Clean Energy Fuels Corp. — 2019 Q3 Form 10-Q Summary
Business context and reporting period
Clean Energy Fuels supplies renewable natural gas, compressed natural gas and liquefied natural gas for vehicle fleets in the United States and Canada. It also provides station construction, operations and maintenance services, equipment, virtual pipeline transportation, renewable fuel credits and vehicle-financing solutions. The filing covers the three and nine months ended September 30, 2019, with unaudited results compared with the corresponding 2018 periods.
As of September 30, 2019, the Company served more than 1,000 fleet customers operating more than 47,000 natural gas vehicles and owned, operated or supplied approximately 540 fueling stations.
Financial performance and liquidity
| Metric | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 |
|---|---|---|---|---|
| Total revenue | $74.4 million | $77.3 million | $224.5 million | $250.2 million |
| Gross margin | $24.5 million | $24.5 million | $68.1 million | $96.9 million |
| Gross margin percentage | 32.9% | 31.7% | 30.3% | 38.7% |
| Operating income (loss) | $(5.4) million | $(7.2) million | $(24.8) million | $0.3 million |
| Net loss attributable to Clean Energy | $(4.3) million | $(10.9) million | $(20.7) million | $(10.7) million |
| Basic and diluted loss per share | $(0.02) | $(0.05) | $(0.10) | $(0.06) |
| Cash flow from operations | Not separately provided for quarter | Not separately provided for quarter | $4.6 million | $29.0 million |
- Q3 revenue declined 4% year over year, primarily because of lower station construction revenue. Nine-month revenue declined 10%, reflecting the absence of $26.9 million of AFTC revenue, lower station construction sales and the absence of used-truck sales.
- Volume-related revenue increased to $67.9 million in Q3 and $208.7 million for the nine months. Delivered volume rose 11% to 102.7 million GGEs in Q3 and 12% to 297.5 million GGEs for the nine months.
- Q3 gross margin was broadly stable despite lower revenue. Nine-month gross margin fell substantially because 2018 included AFTC revenue and higher-margin items not repeated in 2019.
- Q3 net loss improved primarily from lower interest expense, lower SG&A and the absence of the 2018 equity-method investment formation loss. The nine-month net loss worsened because of lower revenue and a $1.6 million derivative-warrant expense.
- Total cash, cash equivalents and restricted cash were $37.7 million at September 30, 2019, compared with $34.6 million at December 31, 2018. Cash and short-term investments totaled $98.8 million, compared with $95.5 million at year-end.
- Total debt was approximately $79.4 million net of financing costs, and total debt plus finance leases was approximately $83.4 million in principal amount. Approximately $55.9 million of debt and finance-lease obligations was expected to mature in 2020, primarily the $50.0 million of 7.5% notes due June 2020.
- Operating lease liabilities totaled $25.1 million following adoption of ASC 842. The Company reported total operating lease commitments of approximately $39.9 million, including interest.
Material changes versus the prior comparable period
- Station construction revenue decreased $2.9 million in Q3 and $5.4 million for the nine months, reflecting lower construction activity.
- Effective price per gallon declined from $0.73 to $0.65 in Q3 and from $0.74 to $0.71 for the nine months, primarily because of lower natural gas prices and fuel mix.
- Effective cost per gallon declined from $0.47 to $0.43 in Q3 and from $0.48 to $0.47 for the nine months, reflecting lower natural gas and transportation costs.
- RIN and LCFS credit revenue increased for the nine months, but management estimated that lower RIN prices reduced revenue by approximately $2.1 million for the period, including approximately $2.0 million in Q3.
- Interest expense decreased $2.4 million in Q3 and $7.7 million for the nine months because of reduced indebtedness.
- Operating cash flow fell $24.4 million year over year, primarily because 2018 included collection of AFTC revenue and working-capital timing differed.
- GGE volume increased, led by CNG and fuel volumes, while LNG volume declined modestly in Q3 and increased for the nine months.
- The Company adopted the new lease standard on January 1, 2019, recording approximately $24.5 million of operating lease right-of-use assets and $25.9 million of operating lease obligations at adoption, without a material effect on earnings or cash flow.
Guidance, outlook, commentary and risks
- Management’s 2019 plan contemplated approximately $18.5 million of Company capital expenditures; approximately $5.4 million had been incurred through September 30, and the Company might not spend the full planned amount. NG Advantage expected up to $28.0 million of additional capital expenditures, with approximately $6.9 million incurred through September 30.
- Management stated that available cash, short-term investments and anticipated operating and financing cash flows should satisfy expected requirements for at least the next 12 months, but additional capital may be needed thereafter or sooner if cash usage exceeds expectations.
- The Zero Now truck-financing program permits up to $100 million of additional borrowing through early 2022. Only $0.3 million was drawn as of September 30, 2019. The program exposes the Company to debt, guaranty fees, commodity-swap obligations, truck-adoption risk and potential fuel-volume shortfalls.
- NG Advantage had $13.1 million outstanding under a 12% convertible note owed to the Company at September 30, 2019, due December 31, 2019 subject to extension at the Company’s discretion. It drew an additional $1.0 million on October 1, 2019 and completed a $7.5 million sale-leaseback in October.
- Key risks include continued losses, slower-than-expected natural-gas vehicle adoption, competition from diesel, electric and other alternative fuels, volatile natural gas and environmental-credit prices, expiration or modification of government incentives, and the need to refinance or repay significant 2020 maturities.
- The Company guaranteed up to $30.0 million plus fees of NG Advantage’s obligations to BP under a CNG supply and transportation arrangement. It also had $30.7 million of outstanding surety bonds, take-or-pay natural gas purchase commitments and fixed-volume supply or sale commitments.
- A 10% change in the diesel-to-natural-gas price spread was estimated to change the fair value of commodity swaps by approximately $6.3 million. The Company was also exposed to LIBOR-related interest-rate risk and Canadian foreign-currency exposure.
- Management concluded that no interim goodwill impairment test was required, but sustained market-capitalization declines could result in a future impairment charge. Debt covenants were reported as compliant at September 30, 2019, and no material legal proceedings were pending.
Most important facts for investors to verify
- Whether the Company can refinance or otherwise fund the approximately $55.9 million of debt and finance-lease obligations expected to mature in 2020.
- Whether operating cash flow recovers from the $4.6 million generated during the first nine months of 2019.
- The sustainability and margins of higher natural-gas fuel volumes amid lower effective pricing and volatile RIN and LCFS credit prices.
- The financial requirements, fuel-volume performance and repayment prospects of the Zero Now program and NG Advantage.
- Whether natural-gas vehicle adoption improves in trucking, airports, refuse and public transit markets, particularly given competition from electric and other alternative fuels.
- The status of AFTC and other federal, state and local incentives, along with potential changes to RIN and LCFS programs.
- Potential goodwill or asset impairments if the Company’s stock-price or operating decline persists.