Clean Energy Fuels Corp. — Form 10-Q Summary
Business context and reporting period
Quarterly report for the three and six months ended June 30, 2017. Clean Energy sells renewable, compressed and liquefied natural gas for vehicle fleets, provides station design, construction, operation and maintenance services, and sells related equipment and environmental credits. At June 30, 2017, it served nearly 1,000 fleet customers operating more than 46,000 natural-gas vehicles and owned, operated or supplied approximately 575 stations.
Financial performance and liquidity
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Total revenue | $81.0 million | $108.0 million | $170.5 million | $203.8 million |
| Gross margin | $23.7 million; 29.2% | $39.3 million; 36.4% | $52.3 million; 30.7% | $75.8 million; 37.2% |
| Operating loss | $(14.0) million | $(0.9) million | $(24.4) million | $(4.9) million |
| Net income (loss) attributable to Clean Energy | $(17.8) million | $1.5 million | $43.3 million | $4.4 million |
| Operating cash flow | Not separately presented for the quarter | $(5.3) million | $27.6 million |
Revenue declined 25% year over year in the quarter and 16% for the six-month period. Six-month volume delivered increased 8.2% to 173.5 million gasoline-gallon equivalents, but the effective price per gallon declined to $0.79 from $0.87, primarily because of lower RIN and LCFS credit revenue.
The six-month net profit was substantially affected by a $69.9 million gain on the sale of RNG assets and a $3.2 million gain from debt extinguishment. Excluding these unusual gains, the company remained loss-making. The quarter included a $3.2 million debt-extinguishment gain and a $0.8 million loss on the asset sale.
At June 30, 2017, cash and cash equivalents were $50.0 million and short-term investments were $151.3 million, for total cash and short-term investments of $201.2 million. Total assets were $872.4 million and stockholders’ equity was $554.9 million.
Total debt principal was approximately $256.0 million, with approximately $139.4 million due in 2018 and $107.2 million due during 2019–2021. Debt and capital lease obligations, net of financing costs, totaled approximately $254.8 million, including $40.0 million of related-party debt. The company reported compliance with its debt covenants and no debt defaults at quarter-end.
Material changes versus the prior comparable period
- Revenue decreased primarily because the federal alternative fuels tax credit, or VETC, expired December 31, 2016. VETC revenue was $6.5 million in Q2 2016 and $12.9 million in the first half of 2016, with no comparable 2017 revenue.
- RIN and LCFS credit revenue declined to $4.1 million in Q2 2017 from $13.0 million and to $16.3 million for the first six months from $24.0 million, partly because of the RNG asset sale.
- CNG volumes increased, aided by new refuse, transit and trucking customers, while LNG volumes declined. Total second-quarter gallons delivered rose to 88.4 million from 82.9 million.
- Compressor revenue and station construction sales declined because of lower global compressor demand and fewer large, full-station projects.
- On March 31, 2017, the company sold specified RNG production assets and related interests to BP for $155.5 million plus BP’s assumption of $8.8 million of Canton Bonds. Net proceeds were $142.2 million, and the company recorded a $69.9 million gain.
- The company repurchased $25.0 million principal amount of related-party 7.5% convertible notes for $21.75 million, generating a $3.2 million gain.
- The ATM equity program was terminated on May 31, 2017. It generated $10.5 million of net proceeds in the first half of 2017 and $117.9 million cumulatively.
Guidance, outlook, risks and unusual items
Management planned approximately $29.0 million of 2017 capital expenditures. NG Advantage expected an additional approximately $24.0 million of equipment spending in the second half of 2017 related to its BP Energy CNG transportation arrangement. Management stated that existing cash, investments and expected operating and financing cash flows should fund routine requirements for at least the next 12 months, but additional capital could be required for capital expenditures, investments or debt repayments.
Management expects lower volume-related revenue from RINs and LCFS Credits following the RNG asset sale. Long-term growth depends on greater fleet adoption of natural gas, but low and volatile oil and diesel prices reduce the fuel-cost advantage of natural gas. The company also faces competition from gasoline, diesel, electric, hydrogen, renewable diesel and other alternatives.
Key risks include continued operating losses, substantial debt service and 2018 maturities, dependence on government incentives and credit markets, volatility in RIN and LCFS credit prices, natural gas commodity-price exposure, take-or-pay gas commitments, station construction and ANGH utilization risk, regulatory and environmental compliance costs, competition, potential goodwill or long-lived asset impairment, and the need to raise capital on acceptable terms.
Other subsequent events included an $8.35 million nonrefundable capacity payment received by NG Advantage, contribution of a CNG station to NG Advantage for preferred units valued at $7.5 million, and an agreement to purchase 147 used natural-gas heavy-duty trucks valued at $9.4 million.
Important facts for investors to verify
- Assess recurring operating performance excluding the $69.9 million RNG asset-sale gain and debt-extinguishment gains.
- Verify the sustainability of cash resources against approximately $256.0 million of debt principal, including the large 2018 maturities.
- Track the ongoing impact of VETC expiration and reduced RIN and LCFS credit revenue.
- Evaluate whether higher delivered volumes can offset lower effective pricing and weaker compressor and station-construction activity.
- Review ANGH station utilization, including 38 completed stations that were not open for fueling at June 30, 2017.
- Monitor capital spending, NG Advantage’s additional equipment commitments and the company’s potential need for future financing.
- Confirm exposure to goodwill and long-lived asset impairment, natural-gas take-or-pay obligations, environmental regulation and competing vehicle technologies.