Clean Energy Fuels Corp. — Form 10-Q Summary
Business Context and Reporting Period
Clean Energy Fuels sells CNG and LNG vehicle fuel, operates and maintains fueling stations, constructs fueling infrastructure, manufactures natural-gas compressors, provides vehicle conversions, and processes renewable biomethane. The company operated or supplied approximately 248 fueling locations at June 30, 2011. This unaudited filing covers the three and six months ended June 30, 2011, compared with the same 2010 periods.
Financial Performance and Key Metrics
| Metric | Three months ended June 30, 2011 | Three months ended June 30, 2010 | Six months ended June 30, 2011 | Six months ended June 30, 2010 |
|---|---|---|---|---|
| Total revenue | $69.1 million | $44.0 million | $134.5 million | $83.0 million |
| Gross margin | $18.7 million; 27.0% | $13.4 million; 30.5% | $37.0 million; 27.5% | $24.8 million; 29.9% |
| Operating income (loss) | $(5.8) million | $10.1 million | $(16.0) million | $(15.7) million |
| Net income (loss) attributable to Clean Energy | $(5.6) million | $9.9 million | $(15.4) million | $(14.5) million |
| Operating cash flow | Not separately reported for the quarter | Not separately reported for the quarter | $9.9 million | $(4.0) million |
| Gasoline-gallon equivalents delivered | 39.2 million | 31.1 million | 74.7 million | 59.7 million |
Product revenue was $61.5 million in the second quarter and $120.1 million for the first six months; service revenue was $7.6 million and $14.4 million, respectively. The six-month loss per share was $0.22 basic and diluted.
At June 30, 2011, cash and cash equivalents were $35.3 million, compared with $55.2 million at December 31, 2010. Restricted cash was $6.9 million. Total assets were $598.9 million and total stockholders’ equity was $417.1 million.
Total debt and capital lease obligations were $90.0 million, including $40.2 million of non-recourse DCEMB revenue bonds, compared with $64.4 million at December 31, 2010. The company had no borrowings outstanding under its $20 million PCB line of credit at June 30, 2011. The company and relevant subsidiaries were in compliance with stated debt covenants.
Material Changes Versus the Prior Comparable Period
- Second-quarter revenue increased 57% and six-month revenue increased 62%, driven by higher fueling volumes, station construction, fuel-tax-credit revenue, and contributions from the IMW and Northstar acquisitions.
- Delivered volume increased 26% in the quarter and 25% for the six months. CNG volume increased to 25.6 million gallons in the quarter and 48.3 million for the six months; LNG volume increased to 11.9 million and 23.2 million, respectively.
- Gross-margin percentage declined because a greater proportion of business came from lower-margin operations and maintenance contracts.
- The second-quarter result shifted from $9.9 million of net income to a $5.6 million net loss. The 2010 comparison benefited from a $16.6 million non-cash gain on Series I warrant valuation; the 2011 quarter included a $4.8 million gain.
- SG&A increased to $21.7 million in the quarter and $39.7 million for the six months, reflecting acquisitions, headcount growth, facilities, marketing, professional fees, and stock compensation. Employees increased from 274 at June 30, 2010 to 829 at June 30, 2011.
- Operating cash flow improved to $9.9 million for the six months, primarily because of approximately $17.7 million of cash received for reinstated and retroactive volumetric excise tax credits. Investing cash use increased to $59.9 million, including $27.6 million of property and equipment purchases and $27.4 million placed into restricted accounts.
- BAF revenue declined to approximately $12.6 million from $20.0 million, while IMW and Northstar contributed approximately $30.8 million and $5.7 million, respectively, during the first six months of 2011.
Guidance, Outlook, Commentary, and Risks
Management planned approximately $44.5 million of capital expenditures from July 1 through December 31, 2011, primarily for new fueling stations. This excludes LNG station spending expected to be funded by the Chesapeake financing and DCEMB spending funded by its bond proceeds. Management expected operating costs and capital expenditures to rise as the station network, LNG production capacity, sales organization, and geographic footprint expand.
On July 11, 2011, after quarter-end, Chesapeake agreed to purchase up to $150 million of convertible promissory notes in three $50 million tranches. The first note was issued on July 11, 2011; the notes bear 7.5% interest, are convertible at $15.80 per share, and mature seven years after issuance. Proceeds are restricted primarily to LNG station development, construction, and operation.
- The federal $0.50-per-gallon VETC program expires December 31, 2011. The company recorded $8.9 million of VETC revenue in the first six months, or approximately 6.6% of total revenue.
- The IRS is seeking approximately $5.1 million related to disputed VETC claims for October 2006 through June 2008. The company has appealed and believes its claims were proper.
- Management stated that the company may need additional capital to fund growth, acquisitions, investments, and capital expenditures. Financing may dilute shareholders or be unavailable on acceptable terms.
- Key risks include continued losses, dependence on government incentives, natural-gas and oil-price volatility, LNG supply interruptions, take-or-pay commitments, margin calls on futures contracts, competition, limited availability and adoption of natural-gas vehicles, and execution of the LNG fueling-station strategy.
- DCEMB’s biomethane facility was undergoing expansion and upgrades expected to continue into the first half of 2012, potentially causing downtime and lower biomethane sales. Its bond-related cash is restricted and subject to covenant and debt-service requirements.
- The company reported $79.0 million of outstanding surety bonds, two LNG take-or-pay contracts, operating leases, and fixed-price CNG and LNG sales commitments as material or potentially material off-balance-sheet arrangements.
Most Important Facts to Verify
- Whether the VETC program was extended beyond December 31, 2011 and the outcome of the IRS’s approximately $5.1 million claim.
- The terms, issuance schedule, conversion effects, and use of proceeds of the $150 million Chesapeake note financing.
- Cash availability after restricted cash, planned $44.5 million second-half capital expenditures, debt service, acquisition payments, and margin requirements.
- Progress and economics of the planned LNG fueling network and whether heavy-duty natural-gas vehicle adoption supports expected demand.
- Integration, profitability, and covenant compliance of IMW and Northstar, including potential IMW earn-out obligations of up to $40.0 million.
- Operating performance and downtime at the DCEMB biomethane facility, compliance with bond covenants, and availability of restricted cash.