Clean Energy Fuels Corp. — FY2015 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2015. The filing is an annual Form 10-K; the supplied period label “2015 Q4” corresponds to the fourth quarter within the reported fiscal year. The company provides CNG, LNG and RNG vehicle-fueling solutions, station construction and operation, maintenance services, compressor equipment, CNG transportation, renewable natural gas and environmental-credit sales.
Business context and operating footprint
- Served approximately 986 fleet customers operating approximately 44,152 natural-gas vehicles.
- Owned, operated or supplied more than 570 fueling stations across 42 U.S. states and parts of Canada; operated 396 CNG stations.
- Delivered 308.5 million gasoline gallon equivalents, up from 265.1 million in 2014 and 214.4 million in 2013.
- CNG volume increased to 229.2 million GGEs from 182.6 million; LNG volume was broadly flat at 70.5 million GGEs; RNG volume declined to 8.8 million GGEs from 12.2 million.
- Government contracts represented approximately 18% of revenue in 2015.
Financial performance and liquidity
| Metric | FY2015 | FY2014 | Change |
|---|---|---|---|
| Total revenue | $384.3 million | $428.9 million | Down $44.6 million, or 10.4% |
| Volume-related revenue | $260.6 million | $247.9 million | Up $12.7 million |
| Clean Energy Compression revenue | $54.5 million | $84.8 million | Down $30.3 million |
| Station construction revenue | $37.8 million | $67.4 million | Down $29.6 million |
| VETC revenue | $31.0 million | $28.4 million | Up $2.6 million |
| Gross margin | $125.8 million | $120.2 million | Up $5.7 million |
| Gross margin percentage | Approximately 32.7% | Approximately 28.0% | Improved |
| Operating loss | $41.6 million | $54.4 million | Improved by $12.7 million |
| Net loss attributable to Clean Energy | $134.2 million | $89.7 million | Worsened by $44.6 million |
| Loss per share | $1.47 | $0.96 | Worsened |
| Cash used in operating activities | $12.1 million | $76.0 million | Improved by $63.9 million |
| Cash used in investing activities | $33.9 million | $46.9 million | Improved by $13.0 million |
| Cash provided by financing activities | $0.4 million | $25.8 million used | Improved by $26.2 million |
- Operating margin was approximately negative 10.8%; net margin was approximately negative 35.2%.
- Effective price per gallon declined to $0.84 from $0.94, while effective cost per gallon declined to $0.56 from $0.65, primarily reflecting lower natural-gas commodity prices.
- Interest expense rose to $95.0 million from $44.4 million, primarily because the terminated GE credit agreement required a non-cash write-off of $54.9 million in deferred financing costs.
- Cash and cash equivalents were $43.7 million at year-end, and short-term investments were $102.9 million, for combined cash and short-term investments of $146.7 million, down from $214.9 million.
- Working capital declined to $82.8 million from $293.4 million, principally because $150.1 million of debt became classified as current.
- Total debt and capital lease obligations were $572.4 million, including $150.1 million due within one year, $305.1 million due in 2018 and approximately $32.0 million of expected 2016 interest payments.
Material changes versus the prior comparable period
- Revenue declined despite a 16.4% increase in delivered volumes. Lower effective pricing, reduced station construction activity and weaker compressor sales more than offset volume growth.
- Lower natural-gas prices reduced both revenue and cost of sales. Management stated that declining oil prices narrowed the economic advantage of natural gas and slowed new-customer adoption.
- Gross margin improved because cost reductions exceeded the decline in revenue, but service costs increased as a percentage of service revenue.
- SG&A declined to $113.7 million from $126.4 million, reflecting company-wide cost reductions and lower employee-related, travel, stock-compensation and insurance costs.
- Depreciation and amortization increased to $55.2 million from $49.1 million as the station network expanded and NG Advantage assets were included.
- RIN and LCFS credit revenue increased to $18.4 million from $5.6 million, comprising $10.3 million of RIN revenue and $8.1 million of LCFS revenue.
- The company sold its remaining interest in Dallas Clean Energy in December 2014. In 2015 it recognized a related $0.9 million earn-out and received $1.1 million of cash.
- At December 31, 2015, 43 completed America’s Natural Gas Highway stations were not open for fueling operations because sufficient customer demand had not yet been secured.
Guidance, outlook, risks and unusual items
- Management expected approximately $25.5 million of 2016 capital expenditures, primarily for fueling-station construction and CNG trailers for NG Advantage.
- Management expected natural-gas adoption and revenue to remain pressured until oil prices recover and the fuel-cost advantage widens, while maintaining a longer-term expectation that natural gas will remain cheaper than gasoline and diesel.
- The federal alternative-fuel tax credit was extended through December 31, 2016. The company recognized $31.0 million of 2015 VETC revenue in December 2015 and collected it in February 2016. The 2016 LNG credit is calculated on a diesel-gallon-equivalent basis and is expected to generate less revenue.
- On December 31, 2015, the company terminated an unused GE credit facility and recorded the $54.9 million non-cash deferred-financing-cost charge. The related GE warrant remained outstanding, but 4.0 million of its 5.0 million potential shares will not vest.
- After year-end, the company drew $50.0 million under a one-year PlainsCapital Bank facility secured by cash and qualifying bonds. It also prepaid $60.0 million of SLG Notes and repurchased $32.5 million face value of 5.25% Notes for $16.8 million.
- Up to $295.0 million of debt outstanding at year-end could be repaid at maturity with common stock rather than cash, creating potential dilution.
- Contractual obligations totaled $739.3 million, including $665.5 million of debt and capital-lease payments, $54.0 million of operating leases, $10.0 million of take-or-pay natural-gas commitments and $9.9 million of construction commitments.
- California greenhouse-gas compliance costs were expected to be at least $150,000 in 2016 for LNG sales, with additional utility charges expected for fossil-fuel CNG. The company may pass these costs to customers, potentially reducing fuel-price competitiveness.
- Key risks include continuing losses, high leverage and refinancing needs, dependence on tax credits and environmental-credit prices, low oil prices, slower-than-expected natural-gas vehicle adoption, underutilized ANGH stations, take-or-pay supply commitments, competition, regulatory changes, safety incidents and potential dilution from convertible debt or equity offerings.
- The company reported no material unresolved staff comments, no material adverse legal proceedings expected by management, and effective disclosure and internal controls as of December 31, 2015.
Important facts for investors to verify
- Reconcile the company’s liquidity against $150.1 million of debt due within one year and total contractual obligations of $739.3 million.
- Assess how much of 2015 earnings depended on the $31.0 million VETC benefit and whether the credit remains available after 2016.
- Evaluate whether volume growth can offset lower fuel pricing, weaker compressor sales and reduced station-construction activity.
- Review utilization, profitability and impairment risk for the 43 completed but unopened ANGH stations.
- Monitor oil and natural-gas prices, natural-gas vehicle adoption, engine availability and demand from trucking customers.
- Assess the volatility and regulatory exposure of RIN and LCFS credit revenue.
- Review potential dilution from convertible notes, warrants, the ATM equity program and debt repayment with common stock.
- Verify the impact of the post-year-end PlainsCapital borrowing, SLG Note prepayment and 5.25% Note repurchase on 2016 liquidity and leverage.