Clean Energy Fuels Corp. — Q2 2016 Form 10-Q Summary
Business context and reporting period
Clean Energy Fuels supplies CNG, LNG and RNG vehicle fuel and related fueling solutions in the United States and Canada. Activities include fueling-station construction and operation, O&M services, compressor sales, RNG production, CNG transportation, vehicle financing and sales of RIN and LCFS credits. The filing covers the three and six months ended June 30, 2016; financial statements are unaudited.
- Nearly 1,000 fleet customers and more than 44,000 natural-gas vehicles served.
- More than 570 stations owned, operated, maintained or supplied in 42 states and parts of Canada.
- Gasoline gallon equivalents delivered increased 11.4% year over year in the second quarter to 82.9 million and 7.3% in the first half to 160.4 million.
Financial performance and liquidity
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Total revenue | $108.0 million | $86.9 million | $203.8 million | $172.7 million |
| Gross margin | $39.3 million | $23.1 million | $75.8 million | $44.2 million |
| Operating loss | $0.9 million | $19.6 million | $4.9 million | $40.7 million |
| Net income attributable to Clean Energy | $1.5 million | $(30.0) million | $4.4 million | $(61.1) million |
| Diluted EPS | $0.01 | $(0.33) | $0.04 | $(0.67) |
| Net cash from operating activities | Not separately provided | Not separately provided | $27.6 million | $(2.9) million |
- Q2 revenue growth reflected higher fuel volumes, increased station-construction sales and $6.5 million of VETC revenue. Compressor revenue declined $4.9 million.
- First-half revenue included $12.9 million of VETC revenue, compared with none in the prior comparable period. RIN and LCFS credit revenue totaled $24.0 million versus $7.4 million.
- Gross margin improved primarily because of increased station construction, higher credit sales and lower natural-gas costs. Effective cost per gallon declined to $0.51 from $0.57 in the first half.
- Results included a $10.1 million second-quarter and $26.0 million first-half gain from extinguishment of convertible debt. These gains are unusual and may not recur.
- Cash and cash equivalents were $102.3 million and short-term investments were $79.4 million at June 30, 2016, totaling $181.7 million. Restricted cash was $4.4 million.
- Debt and capital lease obligations totaled approximately $492.1 million in principal at June 30, 2016, including $50.0 million drawn under a new PlainsCapital revolving facility. Net debt carrying value was approximately $488.8 million.
- Capital expenditures were planned at approximately $25.5 million for full-year 2016. Expected 2016 interest payments were approximately $30.2 million.
Material changes versus the prior comparable period
- Revenue increased 24.4% in Q2 and 18.0% in the first half, while gross margin increased 70.2% and 71.6%, respectively.
- SG&A declined 12.9% in Q2 and 14.1% in the first half, reflecting lower employee, travel, promotional and bad-debt expenses.
- Operating losses narrowed substantially, and the company reported net income attributable to shareholders in both 2016 periods versus losses in 2015.
- The company adopted percentage-of-completion accounting for station construction projects beginning January 1, 2016. This added $8.5 million of Q2 revenue and $17.8 million of first-half revenue that otherwise would not have been recognized under the completed-contract method.
- The company issued 17.5 million shares through its ATM program for $53.0 million of net proceeds in the first half, contributing to dilution. It also issued 6.3 million shares in exchange for $25.0 million of 5.25% Notes.
- The company repurchased $44.0 million of 5.25% Notes for $23.7 million in cash and exchanged an additional $25.0 million for shares. In July 2016, it exchanged all remaining $85.0 million of SLG Notes for 14.0 million shares and approximately $38.2 million in cash.
Guidance, outlook, commentary and risks
- Management expects long-term growth in natural-gas vehicle-fuel demand but noted that low and volatile oil prices have reduced the cost advantage of natural gas and weakened demand for compressor equipment.
- At June 30, 2016, 40 completed America’s Natural Gas Highway stations were not open for fueling. Their future profitability depends on adoption of heavy-duty natural-gas trucks and sufficient customer demand.
- Management expects to fund routine requirements for at least the next 12 months using cash, investments, operating cash flow and financing activities, but stated that additional capital may be required for capital expenditures, investments or debt repayments.
- Key risks include continued operating losses, substantial debt-service requirements, refinancing and liquidity needs, dilution from equity issuance or stock-settled debt, volatility in natural-gas and oil prices, slower adoption of natural-gas vehicles, competition from conventional and other alternative fuels, and reliance on government incentives.
- RIN and LCFS credit markets are volatile and subject to changes in federal and state programs. VETC was extended through December 31, 2016, but future availability is uncertain.
- Two long-term take-or-pay natural-gas contracts expire in 2020. Outstanding surety bonds totaled $52.3 million. The company also had operating leases and other contractual commitments.
- The company reported compliance with debt covenants and no debt events of default as of June 30, 2016. Management concluded that disclosure controls were effective.
Important facts for investors to verify
- Whether improved profitability persists excluding the $26.0 million first-half debt-extinguishment gain and temporary or policy-dependent credits.
- The sustainability and collectability of RIN, LCFS and VETC-related revenue.
- Debt maturities, required interest payments and the company’s ability to refinance or repay obligations without further dilution.
- Operating utilization and returns from the 40 unopened ANGH stations and the broader heavy-duty natural-gas truck market.
- The effect of percentage-of-completion accounting on reported revenue, margins and future contract estimates.
- Future cash requirements, capital expenditures and the remaining availability under the ATM program.
- Changes in natural-gas, diesel and oil prices, government incentives, environmental regulations and alternative-fuel competition.