Clean Energy Fuels Corp. — Q1 2024 Form 10-Q Summary
Business context and reporting period
Clean Energy Fuels supplies renewable natural gas (RNG), compressed natural gas (CNG), and liquefied natural gas (LNG) for medium- and heavy-duty vehicle fleets, and provides fueling-station construction, operations and maintenance, equipment, virtual-pipeline, and environmental-credit services. The company also develops RNG production projects through joint ventures and sells RINs, LCFS credits, and alternative fuel tax credits.
The filing covers the unaudited three months ended March 31, 2024, compared primarily with the three months ended March 31, 2023. At March 31, 2024, the company supplied or operated 579 U.S. stations and 24 Canadian stations, serving more than 1,000 fleet customers and more than 50,000 vehicles.
Financial performance and key metrics
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenue | $103.7 million | $132.2 million | Down $28.5 million, or 21.5% |
| Product revenue | $89.4 million | $119.7 million | Down $30.3 million |
| Service revenue | $14.3 million | $12.5 million | Up $1.9 million |
| Gross profit | $28.1 million | $5.3 million | Up $22.8 million |
| Gross margin | 27.1% | 4.0% | Improved materially |
| Operating loss | $9.3 million | $35.4 million | Improved $26.1 million |
| Net loss attributable to Clean Energy | $18.4 million | $38.7 million | Improved $20.3 million |
| Loss per share | $0.08 | $0.17 | Improved |
| Net cash provided by operating activities | $2.6 million | $(19.0) million | Improved $21.6 million |
Fuel volume increased to 75.0 million gasoline gallon equivalents (GGEs) from 68.8 million, including RNG volume of 58.0 million GGEs versus 53.4 million. O&M services volume increased to 65.4 million GGEs from 59.6 million.
Revenue declined primarily because lower natural-gas prices reduced fuel-sales revenue by approximately $39.4 million. The decline was partly offset by higher volumes, $8.8 million of RIN revenue versus $4.5 million, $5.4 million of AFTC revenue versus $4.5 million, higher station-construction revenue, and a $1.6 million derivative gain compared with a $2.5 million derivative loss in the prior-year quarter. LCFS revenue decreased by $2.5 million, principally because of the timing of a credit sale.
Product cost of sales fell to $66.4 million from $119.7 million, reflecting lower natural-gas prices. Selling, general and administrative expense declined to $26.2 million from $29.6 million, while depreciation and amortization increased to $11.2 million from $10.7 million. Interest expense increased to $7.8 million from $4.4 million, primarily because of the Stonepeak debt facility and related discount amortization. Losses from equity-method investments increased to $5.4 million from $1.9 million, including increased losses from the bp joint venture and SAFE&CEC.
Cash, liquidity, debt, and capital resources
- Cash, cash equivalents, and current restricted cash were $91.4 million at March 31, 2024, down from $107.0 million at December 31, 2023.
- Short-term investments were $159.5 million, resulting in cash, cash equivalents, and short-term investments of approximately $248.9 million, excluding current restricted cash.
- Total debt was $262.0 million net of financing costs, consisting primarily of a $300.0 million Stonepeak senior secured term loan. The loan bears interest at 9.50% and matures December 12, 2029; up to 75% of interest may be paid in kind during the first two years.
- The Stonepeak facility also includes a $100.0 million delayed-draw commitment available through December 12, 2025, subject to a 1.00% annual commitment fee on undrawn amounts.
- Total indebtedness including finance leases was approximately $303.5 million in principal amount. Management expects approximately $29.1 million of interest payments in 2024 and states that it expects to meet principal and interest obligations for the next 12 months.
- The company expects approximately $60.0 million of 2024 capital expenditures and anticipates deploying up to approximately $120.0 million to develop ADG RNG production facilities.
- Cash used in investing activities was $19.9 million, including $18.2 million of property and equipment purchases and $3.5 million of loans funded to Rimere. Financing activities provided $1.8 million.
Material changes versus the prior comparable period
- Revenue decreased 21.5%, but gross margin improved substantially because Q1 2023 was affected by unusually high California natural-gas costs.
- Total fuel volume increased 9.0%, while RNG volume increased 8.6%, indicating that the revenue decline was primarily price- and credit-timing-driven rather than volume-driven.
- Operating loss and net loss attributable to the company were reduced by approximately 74% and 52%, respectively.
- Operating cash flow turned positive, improving from a $19.0 million use of cash to $2.6 million of cash provided.
- Interest expense increased by $3.4 million and equity-method investment losses increased by $3.5 million.
- The Amazon warrant generated a $12.9 million non-cash contra-revenue charge in Q1 2024, compared with $13.7 million in Q1 2023. The Stonepeak warrants cover 20.0 million shares at exercise prices of $5.50 and $6.50 and were excluded from diluted EPS as antidilutive.
Guidance, outlook, commentary, risks, and unusual items
The filing does not provide explicit revenue or earnings guidance. Management’s stated 2024 plans call for approximately $60.0 million of capital expenditures and up to approximately $120.0 million of ADG RNG development spending, primarily funded with cash on hand and operating cash flow.
Management states that debt covenants were satisfied as of March 31, 2024 and that available liquidity is expected to cover requirements for at least the next 12 months. However, additional capital may be required if operating cash flow is insufficient or if the company accelerates RNG development, station construction, investments, debt repayment, or other strategic activity.
- In April 2024, the dairy-farm partner for the East Valley, Idaho RNG project under construction by the bp joint venture filed for Chapter 11 bankruptcy. The company identified a wide range of potential outcomes, including a substantial loss of its investment; the amount and timing of any loss are not clear.
- In May 2024, the company entered into an agreement with Maas Energy Works granting exclusive rights to acquire, fund, and participate in certain dairy-based ADG RNG projects, subject to due diligence and option exercises.
- Goodwill was tested after a decline in the stock price. The reporting unit’s estimated fair value exceeded carrying value by 7%, or $70.0 million, and no impairment was recorded. Further stock-price declines could result in a future goodwill impairment.
- RIN and LCFS credit prices remain volatile and materially affect revenue and project economics. The AFTC currently applies through December 31, 2024.
- The company has fixed-price natural-gas take-or-pay commitments of approximately $3.7 million for the remainder of 2024 and a fixed supply arrangement with UPS for 170.0 million GGEs of RNG through March 2026.
- Off-balance-sheet arrangements include $53.3 million of surety bonds, a commitment to provide up to $10.0 million of additional loans to Rimere, take-or-pay gas contracts, and the UPS supply commitment.
- Major risks include slower adoption of natural-gas vehicles, competition from diesel, renewable diesel, electric and hydrogen vehicles, dependence on government incentives and environmental-credit programs, RNG project execution and feedstock risks, customer and joint-venture counterparty risk, commodity-price volatility, and substantial secured debt.
Most important facts for investors to verify
- Whether higher fuel volumes and improved gross margin persist after natural-gas prices and environmental-credit prices normalize.
- The status, expected recovery, and potential impairment exposure related to the East Valley, Idaho project and the dairy partner’s bankruptcy.
- RNG project funding requirements, joint-venture capital calls, and the expected timing of the planned $120.0 million 2024 RNG development deployment.
- Compliance with the Stonepeak facility’s leverage, interest-coverage, liquidity, collateral, and other covenants, as well as the cost of servicing the 9.50% debt.
- The timing and availability of AFTC, RIN, LCFS, IRA-related tax credits, grants, and other policy incentives.
- The economic dilution potential from the 20.0 million Stonepeak warrant, the Amazon warrant covering up to approximately 58.8 million shares, outstanding options, and other equity awards.
- Whether the company’s cash balance and operating cash flow can fund planned capital expenditures, RNG investments, debt obligations, and other commitments without additional equity or debt financing.