Clean Energy Fuels Corp. — Q1 2020 Form 10-Q Summary
Business context and reporting period
Clean Energy Fuels Corp. supplies renewable natural gas (RNG), compressed natural gas (CNG) and liquefied natural gas (LNG) for medium- and heavy-duty vehicle fleets, and provides station construction, operations and maintenance, equipment, credit and vehicle-financing services. As of March 31, 2020, it served more than 1,000 fleet customers operating over 48,000 natural-gas vehicles and owned, operated or supplied approximately 550 stations.
The filing covers the three months ended March 31, 2020, compared primarily with the three months ended March 31, 2019. The financial statements are unaudited.
Financial performance and key metrics
| Metric | Q1 2019 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $77.7 million | $86.0 million | +$8.3 million |
| Volume-related revenue | $74.5 million | $75.1 million | +$0.6 million |
| Station construction revenue | $3.2 million | $5.5 million | +$2.4 million |
| AFTC revenue | $0 | $5.4 million | +$5.4 million |
| Gross margin | $17.3 million | $33.1 million | +$15.8 million |
| Operating income (loss) | $(13.7) million | $2.5 million | Improved by $16.1 million |
| Net income (loss) | $(12.8) million | $0.9 million | Improved by $13.7 million |
| Net income (loss) attributable to Clean Energy | $(10.9) million | $1.7 million | Improved by $12.7 million |
| Basic earnings (loss) per share | $(0.05) | $0.01 | Returned to profit |
Revenue increased approximately 11%. Gross margin improved to approximately 38.5% of revenue from 22.3%, while operating margin improved to approximately 2.9% from negative 17.6%. The improvement was substantially affected by the retroactively reinstated federal Alternative Fuels Excise Tax Credit (AFTC), station construction activity, lower natural-gas costs and a favorable change in the fair value of commodity swaps and related customer contracts.
- Gasoline gallon equivalents delivered increased to 99.3 million from 95.2 million, including CNG growth to 84.1 million gallons from 78.5 million and LNG decline to 15.2 million from 16.7 million.
- Excluding derivative fair-value changes, volume-related revenue declined $10.1 million, primarily because the effective price per gallon fell to $0.70 from $0.84 and RIN and LCFS credit revenue declined.
- Derivative fair-value changes contributed a $5.6 million gain in Q1 2020 versus a $5.0 million loss in Q1 2019.
- Cost of sales declined to $52.9 million from $58.8 million, and effective cost per gallon declined to $0.48 from $0.58.
- SG&A declined modestly to $18.3 million from $18.4 million; depreciation and amortization declined to $11.9 million from $12.5 million.
Cash flow, liquidity, debt and capital resources
- Cash used in operating activities was $4.3 million, compared with $8.2 million used in Q1 2019.
- Cash provided by investing activities was $30.4 million, principally reflecting maturities and sales of short-term investments and BP Transaction earn-out proceeds.
- Cash used in financing activities was $5.6 million, including $4.2 million of share repurchases.
- Total cash, cash equivalents and restricted cash increased to $73.5 million from $53.2 million at December 31, 2019. Cash, cash equivalents and short-term investments totaled $99.3 million at March 31, 2020.
- Total debt was $87.6 million net of financing costs, including $56.0 million classified as current. Total debt and finance leases were approximately $91.4 million in principal amount.
- The company reported approximately $55.1 million of debt and finance lease principal expected to become due during 2020 and stated that it expected to meet principal and interest payments over the next 12 months.
- On May 5, 2020, after quarter-end, the company repaid $35.0 million of 7.5% Notes due June 14, 2020 and expected to repay the remaining $15.0 million by maturity.
- 2020 capital expenditure expectations were reduced to $14.0 million for the core business and $2.0 million for NG Advantage, versus prior expectations of approximately $18.0 million and $12.8 million, respectively.
Material changes versus the prior comparable period
- The company moved from an operating loss and net loss to operating and net income, although the comparison benefited from nonrecurring or volatile items, particularly AFTC revenue and derivative remeasurement gains.
- The AFTC was retroactively extended through December 31, 2020. The company recognized $5.4 million in Q1 2020 and expected 2020 AFTC revenue of approximately $16 million to $20 million after considering COVID-19 effects.
- In February 2020, the company converted the outstanding principal and accrued interest under NG Advantage’s November 2019 Convertible Note into common units, increasing its controlling interest in NG Advantage to 93.2%; subsequent unit issuance increased ownership to 93.3% at March 31, 2020.
- The company authorized a $30.0 million share repurchase program on March 12, 2020. It repurchased 2.8 million shares for $4.2 million through March 31 and 4.7 million shares for approximately $7.6 million through April 30.
- The company adopted the expected-credit-loss standard in Q1 2020 without a material financial statement impact.
Guidance, outlook, commentary and risks
COVID-19 began reducing delivered volumes in mid-March, with the largest effects in airport, public transit and government fleet markets. The company estimated a decline of approximately 3.0 million gallons from mid-March through March 31 compared with January volumes, and estimated a possible negative effect of approximately $11 million on net operating results if the volume declines experienced through April continued through June.
All stations remained operational and the business was designated essential critical infrastructure. Management stated that supply-chain and business-continuity disruptions had not been material as of the filing date, but emphasized substantial uncertainty regarding the duration and severity of the pandemic. Lower oil and diesel prices could further delay natural-gas vehicle adoption, particularly for heavy-duty trucks.
- RIN and LCFS credit prices were volatile and depressed; management estimated Q1 2020 revenue was lower by approximately $3.6 million from RIN price declines and $0.5 million from LCFS price declines.
- AFTC is available through December 31, 2020 and may not be reinstated thereafter, creating a potential revenue headwind.
- The company’s goodwill impairment test at October 1, 2019 showed fair value only 9% above carrying value. A sustained stock-price or market-capitalization decline could trigger an impairment test and a material charge.
- Zero Now exposes the company to commodity swap, customer utilization, debt, LIBOR and payment obligations that may continue even if participating truck operators underperform.
- NG Advantage had approximately $32.3 million of debt at March 31, 2020 and may require additional financing from the company or external sources. Clean Energy guarantees up to $30.0 million plus fees of NG Advantage’s obligations to BP under a CNG supply arrangement.
- Off-balance-sheet exposures included $30.0 million of surety bonds, take-or-pay natural-gas purchase contracts, fixed supply commitments and other contractual obligations.
- Management reported compliance with debt covenants and effective disclosure controls as of March 31, 2020. No material pending legal proceeding was reported.
Important facts for investors to verify
- Whether COVID-19 volume declines and the estimated $11 million potential operating impact persisted beyond April 2020.
- Actual 2020 AFTC collections and the legislative status of the credit after December 31, 2020.
- Repayment of the remaining $15.0 million of 7.5% Notes and the company’s post-repayment liquidity.
- RIN and LCFS credit prices, delivered volumes, effective price per gallon and recurring gross margin excluding derivative and AFTC effects.
- NG Advantage’s operating performance, financing needs, debt service and potential obligations under the BP guaranty.
- Whether declining market capitalization or operating trends result in goodwill or other asset impairment charges.
- Continuing commitments under Zero Now, including potential debt draws, LIBOR exposure, commodity swaps and minimum customer-fueling obligations.