Clean Energy Fuels Corp. — Q3 2018 Form 10-Q Summary
Business context and reporting period
Clean Energy supplies renewable natural gas (RNG), compressed natural gas (CNG), and liquefied natural gas (LNG) for vehicle fleets in the United States and Canada. It also provides fueling-station construction, operation and maintenance, natural-gas transportation, environmental-credit sales, and related customer financing. The filing covers the unaudited three and nine months ended September 30, 2018, compared with the corresponding 2017 periods.
As of September 30, 2018, the Company served nearly 1,000 fleet customers operating more than 46,000 natural-gas vehicles and owned, operated, or supplied approximately 530 stations. Gasoline-gallon-equivalent volumes delivered were 92.3 million in the quarter and 266.8 million year to date.
Financial performance and liquidity
| Metric | Q3 2018 | Q3 2017 | 9M 2018 | 9M 2017 |
|---|---|---|---|---|
| Total revenue | $77.3 million | $81.8 million | $250.2 million | $252.3 million |
| Gross margin | $24.5 million | $8.5 million | $96.9 million | $60.8 million |
| Approximate gross margin percentage | 31.7% | 10.4% | 38.7% | 24.1% |
| Operating income (loss) | $(7.2) million | $(91.1) million | $0.3 million | $(115.5) million |
| Net loss attributable to Clean Energy | $(10.9) million | $(94.1) million | $(10.7) million | $(50.9) million |
| Basic and diluted loss per share | $(0.05) | $(0.62) | $(0.06) | $(0.34) |
| Cash flow from operating activities | Not separately reported | Not separately reported | $29.0 million | $(3.4) million |
Quarterly volume-related revenue increased to $67.8 million from $63.1 million, but station-construction revenue declined to $9.4 million from $12.5 million and compressor revenue ended following the December 2017 CEC Combination. Nine-month volume-related revenue was $197.8 million, down from $200.0 million, while $26.9 million of 2018 revenue reflected reinstated alternative fuels excise tax credits (AFTC) for 2017 fuel sales and prior-year claims.
Operating expenses were $84.6 million in Q3 2018 versus $172.9 million in Q3 2017. The prior-year period included $60.7 million of asset impairment and other charges and a $13.2 million inventory valuation provision. Selling, general and administrative expense declined to $18.4 million from $24.8 million. The nine-month 2018 operating result was near breakeven, but the Company remained loss-making after interest and other items.
At September 30, 2018, cash, cash equivalents and restricted cash were $160.0 million and short-term investments were $96.0 million, for total cash and short-term investments of approximately $254.1 million. Total debt and capital lease obligations were $239.1 million principal, or $238.7 million net of financing costs. The Company had no borrowings under its $50.0 million revolving credit facility and stated that it expected available liquidity and anticipated cash flows to meet requirements for at least the following 12 months.
Material changes versus the prior comparable period
- Revenue declined modestly year over year, primarily because compressor sales ceased after the CEC Combination and station-construction activity decreased.
- Gross margin improved substantially because 2017 included inventory valuation and impairment-related charges, while 2018 benefited from lower operating costs and AFTC revenue.
- Operating loss and net loss narrowed materially. The 2017 results included $60.7 million of impairment and other charges, a $13.2 million inventory provision, a $69.9 million BP Transaction gain, and a $3.2 million debt-extinguishment gain.
- Operating cash flow improved to $29.0 million, primarily due to collection of AFTC revenue and working-capital timing.
- The Company issued 50.9 million shares to Total in June 2018 for $83.4 million of gross proceeds. Total held approximately 25% of outstanding common stock and received specified governance and registration rights.
- Debt principal declined from approximately $260.9 million at December 31, 2017 to $239.1 million at September 30, 2018, primarily reflecting repayment of notes and other debt.
Guidance, outlook, commentary, risks, and unusual items
Management’s 2018 capital-expenditure plan called for approximately $15.0 million. NG Advantage could spend up to an additional $15.0 million on trailers and equipment, subject to third-party financing. The Company provided no clear revenue or earnings guidance in the filing.
On October 1, 2018, after the reporting date, the Company paid $110.5 million of principal and $2.9 million of accrued interest to retire all outstanding 5.25% convertible notes. Management stated that it believed it had sufficient liquidity to meet debt obligations due over the next 12 months, while noting that refinancing or additional debt or equity financing could be pursued.
In October 2018, the Company entered into a joint marketing arrangement expected to increase RNG supply from BP and future RNG vehicle-fuel volumes. It also entered into commodity swaps covering five million diesel gallons annually from April 2019 through June 2024 to manage diesel-to-natural-gas price-spread risk in connection with its truck-financing program.
Key risks include continuing operating losses, slower-than-expected adoption of natural-gas vehicles, competition from diesel, gasoline, electric, hydrogen, renewable-diesel, and other fuels, volatility in natural-gas and environmental-credit prices, dependence on government incentives and regulatory programs, substantial debt-service requirements, take-or-pay and firm-supply commitments, station-construction execution, and potential impairment charges. The Company guaranteed up to $30.0 million plus related fees of NG Advantage obligations under a CNG arrangement with BP.
Outstanding off-balance-sheet arrangements included $29.8 million of surety bonds, a take-or-pay natural-gas contract expiring in December 2020, the NG Advantage guaranty, and operating leases. Management reported compliance with debt covenants and stated that no material legal proceedings were pending. Disclosure controls were considered effective.
Most important facts for investors to verify
- Whether the improved operating result and cash flow can persist without additional AFTC or other non-recurring government-credit revenue.
- The Company’s liquidity after the October 2018 $113.4 million cash payment for the 5.25% notes and its remaining debt maturities.
- Progress in increasing RNG volumes, expanding heavy-duty natural-gas truck adoption, and realizing benefits from the Total relationship and truck-financing program.
- Trends in CNG, LNG, and RNG volumes, station utilization, construction activity, and environmental-credit pricing.
- Exposure under take-or-pay commitments, the NG Advantage guaranty, surety bonds, leases, and other contingencies.
- Potential dilution and governance effects associated with Total’s approximately 25% ownership, convertible notes, options, warrants, and restricted stock units.