Clean Energy Fuels Corp. 2019 Form 10-K Summary
Business context and reporting period
Clean Energy Fuels Corp. supplies renewable natural gas (RNG), compressed natural gas (CNG) and liquefied natural gas (LNG) for vehicle fleets, and provides station construction, operation and maintenance, equipment, vehicle financing and environmental-credit services. The filing covers the fiscal year ended December 31, 2019; fourth-quarter results are included in the unaudited quarterly data.
- Served more than 1,000 fleet customers operating over 48,000 natural-gas vehicles.
- Owned, operated or supplied approximately 550 fueling stations across 41 U.S. states and four Canadian provinces.
- Delivered 400.8 million gasoline-gallon equivalents, up 9.7% from 365.5 million in 2018.
- Redeem RNG volume increased 30.2% to 143.3 million GGEs.
Key financial metrics
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Total revenue | $344.1 million | $346.4 million | Down $2.4 million |
| Gross margin | $132.0 million | $133.5 million | Down $1.5 million |
| Gross margin percentage | 38.4% | 38.5% | Broadly stable |
| Operating income | $9.9 million | $3.9 million | Improved $6.0 million |
| Operating margin | 2.9% | 1.1% | Improved |
| Net income attributable to Clean Energy | $20.4 million | $(3.8) million | Turned profitable |
| Basic and diluted EPS | $0.10 | $(0.02) | Improved |
| Cash flow from operations | $12.3 million | $38.0 million | Down $25.7 million |
Volume-related revenue was $273.5 million, including $18.1 million from RIN credits, $13.3 million from LCFS credits and a $6.6 million unfavorable change in the fair value of Zero Now-related derivatives. Station construction revenue declined to $23.1 million from $25.5 million.
AFTC revenue was $47.1 million in 2019, compared with $26.7 million in 2018. The 2019 amount reflects retroactive recognition of credits for 2018 and 2019 fuel sales after federal legislation extended the credit. Excluding this timing-sensitive item and other unusual gains, underlying profitability was weaker than reported net income suggests.
At December 31, 2019, cash, cash equivalents and short-term investments totaled $106.1 million, including $49.2 million of cash and current restricted cash and $56.9 million of short-term investments. Working capital was $131.2 million. Total debt, excluding finance leases, was $89.1 million, of which approximately $56.1 million was due in 2020. Total debt and finance lease principal was approximately $92.4 million.
Material changes versus the prior comparable period
- Fuel volumes increased, led by CNG deliveries of 335.7 million GGEs versus 299.5 million and higher Redeem RNG sales.
- Revenue was essentially flat because higher fuel volumes and AFTC revenue were offset by a $16.9 million year-over-year swing in Zero Now derivative valuation, lower station construction revenue and lower used-truck sales.
- Cost of sales declined slightly to $212.1 million. Effective fuel cost fell to $0.47 per gallon from $0.49, while effective pricing declined to $0.70 from $0.76.
- SG&A declined to $73.4 million from $77.2 million, and depreciation and amortization declined to $49.6 million from $51.9 million.
- Interest expense fell to $7.6 million from $15.9 million following debt reductions, including the prior repayment of $110.5 million of 5.25% convertible notes and the repurchase of $50.0 million of 7.5% notes in 2018.
- Operating cash flow declined materially because 2018 included collection of prior-period AFTC revenue and 2019 had unfavorable working-capital timing.
- The company adopted lease accounting under ASC 842, adding $28.6 million of operating lease right-of-use assets and $29.6 million of operating lease liabilities at year-end.
Guidance, outlook, commentary and risks
Management expects continued growth in RNG demand, particularly Redeem, as fleet operators pursue emissions reductions and sustainability objectives. The company also views heavy-duty trucking, refuse, airports, public transit, government fleets and industrial customers as potential growth markets. It planned approximately $18.0 million of 2020 capital expenditures, primarily for CNG stations, information technology and LNG plant maintenance. NG Advantage could spend up to $12.8 million for equipment or to buy out future commitments.
The AFTC was available through December 31, 2020, but management warned it might not be reinstated thereafter. The company therefore remains exposed to a potentially material decline in revenue and cash generation when the credit expires.
- Natural-gas vehicle adoption has been slower and more volatile than expected, while electric, hydrogen, renewable-diesel and other alternatives are gaining support.
- RIN and LCFS credit prices and regulatory programs are volatile. RIN prices ranged from approximately $0.50 to $1.90 during 2019.
- The Zero Now program permits up to $100.0 million of additional debt. The company had drawn $4.4 million at year-end and is responsible for interest, guarantee fees and potential commodity-swap obligations regardless of program success.
- The $50.0 million of 7.5% convertible notes matured in June 2020. The company could repay part of the principal with up to 14.0 million shares, creating potential dilution.
- NG Advantage has a history of losses and required $26.7 million of company financing during 2019. In February 2020, the company converted the related principal and accrued interest into NG Advantage units, increasing its controlling interest to 93.2%.
- The company has take-or-pay natural-gas commitments, fixed supply obligations and a guarantee of up to $30.0 million plus fees for certain NG Advantage obligations.
- Approximately 21% of 2019 revenue came from government entities, exposing the company to appropriations, contract termination and procurement risks.
- Goodwill of $64.3 million remained subject to impairment risk. The October 2019 valuation exceeded carrying value by only 9%, making a sustained decline in the stock price or operating performance potentially significant.
- The company reported no material pending legal proceedings and concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2019.
Most important facts for investors to verify
- Whether post-2020 results can remain profitable without retroactive AFTC revenue.
- Underlying fuel margins and cash flow excluding AFTC, derivative fair-value changes and BP earn-out gains.
- The repayment, refinancing or equity-conversion outcome for the $50.0 million convertible notes due in 2020.
- Zero Now participation, required debt draws, fuel volumes and potential commodity-swap cash obligations.
- NG Advantage’s cash needs, operating performance, debt obligations and the effect of the increased 93.2% ownership.
- RNG volume growth, supply availability and future RIN and LCFS credit pricing and compliance requirements.
- Progress toward the planned $18.0 million of 2020 capital expenditures and the company’s ability to fund them from operations and cash on hand.