Clean Energy Fuels Corp. — Q1 2012 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 manufacturing, vehicle conversions and related services. It serves trucking, airports, taxis, refuse, public transit and other fleet customers across the United States, Canada and selected international markets. This unaudited report covers the three months ended March 31, 2012, with comparative results for the three months ended March 31, 2011.
Financial performance and key metrics
| Metric | Q1 2011 | Q1 2012 | Change |
|---|---|---|---|
| Total revenue | $65.3 million | $73.6 million | +$8.3 million, 12.7% |
| Product revenue | $58.5 million | $65.8 million | +12.4% |
| Service revenue | $6.8 million | $7.9 million | +15.4% |
| Gross margin | $18.3 million | $17.7 million | Down $0.6 million |
| Gross margin percentage | 28.1% | 24.1% | Down approximately 4.0 points |
| Operating loss | $10.2 million | $28.8 million | Worsened by $18.5 million |
| Net loss attributable to Clean Energy | $9.8 million | $31.9 million | Worsened by $22.2 million |
| Loss per share | $0.14 | $0.37 | Worsened by $0.23 |
| Gasoline gallon equivalents delivered | 35.5 million | 43.7 million | +23.1% |
| Cash used in operating activities | Provided $9.9 million | Used $15.1 million | Decrease of $25.0 million |
Revenue growth reflected higher fuel volumes, station construction, BAF vehicle-equipment sales and increased RNG production. CNG volume increased by 6.3 million gallons, LNG volume by 1.3 million gallons and RNG volume by 0.6 million gallons. The effective selling price declined to $0.83 per gallon from $0.86, primarily because lower natural-gas prices were passed through to customers.
Gross margin declined despite higher revenue because construction and vehicle-equipment costs increased. The effective cost per gallon declined to $0.55 from $0.62, but the business mix included more lower-margin station construction and other equipment sales.
The Q1 2012 operating loss included a $13.5 million non-cash loss from revaluing Series I warrants, compared with a $3.3 million loss in Q1 2011. SG&A increased to $24.9 million from $18.0 million, primarily due to higher headcount, consulting, marketing, recruiting, travel and stock-based compensation. Interest expense increased to $3.7 million from $0.8 million following the 2011 convertible-note financings.
Balance sheet, debt and liquidity
- Cash and cash equivalents were $190.7 million at March 31, 2012, down from $238.1 million at December 31, 2011.
- Short-term investments were $37.9 million; total restricted cash was $50.0 million.
- Total assets were $927.3 million and total liabilities were $403.7 million.
- Total debt and capital lease obligations were $285.8 million, including $30.8 million classified as current.
- Debt included $150.0 million of 7.5% SLG convertible notes due 2016, $50.0 million of 7.5% Chesapeake convertible notes due 2018, $39.4 million of non-recourse DCEMB revenue bonds and other acquisition-related debt.
- The company expected to issue an additional $50.0 million Chesapeake note in June 2012 and another $50.0 million in June 2013, subject to the financing agreement.
- Cash used in investing activities was $33.9 million, including $38.9 million of property and equipment purchases, primarily for the America’s Natural Gas Highway build-out.
- Management planned approximately $188.9 million of capital expenditures from April 1 through December 31, 2012 and stated that additional capital may be required.
Material changes versus the prior comparable period
- Delivered volume rose 23%, but gross margin fell 3.9 percentage points because of product mix and lower-margin contracts.
- Revenue from federal Volumetric Excise Tax Credits fell from $4.2 million to zero after the program expired on December 31, 2011.
- Operating and net losses increased substantially, driven by the Series I warrant revaluation, higher SG&A, increased depreciation and higher interest expense.
- Operating cash flow changed from a $9.9 million inflow to a $15.1 million outflow. Q1 2011 benefited from collection of approximately $16.0 million of prior-period VETC receivables.
- Capital expenditures increased to $38.9 million from $10.8 million, primarily due to ANGH construction.
- BAF revenue increased from approximately $3.6 million to $8.3 million, while IMW revenue declined from approximately $16.7 million to $13.5 million and Northstar revenue declined from approximately $3.6 million to $2.1 million.
- Employee headcount increased from 747 to 1,038, contributing to higher operating expenses.
- Common shares outstanding increased to 86.3 million at March 31, 2012 from 85.4 million at December 31, 2011; weighted-average shares increased to 85.7 million from 70.1 million in the comparable quarter.
Guidance, outlook, risks and unusual items
Management expected the first phase of ANGH to include approximately 150 LNG fueling stations, with approximately 70 stations anticipated to be open in 33 states by year-end 2012 and the remainder in 2013. Management expects long-term demand to benefit from the fuel-cost and emissions advantages of natural gas, but emphasized that adoption depends on heavy-duty natural-gas engine availability, customer demand, station execution and access to capital.
- The VETC program expired, removing a material historical revenue source. The IRS is also seeking repayment of approximately $5.1 million of disputed prior-period credits; the company is appealing.
- The company reported a history of losses and stated that it may need additional debt or equity financing to fund growth, capital expenditures and acquisitions.
- ANGH requires substantial capital and carries execution, permitting, customer-adoption, LNG-supply and station-utilization risks.
- Government customers represented approximately 30% of Q1 2012 revenue. Budget constraints, competitive bidding, contract termination and pricing pressure could reduce volumes or margins.
- Two LNG take-or-pay contracts require minimum purchases through June 2014 and October 2017, creating potential exposure if demand is insufficient.
- Outstanding surety bonds totaled approximately $80.0 million. Other off-balance-sheet commitments included operating leases and fixed-price CNG and LNG sales contracts.
- The company had $3.6 million of margin deposits related to natural-gas futures. A 10% natural-gas price movement from the March 31 NYMEX price of $2.41 per Mcf was estimated to change futures values by approximately $0.1 million.
- IMW and DCEMB were in compliance with their debt covenants at March 31, 2012. The company also reported compliance with the Chesapeake and SLG note covenants.
- DCEMB’s RNG facility was undergoing expansion and upgrades expected to continue through the first half of 2012, potentially reducing production during downtime.
- On April 30, 2012, after the reporting period, the company exercised its option to acquire the remaining 80.1% of ServoTech, paying $1.4 million immediately and agreeing to pay an additional $1.4 million on October 31, 2012. ServoTech will be consolidated beginning April 1, 2012.
Important facts for investors to verify
- Whether ANGH station construction and customer adoption progress as planned relative to the approximately $188.9 million remaining 2012 capital-expenditure plan.
- Whether operating cash flow improves without VETC receipts and while capital spending and interest costs remain elevated.
- The availability, terms and dilution impact of additional financing, including the expected $50.0 million Chesapeake note issuance.
- The sustainability of margins given government-contract pricing, competitive pressure and the mix of fuel, construction and equipment revenue.
- The outcome of the IRS dispute involving approximately $5.1 million of VETC claims.
- Potential earnings volatility from Series I warrant valuations, contingent consideration, commodity prices and foreign exchange.
- Compliance with debt covenants, take-or-pay LNG commitments and other contractual obligations.
- RNG production, facility-upgrade downtime and the continuing validity of premium-price gas sales agreements.