Business Context and Reporting Period
Clean Energy Fuels Corp. filed an unaudited Form 10-Q for the quarter and six months ended June 30, 2021. The company supplies renewable natural gas (RNG), compressed natural gas and liquefied natural gas for transportation; develops and operates fueling stations; provides station construction and maintenance services; transports natural gas; and monetizes renewable fuel and low-carbon fuel credits.
As of June 30, 2021, the company served more than 1,000 fleet customers operating more than 48,000 vehicles, through 541 U.S. stations and 25 Canadian stations. Total fuel volumes delivered increased 13% year over year in the second quarter, and were 2% above the second quarter of 2019.
Financial and Operating Metrics
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Total revenue | $0.5 million in 2021 versus $59.9 million in 2020 | $77.6 million in 2021 versus $145.9 million in 2020 |
| Gross margin | $(46.4) million versus $21.3 million | $(19.7) million versus $54.4 million |
| Operating loss | $(79.4) million versus $(7.2) million | $(85.9) million versus $(4.7) million |
| Net loss attributable to Clean Energy | $(79.7) million, or $(0.38) per share | $(86.8) million, or $(0.43) per share |
| Cash flow from operations | Not separately provided for the quarter | $12.9 million versus $49.8 million |
| Fuel volumes delivered | 101.4 million GGEs versus 89.5 million | 193.8 million GGEs versus 188.8 million |
The reported revenue and margin comparisons were heavily distorted by $78.1 million of non-cash Amazon warrant-related stock-based sales incentive charges recorded as a reduction of revenue. Excluding the warrant charges and derivative fair-value effects, volume-related revenue increased by approximately $16.0 million in the second quarter and $16.7 million for the six-month period. Management reported effective price per gallon of $0.67 in the quarter and $0.71 for the six months, compared with $0.58 and $0.64, respectively, in the prior-year periods.
Operating expenses included product cost of sales of $41.3 million, service cost of sales of $5.6 million, SG&A of $21.6 million and depreciation and amortization of $11.4 million in the second quarter. SG&A increased primarily because of higher stock-based compensation. The company reported interest expense of $1.0 million for the quarter and $2.4 million for the six months.
At June 30, 2021, cash and cash equivalents were $134.0 million, short-term investments were $120.2 million, and restricted cash was $7.0 million. Cash, cash equivalents and short-term investments totaled $254.2 million, compared with $138.5 million at December 31, 2020. Total current assets were $383.5 million and total liabilities were $157.3 million.
Debt reported on the balance sheet was $38.3 million, net of financing costs, including $9.5 million under the SG Facility and $27.8 million of NG Advantage debt. Management reported approximately $41.7 million of total debt and finance lease principal, with $8.7 million classified as current debt. Operating lease obligations totaled approximately $50.3 million. The company was in compliance with its debt covenants as of June 30, 2021.
Material Changes Versus the Prior Comparable Period
- Revenue declined primarily because of the $78.1 million Amazon warrant charge; underlying volume-related revenue improved.
- Fuel volumes increased, including public transit volumes up 24% and airport fleet-services volumes up 36% year over year in the second quarter.
- Gross margin changed from $21.3 million of positive margin to a $46.4 million loss in the quarter, principally because of the Amazon warrant charge and higher costs.
- Operating cash flow declined to $12.9 million from $49.8 million, primarily because the prior-year period benefited from collections of older AFTC receivables.
- The company invested $50.2 million in its bp joint venture and $50.7 million in other entities during the first six months, contributing to $150.4 million of investing cash outflow.
- Financing cash flow was positive $158.4 million, largely reflecting $200.0 million of gross proceeds from at-the-market equity offerings, offset by issuance costs and debt repayments.
- Shares outstanding increased to 222.97 million at June 30, 2021 from 198.49 million at December 31, 2020, primarily because of ATM equity issuance.
Guidance, Outlook, Commentary and Risks
Management expects approximately $20 million of AFTC revenue for 2021, subject to the effects of COVID-19. The AFTC is currently available through December 31, 2021 and may not be reinstated thereafter.
The company’s original 2021 capital expenditure plan was approximately $27.5 million. It expects an additional $45 million to $60 million of station investment to support Amazon-related fueling volumes and anticipates deploying up to approximately $100 million to develop anaerobic-digester RNG production facilities. The company expects to fund near-term requirements with cash on hand, operating cash flow and available financing, but may need additional capital beyond the next 12 months.
In 2021, the company formed 50/50 RNG production joint ventures with Total and bp. The Total joint venture may invest up to $400 million in projects, with each party initially committing $50 million. The bp joint venture contemplates $50 million from bp and $30 million from Clean Energy, plus the additional $20 million contribution exercised by Clean Energy.
The Amazon arrangement provides for a warrant to purchase up to 58.8 million shares at an exercise price initially reported as $13.49 per share, with vesting tied to Amazon fuel purchases of up to $500 million. The warrant created substantial non-cash revenue reductions and could result in significant future dilution if additional shares vest and are exercised.
- COVID-19 remains a risk to fleet activity, airport traffic, public transportation and natural gas vehicle adoption, despite improved volumes.
- RIN and LCFS credit prices are volatile and materially affect revenue and project economics.
- The AFTC and other government programs may expire, be modified or be repealed.
- Competition from electric, hydrogen, renewable diesel and other vehicle technologies could limit RNG and natural gas adoption.
- RNG project development carries permitting, construction, feedstock, production, regulatory and financing risks.
- Natural gas, diesel and commodity price volatility affects margins and derivative valuations.
- The company has take-or-pay natural gas commitments, surety bonds totaling $34.2 million, and a guaranty of up to $15.0 million related to an NG Advantage supply arrangement.
- Variable-rate debt is exposed to LIBOR and Prime Rate changes, and the anticipated discontinuation of LIBOR could affect borrowing costs.
- The company has a history of losses and may require additional debt or equity financing, which could increase leverage or dilute shareholders.
Most Important Facts for Investors to Verify
- Reconcile reported revenue and gross margin with the $78.1 million Amazon warrant-related non-cash charge and assess recurring underlying economics.
- Track Amazon fuel purchases, future warrant vesting, potential share dilution and the warrant exercise terms.
- Verify the sustainability of volume growth and whether improved public transit and airport activity continues after COVID-19 restrictions ease.
- Monitor AFTC availability after 2021 and the effect of RIN and LCFS credit prices on revenue and margins.
- Evaluate planned station and RNG project investment against operating cash flow, available credit and potential future capital raises.
- Review the Total and bp joint venture commitments, project timelines, funding requirements and expected returns.
- Assess debt maturities, lease obligations, take-or-pay commitments, guarantees and available revolver capacity.
- Consider dilution from ATM offerings, outstanding equity awards, the Amazon warrant and other potentially issuable shares.