In-Depth Interview With Clean Energy Fuels CEO Andrew Littlefair

Clean Energy's Andrew Littlefair sits down for a talk with The Motley Fool.

Andrew Littlefair is the CEO and co-founder of Clean Energy Fuels  (NASDAQ: CLNE  ) , the leading provider of natural gas for transportation in North America. In this interview, Littlefair discusses the history of the natural gas industry in the United States, how it is changing today, and where he sees it going over the next few years. In this wide-ranging interview, everything from Clean Energy's partnerships with General Electric  (NYSE: GE  ) and Westport Innovations  (NASDAQ: WPRT  ) , to its challenges from competitors like TravelCenters of America is discussed. This is truly "everything you ever wanted to know about Clean Energy Fuels, but were afraid to ask. 

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Jason Hall: Hey Fools, Jason Hall with The Motley Fool, here with Andrew Littlefair, CEO and co-founder of Clean Energy Fuels.

Andrew Littlefair: Welcome, Jason.

Hall: Thank you so much. I appreciate your having us here today, and sitting down with us.

Before we really talk about Clean Energy Fuels, I'd like to talk a little bit about your experience before Clean Energy Fuels, which was Pickens Fuel Corp, before that with Mesa, and a little bit of time with the Reagan administration.

Littlefair: Right. I grew up in Southern California. I went to the University of Southern California, but I was kind of a political animal. My first job was in the Reagan White House and I spent about from 1983-87 as an advance man there -- a political appointee.

Then I left there and became Pickens' assistant, so I left Washington, D.C. and moved to Amarillo. I had an expanding role there at Mesa. As you may know, Mesa was a large producer of oil and gas, mostly natural gas.

We had a lot of natural gas. The price of gas was very low, so Boone's idea was, "We get a nice upgrade on our reserves if we can move it in the transportation sector." Now, that was a long time ago. That was 1990, so we were kind of on the cutting edge of that. I was involved in that.

Then in '97, when Mesa was recapitalized, I came back to California to start Pickens Fuel Corp with Boone's money -- I was the only employee. We started acquiring some stations. Our largest franchise was from Southern California Gas Company. For the first few years, we operated as Pickens Fuel Corp.

We sold out, at one point, 75% of the company to BC Gas, which was a large utility in Canada, then Boone bought back that 75% in about 2003. I've been here from the beginning, and that's how it all worked.

My political background was important. Early on, natural gas as a transportation fuel was really an environmental play. It didn't have very good economics in those days, so that's why Southern California made sense. My political experience helped me navigate the policies that were promoting clean air stuff. That's less important today, but that was my background.

Hall: At that time, oil was almost single digits a barrel, right?

Littlefair: I tell you what, the month we opened Pickens Fuel Corp -- I think I'm right on this -- in 1997, oil was $10 a barrel, so we were selling natural gas at the pump at $0.87 a gallon but gasoline was $1.20 or $1.20, so the economics weren't there like they are today.

It was really environmental. In those days, we were burning dramatically cleaner. We still are cleaner on carbon, and we're still better at the tailpipe. We don't have the carcinogens that diesel has, and the toxicity.

Gasoline and diesel have gotten cleaner in 2007 and 2010 -- we're still cleaner.

Hall: Nonetheless, the tailpipe emissions for natural gas are still noticeably lower.

Littlefair: We're still much cleaner.

Hall: Right.

A lot of the past few years, the focus has been on the American Natural Gas Highway and heavy trucking beginning to make that shift away. Even as that's taken time to really start kicking in, I think one of the things that doesn't get enough attention is what's happening with the core business. Could you talk about what's happening there?

Littlefair: Sure. We always focused on fleets. Sometimes people look at us and they think of their experience as a passenger vehicle. That's not really it. We fuel a few thousand Honda Civics at our network in California and some other places, but really we're fleet-focused.

When we started the business, we really got serious about refuse trucks, transit buses, and airports -- all those vehicles that go to airports. We refer to those as our core markets, and that's what you're talking about.

That's our bread and butter, and that's grown over time 20-some-odd percent a year. There's ups and downs in it, but let me give you an example.

Today, about 35% of all the transit buses in the United States are natural gas. We went through this period a few years ago where people were talking about fuel cell buses and diesel hybrids. That's kind of gone away and you're seeing a resurgence in natural gas transit buses.

The reason is, like LAMTA today is 100% natural gas here in Los Angeles; 2200 buses. They save about $60 million a year on fuel.

Hall: That's significant.

Littlefair: That's really significant. The life of that bus, that's getting up to almost $800 million so it's real money, and a lot of transit properties have figured that out.

The other core business that's been exciting to us is the refuse business, and we started that.

It started out almost 10 or 12 years ago with seven converted Waste Management trucks. No economics -- the incremental cost was $150,000 -- it was brutal. We took a diesel truck off the road and we had to take out the engine and change the transmission ... I think the incremental was $135,000-150,000.

But -- in fact, he's with our company now; he had the Western region for Waste Management -- Ray Burke. He understood that he was getting points for his franchises to operate these cheap trucks. But it wasn't easy, and the economics were suspect. If you didn't have grant money, it was very difficult.

Over time, over the last decade, we went through about four different engines. It wasn't until 2008 that that Cummins and Westport really came out with a great 9-liter engine that had the torque and horsepower very similar to what a diesel engine was capable of, and you didn't have the big efficiency penalty that you had in previous engines.

In that year -- which I think is interesting, Jason -- in 2008 there were 5,000 new trash trucks sold in America, and the 9-liter came out. In that year, these guys tested it. They were game, but they were suspect because they had been through some engines that didn't work so good, and 150 trucks were sold that year.

This last year, 60% of every new trash truck sold in America -- 8,000 new trucks -- about 60% of them were natural gas. That's our core market. We have 75% of market share in that market.

We've had competition from time to time, but we've proved out because I think we have the experience. Back in 2008, I think we had six or seven companies that we worked with. Today we have closer to 200.

Hall: A little growth there!

Littlefair: A little growth, and we're operating refuse stations. We built 30-some-odd last year and we'll build another 35, I think, this year. People are operating natural gas trash trucks all over the country -- in New Hampshire and in Florida -- all over. I think maybe we're operating refuse stations in 30-some-odd states right now. That's exciting.

Waste Management, of course, has been a great leader there. Last year 95% of all their purchases were natural gas. Republic Services was a little behind that, but they've shown great leadership at about 65%.

We have four national agreements with the largest refuse guys, so Waste, Progressive Waste Solutions, Republic -- and the fourth one always escapes me -- but we do a lot of business in that sector, so the core market is alive and well.

We could use more product for the light duty stuff -- we've struggled a little bit with taxicabs -- but when you drove in here this morning, at John Wayne Airport across the street from our headquarters here, all those taxicabs are natural gas. In San Francisco, all the taxicabs are natural gas. That market continues to grow.

Shuttles and shuttle buses, we now operate at 39 airports in our core market. We're building some more right now. We just opened at Kennedy Airport, we've got a big one going in right now at Chicago O'Hare. That's a nice market for us; we don't have much competition. In that market, we have nice margins, we own those stations, we're selling against gasoline and diesel, and we can save those customers $1.50 a gallon, which is meaningful.

Hall: I think there are two things that could potentially continue to help that part of your business grow. Chevrolet's got the new Malibu CNG?

Littlefair: I think the Impala.

Hall: The Impala, right.

Littlefair: Which could be a great taxicab, because we've been struggling on that -- we had the Transit Connect from Ford -- so the Impala would be great.

Hall: Right. Plus Delphi and Westport now have an OEM agreement, and there's potential for that to go downstream.

Littlefair: You'll see more and more of it. This is still niche-y for the big OEMs, but you're seeing more; now the F-150, Ford is preparing that engine, so that could be very good for municipalities and others.

You'll see more. The new Ford Transit, they're getting away from the old Econoline van and they're coming out with a bigger product that looks more like a Sprinter van. That'll be on natural gas too.

We have high hopes for that, and I think you're right. We've talked a lot about the American Natural Gas Highway and heavy-duty trucking, and let me just mention this ...

In our core markets, if every transit bus in America went to natural gas, that's about 1.5 billion gallons annually. Then airports are about 2 billion, so there's a lot of work to be done, still, in those areas. Refuse is about 2 billion gallons, so roll that all up and call it 6 billion gallons. Heavy-duty trucking is 30 billion gallons, so it's five times bigger.

I think it's appropriate for us to focus a lot on that because it's a very big market, but our other market's alive and well, and doing well. We continue to grow, and right now this year, on what we call our carpet -- our construction carpet, of things that are under way -- we have a total of 48 core stations underdevelopment right now, that will get built. If they don't all get built this year, it will be very close to all of them getting built this year, so it's a big part of our business.

One of the things, and you may ask me about this later -- I can go into more detail -- but one of our advantages is we have a compressor company, so most of the core markets that I've talked about are CNG. There are a few exceptions, but not many, so most all transit buses are CNG now; everybody's figured out that's the way to go, and the same with the refuse trucks.

We're able, for instance, to sell our equipment into Waste Management. We sell our equipment into Republic, so it gives us an advantage.

Hall: I'm glad you brought up IMW, and we'll definitely circle back. There's definitely some value there and I'd like for you to add onto that.

In terms of that core business, I think it's also good for people to understand that it's not just about fuel delivery. Obviously that's the most important part of it, but as I understand it, your business is also about servicing and maintaining stations.

Littlefair: Right.

Hall: Waste Management, for example; they produce a fair amount of biogas that they use, themselves. But that doesn't preclude you, necessarily, from being a business partner with those situations. If you could talk about that a little bit?

Littlefair: I will. One of the things in the refuse business, and sometimes in transit -- and I think it gets lost sometimes and maybe doesn't sound so sexy -- is certain of those markets, or certain customers, and certainly our well-heeled customers that have great access to capital ...

Waste Management has got more money than we do, and they figured out a while back that it made more sense for them to use their capital to build the station, so they hire us to either build the station, and then buy our equipment -- so that's good business for us -- then we have an operations agreement with them. We operate the station for several years at a time.

Obviously less margin, and certainly less margin than transit, because transit properties are getting funded 93% by the federal government, so they don't need our capital; they have free capital. But they do like our maintenance.

So, we may not sell the fuel in every case -- in many cases we don't, in transit -- but every night we fuel 7,000 transit buses where we operate those stations, so we get a maintenance fee per gallon.

I think sometimes this is misunderstood when people look at our blended gallon. In our earnings report, we'll talk about our margins per gallon. You have to remember that you have some retail -- certainly in trucking and in airports, where it's higher margin -- and then you have a lot of gallons, like in transit we sold almost 100 million gallons last year, where it's a thinner margin. But no capital, and no risk.

Now, in terms of the biomethane, we have a renewable business here, and people I think over time go, "What are you guys doing?" I was slow to recognize its importance.

Hall: This is Redeem, right?

Littlefair: This is Redeem, and we call that division Clean Energy Renewable Fuels -- we refer to it as CERF -- but it's in-house here.

The reason we got into the business is, as you correctly point out, the Waste guys own the landfills and they love the idea of taking their own gas and putting it in their trucks. It's really a closed-loop system. Bob Coyle, who is a Waste Management guy, said it's "environmental nirvana."

They asked us to get involved in that, and that's why we did -- so our customers really wanted us to get into it.

Hall: It gets back to core strengths.

Littlefair: That's right.

Hall: Their job is going out and removing things people don't want, and your job is dealing with the fuel.

Littlefair: That's right. I think our advantage over some competitors is we have a lot of the pieces, so if that's what the customer wants, we can do it. We're cleaning up gas at landfills now. Sometimes it goes to power generation -- it's 90% less carbon, it's really renewable -- but a lot of it now is going into vehicles.

As you mentioned, last year we launched our clean fuel called Redeem. This is 90% less carbon. It's the cleanest commercial fuel available -- really, in the world. The stations that we have here in Southern California, most of them are using Redeem. We sold more renewable fuel last year than anybody else in the United States; about 15 million gallons.

We see a great potential to use Redeem for some of our heavy-duty fleets. These trucking guys, and specifically the shippers -- we refer to "shippers" as being the companies that hire truckers, so Procter & Gamble would be a good example -- they really pay for the fuel, not the trucker. The trucker passes the fuel cost on to the shipper.

Importantly, they're all consumer companies; I'm talking about Home Depot and MillerCoors and all these kinds of companies. They all have sustainability programs. They've changed a lot of the light bulbs, and they've replaced their plants with cactus and stuff like that. They've done some of the easy stuff, but really they can't do anything to get as big a bang for their buck as by asking their haulers to use natural gas first, and then if they can start to blend in Redeem, it really is significant.

Hall: Reduce that carbon footprint even more.

Littlefair: It's huge. It's huge.

In fact, I think I'm right on this -- a little risk here -- but one of the big home improvement centers has an aggressive sustainability target, and I think by just asking 10% of their hauling to go to Redeem, it would satisfy that now, for 2020. So, it's pretty powerful and, at the same time, you're saving money.

We have high hopes for that, and we're cross-training all of our national (sales team) right now so that they understand how to sell Redeem and make sure the customer understands its value.

Hall: Right, absolutely. I think in terms of having bigger impact, as you said -- to wider sustainability goals that your average person might not associate with anything to do with trucking -- these goods have to get to the stores somehow.

Littlefair: They do, and I was a little surprised, Jason, that the sustainability -- of course, I've been in the environmental end of the business for a long time -- but I was kind of surprised that the sustainability goals are as potent as they are, and that these companies are taking them as seriously as they are. Of course, that's good for everybody, good for public health.

We have a fuel -- just regular old natural gas -- or this more sustainable natural gas, Redeem, that is really a benefit there.

Hall: I think the stigma that green costs more money has finally started to fall to the wayside, and businesses are understanding that ...

Littlefair: It doesn't always have to cost more money.

Hall: No, not at all.

Littlefair: We had some policies here at Southern California that, 10 years ago, from the good leadership of South Coast Air Quality Management District, that fleet operators were required to run natural gas if they had a fleet of a certain size.

There was some squealing about that at the time. Then it became clear, as the engine technology advanced and the price of oil went up, you're asking people to move to a cleaner fuel, and it's a lot cheaper. You're not putting anybody out of business. You're actually saving them money.

I tell our political friends upon occasion, "You can make money and do good, and also be great. Those things aren't mutually exclusive."

Hall: Not at all.

Talking about the economics of fuel, a popular misconception -- you've addressed this numerous times, but for people that may not be following the story for very long -- if you can talk a little bit about the commodity costs of natural gas versus diesel and oil; how does that work?

Littlefair: That's a good question because you read ... In fact, I was listening to CNBC this morning and they were talking about how natural gas has gone up dramatically, and therefore it can't compete with coal and all that.

Let's just take a couple of steps back. Natural gas versus oil, if you were to burn them -- just on a BTU basis -- they should trade at about 6:1. What does that mean? To make it easy, if you had $100 of oil, natural gas on a BTU equivalency should be around $15 or $16 an MCL.

Hall: Per unit of energy.

Littlefair: Per unit of energy.

But you sit here today with oil banging around $100 a barrel, and natural gas I think this morning was $4.37 on the NYMEX, so you're seeing something where the spread is dramatically different.

For years and years, oil and natural gas traded more like 7 to 1 or 8 to 1, and today they're trading more like 20 to 1, 22 to 1. What does that mean? That means, today, natural gas has a huge advantage -- the commodity does -- versus oil.

When you look at it in our business, here's the way ... and this, to me, is the most important piece. When I'm talking to investors -- I know it sounds like (entering) high school and elementary -- but I always want to make sure they understand it. You get eight gallons of gasoline equivalence.

Hall: That $4 and change is worth an eight gallon equivalent?

Littlefair: Exactly; $4.37, you divide by 8, so the commodity today to take that car -- you have the same energy as a gallon of gasoline -- your commodity is $0.53.

Now, without getting into all the detail of how the margins build up, you have to do some stuff to it. You've got to compress it, and you've got to pay for the gas from the local utility, and you need a compressor on it, and you do O&M, the maintenance -- so there's cost in there. But you're at the nozzle tip dramatically cheaper than the competing fuel.

Today, in the L.A. Basin, gasoline is $4.19. We're selling natural gas -- and we have 60 stations here in Southern California -- we're selling CNG, depending on who you are and where it is, at about $2.50, so the customer is enjoying almost $1.70 a gallon savings. It's dramatic, so you do have economics today.

Here's a way to think about it, because people are saying, "Well, the summer, the heat, the fill season may put pressure on natural gas. Natural gas could go up." It may go up as much as $1.00 in the summer, which usually would be not normal -- usually you'd see the price of gas go down, but you had a cold winter and storage is low.

Hall: They've got to build back up.

Littlefair: They've got to build back up.

But anyway, let's say there is $1.00. Well, $1.00, when you divide by 8, is $0.12. So, it's $0.12; that's easily captured in that big spread that we see today. The oil and gas industry would love to see about $5.50. Really, that doesn't affect us. Do we love $3.50 gas for what we do? Of course.

Hall: But the reality is, that's not sustainable. But it doesn't really impact the business.

Littlefair: No, it really doesn't.

We saw some very high gas prices for a couple days, and maybe even a week during the winter. Remember, we're usually buying it a month at a time, on a utility tariff ahead of time. Just like a hurricane season, you used to see spikes in natural gas prices. We don't really see that. We could at our plants, where we're buying pipeline gas and making LNG, but we have the opportunity if we see a spike coming, or if there is a spike, we don't buy that much that day.

Hall: Do you anticipate, once the LNG kicks off and you start building out facilities with General Electric, that you'll be using any kind of hedging?

Littlefair: We talk about that a lot at the board level. We actually even have a Hedging Committee. I think the market has been clear with us, and investors have, that they're not wild about us going out there and speculating.

I think probably the answer is, we've hedged before when we line it up with a customer contract and we can treat it as hedge accounting. You probably won't see us out speculating, but I can envision a day when we're doing a lot of contracted volume with UPS where you would hedge.

Hall: Right, because of the terms of that contract, that you need to reach.

Littlefair: Right. But you'll hook that up with a particular customer contract.

Hall: That makes sense. That definitely makes sense.

Again, just to summarize the whole pricing factor, based on today's $4 and change, about $0.50 is the actual cost of that commodity in the pipeline today.

Littlefair: That's right.

Hall: So, there's a whole lot of fudge between that, and before it gets to the nozzle tip. Even if natural gas were to double, you're still talking $1 for the commodity price.

Littlefair: That's right. Let's just say the cost is another $1, so now you're at $2, versus $4.19.

Hall: Right, so it's basically about $0.12/$1.

Littlefair: That's what it is on the commodity side, so there's a lot of room here. That's why people say, "You don't think you're always going to have $4 gas." Well, no, but I'm not so sure -- Jason, here's the other thing that we can discuss, and everybody has different views on it -- is we're awash in natural gas in the United States, and I'm in the camp that believe you have enough natural gas to export some of it and use more of it for manufacturing.

We've got a lot of it, and it's really kind of breathtaking. When I was at Mesa, 10-15 years ago, America had a rolling 20-year reserve life index of natural gas, and I think today you're closer to 150-200 years.

So, you're going to have a lot of inexpensive gas, relative to oil. And the country's doing a great job on oil, too. But you're exporting product; that's keeping some pressure on it. Yes, I think we're in a nice position.

Where I was headed was, are we always going to have $4.50 gas? Maybe not. Are we always going to be 22:1 or 23:1 versus oil? I'm not so sure.

Hall: But it doesn't have to be.

Littlefair: But it doesn't have to be. In fact, it was kind of interesting; in the Port of L.A. in 2008, we were just getting going with some of our trucking down there, our big station. We had $140 oil, and we had just about $14 gas, so that's 10:1. But, when you have $140 oil, guess what? You have $5.40 diesel, remember. So, we had some of our largest margins ever -- and it was 10:1.

I feel pretty comfortable that the economics are here to stay.

Hall: Absolutely.

Let's shift over to the ANGH -- America's Natural Gas Highway -- and talk a little bit about what you guys are seeing with LNG uptake.

From everything that we've seen and heard in the industry with the Westport Cummins engine, a lot of the shipments for the 400 horsepower -- which really wasn't available until the end of the year, didn't start happening until early this year -- so a lot of testing in fleets. What are you hearing? What are the early adopters telling you? Where do you see the demand curve?

Littlefair: Right. Of course, as you know if you follow this closely, there's been a lot of discussion about CNG and LNG. I've tried to be really consistent on this -- we do both.

Hall: Absolutely.

Littlefair: In the heavy-duty trucking market, and even in America's Natural Gas Highway, you're going to have both.

Now, we've built a bunch of LNG stations, but keep in mind of the 24 or 25 that are open as we sit here right this second -- we've got a couple more coming right now to open in about this next week -- I believe 16 out of the 25 or so have CNG as well.

We're not pig-headed on this. We need to sell what the customer wants. I remind people that we sell more CNG than all of our competitors combined. We built more stations last year than almost all of them, I think, probably combined.

We fuel, down in Florida, the largest deployment -- Saddle Creek, who has shown great leadership -- of CNG trucks. We built that station, we operate it for them. We fuel CNG trucks; big fleets of them. We just opened one yesterday at Sellersburg yesterday, where I have a beautiful picture of a bunch of CNG trucks coming through.

We know it will be both. We also know that CNG is going to be particularly well suited for urban environments. This kind of "last mile ..."

Hall: Right, where there's already infrastructure in place.

Littlefair: Yes. Like, here in Los Angeles, Southern California Gas Company, over decades, has spent billions of dollars making sure the distribution system is seamless and good. So, that's pretty hard to beat, because otherwise you've got to build an LNG station.

For urban environments, return-to-base fleets, distribution centers in urban environments, I think a lot of that will go CNG and we're building some of those now.

Longer haul, and places where there may not be natural gas, where truckers are not necessarily returning to home, that are slip seating -- sometimes the trucker goes his 10.5 hours and then somebody else gets in there and takes it -- we think LNG is going to have a lot of play there.

But these are both going to be very big markets. The way I look at it is, remember it's 30 billion gallons. If it goes the way I think it's going to go here in the next several years, if it follows anything like -- and in fact I don't even show that. If it just does about half of what the refuse industry did, in 2017-18 we're talking a few billion gallons of fuel annually.

CNG and LNG will be big players, so for our company it will be very important. We sold 217 million gallons last year, so in those years, like 2017, if the adoption goes the way we think -- and really we're not talking about hundreds of thousands of trucks; we're talking about tens of thousands out there in a few years, after people get experience -- every year that's throwing off three or four times what we did this year. It's meaningful for us, so we have our eye on that ball, and that's what we're doing.

Now, on America's Natural Gas Highway, our job one is to open these stations. You correctly mentioned that the 12-liter engine from our friends Cummins Westport, a 400 horsepower engine, really didn't get produced until about August.

It takes a while. If you're a trucker, you order that thing and it goes through the dealer and it gets made, it goes to the factory, and ends up in a chassis and then it gets delivered to you and you put decals on it and everything -- it takes a while. It's about a four-month process.

We're just beginning to see these trucks roll in now. That's why we're beginning with the stations. If there was a criticism of us, it was that we built some stations a little bit too early.

Hall: Nobody else was going to do it.

Littlefair: No one else was going to do it, but you don't want to die on the beach on that!

But on the other hand, there was a good offshoot of it. We really changed the paradigm. The discussion between the truckers and the shippers, it was pretty easy for a good contract here to say, "Hey, Mr. Shipper, I'd like to do this but there are no stations." But we've changed that, because we have these stations now every 250 down the I-10, the I-40, the 95 and the 5.

Is it a perfect network? Of course not. But it's really changed the dialogue between those shipping companies and these consumer companies and their haulers.

The engine was delayed. I don't want to pick on my friends, but when we cooked this plan up, we worked on it with our friends at Cummins and that engine was really supposed to be here almost a year earlier.

That's all right. This, I think, is the most successful launch of a new product that they've had, is what I think I've been told. Knock on wood, it's working well. It took some time to make sure it was right, so those engines now are coming. We got a little ahead on the station build, but they're there, and they're starting to open now.

Job one for us this year is to open a bunch of those stations. We'll try to get a majority of those open. We'll also, where necessary, add CNG -- either LCNG at those stations, or CNG -- but that will be customer-driven, and we're doing that now. We have five LCNG -- LNG stations that will have CNG at them -- we have five of those under way right now.

Now, I think part of your question was what are we hearing, what are we seeing? Today we have 220 LNG fleets that we're selling fuel to -- some of them are small, some of them are big -- and we have about 140 CNG fleets, and we're seeing a mix.

It looks to us, and I was listening to David Demers, CEO of Westport the other day -- it's breaking down around 50/50 or 60/40. But we're still real early in this.

Hall: A lot of that's driven by fleets that are testing if CNG is accessible.

Littlefair: And CNG is pretty accessible for a fleet. If you're here and you want to try a couple CNG trucks, that's pretty easy. You may go to a station that wasn't really designed for you, but you can still make it work, so you're seeing some of that.

I think some people have been drawing some conclusions based on pretty skinny numbers. We have some big LNG customers. UPS is one of them. UPS is currently fueling at seven of our stations, and they've got several hundred more trucks to take. We're bulk supplying them in some places where they don't actually fuel with us, but we're supplying the fuel.

But we have other big fleets like CR England and Dillon and Raven, who hauls for MillerCoors, and NFI, who hauls for Lowes. These are big LNG customers. They're serious logistics operators, they know what they're doing and a lot of them are trying LNG and some of them are also trying CNG.

Hall: We're seeing stations, two to three a month, opening right now.

Littlefair: Yes. I'd love to tell you that every month I'm going to open three stations. We have about 60 stations that need to open.

Hall: They're built and just ready to turn the key.

Littlefair: They're ready to turn the key. There's not really any other capex required -- well, there's about a $10,000 commissioning kind of thing we go through; we have to put some fuel in it and all -- but they're ready to go.

Our job around here is to get a majority of those open this year so yes, you'll see it's a little lumpy where we're waiting for these trucks to deliver, but you'll be seeing them open in twos and threes. The nice thing is, once we do that there's a couple things that happen.

You're opening them when you get probably 20 trucks, usually. That's the way you should do it. Then once you open a station in Amarillo, Texas, for instance, then you begin to work the area. Now people can try one or two trucks, so our sales team is doing both. We're trying to base load these stations, get them open, then we also go to work on broadening the fleet base at those particular locations.

The other thing that happens, Jason, is we're beginning, over time here -- and you'll see it in the next several months -- other segments are opening up. When you do Amarillo ...

Hall: Somebody in Amarillo that's going somewhere else ...

Littlefair: ... that's going to Albuquerque. It's beginning to happen, so it's kind of exciting.

Hall: That's great. That's definitely what we're looking to hear, no doubt about that.

One thing that happened recently that was surprising and kind of exciting was the acquisition of the CNG In A Box units from Chesapeake Energy. Can you talk a little bit about that, and your plans?

Littlefair: Sure. We had a long, healthy, deep relationship with Chesapeake. Chesapeake loaned us money. They were great supporters of natural gas in transportation. They had a big operation, themselves. Aubrey McClendon was a visionary, I think in this, and a friend of ours.

They, though, shifted gears after Aubrey left. To really get GE in the business, they had put in a big order of these CNG In A Box from General Electric.

I've been telling people, Jason -- because it sounds kind of quaint -- "CNG In A Box," like it's in a two-drawer filing cabinet ...

Hall: Stick it in your garage!

Littlefair: These things are big. They are self-contained. They're a good unit, they have the storage, they have the dryer, and they have a 400 horsepower motor. It looked more like a container, so these aren't little things. They're big things that are really well-suited for truck application.

We got 65 of them. We bought 65 plus the dispensers. They're ready to go, and we're beginning to deploy them now.

A new, exciting vertical for us is the ready mix vertical. I'm becoming a quasi-expert on that -- hardly -- but because of the downturn in construction a few years ago, really the ready mix cement truck industry hadn't added any cement trucks, so they've got a pretty old fleet out there, and a lot of pent-up demand.

We have the product for them now.

Hall: With the Cummins Westport engine.

Littlefair: Yes. You're seeing them very seriously look at ... if you think about it, they're not totally dissimilar to a refuse application. A little bit different profile, they don't always work the same in the winter.

Hall: But you still have that same return-to-base model.

Littlefair: Big truck, yes, they go out and they fill up and they go back. They stay in one place a little longer. An average refuse truck in the United States uses 10,000 gallons a year. I'd say ready mix a little less. But they're in clumps, and there's more ready mix trucks around than you would think.

The CNG In A Box that we have is really good for that. It's really nicely suited for 15 or 20 trucks. What happens is, in some cases, ready mix trucks might be at a location where there are a couple hundred of them, but then they have satellites in other parts of the city where there's maybe 20 of them.

You'll see our GE In A Box -- this is CNG -- go into that market. It will be used in the refuse market for smaller fleets.

It's interesting, Jason; what you're seeing right now is in the big guys, Waste and Republic -- and this is an overstatement -- but a lot of trash trucks in the U.S. are in clumps of 100 or 150. Here in L.A. Basin there's a bunch of those where there's 150, and maybe they service a couple different cities.

But then there's probably half -- and my number is there's like 180,000 refuse trucks in the U.S. -- and about half of them are in small places.

Hall: Where you may have 1 or 2 or 5 or 10 trucks.

Littlefair: You may have 10 trucks. You may have 12 trucks, and it's pretty tough to make a $1 million or $500,000 station (pay itself) from that. The GE In A Box may be a solution for that as well. Then the GE In A Box is going to be good at starter fleets, for CNG heavy-duty truck fleets, behind the gate.

It'll take us a while to work them off. We purchased them right. We have a deep relationship with General Electric. This is kind of the fourth thing that we're doing with them. We're excited about those, and they're beginning to go in. We won't wipe out 65 of them this year, but I see it as an advantage too, because they're built and they're sitting there.

Hall: They're ready to go.

Littlefair: They're ready to go. Otherwise, if you go out and order a compressor right now, it takes a while, so I think it will be an advantage for us.

Hall: As compared to what IMW does, this is a niche that IMW doesn't specifically ...

Littlefair: Well, we've retooled IMW, so we're pleased with that. We have some new products. We have a complete fleet fueler that is a self-contained package. My friends at IMW probably said, "What did you do that for?" because obviously they want to sell us a bunch of this stuff!

The GE In A Boxes, if you put two of them together, three of them together, because we bought them right, it's hard for others to compete with us on that.

If you were just going to go to a bare-bones self-contained smaller unit, IMW has a unit that would work for that as well. I didn't really mention that by putting a couple of these GE In A Boxes together -- you have a 400 horsepower engine, it's kind of large -- that is a unique offering that maybe IMW didn't have.

Hall: Right, and it was an ideal opportunity to acquire these units the way you were able to get them from Chesapeake.

Littlefair: That's right, and I'd rather have them than somebody that wants to run around in the truck market with those.

Hall: Right, it's either you or somebody you're competing against.

Littlefair: That's right. I think it was a good thing. It's good equipment. We're working closely with GE to even optimize them now.

Hall: Right.

Let's talk a little bit about IMW. How important is IMW, outside of supplying clean energy directly?

Littlefair: I get that question some. I think I got the question more often when we had BAF, which was our conversion business and we had stuff in Peru. As you know, we sold BAF last year to Westport.

Others are in that business. We didn't really need to be in that business. We needed to be in the business when BAF was in a difficult financial situation. We needed product. We have stations; if you didn't have BAF you wouldn't have a natural gas taxicab.

I think we were in it at the right time for the right reason.

Hall: Planting seeds.

Littlefair: Yes, planting seeds and filling up our stations. Without their product -- and BAF did a really good job working with Ford and developing a full line, which Westport now has incorporated into their WiNG technology, but they did an excellent job.

They did an excellent job selling thousands of units into AT&T, and we fuel about 50-60% of those today. That made sense at that time. But others are in that business.

People used to ask me, "Do you really need to be in the compressor business?" because other people are in that business too. Well, we buy a lot of compressors, so we see it as strategic.

We have, if you look at this business today, about 95 competitors in the refueling business. Now, people say, "Oh, come on, there's not that many." Well, some of them are pretty small and some of them are kind of regional. Some of them really don't have any experience.

But, there are about 95 companies out there that say they're in the CNG business, and I don't want to stand in line with them, waiting for a compressor. For us, I think it is strategic. We're buying about 35% of IMW sales.

But natural gas fueling and transportation is happening around the world-probably faster than it's happening here. We took our company public in 2007. I remember at that time there were about 5 million natural gas vehicles in the world, and today it's closer to 17 or 18 million, so a lot's happening in a lot of places.

We're asked all the time to go into different places. Look, we're in a great sandbox. We're in the best market, here in the United States. It's one of the biggest fuel markets, so we try to stay pretty focused.

However, IMW is asked all the time to build stations around the world, so it kind of allows us a way to participate globally in this. We know more about this fueling than just about anybody else, so IMW is selling today into about 26-27 countries.

We have a big deal in China right now. We've built a couple hundred stations in China already. We don't own them.

Hall: With China Gas?

Littlefair: Yes, with China Gas. We signed recently a deal with Russian Machines to do a similar thing in Russia, but we're selling equipment today into Vietnam and Egypt and Mexico.

It took us a while to get IMW squared away. It had a little bit of growing pains. I remember when I made the first deal with IMW probably 10 or 12 years ago. In that year, they were producing 12 compressors, and we bought 6 of them. I think this year it will be closer to 300 or 350, so that business has grown a lot.

We've retooled it some, we've got some new management in there, we've beefed up our sales. Really, until recently -- that's why I mentioned on the last earnings call we like what we see there -- we really were taking orders around the world, not really selling.

We can do better than that, so we've got a new sales organization in IMW. It's important. The business can be much larger than it is and I think, importantly, we buy a bunch of the equipment so it gives us an edge that others don't have.

Hall: It sounds to me like, besides the obvious advantage of allowing you to be first in line when you need equipment for your own needs, it lets you participate in other markets without pulling away from the core resources that drive your business.

Littlefair: That's right. We've looked at other markets. We've looked at India -- they wanted us to come there -- and we've looked at Thailand and stuff.

But you know, in a lot of those places the government owns the resource, and they set the price. We don't have any business building and owning stations in Russia on long-term contracts and trying to figure out if we're going to get repaid.

But, selling them equipment that the Canadian government guarantees -- because IMW is based in Canada -- that does make some sense.

Hall: You mentioned Russia and the deal with Russian Machines recently. It's all over the news, what's going on with Crimea and the Ukraine.

Littlefair: Timing is everything!

Hall: It really is. The question is, if the path goes down the road that there are sanctions that are placed that actually affect businesses, what's that impact on IMW?

Littlefair: I don't know if we'd be picked up in that or not. I'm not clear on what sort of sanctions will be done. Obviously, if it's forbidden to do business in Russia that won't be good for our business. But I think we're probably a ways from that.

The opportunity there, working with Russian Machines and their related sister companies, is our partner there is wanting to do much like we did here. There are three or so large transportation corridors running out of Russia into Eastern Europe. They really want to set those up on natural gas.

They're already making natural gas buses there -- our partner is. Our partner is already making natural gas jitney trucks; a smaller truck than we have, so I think there's a great opportunity there.

Now, if there's a broad sanction where you can't do business with Russia, we'll get caught in that. I doubt we're going to be at the top of that food chain. We're selling equipment; we're not owning resources there.

I would guess major oil companies and some would get caught up in this before we do, but I don't know.

Hall: Worst case scenario, it may limit some outside ...

Littlefair: I guess worst case scenario, it would stop it until things got sorted out. But this is not an overnight thing; it's going to take a while, and we think we've got an edge over others there.

A couple of the large gas suppliers there, Rosneft and Gazprom, are going out to bid, it looks like, for a bunch of stations. I like our chances there. If this all got caught up in politics, then I don't know what that would be.

Hall: It is what it is. It's not controllable.

Littlefair: No, I can't control it.

Hall: The deal with China Gas, if I recall correctly, was around $150 million opportunity over a three-year period.

Littlefair: That's right.

Hall: Do you anticipate more international opportunities like that for IMW, coming up over time?

Littlefair: We have a pretty good series of deals working right now. I don't know if we've announced them, but one in Australia. We're seeing these things pop up in different places. Turkey, we just put in our first station there.

Oddly enough, we've got IMW employees in Columbia and in Bangladesh, where we've built stations and we actually operate them there. So, there's a lot of opportunities like China Gas. Now, China Gas is bigger, and we like that one. We'd like to do more deals -- there are other companies like China Gas in China, where we'd like to see if we couldn't get with them as well.

We're working hard to get the deal flow. China ebbs and flows once in a while, so it's a little lumpy but we're beginning to see those compressors come through now, and we push on them as hard as we can to get it faster rather than slower.

Hall: Let's shift over to talk a little bit about competition, especially domestically. One area of competition that seems to be getting a lot more traction is CNG competition, especially from utilities -- like Questar is making some serious moves, Integrys through their Trillium CNG.

What's your view on the competitive landscape against utilities expanding into this? It's a new market for them.

Littlefair: They were in it, once upon a time. If you roll back to the late '80s -- and in fact, Warren Mitchell our Chairman, who was Chairman of the Southern California Gas Company -- they did their first natural gas vehicle business in the '60s, so this isn't completely unheard-of.

All America's utilities were in this business in the '80s. In that day it was Lone Star Gas in Texas, and Brooklyn Union Gas, and Southern California Gas, and they were building stations. But they were early and they were thinking light duty, so it didn't work.

Hall: Like you said before, the economics were very different.

Littlefair: Very different. People forget, though, we had a war in there -- so you did have a fly up in oil prices in 1990. The OEMs were making cars. Ford, GM, they were all in the business -- and Chrysler.

Then oil prices went down, the pressure came off. The Clean Air Act got passed in there, so there was pressure. But then things settled down. We went through a deregulation period and electric companies bought gas utilities, and a lot of them got out of the business.


We were a beneficiary of that. We bought 30 some-odd stations that Southern California Gas had. We acquired the ones in Colorado. We bought the ones in Texas, the ones in New York, as they left the business.

Now, fast forward to today, they're looking for business. Things have gotten more efficient in terms of things that use natural gas and electricity, so they're looking at this as a market.

I buy a lot of gas from these guys, but I don't mind competing with utilities. Utilities are really good at providing service. They're not so good at being entrepreneurial, so I have a little bit of heartburn when utilities are wanting to use ratepayer money to get in this business and compete.

Look, I just told you there's 90-some-odd companies -- I'd probably have to back out 10 utilities, so let's call it 80-some-odd. Normally, utilities aren't allowed to compete. They're a monopoly. They're not usually allowed to compete when you have private sector companies in the business. They don't do plumbing; they hire plumbers.

But some of the regulators have allowed them, in some of these instances across the country -- there's a handful of them -- where they're allowing them to do test programs using ratepayer money. I'm not a big fan of that.

What that means is, a particular utility is going to use their customers' money and get a return on it to get into this business and compete with the private sector.

I have no problem with utilities doing what they ought to do, and what my friends at Questar have done, and Integrys, where they've set up an unregulated subsidiary. Typically -- and it's always a little different -- but typically that subsidiary is responsible to their shareholders, not their ratepayers.

They're taking shareholder money and they're putting it in there, and now they're competing with us and I think that's fine. We've competed with Trillium for 15 years. Now they're owned by Integrys.

Hall: Before they were acquired by Integrys.

Littlefair: They used to be owned by Wagner & Brown, Boone Pickens' old friends from Midlands. We used to compete with them in the transit business, and they tried it in the refuse business, so we know them. They're a good competitor. They're doing CNG.

I don't really have a problem with that. Now, we have Southern California Gas that's trying to use ratepayer money in a way that they're trying to get in it. I think what happens often with utilities is they don't really have a sales force, the regulators aren't going to let them go unrestricted on use of ratepayer money.

So, what you often hear is they're going to do things like spend $5 million or build 8 stations or 12 stations, and a lot of times I think what happens is it confuses the market. Look, utilities are using ratepayer money, they have cheap capital, it's perfectly legal, and they can bury stuff -- and those are big companies.

I'm not too worried about it. They're regional. The unregulated guys -- the guys out of Utah -- Questar -- and Integrys; they're trying to be more national. You don't have many examples of that.

I'm not too worried about it. I guess if you were to look at competition, when we start talking about heavy-duty trucking fleets, some of them want to do LNG. Most of the utilities don't do that. Most of them have a hard time if now you're talking about doing it in multiple states.

There's room. It's a big, huge market. We'll compete fine with them, so I don't see that as some big threat. But there are a lot more competitors in the business today than there once were.

Hall: You think when it comes to utilities, your core strengths -- especially in terms of your larger scope and size, and being able to go in different places ...

Littlefair: In many different places, answer a fleet that is maybe in multiple states. Utilities can't really do that. Do LNG; they can't really do that. They don't have a compressor company like we do. They don't have a sales force. We have 100 sales people. They don't have that.

What they rely back on is getting the cheap money from the ratepayer, and perhaps cross-subsidizing that. You know what? That will be successful for a little bit, but I don't think that's typically sustainable.

Hall: Sustainability is a big concern there. That makes sense.

Hall: Additional competition -- and I think this is probably the primary competition you're going to deal with -- is private companies like Blu LNG gets a ton of their funding from ENN Group, I think, the Chinese?

Littlefair: Right, Chinese.

Hall: You've got TravelCenters of America and Royal Dutch Shell that announced almost a year ago that they were going to open some stations. Chart Industries just recently announced they have a contract to build 20 LNG stations for a major oil company. Maybe that's Shell, maybe not -- I don't know.

Littlefair: Yes, it's hard to tell. Let me speak to that, Jason, because it's one that I think people get a little confused over. Let's talk about this heavy-duty trucking market.

If I were in here telling you that I was focused after the consumer market and I was going to build all these stations, now I'm competing with the major oil companies -- and I think you'd have to look at me suspect, a little bit, because they have the real estate, they have the refineries, they have that market. They've been there forever.

However, on the heavy-duty trucking side it's different. There are 118,000 gasoline stations, more or less, in the United States. There are about 5,000 or 6,000 diesel depots in the U.S.

Hall: Filling up big trucks.

Littlefair: Filling up big trucks -- and a lot of that's behind the gate. It's in some guy's backyard. When you begin to draw down, and you think of truck stops, that's a different animal. The major oil companies are not in that business. They've never been in that business. You may drive around someplace and see a Shell canopy at a truck stop, but Shell doesn't own that, and probably doesn't supply the fuel.

Often people say, "Gosh, ExxonMobil's going to wake up and they're going to do all these truck stops." Exxon just got done selling their last 5,000 gasoline stations, so I have a hard time imagining that they're going to now get into the retail truck stop business.

When you think of truck stops, you think of Pilot Flying J, our partner. They're the largest in the business. They have 550 locations, they're selling somewhere around 10 billion gallons of diesel of that 30-some-odd billion gallon market.

Hall: It shows right there, the scale of that relationship.

Littlefair: Yes. We think it's really important, and we're good partners with them. They've shown some patience as we've built these stations and we're all waiting for some more trucks to roll.

But if Pilot Flying J said they were going to compete with us, well then I would worry about that -- but they're our partner, and they're our exclusive partner.

Then you drop down from them and you have some other very fine, large truck stops; TravelCenters of America and Love's. They're the next biggest ones, and both of them are about half the size of Pilot Flying J -- 250 locations. But when you put those three together, you're covering a lot of the market.

Hall: It's about 2/3 of the market, between those three.

Littlefair: It's hard to get your arms around this. I've heard different numbers, but that's the idea. A lot of America's trucks, some are fueling in their backyard, and a lot of it's retail.

For instance, Pilot Flying J, they're doing something like -- and this may count submarine sandwiches too -- but they're doing like a million transactions a day. That's where the trucks are going. You don't want to go out and reinvent that at all.

In regards to Shell and Travel Centers of America, look. This is a big market. When Shell announced, I think it's close to a year and a half ago or even more, that they were going to get in this business -- and mighty Shell has to pair off with the second largest truck stop, for TravelCenters of America -- that validated to me that we had the right idea.

Now, they've been a little slow to move. I believe they're getting ready to open their first station here in Southern California, and there could be two of them. We'll have 100 built or so, before they really get to two.

Are they a competitor? Sure. Do they have a lot of capital? Yes. Do they have LNG today in the United States? No. They've got some work to do. They don't have a sales force. They're not in this business. But I think it validates what we see.

I think the competitor, someday, could be the industrial gas guys. Right now they're our customer; Linde, Praxair, Air Products, they're very good at moving fuel around. It might be different kinds of cold fuel, but that's what they do.

They're typically in stationary environments -- they're bringing nitrogen to a plant someplace -- and they build the equipment in the plant, so it's not too dissimilar to what we see. But it's a different market, the one that they've been in.

They're actually running some of their trucks -- and Linde is a good customer of ours -- running some LNG trucks right now. Someday, could you paint a picture where maybe they would build some LNG plants and maybe supply us? I kind of see that. I don't know that I'm going to see Linde putting in truck stops.

Hall: Again, it's about their core business.

Littlefair: It's about their core business, and they're a little slower than that. But I think the industrial gas guys are potential competitors.

I happen to think that if a company like ours or some other companies got big enough -- if this really goes the way I think it's going to go, and that you're selling billions of gallons -- now maybe you'd get a major oil company to show up and say, "Listen, we've got natural gas. We understand this. That makes sense. Maybe we'll just buy the whole thing."

But I think they'll let us go through a bit more brain damage and difficulty before we get to the size where it would be meaningful to a company like that.

Hall: I think you get to a key point right now, because this is still in such its infancy. The fact that the vast majority of that is still diesel and will remain diesel for years ...

Littlefair: A long time. That's also why I usually get the question about our margins. Okay, Shell builds a station and all of a sudden that's going to collapse my margins. Well, wait a minute. This is a pretty big market!

Remember, we're competing with diesel. I don't care who our competitor is, I don't envision a time right now -- in this infancy, when we're talking about hundreds of millions of gallons, or even a billion gallons -- when you've got 30-40 billion gallons out there using something else.

I don't know that you and I are going to go compete with one another and drive ourselves down to no margin, but allow the competing field, diesel, to be $2.50 a gallon more than us. I don't see that right away. Someday, we'll have margin compression of course.

Hall: But when that day gets here, there's a lot of good news we'll have.

Littlefair: Diesel will be coming down too.

Hall: Absolutely. Just looking historically at the oil and gas industry, big oil doesn't lose money.

Littlefair: Funny how that works!

Hall: Right. I think your statements in terms of margin compression are fair. Big oil makes money, these are profitable companies. They're your suppliers today.

Littlefair: Could your margin get under pressure at some point, when this gets to be more of a prevalent thing? Well, sure it will, and that's OK because there's some room there.

The other thing that will happen, that I think tends to maybe offset some of that margin compression is, remember, today I'm giving my customers $1.50 a gallon savings -- or more in some cases, a little less in some cases -- but generally around $1.50 a gallon.

I'm doing that because they're working off an incremental cost of the price of the truck -- let's just talk about the trucking -- of $35,000 or $40,000. They use about 20,000 gallons a year, so you're trying to get this to about a one-year payback.

But when the price of that truck comes down, like it has already -- you know, the first 9-liter trucks that came out that we tried to put in heavy-duty application a few years back, they were $65,000. Today, it's closer to $25,000.

We've seen them come down, but I think that you'll see the $35,000 or $40,000 (offer) like this 12-liter with one tank, come down as well. Let's say it comes down to somewhere around $20,000-some-odd.

Now you're really at six or seven month payback. I'm not so sure that you need to give the customer a six month payback, so there may be some movement in reducing -- because you're not working off such a high incremental cost -- reducing that savings, at the same time that maybe our margins come under a little pressure. But I think you're a little ways out.

Hall: Absolutely. A few tens of thousands of trucks would need to be sold before that becomes a ...

Littlefair: That's right.

Hall: Let's talk a little bit more about the partnerships that you have, especially Mansfield and Pilot Flying J. We've heard a lot about the ANGH and your relationship there with, really, the big boy when it comes to the retail side of the fuel for the big trucks.

But we really haven't heard much since the Mansfield partnership was announced. Can you tell us more about what's going on there?

Littlefair: Right. In fact, we were all working on that yesterday. We have a good relationship with Mansfield. What happened there was they had a natural gas fueling business. We acquired that, and it had some distribution rights for home refueling and all that, so we have all that now.

They had about 20-some-odd projects under way. We finished those, so they're in our account now. The largest of that was El Paso Transit, a few big stations there that are just now being finished.

But the real opportunity there is ... Mansfield Oil is a great company and Michael Mansfield is a great leader there and he's had tremendous growth. Mansfield, private company, they're back lot fueling. So when you think of our Pilot Flying J relationship and their depth in retail truck stops -- 10 or 11 billion gallons, some big number like that -- well, Mansfield is behind the gate, and they're more like 3.5 billion gallons a year. Put those two together, it's pretty significant.

The real opportunity for Mansfield was not so much the business that we acquired and some of that stuff. It's the ongoing relationship. We just signed a deal -- I just sent out a congratulatory note on a deal yesterday with one of their customers. The transition is under way, and there's more work to do here. Our sales forces are now making joint calls, joint referrals. We've sent them some diesel customers, and they're sending us leads on natural gas customers as their customers transition.

A little early to tell what happens, but we do know an awful lot of customers fuel in their back lot. When they're ready to go to natural gas, Mansfield seamlessly brings us, Clean Energy, in to do that. We both share in that.

Now, we have a new deal with Mansfield that is important. Mansfield is a leader in bulk fuel hauling on gasoline and diesel, so they have a lot of reach there. We see that, kind of like the ready mix, as another vertical with a partner that has, I think, 900 trucks every day working for them. Just about every hauler works for Mansfield already.

We've got two stations under way on that. These will be building natural gas fueling stations at bulk fuel haul terminals with our friends at Mansfield, and trying to go after that market, so that's exciting. That's new and you haven't heard much about it yet. We're going to walk a little bit before we start talking about it, but we have two projects under way right now.

Hall: To me it sounds like a lot of what's going to happen with the Mansfield deal is the same thing that's going on with all of the shippers out there -- the conversations they're having with the truckers is going to affect Mansfield because those are their customers.

Littlefair: Yes, and the reason Mansfield got into the natural gas thing aggressively is because they provide a lot of diesel to Waste Management behind the gate, and Republic, so we're in there getting that. That's what got them interested.

Hall: They see the way the dynamic is shaping, the way the future's going.

Littlefair: Yes. It's going to take a while until a lot their different behind the gate fleets move to natural gas, but I think we've set it up so that when that happens Mansfield's still in business, and they're our partner.

We're early there on the back lot fueling for those other kinds of fleets, but they have a lot of good, long-term relationships. We're pleased with that relationship.

Hall: One of the other partnerships that's been around for a long time informally, and it was definitely formalized earlier -- we talked about BAF. When you guys decided that the right thing to do was to sell that to Westport and formalize a marketing agreement with Westport. Can you talk a little bit about how important that partnership is? How does it help Clean Energy Fuels?

Littlefair: Sure. We've had a relationship with Westport since the beginning. Westport, through BC Gas and all, had an investment in Clean Energy. David Demers, their CEO, sat on our board and I sat on Westport's board, so we've had a long relationship.

Let's face it, without their leadership and without their good technology and some of these heavier trucks, we didn't have anything to sell.

Hall: Two legs on the same stool.

Littlefair: Yes. We've had a long-term relationship with them. We've gone in, and I think it was Westport and Clean Energy convincing Kenworth that we could put these engines in their truck for the first 100 that we had to buy at the Port of L.A.

We've had a long-term relationship with them. I have a very good relationship with the board at Westport and with their CEO. Our marketing guys, the President of Cummins Westport was in here just last Thursday. We do lots of work with them.

Now, on the BAF side, we're trying to harness -- because we have all these CNG stations at airports and all, and they're selling product -- Peter Grace, who runs our sales effort, works with Westport, the old BAF unit, to try to do what we can to help on their sales.

In fact, the guy that we brought in to run BAF is running the sales now at Westport, in their conversion business.

Hall: Got you -- for the whole WiNG business.

Littlefair: For the whole WiNG business. We like him a lot -- we hired him -- and he's a good guy.

Without engines, they don't buy fuel, so we try to help all engine manufacturers. I'd like to have more engines. I don't rub Cummins' nose in that, but the fact is I'd love to have Navistar come with its own product, and Volvo coming. That's all good for the business, and certainly important for us as a fuel provider.

We work with, really, all the OEMs, a lot of the body manufacturers, the conversion guys. We have to, because we're a beneficiary.

Hall: Absolutely.

The GE partnership is really interesting because it's not just a single partnership. The LNG projects, the partnership was put in place there a couple years ago, and then more recently the finance arrangement. Let's talk about the LNG project first. What's going on there?

Littlefair: We love our relationship with GE. GE is all-in. From the CEO down, it's really all-in on natural gas.

I had no idea really, until I got more into this, the extent to which General Electric, worldwide, the revenues come from natural gas. They're doing turbines and measuring equipment and down-hole stuff and compressors. They're really committed to natural gas, so they're an important partner for us.

The first deal that we did with them was the LNG plans. They're willing to finance two new LNG plants for us. That was probably a little over a year ago. We've done a lot of work on the equipment side, and on the location side.

We're working with GE on this -- they're willing to loan us a couple hundred million dollars and we put up the rest -- so that's important, and it's important to have their technical help as well.

We've kind of got those locations picked out. I'm not ready to tell you exactly where those are, but they'll be close to the load center, so that's kind of Midwest to Northeast. It's interesting, in LNG plants -- people don't always understand this -- you really need the LNG near the load center; not more than about 250 miles away, because you have to move it.

People will say sometimes, "Cheniere Energy -- why don't you just buy all your LNG from Cheniere?" Well, that's good if you're down there.

Hall: Louisiana.

Littlefair: But it's not so good if you're in Boston.

But we're not going to get ahead of ourselves in these plants. I want to see a little visibility on these truck orders. We're fine right now, on LNG. We have some plants, as you know. We have two plants, we take all of the product from the third. We now have 13 sourcing agreements at peak shavers around the country.

If you were to put your arms around all the LNG that's available today in the U.S. that's surplus, that you could use for transportation, there's probably 800 million gallons, annually.

Hall: It's enough to support your ramp-up for a few years.

Littlefair: Well, we've got our arms around 400 million. That 800 million, those are for peak shavers. Remember, those peak shavers this winter got a little bit of a workout. Anyway, you're good, and we are well-positioned for the next couple years. But these plants take two years to build, and if it goes the way we think, by 2017 you're out; you'll need more.

There's been good news on this front. I was at the World LNG conference not long ago, and there's a lot of people talking about building LNG capabilities. There have been a few plants announced, so I feel like the industry is going to respond.


But we've got our eyes on it. I don't want to go spend money earlier than I have to for these LNG plants, but I recognize why I need it. We probably won't get a lot of capital committed this year on it, but we're going to do some work to be ready to pull the trigger. In that GE finance relationship, we have this year to begin to pull the trigger and get it built.

Hall: I think it's probably fair to say that the second half of 2014 is probably going to tell you a lot.

Littlefair: Yes, we're going to see how these trucks roll out. You and I are both watching that closely, because we need to see how these trucks roll out, and how much of it's LNG, and we'll see. We don't need to get too far ahead of ourselves, but we like that.

That's one GE deal.

The other GE deal I think probably we'll look back on -- the industry might -- and see that it was one of the most important things that happened, is the GE Finance relationship.

Hall: Yes, please expand on that.

Littlefair: Up until recently, no one was willing to really give you, if you're a truck owner or a guy buying a truck, a residual value of the truck. You didn't know what it was worth. Well, it's hard to buy something when you plan on turning it back in 3.5 years and you don't know what it's worth.

That was a wrinkle, and until GE stepped up and said, "No, we'll give you a residual value. We'll do a thorough market vehicle lease," no one had been willing to do that.

I think that may have been the last obstacle. We have a lot of natural gas, we have the network in place, we've done a lot of education, we now have the 12-liter engine. But we didn't have a finance mechanism, the way these guys buy trucks.

We've now cross-trained -- GE's a big company; they have 100-plus guys that do nothing but finance heavy-duty class 8 trucks. They're working with our guys. We've now developed a big list. We've done a couple deals already and we've got a whole bunch in the pipeline.

They go through an application process, and the way it works is if they agree to buy fuel from us, we'll help offset a portion of that lease -- that's it, in a nutshell.

You're still borrowing money from General Electric, but if you buy fuel from us then we'll help make it. If you end up using, like most of these guys do, you can buy it down to where there really isn't much incremental cost at all on this lease, versus a diesel truck. It really takes the risk out.

Hall: You get that return on investment as close to day one as humanly possible.

Littlefair: Take the risk out of it for them. That's an important piece. Then we have a third GE relationship, which is a GE/Eagle partnership. This is a partnership between GE, Ferus -- who is an industrial gas ... the folks up in Canada -- and ourselves.

Now, this has developed LNG plants for the oil field, for marine, and rail. It's kind of outside our core business, but for instance our first project that we're trying to land, desperately, is for marine down in Jacksonville, Florida.

If we were able to base load that with a shipping company there, see then we would take volume out of that plant to open up the peninsula of Florida and be able to sell then to trucking. That's the theory on that.

The companies are staffing it and funding it. We're looking at rail, marine -- and we're busy. We're busy, so that's really the third GE piece.

Hall: That's interesting you bring that one up, because the folks at Westport on their most recent earnings call were really excited about the potential for rail. It seems like the demand is even stronger than they anticipated ...

Littlefair: I hope so!

Hall: Right! This new -- I guess it's a consortium ...

Littlefair: Yes, that's right.

Hall: ... opens up more opportunity for some of the rail stuff?

Littlefair: Yes, because think about the connections here. GE makes a locomotive, so that's kind of handy.

It's interesting, what we're told is -- and the rail guys I think believe this -- as trucking goes to natural gas and they begin to really save, rail needs to, too. I think Warren Buffett has been pretty clear that he wants the BNSF, which he owns, to take a leadership position on this.

Currently, Clean Energy is involved in fueling BNSF, CSX, and Union Pacific, so we're already neck-deep in it. But these are big companies. They've been around a long time. They have long-life assets -- a locomotive is supposed to hang around for 30 years -- they move pretty slow, but they've been around since the 1800s.

I think there's very strong interest -- they're all testing it. They don't do things rashly, but the volume is big; you'll literally have to build an LNG plant at every big yard.

How that eventually plays out, I don't know. I could envision that maybe the rail, they may pair off with a major oil company.

Hall: Just because of the scale.

Littlefair: The scale, and because the majors have the gas reserves, the capital, the big companies. We're in there now. We're in there fueling, we've done a lot of work with them. We'll be involved, but I don't know exactly how that's going to pan out. But they use a lot of fuel -- billions of gallons. I think BNSF buys a couple billion gallons, themselves.

It's exciting, and it should be exciting for Westport as well.

Hall: Absolutely. I know they're working pretty closely with Canadian National Railways as well, so there's definitely a lot of opportunity there, for sure.

Let's shift over and talk a little bit about debt, and talk a little bit about capital allocation. In the latest 10-K annual report, there was a new paragraph under "Risk Factors," specifically talking about debt.

Littlefair: Our debt's gone up.

Hall: Of course.

Littlefair: It's up about $600 million, or something. Let's peel that back, though, and remember what we've got. You've got a couple hundred -- about $290 million of that -- convertible debt that can be satisfied with stock. Now, obviously we don't want to do that.

Hall: As a shareholder, that dilution ...

Littlefair: Yes, so you don't want to do that today. You hope you do it at a much higher stock price, but just so that you don't think we're just looking down the ...

Hall: It's not a bankruptcy call.

Littlefair: Yes, so that's a big slug of it that could be satisfied that way, with equity -- if you wanted to, if the circumstances were right. Fifty million of that debt is not recourse to us. It resides down there at CERF -- that's two of those projects down there.

Hall: This is the renewable business.

Littlefair: Our renewable business. So, fully half of that debt doesn't concern us as much.

Then you have the recent slug, another $250 million, which is from that recent convertible that we did. That's out there a ways -- that's out there about five years -- so nothing really comes due for two and a half, three years, and then five years, and some of it can be satisfied with stock if we had to, and $50 million of it, you have to take off the table. So, we're comfortable.

Now, has our interest payment gone up? Yes. We've got to work on making sure that we've got money to pay it, but we're very focused around here to make sure that we can service the debt and have plenty of money to grow.

Obviously if VETC were to come back in, that's $50 million that would be nice to have. That's the volumetric excise tax that went away. We've had it before.

Hall: Then came back.

Littlefair: Then came back, and it's conceivable that it's going to get reinstated later this year, in which case you've just covered the debt payment, if you see what I mean. If not, we'll get it there. It's really through the volume growth that we'll be there. It's more difficult this year, but as these trucks roll out we feel comfortable that we can handle it.

Now, on the capital side of the equation -- because there's been some discussion on this -- we're sitting on about $365 million cash. In our recent earnings call, I think we said that the maximum amount of capital we would spend this year would be $135 million.

We're going to try to really watch that closely. We're not going to get ahead of ourselves and build a whole bunch more stations if we don't see the trucks coming. We had a piece in there for our LNG plants -- well, we may not get that spent this year, and in fact there's nothing that says we have to put our money in first.

Hall: But if you are spending that money, it's a good thing because there's demand.

Littlefair: That's right. I always feel that this is a kind of a high-class problem! If you're building a whole bunch of stations it's because you ... we don't need to build a whole bunch more stations and have them not open. That, we won't do.

But when you pare some of those things back, you can really get yourself around to where the capital program for 2014 is closer to $80 million than $135 million. So, the way we look at it is you've got plenty of capital -- even with this increased debt load -- plenty of capital for 2014, 2015, and out into 2016.

Our view is, by then you see the volumes. By 2015 and 2016 you're going to be comfortable that you're going to have a really strong cash flow. You still may need more money -- again, it's a high-class problem. You may want to build another few hundred stations, and you'll need more money, but you ought to be able, at that point, to avail yourself to more normal looking debt.

I think that will be the case then, and some of that -- the converts -- by that time I think will be gone.

We're pretty comfortable as we sit here. We look at a pathway of, "Do I have capital for the next two and a half years?" and we think that matches up pretty nicely with the way we see this volume going.

Hall: In terms of capital allocation, the best way to sum it up is you've invested significantly in, I guess you could almost say speculative building, creating a network that would, like you say, change the conversation between the shippers and the truckers.

Essentially, when you're allocating capital, moving forward to opening new stations, it's because you know there's going to be specific demand for it.

Littlefair: That's right. First off, we didn't just put those stations in because we thought ...

Hall: On a guess.

Littlefair: Yes. We have non-disclosure agreements with a whole bunch of these big shippers, and we know where the trucks go. That's why we picked the locations that we picked. Did we get them in a little early? Yes.

Hall: But they're where they need to be.

Littlefair: We think. There may be one that we didn't get exactly right, but look, we know that's where the trucks already go, because they're already going by on the diesel fuel.

Were they a little more speculative? For years, we wouldn't spec a station, and in the core business we don't. You go broke doing that -- we get that.

I think some people have gotten it a little wrong, that these 60-70 stations that we've built, that we bet the company on that. That's not the case. We have the capital to make adjustments in that.

We've spent a lot of money over the years on infrastructure and development, on having LNG plants. We have the first purpose-built plant of LNG in California, and that thing is at about 75% full. That was pretty speculative when we did it.

We feel like the bet that we made on America's Natural Gas Highway is going to pay off. Do you want to go double it up right now? No, probably not. In the future -- and this has always been our theory -- you're going to begin to infill that public retail network, America's Natural Gas Highway, with stations that are purpose built because the customer wants it.

For instance, I don't want to get ahead of myself here, but we know there are 11 Miller brewery plants where beer moves every day -- it has to. You'll put stations, if we can work out a deal with them, at each of those breweries. But they're base loaded, so they're not speculative.

We've done the network of what you suggest is a little bit more speculative. We don't need to continue to do that. You'll infill it with customer base load stations.

Hall: That makes sense. Then, as these stations begin to open, some of the smaller truckers are going to now have the opportunity to start playing as well.

Littlefair: That's right.

Hall: There are a lot of different metrics that can be used to look at a company. One that I follow pretty closely with companies that have spent and invested a lot to build out, is looking at cash flow, and positive cash flow. How do you see Clean Energy's cash flow situation changing over the next few years?

Littlefair: Let's just go back and talk about the heavy-duty trucking market. I'm going to make some assumptions here, and show you what it could mean for us.

Let's say that, just to keep the math easy, that 10,000 12-liter trucks come onboard this year. I don't know if it will be that many. It may be a little bit less than that, but let's just use it because it's an easy number.

On average, they'll use 20,000 gallons, so that's 200 million gallons. I'm not going to get into it exactly, Jason, but we have a pretty nice margin today because of the price of gas and all. A substantial margin -- it's closer to our real retail margin than it is the contract margins I was talking about earlier.

We'll have a significant market share in that. We can debate that -- is it 70%, is it 50%? -- but let's just say that 200 million gallon run rate is going to be created just with 10,000 trucks.

Hall: That 10,000 number is a good target? That's what Westport and Cummins are telling you to expect?

Littlefair: We don't have a crystal ball. It could be 8,000, it could be in there, it could be more. Who knows? They're prepared for that (10,000), I think.

It may not all come to us, but that's going to throw off about $100 million of EBITDA (earnings before interest, taxes, depreciation, and amortization.) If we have a big significant piece of market share, which we will, you can see we're pretty close.

Hall: It moves the needle.

Littlefair: It moves the needle for us, dramatically. You run that out -- look at the metric -- you run that out a couple years, to where you start taking up to 20,000 trucks, you're adding more gallons every year than we sold in the previous year; in some cases, two times, three times.

What metric do you look at? It's really volume, and it's my market share, and it's making sure we don't lose our edge.


We've shown over time that we can have pretty good margins and sustain those margins. We have 39 airport locations where we have really healthy margins. People say, "Well, gosh, with the competition ..." Well, I don't know. We've been at it 15 years -- I don't know where they've been!

I would say the metric for us is volume and our market share, and then you just have to make the assumption that I'm going to be able to get some sort of margin there.

I think the other thing, as you think about what metric, is I don't need a million trucks; 100 trucks at one of these truck stops does 2 million gallons a year and gets you darn close to a year payback.

We haven't talked about it today, but I've said it a lot. We're going to open these stations with 20 trucks. Our job is, over the next six to eight months, do our damnedest to get 50 trucks. But you want to get 100 trucks. Now, sure, would I like to have 200 trucks, 300 trucks? Of course, but 100 trucks pays that station out in about year.

Hall: Opens the doors.

Littlefair: Well, it pays the station out in a year.

What's comforting to me is I don't need 1,800 trucks and 68 different companies to make one truck stop work.

Hall: You need one customer.

Littlefair: Yes, I need one customer, or three customers. We have a long history of doing that.

At LAX, we opened up that station with 500 gallons, I think, a day. We knew that we needed to get it to 1,000 gallons a day, and I think 1,000 gallons a day in those days got us a three-year payback. Most businesses don't get a year payback on stuff. That got us about a three-year payback on that station. Today, we do 12,000 gallons at that station.

We have a lot of experience building stations and running them.

Hall: You know how the numbers work out.

Littlefair: Yes, exactly.

Hall: That's pretty important.

Let's shift a little bit and talk a little bit about something that we at The Motley Fool really look at closely. We love it when co-founders and founders of businesses are still involved. We love it when we see insiders have a stake in the company.

Historically, have you had a trading plan in place? You sold somewhere around 100,000 shares a year for a number of years. Then, this past September, changed dramatically and since then you've made a couple of purchases, invested $1.5 million of your own personal money on the free market to buy shares of the company.

What I'd like to hear you talk a little bit about is the difference between stock as part of your compensation and choosing to make an investment in the company. What changed for you?

Littlefair: Sure. I was a founder of the company, so I've been at it 17 years, and of course we went public in 2007. You're right, I sold a couple hundred thousand shares through there. You wake up, and all of a sudden you've got 95% of your net worth tied into one thing, and I don't know how smart that is, so I sold a couple hundred thousand shares.

Hall: Largely to diversify your personal wealth ...

Littlefair: Yes, a little bit. Kids in college and all that, but I also diversified just a little bit. I still probably have 75% of my net worth in the company. I guess since last October or November, I've bought almost $1.8 million worth of stock, at prices substantially higher than today. I stopped my 10b5-1 plan.

I was really pleased to see the other day -- and I just bought some here the other day as well, about $100,000 worth -- I was pleased to see that we just had three directors buy stock; John Herrington, a couple hundred thousand dollars' worth, and our newest board member, Vince Taormina.

Of course, Boone's never sold any stock, and in fact last year he actually ...

Hall: With the Chesapeake deal ...

Littlefair: With the Chesapeake he acquired their notes, so he in effect put another $40-$50 million in. God bless him, he's never wavered, and hasn't sold any stock.

I, today, have almost 500,000 shares in the company. Our senior management team has done the same thing. Sometimes it's not real clear when you look at the filings -- like our Chief Financial Officer, he just exercised some options but he didn't sell the stock; he kept the stock. You've got to pay the taxes and keep it. I like to see that commitment, and we have that up and down the ranks.

We'd love to see the stock move up. I think really, Jason -- we talked about it before we started -- we've got to show volume growth, and we have to show that the trucks are being adopted. We can talk a lot, but that's really what it is. You've got to produce, and you have to show the buy-in growth. That's where you've got to come back to.

Hall: As a leader in a business, especially publicly traded, I can imagine at times it's a real challenge to remember that you have to focus on the business first, and the stock will follow if the business performs.

Littlefair: That's right. Also, we're creating a whole new industry here. We really have been doing that since day one. Had Boone not stayed committed, and had we not stayed focused, had we not done some of the things that we did early on, the natural gas vehicle industry in the United States would be gone.

That really was because Clean Energy did it. We've proved out these different markets. This latest market is a tricky one, but it's a big one.

It's funny, the refuse sector is compact; when you look at Waste and Republic and those, they almost account for half of it. The trucking one is a much bigger target, but it's much more diverse so it's a little bit harder to get your arms around. It'll take a little bit longer for it to develop, but it's much, much bigger. There are 3 million class 8 trucks; 200,000 are sold every year. In refuse, there are 8,000 trucks. That's why we focus on it.

Hall: They use a hell of a lot more fuel per truck, too.

Littlefair: They use twice as much fuel, so it's the best market.

Would we like it to move a little faster? Of course we would. Would I like to see guys buying hundreds and not twenties? But we know that they have to test this stuff. They're not going to go out and buy a brand new engine and bet the farm on it.

Hall: Pay a premium on it, on top of that.

Littlefair: Pay a premium. The economics are still pretty good for them, but UPS, they've been at this a long time. We made our first UPS deal when I was at Mesa in 1993, with some of their first brown vans on natural gas. They know natural gas, and that's what I think gave them more confidence to step up and buy almost 1,000 of these trucks.

The others will get there, but they're going to test it so we have to go through this. It's frustrating for some, but we've got to go through this period. But I like to see, when I see that we're working with 220 different fleets, we're getting better breadth. Not quite the numbers that we'd like, but we will.

We saw the same exact thing in 2008-09 in the refuse business.

Hall: Do you want to talk a little bit about that? You've talked about it before on some of the calls, the transition from the small market share percentages ...

Littlefair: Yes. In refuse, it started out in 2008. They wanted to test these trucks; they weren't convinced. I think I mentioned it -- 3% in that first year, which was only 150 trucks. Then the next year it went to 7%.

Of course, we were in a pretty bad economic cycle, so everybody was scared to death and they weren't buying trash trucks. But what happened was then they tried 10%, then they tried 30%. Then they got to about 2011 or '12 and all of a sudden you saw it pop up to 20%, and then it moved to 40% or 50%, and then it went to 60%.

Hall: Now it's the majority of trucks.

Littlefair: It's the majority of trucks, and Waste was at 95%. It takes a while to get them comfortable, get all the guys onboard, do all the facility modifications. But look, when you're saving somebody $1.50 a gallon or $1.70 a gallon -- this is one of the things I talk about.

Remember, we're not here in the heavy-duty trucking market trying to show somebody we can save them a penny a mile or a little niche here. This is $1.50 a gallon. What is that? That's almost $0.30 a mile, so it's a real paradigm shift. You're changing the fuel that these industries use, and it doesn't happen overnight. But we, I think, have the playbook in place with what happened with the refuse sector.

Hall: You've seen it before so you know how it's going to play out.

Littlefair: We've seen it before so we know how it's going to play out. Absolutely.

Hall: Let's talk a little bit about some milestones. What do you think is the most important milestone that Clean Energy will reach in 2014?

Littlefair: Well, we need to see truck adoption, and truck adoption will get you station opens. If you were watching us closely and we never opened another station, that's a bad sign!

We're on that, and we're very focused on it. We're incented around here, as management, to do that. Of course, we can't make people buy trucks, but we're working really hard and we're working through our GE finance relationship, we're working with Chart on helping to buy down the price of the tanks -- we're doing a lot of different things.


We've just instituted a dealer program where we're working closely with the guys that sell trucks. That's how people buy trucks -- they go to a truck dealer -- so we're doing a lot of work with them.

I think we're putting a lot of the pieces in place, but for us you just need to look at station openings and truck adoption. It's hard to get those numbers exactly right, but you need to see that happen.

I guess if there's a metric that's important ... I talked about volume before. The nice thing is, I'm not sitting here saying, "Gosh, if I can get 59,000 trucks" or "5 million trucks, then I've done it." Really, for us, we don't need that many. You could fill up this whole network right now with 5,000-6,000 trucks. It's not a ridiculous Moon shot that we're trying to line up here.

I take you back to, 100 trucks makes a station have a one-year payback. That's pretty easy to get your arms around.

Hall: Absolutely.

Let's talk a little bit about better understanding how we can value Clean Energy and how we can understand the business. What is the most important thing people should know about Clean Energy?

Littlefair: We're a fuel provider, so don't get lost in trying to break down if I'm selling some station and all that. Eventually, this thing should be clear -- if I'm selling a billion gallons, that will be pretty obvious!

Hall: It becomes the lion's share.

Littlefair: That's the lions share. People will get a little lost for a while in BAF or this contribution, or if I sold stuff to customers. Really, we're a fuel provider so they ought to be thinking about us that way.

And they're going to want to watch our market share. I wouldn't get completely obsessed with the CNG and LNG thing, because we do both. Some people have assumed that LNG must have a lot better margin than CNG, and that's not necessarily the case. In fact, in many cases CNG's got a better margin.

I think those are the things to watch.

Hall: Nobody else has really made an effort to do both at this point.

Littlefair: No. We have a couple of competitors in the LNG business, and we have a whole bunch in the CNG business, but what we know is that you've got to be able to serve the customer and serve them what they need. That's why we know a lot about trucks.

We know a lot about finance. We finance trucks, occasionally. We'll build you a station for your own account. We know a lot about compressors. We have our own cryogenic tanker fleet. We have our own LNG plants.

I think that's proved out in the refuse space. There's a reason we have 75% market share -- because other good competitors were in there, knocking around us here over the last years since 2008. But I think we have an educated force. We have 160 technicians that maintain this stuff.

You put all that together, I think it's hard for some others to compete, occasionally. A lot of people just don't have that.

Hall: Right. I think that's a fair statement to make.

What is the most important thing that most people just don't get about it? That they miss?

Littlefair: I don't know. I think some people don't understand the economics -- the math -- around the fuel. You'll have people who say, "Oh my God, natural gas has gone up a dollar. There she goes." They don't get that. I bring you back to that 8-to-1.

Hall: The economics of the fuel price.

Littlefair: The economics of the fuel. It would be different if I was sitting here, Jason, telling you that I see this $0.10 arbitrage.

Hall: It's much more significant.

Littlefair: It's a $2.50 arbitrage.

I think people don't quite always understand that, and I'm not sure they understand our margins. We try to show them that. We don't like to tell everybody everything because we're in a competitive situation, but our retail margins are pretty good.

Sometimes I think our mix of business today -- which is going to change over time if we're right about this trucking; you're going to see a lot more of it shift to retail -- because I think we were good, we brought on a lot of transit volume at a low margin. But it's because we added 100 million gallons of low-margin business, not because all of our margins were going down.

I think those two things, around the fuel. And I think there was a little bit of a misunderstanding on CNG and LNG, and just what sort of bet we made and how that's all going to work out.

Hall: As much as anything that was just a matter of, the focus was taken away from people's perception of what your business was about.

Littlefair: Yes, and they don't know. This is new business, and I think some conclusions were being drawn on pretty skinny data. To make some assumptions that one particular fuel -- or whatever -- is going to win out, when you have ...

Hall: Essentially 90 days of sales.

Littlefair: Ninety days of sales on 2,000 trucks out of 3 million -- wow. We have to be careful on that.

Hall: Fair enough. I think that's fair.

We talked a little bit about it earlier, but it sounds like you're saying the most important metric to measure the company on is the volume of fuel growth.

Littlefair: That really is. That's really what we should be -- and we need to show that. That's up to us, and we're really focused on that. It's really volume. Then you're going to begin to see the kind of margins. That would be the thing I'd focus on.

Hall: In the broader media -- I think the answer may be something we already talked about -- but what's the biggest conception of the company that you see in the broader media?

Littlefair: Of our company in the broader media? That's an interesting question. I think what happens in the broader media -- maybe not some of the people like yourself that really understand us and focus -- they confuse the fleet business with the passenger.

Often, tucked in an article -- even in The Wall Street Journal or someplace -- it will say, "Well, they're making progress but there's 118,000 gasoline stations." Most people, when they focus on this, they have their individual experience -- passenger car experience -- hat on. They're not really focused on the business that we're on, so people confuse that.

Yes, if you look at 500 stations and you compare it to 118,000, that doesn't sound very good. When you take 500 stations and compare it to 5,000 diesel depots or so, that's not so bad.

Then I think there's a general confusion. We used to call it "alternative fuel du jour." People get confused. Electric; Tesla's doing really good, so therefore that means that's going to be an over-the-road truck. People don't understand some of the realities of energy that well.

Hall: Just because it has wheels and rolls on asphalt doesn't mean it's the same thing.

Littlefair: "Fuel cells are going to really be good, so we'll just do that." I think you're going to see that Tesla and electric vehicles are really great for certain applications. You've got some work to do before they're ready to ...

Hall: Moving 40,000 pounds worth of cargo.

Littlefair: Yes -- 80,000 -- and natural gas is really well suited for that and may not be, in the United States, particularly well suited -- just because of the infrastructure and the scale -- on the light duty side.

I still think it is weird, though, that you have 62 makes and models in Europe of natural gas vehicles. You can get about anything you want, but here you have one. So, I'm not convinced that that always has to be the case. I think natural gas can be cheap.

I think there's a little bit of that confusion about what fuels you have. You'll have people say, "Well, propane could be the fuel." Well, no, propane can't. Propane is all right, but you don't have that much propane. You don't have that much biodiesel. You just can't make that much of it.

Natural gas is really one of the only fuels that has scale, and most people just don't quite understand that.

Hall: Right. That definitely makes sense. In closing, what would you like to leave our viewers with?

Littlefair: Just that we're really focused. We're excited about the opportunity and the size of the market. We feel like we've assembled a good team, and we've spent some money to do it. We've spent some money, and we've staffed up in order to address this big market.

We've always been the leaders in this business. We continue to be. This last heavy-duty trucking market really is the big enchilada. It's a huge market so it's exciting, but it's required a lot of capital.

I want your viewers to know that we're well-funded, that we're going to be careful with the capital, that we can afford the debt that we have in place, that we're very focused on our core markets that grow at about 20%, but we're also very focused on this big opportunity, and that we have the infrastructure in place.

Our job is to open a bunch of it this year, and I feel like things are coming along pretty well.

Hall: Great. I think you're right, I think 2014 is definitely positioned to be the year of inflection.

Littlefair: Yes. I think that you've seen the tip. Now, guys are testing it, but everybody gets it. We don't go around arguing about whether or not you can use natural gas in transportation. Every fleet operator knows, and a lot of them won't do anything else.

This is the last market. It's going to take a little while, but I think we've already been at the tipping point, and now it's just how fast does it go?

Hall: Makes sense. Thanks again for taking the time.

Littlefair: Thanks a lot, appreciate it.

Hall: Thanks for tuning in, everybody, and Fool on!


Read/Post Comments (10) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 14, 2014, at 2:52 PM, EDavila wrote:

    Thank god somebody gave CLNE the chance to refute all the bad press they got earlier this year. But will it be enough to recover from the damage caused by a few over opinionated articles by a certain individual that appears to be more of a Pickens hater than an analyst? What will it take to get CLNE back to $13 a share?

  • Report this Comment On April 14, 2014, at 4:48 PM, TMFVelvetHammer wrote:

    EDavilla,

    My takeaway from my time with Littlefair and his team is simple:

    They are not happy about the bad press and articles -- especially considering that many insiders there are shareholders, too -- but the fact is, it's going to take results to move the stock.

    They are focused on delivering business results, and not trying to talk the stock back up. As a shareholders, that's something I really liked hearing from them.

    Thanks for your comments.

    Jason Hall

  • Report this Comment On April 14, 2014, at 6:14 PM, oscar wrote:

    64 consecutive losing quarters speaks volumes - this is nothing more than a boone pickens pump & dump

  • Report this Comment On April 14, 2014, at 7:41 PM, TMFVelvetHammer wrote:

    >>this is nothing more than a boone pickens pump & dump<<

    Pickens founded the company. He's the largest shareholder. He's actually bought more shares in the past year.

    He has a long history of being an advocate for investors, and very little evidence of being a pumper and dumper, even going back to his history as a "corporate raider" in the 1980s.

    >>64 consecutive losing quarters <<

    Where do you get this from? The company hasn't been public for 64 quarters.

    Plus it's just not true. The company turned a profit two quarters in 2010, as the solid waste refueling business was taking off. This was less than 2 years after the Cummins-Westport 9 liter engine came out.

    Since then, it has been investing heavily in building the ANGH for heavy trucking. Guess what? The 12 liter Cummins Westport engine is out now, and we will be at the one-year mark late this summer. Does that mean that 2015 -- 2 years after the launch of this engine -- could be a return to profitability?

    Depending on adoption. I think the answer is yes.

  • Report this Comment On April 14, 2014, at 9:28 PM, oscar wrote:

    pickens/littlefair have both been steady sellers since the IPO - the 1st purchase ever, by littlefair, was last fall - the pickens purchase you refer to, his 1st also, was from the last wife he divorced - regardless, both littlefair & pickens are net sellers by a wide margin - the 64 quarter reference came from the S-1(do you not read filings?) As for being an advocate for shareholders, again I ask, do you not read, or do you just believe what the "pickens camp" paints in the massive amount of puff journalism they orchestrate/finance ?

  • Report this Comment On April 16, 2014, at 9:16 PM, neptasur wrote:

    Oscar,

    The information I found on Nasdaq shows the original S-1 date of Sept. 2006, and an amendment in March of 2007. I can only make 30 quarters out of that; perhaps you can correct me if I'm not thinking clearly.

    Also, Littlefair is compensated from stock, right?

    With all due respect, I've read all the detractors over the past several months, and don't find them convincing. I guess that's why there is a market, right?

  • Report this Comment On April 18, 2014, at 10:55 PM, jtwwirth100 wrote:

    Neptaspur,

    You are right on. That's why markets exist, at least one of the reasons. Circumstances con-

    cerning CLNE are that we need enough truckers to convert, and enough fill stations to induce same!

    Chicken and egg...no?

  • Report this Comment On April 23, 2014, at 8:44 PM, SuntanIronMan wrote:

    Tremendous interview. Watched all of it in one sitting.

    And kudos to whoever (Mr. Hall, I assume) transcribed all 1 hour and 51 minutes of that. Wow.

  • Report this Comment On April 24, 2014, at 12:15 PM, TMFVelvetHammer wrote:

    >>And kudos to whoever (Mr. Hall, I assume) transcribed all 1 hour and 51 minutes of that. Wow.<<

    Thanks! But I cannot take credit for the transcript. We have a very talented group of editors who do the dirty work to make what I give them worthy of sharing with our readers.

    They are amazing and do an awesome job!

    -jh

  • Report this Comment On April 24, 2014, at 5:50 PM, mwb321 wrote:

    So much information in this interview have had to watch/listen a couple of times. Seems the sector needs the government to stay involved with tax credits to help keep this ball rolling. Obama has tax breaks in his 2015 budget but don't seem to hear much about this year out of Washington. All I seem to hear is we have to fight Putin with LNG exports. Appreciate your comments on management realizing they have to deliver to get the stock price up. Seems they have the incentive to do that in that millions for them is on the line with those PVU's that expire the first of 2016. Thanks again Fool on......

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