Clean Energy Fuels Corp. Form 10-Q Summary
Business context and reporting period
Clean Energy Fuels Corp. supplies CNG, LNG and RNG vehicle fuel and provides fueling-station construction, operation and maintenance, compressor equipment, RNG production and related environmental-credit services. It serves nearly 1,000 fleet customers operating more than 44,000 natural-gas vehicles and owns, operates or supplies more than 575 stations in the United States and Canada. The filing covers the three and nine months ended September 30, 2016; financial statements are unaudited.
Financial performance and liquidity
| Metric | Q3 2016 | Q3 2015 | 9M 2016 | 9M 2015 |
|---|---|---|---|---|
| Total revenue | $97.0 million | $92.3 million | $300.8 million | $265.0 million |
| Gross margin | $35.2 million | $25.5 million | $111.0 million | $69.7 million |
| Gross margin percentage | 36.2% | 27.7% | 36.9% | 26.3% |
| Operating loss | $(5.5) million | $(15.8) million | $(10.4) million | $(56.5) million |
| Net loss attributable to Clean Energy | $(12.6) million | $(23.1) million | $(8.3) million | $(84.2) million |
| Loss per diluted share | $(0.10) | $(0.25) | $(0.07) | $(0.92) |
Revenue growth reflected higher fuel volumes, station construction revenue and $6.7 million of Q3 VETC revenue. Nine-month revenue included $19.6 million of VETC revenue. Product revenue increased while service revenue declined. Compressor revenue fell by approximately $7.6 million in Q3 and $19.0 million for the nine months, which management attributed to low global oil prices, a strong U.S. dollar and weaker-than-expected China sales.
Gasoline-gallon-equivalent volumes delivered increased 4.8% year over year in Q3 to 84.5 million and 6.4% for the nine months to 244.9 million. CNG volumes increased, while LNG and non-vehicle RNG volumes declined. RIN and LCFS credit revenue increased to $11.3 million in Q3 and $35.2 million for the nine months.
Operating cash flow was $44.2 million for the nine months, compared with cash used of $1.0 million in the prior-year period. Investing cash flow was $9.5 million provided, versus $32.6 million used, primarily because capital expenditures declined to $16.7 million from $40.2 million and short-term investments generated net cash. Financing activities used $57.2 million, mainly for debt repayments and repurchases.
At September 30, 2016, cash and cash equivalents were $41.6 million, restricted cash was $4.6 million and short-term investments were $77.3 million, providing total cash and short-term investments of approximately $118.9 million. Total assets were $911.4 million and total stockholders’ equity was $464.6 million.
Material changes versus the prior comparable period
- Revenue increased 5.2% in Q3 and 13.5% for the nine months, while gross margin improved materially because of lower compressor costs, lower natural-gas commodity costs and higher credit revenue.
- SG&A declined to $25.9 million in Q3 and $76.8 million for the nine months, reflecting lower employee, travel, promotional and bad-debt costs.
- Interest expense declined to $6.3 million in Q3 and $23.3 million for the nine months because of reduced debt balances.
- The company recorded a $25.4 million nine-month gain from extinguishment of debt, primarily from repurchasing or exchanging $215.4 million of principal amount of convertible notes for $125.6 million in cash and 20.3 million common shares. This gain materially reduced the reported net loss and is not necessarily recurring.
- The company repaid $60.0 million of SLG Notes in March and settled the remaining $85.0 million in July for 14.0 million shares and $38.2 million cash. It also repurchased $45.4 million principal amount of 5.25% Notes for $24.9 million cash and exchanged another $25.0 million for 6.3 million shares.
- Common shares outstanding increased from 92.4 million at December 31, 2015 to 134.2 million at September 30, 2016, principally due to ATM issuance and debt exchanges.
- Station-construction revenue recognition changed from completed-contract to percentage-of-completion accounting beginning January 1, 2016. For the nine months, this increased reported station-construction revenue by $14.1 million and operating income by $1.9 million versus the former method.
Debt, outlook, risks and unusual items
Total debt principal was approximately $355.5 million at September 30, 2016. Expected principal maturities were approximately $1.0 million in 2016, $4.8 million in 2017, $234.5 million in 2018, $54.7 million in 2019, $53.8 million in 2020 and $6.7 million thereafter. The company expected approximately $29.5 million of 2016 interest payments, with $21.6 million paid through September 30. No debt covenant defaults were reported.
The $50.0 million PlainsCapital revolving facility was repaid in full on August 31, 2016. Its maturity was subsequently extended from February 2017 to September 2018. Management stated that available cash, investments and expected operating and financing cash flows should meet routine requirements for at least the next 12 months, but additional capital may be required for capital expenditures, investments or debt repayment.
The 2016 capital-expenditure plan was approximately $25.5 million, primarily for fueling stations, CNG trailers and LNG/RNG facilities. The company expanded its ATM program to $110.0 million; through November 3, 2016, it had raised $80.7 million net and had approximately $26.9 million remaining available.
Management expects long-term demand for natural-gas vehicle fuel and Redeem RNG to grow, but acknowledged that low and volatile oil and diesel prices reduce the fuel-cost advantage of natural gas. Heavy-duty natural-gas truck adoption has been slower and more limited than anticipated. Thirty-nine completed ANGH stations were not open for fueling operations at September 30, 2016, creating the risk of underutilized assets.
Key risks include recurring operating losses, dependence on VETC and volatile RIN/LCFS credit markets, substantial 2018 debt maturities, potential dilution from equity issuance and debt conversion, competition from conventional and alternative fuels, slow natural-gas vehicle adoption, take-or-pay gas commitments, construction and execution risks, environmental and regulatory costs, RNG production difficulties and foreign-currency exposure. Outstanding surety bonds totaled $59.1 million, and two take-or-pay natural-gas contracts extend through 2020.
Investor verification points
- Verify the sustainability of operating cash flow excluding VETC, debt-extinguishment gains and other nonrecurring items.
- Assess refinancing, repayment or equity-funding plans for the approximately $234.5 million of principal scheduled to mature in 2018.
- Track fuel volumes, effective pricing, gross margin and the extent to which RIN, LCFS and VETC revenue supports reported results.
- Evaluate utilization and expected returns for the 39 unopened ANGH stations and other station assets.
- Review dilution from ATM sales, debt exchanges, convertible notes, options, restricted stock units and the post-period exercise of the GE warrant.
- Monitor oil, diesel and natural-gas prices, natural-gas truck adoption, government incentives and changes to renewable-fuel and low-carbon-fuel programs.
- Confirm the effect of percentage-of-completion revenue recognition and contract-estimate changes on future revenue and margins.