Clean Energy Fuels Corp. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2014; unaudited interim results. Clean Energy sells CNG, LNG and RNG, operates or supplies more than 500 natural-gas fueling stations in the United States and Canada, and provides station construction, equipment, maintenance, financing and environmental-credit services.
Financial performance and position
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Total revenue | $98.1 million | $88.1 million | $193.4 million | $181.2 million |
| Gross margin | $24.9 million; 25.3% | $26.2 million; 29.7% | $48.5 million; 25.1% | $68.5 million; 37.8% |
| Operating loss | $(23.4) million | $(19.8) million | $(40.3) million | $(21.0) million |
| Net loss attributable to Clean Energy | $(32.3) million | $(11.9) million | $(60.9) million | $(15.8) million |
| Loss per diluted share | $(0.34) | $(0.13) | $(0.64) | $(0.17) |
| Operating cash flow | Not separately provided | Not separately provided | $(43.3) million | $(7.0) million |
- Gasoline-gallon-equivalent volume delivered increased 23% to 64.8 million in the quarter and 21% to 124.1 million for the six months. CNG, RNG and LNG volumes all increased.
- Revenue growth reflected higher fuel volumes, station construction activity and IMW compressor sales. The effective price per gallon increased to $0.93 in Q2 and $0.94 for the six months.
- Cost of sales increased faster than revenue, with effective cost per gallon rising to $0.64 in Q2 from $0.59 and to $0.66 for the six months from $0.58.
- SG&A declined modestly, but depreciation and amortization increased due to the expanded station network and America’s Natural Gas Highway investments.
- Interest expense increased to $10.1 million in Q2 and $19.6 million for the six months, primarily because of additional convertible notes and Mavrix borrowings.
- At June 30, 2014, cash and cash equivalents were $124.7 million, short-term investments were $152.1 million, and restricted cash was $12.2 million. Total cash and short-term investments were $276.8 million, down from $378.3 million at December 31, 2013.
- Total debt and capital lease obligations were $626.1 million, including $608.4 million classified as debt and capital lease obligations after current-versus-long-term classification. Stockholders’ equity was $467.6 million.
Material changes versus the prior comparable period
- Revenue increased 11% in Q2 and 7% for the six months, while net losses attributable to Clean Energy widened substantially.
- Federal volumetric excise tax credits contributed $6.0 million of Q2 2013 revenue and $32.2 million of six-month 2013 revenue, including $20.8 million related to 2012 credits. The program expired December 31, 2013, and no 2014 VETC revenue was recorded.
- BAF, the vehicle-conversion business, was sold in June 2013; the prior-year periods included a $15.5 million gain on sale and related revenue that did not recur.
- Gross margin declined because of the loss of VETC revenue, higher station-construction costs and higher fuel costs, partially offset by increased volumes.
- The Series I warrant valuation produced a non-cash $2.3 million loss in Q2 2014 versus an immaterial loss in Q2 2013, but a $2.2 million gain for the six months versus a $0.5 million loss in the prior year.
- Capital expenditures increased to $61.8 million for the six months from $40.3 million, including $18.4 million for 67 CNG-In-A-Box units.
- Property and equipment increased to $532.6 million from $487.9 million at year-end 2013, while accumulated deficit increased to $428.7 million.
Liquidity, outlook and risks
- Management’s plan calls for approximately $24.5 million of capital expenditures from July 1 through December 31, 2014, primarily for CNG and LNG fueling stations.
- The company stated that it may need additional debt or equity financing to fund capital expenditures, acquisitions, strategic investments, debt service or other requirements. Management cautioned that financing may not be available on favorable terms, or at all.
- GE has committed up to $200 million for two LNG production facilities, but no amounts had been drawn as of June 30, 2014. The credit agreement could terminate if initial loans are not made by December 31, 2014, subject to specified conditions.
- Management expects long-term growth in natural-gas vehicle fuel demand, particularly in heavy-duty trucking, and plans continued expansion of its station network, LNG production and RNG projects. The filing does not provide formal revenue or earnings guidance.
- Key risks include continued operating losses, negative operating cash flow, substantial debt service requirements, reliance on additional capital, adoption of natural-gas vehicles, execution and utilization of America’s Natural Gas Highway, competition, fuel-price volatility, LNG supply constraints and expiration or modification of government incentives.
- Five LNG take-or-pay contracts require minimum purchases through dates ranging from June 2015 to October 2017, creating potential costs if demand is insufficient.
- RNG production at the McCommas Bluff and Canton facilities has experienced performance and equipment problems, resulting in lower-than-expected production and potential remediation costs.
- Off-balance-sheet arrangements included $33.7 million of surety bonds, five LNG take-or-pay contracts and operating leases. The company reported compliance with its material debt covenants and no defaults as of June 30, 2014.
- Legal proceedings and tax audits arise in the ordinary course. Management did not expect them to have a material adverse effect, although unfavorable outcomes could affect liquidity or results.
- The company reported effective disclosure controls and no material changes to internal control over financial reporting during the period.
Facts investors should verify
- Whether fuel-volume growth converts into improved gross margins after the loss of VETC credits and with higher station and LNG costs.
- The company’s ability to generate positive operating cash flow and fund the planned $24.5 million second-half capital program without dilutive or expensive financing.
- Debt maturities, interest obligations and potential dilution from the $295 million of Series 2011 convertible notes, $250 million of 5.25% convertible notes, warrants and other convertible instruments.
- Customer utilization and profitability of America’s Natural Gas Highway stations, particularly stations built ahead of demand.
- Progress, funding conditions and timing for the two proposed GE-financed LNG plants.
- Resolution of production and equipment issues at the McCommas Bluff and Canton RNG facilities.
- Continuing availability and market value of RIN and LCFS credits and any reinstatement or replacement of expired federal fuel-tax incentives.