activity in the first quarter, a year was lower due largely to the timing of engineering and bidding activity on both renewal and replacement and new capital upgrade work. We believe construction activity will pickup during the next few quarters. We are still projecting an EPS contribution from ASUS of $0.28 to $0.32 per share for 2016. As discussed with you during our year end call. We continue to work closely with U.S. government on outstanding price redeterminations. We expect the fourth quarter price redetermination for forklift to be finalize in the second quarter of 2016 and the third price redetermination for the brag to be finalized during the third quarter of 2016. Filings for these price redeterminations requests for equitable adjustment and contract modifications awarded for new projects provide ASUS with additional revenues and margin and the opportunity to consistently generate positive earnings. We also continue to work closely with the U.S. government or contract modifications we are waiting to potential capital upgrade work as deemed necessary for improvement of the water and waste water infrastructure at military basis. In additional we are actively engaged in new proposals and expect the U.S. government to release additional bases for bidding over the next several years. We’ve remain optimistic about the future of our contracted services business. Finally, I would like to turn our attention to dividends. On Monday of this week, our Board of Directors approved the second quarter dividend of $0.224 per share on the Common Shares of the company. Dividends on the Common Shares will be payable on June 1, to shareholders of record at the close of business on May 18. American States Water Company has paid dividends every year since 1931, increasing the dividends received by shareholders each calendar year for 61 consecutive years. We are among less than a handful of companies on the New York Stock Exchange that can both of such a level of dividend increase. For the five years ended December 31, 2015, our calendar year dividend has grown at a compound annual growth rate of about a 11%, given American States current low payout ratio compared to our peers and our earnings growth prospects, there is room to grow the dividend in the future. I’d like to thank you for your interest in American States Water, and we’ll now turn the call over to the operator for questions. Question-and-Answer Session Operator We will now take your questions. [Operator Instructions] We will begin with Jonathan Reeder with Wells Fargo. Please go ahead. Jonathan Reeder Hey, good morning, Bob and Eva. I guess, on the West Coast, it’s still the morning. But I know, Bob, in your prepared ASUS remarks, you didn’t seem to indicate that this is the case, however, your main competitor indicated, they expect the slowdown on construction projects during the remainder of the year, due to military budget constraints. Is this anything that you’re seeing or expecting? Robert Sprowls It is not. We – our projects are funded. The slowdown in the first quarter was largely due to the fact that we have to do the engineering and the bidding on the work that we have lined up. So, we’re expecting to really get the construction activity going here in the last three quarters of the year. Jonathan Reeder Okay. And I guess in the same vein you aren’t seen anything that would perhaps put downward pressure on the – the construction projects you would be awarded for the next one-year period in the fall this year? Robert Sprowls We haven’t seen that. I will tell you we have a lot of projects in front of the government for the upcoming year. We’ve done our – but I think there’s a really good job of scoping out a lot of projects and getting that in front of the decision-makers at the military. So far we haven’t got the indication that we’re going to see a slowdown. Jonathan Reeder Okay. And then, I think, previously you said final GRC decision was likely in Q2. Are you implying that it slips further into the year now or just not really sure? Robert Sprowls Yes, we’re just –we’re not really sure. We do know that the judge that’s on our case has a couple of cases ahead of this. And hopefully, you will get through those. I think is on the simper case and you probably know. Jonathan Reeder Okay. That’s fair enough. Robert Sprowls We’re confident on it, maybe, but our sense is that that may come out before ours does. And so, we don’t want to get everyone’s sort of hopes up. And so, I understand the ALJs are a bit understaffed at this point. And so, they’re being challenged to do a lot of decisions. So we’re trying to be patient with them. Jonathan Reeder Sure. Okay. And then I don’t know, if you can go into a little more detail, but what do you think Golden State Water and ORA weren’t able to see eye-to-eye on CapEx levels, because it kind of looks like, the request of about $90 million a year of annual spend wasn’t all that different from the amount that you’ve expanded over the 2013 to 2015 period? Robert Sprowls Yes, we were quite surprised that, particularly given the situation where we weren’t asking for, in fact, in many rate making areas, it was a revenue requirement – small revenue requirement decrease. As you know, that’s ORA’s role is to work hard to kind of reduce your request and that’s what they are doing in this case. So I understand other – some of our other colleagues at other companies are having similar issues though. So we are – we went to litigation on our entire capital budget and we think we put in a – put on a very good chase and hopefully the judge will recognize that. Jonathan Reeder Was there, I mean, were there any projects in there that were kind of unusual or different than the spend that you’ve been, I guess, undertaken in the past few years, or was it all similar type of spend? Robert Sprowls Yes, really there weren’t really any out of the ordinary type project. So I think our spend historically had been, I wanted to say, $70 million to $75 million range. And so, we came in and asked for 90 and thought that was a reasonable request, particularly given the need to do pipe replacement and reduce unaccounted for in the State, so we’re – the company’s decision was to take our risk with the ALJ and the commission. So it was quite surprising to us to be honest, because for a company to come in with a flat rate request and then to have ORA push back on it is substantially just a little bit of a head scratcher. But sometimes either a function of the analyst you get at ORA on your capital projects. Eva Tang It’s not unusual, I think the differences between the company and ORA’s position. Robert Sprowls Yes, sure. Eva Tang The rate case we experienced before. So we’ll say that we’ve made a good showing of the need for the project and provide the solid support, as Bob mentioned. So we will see hopefully judge will see that. Jonathan Reeder Okay. And then last question, I’ll hop out. What do you expect 2016 drought expenses will be in? Robert Sprowls Just for the calendar year 2016? Jonathan Reeder Yes. Yes, just trying to get an idea of, I mean, I think you said you’re going to be filing for a little over million dollars of recovery from previous expenses. And our understanding is those, I guess, get turned around pretty quickly, kind of, like a 90-day period. So how that would, if that’s going to offset whatever your drought expenses would be this year? Robert Sprowls I definitely expect it to offset whatever drought expenses we have this year. Jonathan Reeder Okay. Robert Sprowls These are – we are not adding to the account as much as we did in 2015, as we are getting our arms around the whole thing, so… Jonathan Reeder Okay. So the heavy lifting is kind of over on that and just stay in the course, I guess? Robert Sprowls Yes, I know we still have additional costs associated with notifying customers and making sure that everybody is completely up to speed. But I wouldn’t expect the expense to be – I would expect them to be less than they were in 2015. Eva Tang And, Jonathan, Bob mentioned that we are going to file about $1.3 million scholars job for all related costs for 2014 and 2015 pretty shortly. So once that got approved, for accounting we have a reason to book our drought-related costs to a balance sheet as a regulatory act on that point on. So not only will get recover reverse expense we booked before and also we will probably reverse what we booked to-date to the reg act, so that’s a point. Robert Sprowls Yes, good point, Eva. Eva Tang Yes. Robert Sprowls Once you’ve done it, once you’ve then can – you’ve convinced the accountants that it’s going to happen again. Eva Tang Yes, it’s a probable [Multiple Speakers] Robert Sprowls Programs recurring [ph.] Jonathan Reeder All right. Well, I appreciate the additional clarity. Robert Sprowls Yes, thank you, Jonathan. Operator Our next question comes from Richard Verdi of Ladenburg. Please go ahead. Richard Verdi Hi, Bob and Eva, how are you guys doing? Robert Sprowls We’re doing good. Eva Tang Good, good. Thank, Verdi. Richard Verdi Good, here you go. I just wanted to focus a real quick on ASUS here. At least in my view that $0.28 to $0.38 or $0.32 guidance is kind of wide. Bob, can you give me some sort of idea of what you see maybe swinging closer to the top versus to the bottom? And also, is there any chance that that figure could be outperformed on the outside? Robert Sprowls Sure. Yes, so the amount of construction that we do will dictate how well we do within that range. Additionally, we do have some price redetermination request and there is – though nothing like we’ve had in the past, there is some retroactivity to that, which could push us more to the upper end or slightly above the upper end. So it’s – that’s about as good – good a range as we can give at this point. I know you would like to see it a little tighter, but that that’s as good as we can do. Richard Verdi Okay, sure. And then on the proceeded new contracts, and I understand that for competition sake you need to keep the commentary somewhat limited, but we’ve been pursuing contracts here for a few years and of course there is going to be as you mentioned some new contracts or I should say new basis being option to you in the next few years? I’m wondering can you give us a sense of maybe how deep you are in negotiations on maybe some of these contracts that you’ve been pursuing for so many years. Robert Sprowls Well, I will tell you and it probably doesn’t completely speak to your question. But we view this business as a real important part of our business going forward. We’ve institutionalized our response to RFPs and we’re working through the process. But I will tell, Richard, there was one contract that – then I took five years. So it’s something you have to have a lot of patience for and our company does and so you got to hang in there until you can get it across the finish line. So we are at various stages I would say on some of the contracts. Richard Verdi Okay, that’s great color. It’s actually great, thank you. And then the last question is this, if you look at some of the legislation, it’s been past couple of years as I say, it’s been very favorable for the privatization movement and you guys obviously do a good job, managing the company there. Any thought about pursuing a growth acquisition strategy and really trying to move outside account one year. Robert Sprowls Are you talking about from the utilities – on the utility side… Richard Verdi Yes, for the water side. Yes, for the water side. Robert Sprowls Yes, sure. We look at that and of course the things that we look at is that a favorable regulatory environment and to the degree there are businesses for sale in those particular states, we of course will look at that. And I’ll tell you though when those things due come up for sales. There is lot of folks that like that business. So it becomes a pretty competitive process and we’re not afraid of that. It’s just – you’ve got a look at these situations and make sure there is enough scale to attract you. You recall, Rich and this may have been a little bit before your time we sold our business in Arizona. That was largely because of the commission in Arizona. And it didn’t make sense for us to continue to spend all the time that we had on a 13,000 customer business there. However, if there is other businesses for sales and other states that have fair regulatory environment, we’re definitely considered those. Richard Verdi Okay, that’s great. Okay. I guess that’s it for me, thank you. I appreciate the time guys. Robert Sprowls Thanks, Rich. Eva Tang Thank you. Operator And this concludes our question-and-answer session. I would now like to turn the conference back over to Bob Sprowls for any closing remarks. Robert Sprowls Yes, I just want to close today by thanking everyone for their continued interest in American States Water and wish you everybody a good. Operator This concludes today’s American States Water Company conference call. You may now disconnect your lines. Have a great day. 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) CEO Andrew Littlefair on Q1 2016 Results – Earnings Call Transcript

Clean Energy Fuels Corp. (NASDAQ: CLNE ) Q1 2016 Results Earnings Conference Call May 5, 2016, 04:30 PM ET Executives Tony Kritzer – Director of Investor Communications Andrew Littlefair – President and Chief Executive Officer Robert Vreeland – Chief Financial Officer Analysts Eric Stine – Craig-Hallum Rob Brown – Lake Street Partners Pavel Molchanov – Raymond James Operator Greetings and welcome to the Clean Energy Fuels first quarter 2016 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. It is now my pleasure to introduce your host, Mr. Tony Kritzer, Director of Investor Relations. Please go ahead. Tony Kritzer Thank you, operator. Earlier this afternoon, Clean Energy released financial results for the first quarter ending March 31, 2016. If you do 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 the Clean Energy’s Form 10-Q filed May 5, 2016. 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 operating business results. Non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP and should not be considered as a substitute for, or superior to, GAAP results. The directly comparable GAAP information, reasons why management uses non-GAAP information, a definition of non-GAAP EPS and adjusted EBITDA, and a reconciliation between these non-GAAP and GAAP figures is provided in the company’s press release, which has been furnished to the SEC on Form 8-K today. Participating on today’s call from the company is President and Chief Executive Officer, Andrew Littlefair, and Chief Financial Officer, Bob Vreeland. And with that, I will turn the call over to Andrew. Andrew Littlefair Thank you, Tony. Good afternoon, everyone, and thank you for joining us. I’m going to keep my remarks focused on the most important takeaways from what we feel was a strong first quarter. We reported first quarter revenue of $95.8 million, which is a 12% increase over the first quarter of last year. Additionally, we reported $29.8 million of adjusted EBITDA versus negative $5.6 million in Q1 of 2015. The first quarter of 2016 included $6.4 million of VETC and a gain of $15.9 million from buying back some of our converts at a discount. However, even when these real benefits are backed out, our adjusted EBITDA was still positive at $7.5 million, an improvement of over $13 million from the first quarter of 2015. We delivered 77.5 million gallons to our customers. This is a 3% increase over the 75 million gallons we delivered during the first quarter of 2015. On the year-end earnings call, I told you that a primary focus for 2016 would be to conserve cash and de-leverage the balance sheet. To that end, we repaid $60 million of the $145 million convertible notes due in August 2016. In addition, given favorable pricing, we have been opportunistically repurchasing our 2018 convertible debt in the open market through privately negotiated transactions. In the first quarter, we repurchased $32.5 million; and so far in the second quarter, we have repurchased an additional $31.5 million. All told, we have repurchased $64 million of our 2018 convertible notes, leaving $186 million due in October 2018. Our total convertible debt reduction is $124 million. Also to date, in 2016, we have raised $32.4 million of proceeds from public stock sales. At quarter-end, we had $163 million of cash and investments on our balance sheet. Additionally, we reduced our SG&A by 15% year-over-year, while growing our volume and revenues. We are on track with our reduced CapEx budget of $25 million for 2016, which is 50% less than last year, so we are executing on our plan to conserve cash and reduce our debt. From an industry perspective, the pressure for companies to become more sustainable continues to grow. We see natural gas fueling as an economic and realistic solution that a company can utilize to achieve greater sustainability. And we are working with a variety of fleets and shippers like Kroger and Unilever as well as trucking companies, waste companies and municipalities. Fleets continue to look to fuel with natural gas. Here is a noteworthy example. The United States Postal Service is pursuing an initiative to reduce their carbon footprint by 20% by 2020 and have concluded that natural gas is the alternative fuel of choice for their third-party contracted carriers. These carrier carriers are responsible for the majority of all USPS transportation emissions. As part of their contract renewals, the Postal Service is starting to require its outside carriers to use natural gas where it is cost-effective. We are currently working with five other major carriers, who combined have 75 natural gas tractors fueling at several of our highway stations. Additionally, the USPS is considering replacing some of their own Class A tractors and straight trucks with natural gas. Turning now to our renewable fuel business, we continue to see increased interest in demand for our renewable fuel offering. Through our robust network of stations, we have established a pathway to Redeem, our renewable green gas, into vehicles. This is the best way to realize the full value of renewable fuel, which contributed $11 million of revenue in the first quarter. I want to emphasize that our expanding infrastructure has enabled us to benefit from this rapidly growing renewable market and differentiates us from our competitors. Companies like UPS, Ryder, Republic Services and many transit agencies use Redeem and understand its significance. Another important industry innovation, the Cummins Westport low NOx engine has already captured a lot of interest, and these engines are available to order. As a reminder, this low NOx engine reduces NOx 90%. And when combined with our Redeem renewable fuel, it has 90% less carbon. It is cleaner than running an electric vehicle that is plugged into the grid. In the industry, this new introduction is referred to as game changer. Turning now to our station construction, we benefited, during the first quarter, from an increase in full station projects. Currently, we have over 60 projects under contract and in the pipeline. We continue to believe our robust construction pipeline is a solid indicator that our customers continue to make investments in expanding their fleets and remain committed to their sustainability goals. Our virtual pipeline subsidiary, NG Advantage, showed impressive growth, delivering close to 8.6 million gallons to their customers. I’m also pleased to report that we recently signed a follow-on supply deal with Hawaii Gas, which is contracted to purchase over 14 million LNG gallons over the next five years. All told, it was a strong quarter. And I believe it is a testament to our diverse product offering and recurring revenue base. Our largest customers continue to buy new trucks and invest in their natural gas operation and we continue to gain new customers across our markets of transit, refuse and trucking. Our adjusted EBITDA continues to trend positively and we are taking strategic actions to de-leverage our balance sheet and we’re being disciplined with our capital. And with that, I’ll turn the call over to Bob. Robert Vreeland Thank you, Andrew. Good afternoon to everyone. As Andrew mentioned, we have a strong quarter with continued volume growth, a 12% increase in revenue, and adjusted EBITDA of $29.8 million. Starting with volume of 77.5 million gallons, a 3% growth rate over the first quarter of 2015, impacting this growth rate was a decline in RNG volume of 3.5 million gallons. Most of that decline is the result of no longer owning and operating our former Dallas bio-methane plant, which we sold and then operated through mid-April of 2015. Exclusive of those gallons, our volume growth was 8% year-over-year. As Andrew mentioned, NG Advantage had strong year-over-year growth as did our refuse sector, while the other sectors were level with a year ago. LNG volume was down 2.9 million gallons, principally from lower bulk LNG sales. Bulk LNG sales can be uneven throughout the year as LNG demand is influenced by various external factors, such as, more recently, the slowdown in E&P industry, the variable demand of large industrial customers, and weather. We remain active and compete well in the bulk LNG marketplace as evidenced by our new deal with Hawaii Gas. Our Redeem gallons, which are included in our CNG and LNG fuel gallons, increased 70% year-over-year to 15.2 million gallons for the quarter. Our 12% increase in revenue in the first quarter was driven by a better effective price per gallon on higher volume, increased construction project revenue, and the alternative fuel tax credit referred to as VETC. Our Compression sales were down year-over-year as we remain in this challenging global oil environment together with a strong US dollar, although the related gross margin contribution from our Compression business was better than a year ago despite the lower revenue. Our adjusted EBITDA of $29.8 million was driven by a strong gross profit margin, continued reductions in SG&A spending, and a gain from our opportunistic convertible debt repurchase. Our strong gross profit margin was driven substantially by the impacts of selling our Redeem fuel and the associated environmental credits, which helped take our gross profit margin per gasoline gallon equivalent to $0.36 per gallon compared to $0.28 for the first quarter of 2015. Both quarters include the state and federal environmental credits, the LCFS and RINs. The combined credits amounted to $11 million in the first quarter of 2016 compared to $3.2 million in 2015. The economic benefits from the environmental attributes of both natural gas and Redeem remain strong and have more than offset the pressure on retail fuel margins from this low oil and diesel price environment. And finally, on gross margin, we benefited from our increased station construction project sales and the VETC revenue. Our 15% reduction in SG&A to $25.6 million was $4.6 million lower than a year ago and $1 million or 4% lower than the recent fourth quarter. This has been a continuing trend and is the result of the actions we’ve taken given the low oil price environment. And as Andrew mentioned, we recorded a $15.9 million gain on the repurchase of $32.5 million of our 2018 convertible debt. The higher revenues and gross profit margin and lower SG&A, along with the gain on debt repurchase, led to GAAP net income of $2.8 million in the first quarter of 2016 compared to a net loss of $31 million a year ago. And it also lead to an improvement of $35.4 million in adjusted EBITDA from a year ago. Looking forward, we anticipate our Redeem sales to benefit our results, VETC will be recorded each quarter in 2016 relative to volume, and we continue to expect positive quarterly adjusted EBITDA for the balance of 2016. And with that, operator, we’ll open the call to questions. Question-and-Answer Session Operator Thank you. [Operator Instructions] Your first question comes from Eric Stine with Craig-Hallum. Please go ahead. Eric Stine Hi, everyone. Nice quarter. Andrew Littlefair Thank you, Eric. Robert Vreeland Thanks, Eric. Eric Stine I want to start with Redeem, especially given the impact that had in this quarter. How do you think about that long-term – limiting factors to growing volumes there? I know part of it is that, right now, what, California and Oregon that have LCFS, have the standards where you can participate. But do you see other states going down the road of California? And ultimately, where do you think that those Redeem volumes can go? Andrew Littlefair Thanks. I think the short answer, Eric, is the – we’ve had tremendous growth in the Redeem business, and so it won’t be easy to keep up on that growth. But it will continue to develop, and so I think you should count on what we’re doing. So what you saw in the first quarter should continue. I really think that in terms of renewable fuel, we’re really at a beginning point as we’ve got a few different – I know you attended the ACT Conference out here. I really believe that the transportation industry, passenger car, and also those in goods movement, I think this being sustainable fuels and sustainable technologies, I think we’re just at the beginning of what’s going to be a very long move toward cleaner fuels and cleaner innovation, cleaner technology. So I think, over time, you’ll see us continue to grow Redeem. Washington State is now looking at Low Carbon Fuel Standards. We’re selling Redeem in Texas now. The Northeast has kind of come in and out of something that feels a little bit like Low Carbon Fuel Standards. Some states will be more progressive than others. But I think you’re going to continue over time to see more and more regulations that incent and begin to put more values on carbon. And so, I think the good news is for our industry and for our company is that we have this renewable fuel, we have the network to be able to dispense it and the pathway to be able to get it into vehicles. That gives us a huge leg up compared to some of the others in this business. And I think that having the technology, the new Cummins Westport engine which I know was highlighted at this big conference out here just this week, it’s a low NOx engine which is very important for tailpipe emissions, but it also – when it’s combined, as I said in my remarks, with Redeem, it’s really cleaner than the grid which is a big deal. So I think we are well-positioned and I think it will be important, Eric, as we go forward. Eric Stine That’s volumes. But in terms of pricing, what I’m looking at or reading, it seems like the thought is that the pricing, the carbon price per ton, that trend, while there may be some near-term volatility, the trend there is higher too. Andrew Littlefair Yes, Eric. And that’s right. So there’s two – there’s definitely two components to that. There’s the volume and then there’s the pricing of the environmental credits. And that environment has been strong and continues to be strong at the moment. Now, like you said, there’s always the chance of some volatility. But just the way – with the standards that have been set and the obligated parties and all of that, it’s making that kind of a strong market. Eric Stine Yeah, okay. Maybe just thinking about your fleet activity, yesterday, at ACT, clear impression that people thinking that the market is probably flat this year, maybe down a little bit, but just curious, are you seeing any movement in your pipelining other than maybe the timing getting pushed out a little bit? Have any fleets dropped out of that pipeline? What are you seeing right now? Andrew Littlefair Eric, when you look at our customer base, the refuse market continues to be strong. It’ll be as big a year as we’ve had. And we’ve been a host of an industry event, which is called the Garbageman’s Invitational. It’s worth 300 refuse industry executives come here a couple weeks ago. And to a company, they’re all fueling natural gas trucks. And so, that’s a really important segment for us. We see the same thing expanding in transit. Now, when we talk about kind of flat year-over-year, the trucking industry hasn’t been as involved. It doesn’t have quite the maturity in terms of putting vehicles in their fleet like the refuse and transit guys who have been at this now for a decade. So it was a newer segment for us. And I would say, Eric, those that – we’re still seeing new fleets come, often in more of a testing mode with handfuls or dozens of vehicles rather than large purchases. But even in that segment, which I think you’re correct, that it will be similar this year to what it was last year, which I would consider to be important that we’re not backsliding. UPS continues to show the way as other big fleets like them. They haven’t turned back and we haven’t really seen any existing customers that have been in this, especially in the trucking, go back. Those that were on the fence when we entered this downturn in the oil price, they continue to review it. But I would say their attitude – and I’ve even probably met some out there at the conference. The attitude is not opposed to natural gas. In fact, I find it refreshing, in that they’re interested in moving forward. But they’re mindful of the fact that they’ve gotten very low diesel price right now. So I think that when that subsides you’re going to see an uptick in the adoption of natural gas for heavy duty trucking. Eric Stine Right. I guess this is kind of tough to quantify, but I’ll ask anyways. Is there an oil price that you look at and say, okay, at that level, then that’s when trucking really pick back up again? Andrew Littlefair It’s hard to pin me down there. But I know this is that, we’ve had some customers begin to model out oil at $40 a barrel, right? And in some cases, that sort of is difficult to make the natural gas equation work as well as it once did. I think, Eric, when you see $50, $55, $60 a barrel, it really gets – it really begins to move up the price of diesel. Look, diesel price has gone up nationally $0.10 in the last two weeks. It’s gone up every week for the last four weeks. And so, we don’t need to see $100 oil. You need to see the price of – we need to get off of people thinking that we’re going to have $40 oil forever. And I think once they see that there’s volatility, again, in their oil price and it comes back up to $50, $55, $60, I think that’s going to be the signal to have people begin to then – natural gas is still – let’s not forget, that’s our big commodity that we use here and it’s low. It’s very low. And so, the economics begin to sing again when you get back up to that oil price. Eric Stine Okay, thanks a lot. That’s it for me. Andrew Littlefair Yeah. Operator Your next question comes from Rob Brown with Lake Street Capital Markets. Please go ahead. Andrew Littlefair Hi, Rob. Good afternoon. Rob Brown Congratulations on the EBITDA improvement. I think you said you had 60 stations in your pipeline. Could you give us a sense of – is that all to be delivered this year? And then maybe a sense of the gallon volume that those projects sort of generate ongoing? Andrew Littlefair I don’t know that I have the volume for you, Rob. But most of those stations that we’re talking about in the pipeline will be delivered this year. Rob Brown And then the mix of those, is it refuse mostly or maybe what is the mix there? Andrew Littlefair Big piece of those, refuse that are under contract, some are for our own account, some are for long contracted volumes from anchored tenants for stations that we’re building. Majority of those, though, are for customers – that we’re selling customers. And I hedged just a bit when we use the number over 60 and stuff like that because we get toward the end of the year and some of these – they will be under construction. But you never know if you’re going to get them all – four or five of them, we got it in December and this and that. But it looks to me like the station count should be very similar this year as it was last year, which are some of our biggest years that we’ve had. Rob Brown Okay, great. And then the Hawaiian Gas contract, I assume you’re supplying that out of Boron, but could you give us a sense of, again, what the gallon volume is there and sort of how that works? Andrew Littlefair Well, it starts out slow. And then my friends at Hawaii Gas have been – they’ve been wanting us to be careful about how much we’re saying. But it starts out – as you know, Rob, we’ve sold them some LNG already really more of in a test mode. And we had pieces of this contract done, gosh, maybe as long as a year ago and we were awaiting PUC approval, which came here a little bit ago. They’re now in the process of beginning to go out to bid to receive the containers that will be used for that shipping. Those will be – that’s underway now. Those containers will be delivered throughout this year and I imagine a big slug of those in the back end of this year. So we’ll begin to ramp up. And I think it begins to amount to around 3 million, 3.5 million gallons a year. And there’s a chance we’d do better than that. But it’s a nice additional load. And I hope the experience will be well because even with – you can imagine, all this entailed, we’re still able to bring them a very clean fuel that beats the otherwise imported fuel that they use for the islands. So we’re excited about it. They’re excited about it. And I hope that we can increase that from the number that I gave you in my remarks. Rob Brown Great, thank you. I’ll turn it over. Operator Your next question comes from Pavel Molchanov with Raymond James. Please go ahead. Pavel Molchanov Thanks for taking the question, guys. One of the things that’s really helped you get into positive EBITDA is the reduction in SG&A. So you went from $30 million a year ago to $26 million this quarter. Is there any further room to cut that even more? Robert Vreeland Yes, there is room. And so, we’ve been feeling the effects of actions that we’ve taken as we’ve been going along. So it’s been kind of coming down each quarter. Certainly, on a year-over-year basis, it’s a bigger number. As we go sequentially, it’s coming down. But at some point, it’ll flatten a little bit. Pavel Molchanov Okay, pretty close to where we are right now? Andrew Littlefair I think, Pavel, there’s a little room still left in it. We’re continuing to eye different things to try to bring it down some more. I think there’s still some room left. You’ll see it maybe improve, continue this year. But all the while we’re still growing. And so, there’ll be a limit to how low we can bring it. Robert Vreeland Yeah. So it’s pretty close. Pavel Molchanov Just a housekeeping question, in Q1, you got the VETC catchup cash inflow, how much was that? Robert Vreeland Correct. So we collected all of the VETC that related to 2015. Pavel Molchanov How much is that? Robert Vreeland Yeah, so it was a little bit in excess of about $30 million. Pavel Molchanov $30 million. Thank you, guys. Robert Vreeland Yeah. North of that. Little bit north of that. Andrew Littlefair $32 million. Robert Vreeland Yeah. So it’s a little bit… Andrew Littlefair $32 million, yeah. Robert Vreeland Exactly. Andrew Littlefair Thanks, Pavel. Operator Thank you. There are no further questions at this time. I’d now like to turn the floor back over to Mr. Littlefair for closing remarks. Andrew Littlefair Good. Well, thank you, operator. Thank you, everyone. I want to thank you for listening and – listening in on the call this afternoon. We look forward to updating you on our progress next quarter. Operator That does conclude our conference for today. Thank you for participating. You may now disconnect your lines. 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!