Clean Energy Fuels Corp. — Q1 2019 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, and provides station construction, operation and maintenance, equipment, credit and related services primarily in the United States and Canada. The filing covers the three months ended March 31, 2019, with comparative results for the three months ended March 31, 2018. The interim financial statements are unaudited.
As of March 31, 2019, the Company served more than 1,000 fleet customers operating over 47,000 natural gas vehicles and owned, operated or supplied approximately 530 fueling stations in 41 U.S. states and four Canadian provinces.
Financial performance and key metrics
| Metric | Q1 2018 | Q1 2019 | Change |
|---|---|---|---|
| Total revenue | $102.4 million | $77.7 million | Down $24.7 million, or 24% |
| Volume-related revenue | $67.2 million | $74.5 million | Up $7.3 million |
| Station construction sales | $5.8 million | $3.2 million | Down $2.6 million |
| AFTC revenue | $25.5 million | — | Not available in 2019 |
| Gross margin | $47.6 million | $17.3 million | Down $30.3 million |
| Gross margin percentage | 46.5% | 22.3% | Down 24.2 percentage points |
| Operating income (loss) | $16.0 million | $(13.7) million | Declined $29.6 million |
| Net income (loss) attributable to Clean Energy | $12.2 million | $(10.9) million | Declined $23.2 million |
| Basic and diluted EPS | $0.08 | $(0.05) | Declined $0.13 |
Fuel and O&M volumes increased to 95.2 million gasoline gallon equivalents from 85.1 million. CNG volumes increased to 78.5 million GGEs from 70.8 million, while LNG volumes increased to 16.7 million from 14.3 million. Effective price per gallon increased to $0.84 from $0.79, while effective cost per gallon increased to $0.58 from $0.53.
Cost of sales increased to $58.8 million from $54.8 million, primarily because of higher gas commodity costs, partially offset by lower used-truck and station-construction costs. Selling, general and administrative expense decreased modestly to $18.4 million from $18.9 million. Depreciation and amortization decreased to $12.5 million from $12.8 million. Interest expense declined to $1.9 million from $4.5 million, primarily due to lower outstanding indebtedness. Other income increased by $2.7 million, largely from gains on asset disposals.
Cash flow, debt and liquidity
- Operating cash flow was negative $8.2 million, compared with negative $2.3 million in Q1 2018, reflecting working-capital timing and the period’s net loss.
- Investing activities provided $5.1 million, including $26.4 million of short-term investment maturities and sales, $4.4 million of property-disposal proceeds and $5.1 million of proceeds related to the BP transaction.
- Financing activities provided $2.1 million, including $3.4 million of debt proceeds, partly offset by $1.5 million of debt and finance-lease repayments.
- Cash, cash equivalents and restricted cash totaled $33.6 million at March 31, 2019, compared with $34.6 million at December 31, 2018. Cash, cash equivalents and short-term investments totaled $94.1 million.
- Total debt was $81.8 million net of financing costs, including $50.0 million of 7.5% notes due June 2020 and $30.9 million of NG Advantage debt. Including finance leases, total indebtedness was approximately $86.4 million in principal amount.
- The Company had no borrowings under its $50.0 million Plains revolving credit facility and reported full availability as of March 31, 2019. It had not drawn on the $100.0 million Société Générale facility established for the Zero Now truck-financing program.
- Management stated that available liquidity and expected operating and financing cash flows should satisfy requirements for at least the 12 months following the filing date, but noted that additional capital may be required thereafter.
Material changes versus the prior comparable period
- Revenue declined primarily because Q1 2018 included $25.5 million of retroactive AFTC revenue related to 2017 fuel sales, while Q1 2019 did not. AFTC is not currently available for post-2017 fuel sales.
- Volume-related revenue rose despite a $5.0 million unfavorable change in the fair value of commodity swaps. Fuel and O&M revenue, RIN revenue and LCFS credit revenue all increased.
- Profitability deteriorated sharply as revenue declined, gas commodity costs increased, and the Company recorded $1.6 million of expense from the change in fair value of NG Advantage derivative warrants.
- The Company adopted ASC 842 lease accounting on January 1, 2019. This added $23.8 million of operating lease right-of-use assets and $25.2 million of operating lease liabilities at March 31, 2019, with no material effect on reported operating results or cash flows.
- NG Advantage’s controlling interest increased to 64.6% by March 31, 2019. Clean Energy committed to lend NG Advantage up to $5.0 million under a convertible note; $2.5 million had been drawn by March 31, with the remaining $2.5 million drawn on April 15, 2019.
Guidance, outlook, commentary and risks
Management projected approximately $18.5 million of 2019 capital expenditures, primarily for CNG station construction, information technology and LNG plant maintenance. NG Advantage could spend up to $28.0 million on additional CNG trailers and equipment, with an intention to seek third-party financing.
Management emphasized that natural-gas-vehicle adoption remains slow, volatile and unpredictable in certain markets, including heavy-duty trucking, airports, refuse and public transit. The Zero Now program is intended to expand heavy-duty natural-gas-truck adoption but exposes the Company to additional debt, guaranty fees, commodity-swap obligations and the risk that participating operators do not purchase sufficient fuel to support the related commitments.
Other material risks include volatility in natural gas, diesel and crude-oil prices; dependence on government incentives and environmental-credit programs; competition from gasoline, diesel, electric, hydrogen and other alternative fuels; take-or-pay and firm-supply commitments; NG Advantage operating losses and debt; potential need for additional capital; regulatory and environmental compliance; station construction and safety risks; and volatility in RIN and LCFS credit prices. The Company guaranteed up to $30.0 million plus fees of certain NG Advantage obligations to BP.
As of March 31, 2019, the Company stated that it was in compliance with applicable debt covenants, that no material legal proceedings were pending, and that disclosure controls and procedures were effective.
Important facts for investors to verify
- Whether higher fuel volumes and RIN/LCFS credit sales can offset the loss of AFTC revenue and sustain positive gross margins.
- The timing and repayment or refinancing plan for the $50.0 million of 7.5% notes due June 2020 and other scheduled debt obligations.
- Actual drawdowns, guaranty fees and cash obligations under the Zero Now financing arrangements, including the undrawn $100.0 million facility.
- Whether Zero Now participants meet minimum fueling commitments and whether commodity swaps create future cash payments or earnings volatility.
- NG Advantage’s operating performance, liquidity needs, debt obligations and the impact of its convertible note and BP guaranty.
- The sustainability and regulatory exposure of RIN and LCFS credit revenue, as well as natural-gas vehicle adoption trends versus electric and other alternative fuels.
- Progress against the approximately $18.5 million corporate capital-expenditure plan and potential NG Advantage capital needs of up to $28.0 million.