Clean Energy Fuels Corp. — Q2 2013 Form 10-Q Summary
Business context and reporting period
Clean Energy sells CNG, LNG and RNG fueling solutions, operates or supplies more than 400 natural-gas fueling stations in the United States and Canada, manufactures fueling compressors, constructs stations, provides operations and maintenance services, and sells renewable-fuel credits. The unaudited report covers the three and six months ended June 30, 2013, with comparisons to the corresponding 2012 periods.
- Gasoline-gallon equivalents delivered increased to 52.6 million in Q2 and 102.5 million for the six months, from 48.6 million and 92.3 million, respectively.
- The company had 432 owned, operated, maintained or supplied stations at June 30, 2013.
Financial performance and position
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Total revenue | $88.1 million | $69.8 million | $181.2 million | $143.5 million |
| Gross margin | $26.2 million | $21.3 million | $68.5 million | $39.1 million |
| Gross margin percentage | 29.7% | 30.5% | 37.8% | 27.2% |
| Operating loss | $19.8 million | $6.6 million | $21.0 million | $35.4 million |
| Net loss attributable to Clean Energy | $11.9 million | $11.3 million | $15.8 million | $43.2 million |
| Loss per share | $0.13 | $0.13 | $0.17 | $0.50 |
- Product revenue rose 35.8% in Q2 and 31.1% for the six months; service revenue declined 19.7% and 3.5%, respectively.
- Six-month revenue included $32.2 million of federal volumetric excise tax credits, including $20.8 million related to 2012. Q2 included $5.9 million of such credits.
- Q2 operating loss widened because of higher SG&A, depreciation and interest expense, while the 2012 period benefited from an $8.9 million gain on Series I warrant valuation. The six-month operating loss improved primarily because of higher revenue and lower warrant-related losses.
- Net loss for the six months included a $15.5 million gain on the sale of BAF and a $4.7 million gain on the sale of the Peru joint venture.
- Cash used in operating activities improved to $7.0 million from $18.2 million. Capital expenditures were $40.3 million, compared with $75.9 million in the prior-year period.
- At June 30, cash and cash equivalents were $86.0 million, short-term investments were $62.2 million, and restricted cash totaled $41.9 million. Total assets were $1.02 billion.
- Total debt and capital lease obligations were $368.1 million, including $295.0 million of 7.5% convertible notes. Long-term debt and capital lease obligations totaled $339.7 million.
Material changes versus the prior comparable period
- Revenue growth reflected higher delivered volumes, increased IMW compressor revenue, station construction activity, and reinstated federal fuel tax credits. These benefits were partly offset by lower BAF revenue and lower credit sales.
- Effective price per gallon increased to $0.89 in Q2 from $0.81 and to $0.86 for the six months from $0.82; effective cost per gallon increased to $0.59 in Q2 from $0.48 and to $0.58 for the six months from $0.52.
- SG&A increased to $35.2 million in Q2 and $68.1 million for the six months, driven by expanded sales and management staffing, consulting and legal costs, travel, stock compensation, and approximately $1.3 million to $1.4 million of office relocation and lease-exit costs.
- Interest expense increased to $6.3 million in Q2 and $11.4 million for the six months, primarily from additional convertible notes and the Mavrix Note.
- MGES was acquired in May 2013 for approximately $21.0 million, including $9.0 million cash and 761,545 Clean Energy shares.
- BAF and its ServoTech subsidiary were sold in June 2013 for Westport shares valued at $27.2 million; Clean Energy recorded a $15.5 million gain. The company sold the initially received Westport shares in July 2013 for net proceeds of $23.7 million.
- The Peru joint venture was sold in March 2013 for $6.1 million after a $1.1 million dividend distribution.
Guidance, outlook, commentary and risks
- Management planned approximately $78.5 million of capital expenditures from July 1 through December 31, 2013, primarily for fueling stations, LNG and RNG facilities, and LNG trailers.
- Management expected to build approximately 30 to 50 additional America’s Natural Gas Highway stations in 2013, subject to natural-gas truck deployment, LNG demand, site availability and other factors. This is an operating expectation rather than formal earnings guidance.
- The company expects long-term growth from natural-gas adoption, particularly heavy-duty trucking, and planned expansion into marine and rail markets. Management also expects operating costs and capital expenditures to rise with network and production expansion.
- The company stated that additional capital may be required to fund planned expenditures, acquisitions and strategic investments. At June 30, it had not drawn on GE’s $200.0 million LNG-plant credit facility.
- Key risks include continued losses, dependence on federal and other incentives, delayed or insufficient adoption of natural-gas trucks and the CWI 11.9-liter engine, execution and utilization risk for America’s Natural Gas Highway, LNG supply constraints and take-or-pay commitments, natural-gas and traditional-fuel price volatility, competition, regulatory changes, and the need for additional financing.
- RNG production at the McCommas Bluff and Canton facilities was below expectations because of performance and equipment issues; management expected to pursue remedies and incur possible additional costs.
- Off-balance-sheet commitments included $63.8 million of surety bonds, two LNG take-or-pay contracts, leases and other contractual obligations. Management reported compliance with applicable debt covenants, and stated that no material legal, environmental or control issues were identified.
Most important facts for investors to verify
- How much of revenue and cash generation depends on the reinstated VETC and other government incentives, and whether those incentives continue after 2013.
- Actual utilization and returns from the America’s Natural Gas Highway stations relative to construction spending and the expected rollout of natural-gas heavy-duty trucks.
- Liquidity after the planned $78.5 million second-half capital program, including the timing and terms of any required debt or equity financing.
- Interest, maturity, conversion and potential dilution exposure from the $295.0 million of 7.5% convertible notes and other equity-linked instruments.
- Progress in correcting RNG facility performance issues and the potential financial effect of the BAF sale indemnification and $3.0 million holdback.
- Whether revenue growth and profitability can be sustained without retroactive tax credits, warrant valuation effects and other unusual gains.