Clean Energy Fuels Corp. — Form 10-Q Summary
Business context and reporting period
Clean Energy Fuels Corp. sells CNG, LNG and RNG vehicle fuel and provides fueling-station construction, operation and maintenance, compressor equipment, vehicle conversions, engineering, financing and related services. It operates or supplies approximately 323 natural-gas fueling locations across 30 U.S. states and parts of Canada. The filing covers the unaudited three and nine months ended September 30, 2012, compared with the same periods in 2011.
Financial performance and position
| Metric | Q3 2012 | Q3 2011 | 9M 2012 | 9M 2011 |
|---|---|---|---|---|
| Total revenue | $91.5 million | $72.1 million | $234.9 million | $206.5 million |
| Gross margin | $20.2 million | $19.3 million | $59.3 million | $56.4 million |
| Gross margin percentage | 22.1% | 26.8% | 25.2% | 27.3% |
| Operating loss | $13.7 million | $6.8 million | $49.0 million | $22.8 million |
| Net loss attributable to Clean Energy | $16.3 million | $11.4 million | $59.5 million | $26.7 million |
| Loss per share | $0.19 | $0.16 | $0.69 | $0.38 |
| Gasoline gallon equivalents delivered | 50.9 million | 40.9 million | 143.2 million | 115.6 million |
Revenue increased 26.9% in the quarter and 13.8% year to date. Volume growth was the primary driver, including higher CNG, LNG and RNG deliveries and increased station-construction activity. Product cost of sales increased to $67.4 million in Q3 and $163.0 million for the first nine months. SG&A increased to $30.6 million in Q3 and $83.3 million year to date, driven by headcount growth, expansion-related costs and stock-based compensation.
Cash used in operating activities was $18.9 million for the first nine months of 2012, compared with $6.0 million used in the prior-year period. Cash used in investing activities was $126.5 million, including $132.8 million of property and equipment purchases, primarily for the America’s Natural Gas Highway build-out. Financing activities provided $55.7 million, including the $50.0 million Chesapeake convertible note issued in July 2012. Cash and cash equivalents declined to $149.1 million at September 30, 2012, from $238.1 million at December 31, 2011. Short-term investments were $29.7 million.
Total debt and capital lease obligations were $338.0 million at September 30, 2012, including $249.0 million of convertible notes and $39.4 million of non-recourse DCEMB revenue bonds. Current debt and capital lease obligations were $34.1 million, and long-term obligations were $303.9 million. Total liabilities were $457.7 million and stockholders’ equity was $514.4 million.
Material changes versus the prior comparable period
- Delivered volume rose 24.4% in Q3 and 23.9% for the first nine months, led by customer additions and growth in refuse, airport, transit and trucking markets.
- Station-construction revenue increased by approximately $21.7 million in Q3 and $30.9 million for the first nine months, excluding Northstar.
- Gross margin percentage declined because of lower effective pricing, a greater mix of lower-margin O&M contracts and competitive pressure, despite lower natural-gas costs.
- Operating losses widened substantially as SG&A, depreciation and amortization, interest expense and expansion costs increased.
- Federal VETC fuel-tax-credit revenue ended after December 31, 2011; the company recorded $4.5 million in Q3 2011 and $13.4 million in the first nine months of 2011, but none in 2012.
- ServoTech became consolidated after the company acquired the remaining 80.1% interest on April 30, 2012 for total consideration of $4.0 million.
- The company identified and revised previously reported balance-sheet and cash-flow classifications for immaterial errors, including station-project costs, customer vehicle loans and non-cash investing activities.
Guidance, outlook, commentary and risks
Management planned approximately $45.8 million of additional capital expenditures from October 1 through December 31, 2012, primarily for new fueling stations, America’s Natural Gas Highway, LNG-plant expansion, landfill-gas processing and LNG trailers. Management stated that additional capital may be required for capital expenditures, investments, acquisitions and strategic transactions.
The first phase of America’s Natural Gas Highway was expected to include approximately 150 LNG stations, with approximately 70 targeted for completion in 33 states by the end of 2012 and the balance in 2013. The filing does not provide a formal earnings or revenue guidance range.
- The company remains loss-making and operating cash flow is negative while it undertakes significant infrastructure investment.
- ANGH execution depends on timely availability and adoption of heavy-duty natural-gas trucks, suitable station sites, permits, LNG supply, customer demand and access to capital.
- Government entities represented approximately 36% of revenue from January 1, 2011 through September 30, 2012; budget deficits, competitive bidding and contract cancellations could pressure volumes and pricing.
- The VETC program expired, and the IRS is seeking approximately $5.1 million related to disputed historical claims. The possible loss range is stated as $0 to $5.1 million.
- Potential California Air Resources Board penalties related to vehicles shipped before final certification have a stated possible loss range of $0 to $2.0 million.
- Two LNG take-or-pay contracts extend through June 2014 and October 2017, creating volume and margin risk if demand is insufficient.
- Outstanding surety bonds totaled $55.3 million. Other commitments include operating leases, fixed-price fuel-sale contracts and future acquisition payments.
- At September 30, 2012, the company reported compliance with the covenants for its IMW credit facilities, DCEMB revenue bonds, Chesapeake notes and SLG notes.
- Natural-gas futures contracts were designated as cash-flow hedges; a 10% change in the September 30, 2012 NYMEX price was estimated to change their value by approximately $0.1 million.
Most important facts for investors to verify
- Whether station and ANGH construction spending converts into sufficient fuel volumes and acceptable margins.
- Cash burn, remaining liquidity and the timing and terms of any required debt or equity financing.
- Debt maturities, 7.5% interest obligations, conversion dilution and the planned $50.0 million Chesapeake note expected in June 2013.
- The status and ultimate resolution of the IRS VETC dispute and potential CARB penalties.
- Whether the expiration of VETC revenue and continuing government-contract pricing pressure materially affect profitability.
- LNG supply availability, take-or-pay exposure and demand from heavy-duty trucking customers.
- The impact of the disclosed immaterial financial-statement revisions on future comparative reporting.