Clean Energy Fuels Corp. — 2015 Q2 Form 10-Q Summary
Business context and reporting period
Clean Energy Fuels provides CNG, LNG and RNG fueling solutions, including station design, construction, operation and maintenance, fuel supply, RNG production, compressor manufacturing and sales of environmental credits. The unaudited report covers the three and six months ended June 30, 2015, with comparisons to the corresponding 2014 periods. At June 30, 2015, the company served approximately 921 fleet customers operating approximately 41,851 natural gas vehicles and owned, operated or supplied 566 stations in the United States and Canada.
Financial performance and position
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Total revenue | $86.9 million | $98.1 million | $172.7 million | $193.4 million |
| Gross margin | $23.1 million | $24.9 million | $44.2 million | $48.5 million |
| Operating loss | $19.6 million | $23.4 million | $40.7 million | $40.3 million |
| Net loss attributable to Clean Energy | $30.0 million | $32.3 million | $61.1 million | $60.9 million |
| Loss per share | $0.33 | $0.34 | $0.67 | $0.64 |
| Net cash used in operating activities | Not separately presented for the quarter | $2.9 million | $43.3 million |
Gross margin was approximately 26.6% of revenue in Q2 2015 versus 25.3% in Q2 2014, and approximately 25.6% for the first six months of 2015 versus 25.1% in the prior-year period. Operating margin remained negative at approximately 22.6% in Q2 and 23.6% for the first half.
Gasoline-gallon-equivalents delivered increased 14.8% to 74.4 million in Q2 and 20.6% to 149.6 million for the first six months. The effective selling price declined to $0.83 per gallon in Q2 and $0.84 for the first half, from $0.93 and $0.94, respectively, primarily because of lower commodity prices.
At June 30, 2015, cash and cash equivalents were $53.3 million, restricted cash was $4.5 million and short-term investments were $128.6 million, for total cash and short-term investments of $181.9 million. Total assets were $1.071 billion and total stockholders’ equity was $401.5 million.
Total debt and capital lease obligations were $575.7 million, including $295.0 million of 7.5% convertible notes, $250.0 million of 5.25% convertible senior notes, $11.6 million of Canton Bonds, $7.8 million of capital leases and $11.4 million of other debt. The company reported compliance with applicable debt covenants and no debt defaults as of June 30, 2015. Expected debt maturities were approximately $3.4 million in 2015, $150.1 million in 2016 and $305.1 million in 2018.
Material changes versus the prior comparable period
- Revenue declined 11% in Q2 and 11% for the first six months. Lower station-construction revenue, lower Clean Energy Compression revenue and lower fuel prices more than offset higher delivered volumes.
- Clean Energy Compression revenue fell from $21.8 million to $13.7 million in Q2 and from $44.1 million to $28.5 million for the first six months, attributed to lower oil prices, a stronger U.S. dollar and weaker-than-expected sales in China.
- Station-construction revenue decreased from $14.7 million to $9.5 million in Q2 and from $31.0 million to $16.0 million for the first six months.
- CNG volumes increased substantially, driven by new refuse, transit, industrial and trucking customers. LNG volumes were slightly lower in Q2 but higher for the first six months; RNG volumes declined in Q2 following the sale of the McCommas Bluff project.
- Cost of sales declined 13% in Q2 and 11% for the first six months, reflecting lower station activity, lower commodity costs and reduced compressor sales. SG&A declined 16% in Q2 and 13% for the first six months due to cost-cutting measures.
- Depreciation and amortization increased to $13.4 million in Q2 and $26.3 million for the first six months, primarily from the expanded station network and the NG Advantage acquisition.
- The federal alternative fuels excise tax credit expired December 31, 2014. No VETC revenue was recorded in 2015, compared with $28.4 million recognized for 2014 fuel sales and $45.4 million recognized in 2013.
- Operating cash usage improved to $2.9 million from $43.3 million, principally because of collections of receivables, including $28.4 million of VETC receivables. Investing cash usage was $33.2 million, including $26.2 million for property and equipment.
Outlook, commentary, risks and unusual items
Management expects long-term growth in natural gas vehicle fuel demand and plans to expand CNG, LNG and RNG sales, station infrastructure, LNG and RNG production capacity and selected markets. The company expects operating costs and capital expenditures to increase with expansion and anticipates greater competition, pricing pressure and lower operating margins.
The company planned approximately $33.8 million of capital expenditures from July 1 through December 31, 2015, primarily for CNG and LNG stations and CNG trailers. Management stated that additional capital may be required for capital expenditures, investments, acquisitions and debt repayment, and that financing may not be available on favorable terms or at all.
The filing identifies significant risks from continued operating losses, substantial debt service requirements, the absence of VETC revenue, volatility in oil, diesel and natural gas prices, dependence on adoption of natural gas vehicles and heavy-duty trucks, execution of the America’s Natural Gas Highway initiative, competition, LNG supply commitments, regulatory changes and the volatility of RIN and LCFS credit prices.
Off-balance-sheet arrangements included $44.3 million of surety bonds, a long-term LNG take-or-pay contract requiring minimum purchases through March 2020 and operating leases. The company reported no material expected environmental compliance expenditures and believed pending litigation and tax matters would not have a material adverse effect, although unfavorable outcomes could be material.
The GE credit facility permits up to $200.0 million for two LNG plants, subject to conditions. No amounts had been drawn as of June 30, 2015; the facility deadline for satisfying conditions was extended to December 31, 2016. The company also disclosed a July 31, 2015 highway funding law that equalized the federal tax treatment of LNG on an energy-equivalent basis with diesel, effective January 1, 2016; the financial impact was still under evaluation.
Most important facts for investors to verify
- Whether the company can reduce recurring losses and fund planned capital expenditures while servicing approximately $575.7 million of debt.
- The effect of the expired VETC program on revenue, cash flow and margins, and whether any replacement incentives become available.
- Utilization and profitability of the America’s Natural Gas Highway stations, including approximately 48 stations that lacked sufficient customer volumes at June 30, 2015.
- Whether volume growth can offset lower fuel prices, competitive pricing pressure and lower compressor and station-construction revenue.
- Timing and funding requirements for debt maturities, particularly the approximately $150.1 million due in 2016 and $305.1 million due in 2018.
- Performance and funding needs of NG Advantage, the Mansfield joint venture, RNG projects and the proposed GE LNG plants.
- Exposure to take-or-pay LNG commitments, surety bonds, regulatory changes, environmental compliance costs and volatility in RIN and LCFS credit markets.
- Potential dilution from convertible notes, warrants, options and restricted stock units; the filing identifies approximately 35.2 million shares underlying convertible notes and 6.1 million shares underlying warrants at June 30, 2015.