Clean Energy Fuels Corp. — Form 10-Q Summary
Business context and reporting period
Clean Energy Fuels supplies renewable natural gas, compressed natural gas and liquefied natural gas for vehicle fleets in the United States and Canada, and provides fueling-station construction, operation and maintenance, compressor equipment and related services. The unaudited filing covers the three and nine months ended September 30, 2017, compared with the corresponding 2016 periods.
At September 30, 2017, the company served nearly 1,000 fleet customers operating more than 46,000 natural-gas vehicles and owned, operated or supplied more than 575 stations. Management reported 265.0 million gasoline gallon equivalents delivered in the first nine months, up from 244.9 million.
Financial condition and key metrics
| Metric | Q3 2017 | Q3 2016 | 9M 2017 | 9M 2016 |
|---|---|---|---|---|
| Total revenue | $81.8 million | $97.0 million | $252.3 million | $300.8 million |
| Operating loss | $91.1 million | $5.5 million | $115.5 million | $10.4 million |
| Net loss attributable to Clean Energy | $94.1 million | $12.6 million | $50.9 million | $8.3 million |
| Loss per share, basic and diluted | $0.62 | $0.10 | $0.34 | $0.07 |
| Cash flow from operations | Not separately reported | Not separately reported | $(4.9) million | $44.2 million |
- Product revenue was $67.7 million in Q3 and $211.7 million for the nine months; service revenue was $14.1 million and $40.6 million, respectively.
- Reported gross margin was $8.5 million in Q3 and $60.8 million for the nine months, compared with $35.2 million and $111.0 million in the comparable periods. Q3 gross margin included a $13.2 million inventory valuation provision.
- Q3 operating expenses included $60.7 million of asset impairments and other charges. Total Q3 charges, including the inventory provision, were $73.8 million.
- Cash and cash equivalents were $45.3 million and short-term investments were $151.5 million at September 30, 2017, for total cash and short-term investments of $196.8 million, compared with $109.8 million at December 31, 2016.
- Total debt and capital lease obligations were $255.8 million of principal at September 30, 2017, including $139.5 million expected to mature in 2018. Net debt balances reported on the balance sheet were approximately $254.8 million, before separately presented related-party debt classification.
- Capital expenditures were $27.5 million during the first nine months. Management estimated approximately $23.0 million of capital expenditures for full-year 2017, excluding additional equipment spending by NG Advantage related to a customer arrangement.
- Accumulated deficit was $655.2 million at September 30, 2017, and total stockholders’ equity was $465.6 million.
Material changes versus the prior comparable periods
- Revenue declined 15.7% in Q3 and 16.1% for the nine months. The primary drivers were expiration of the federal alternative fuels tax credit, lower credit revenue and reduced station construction and compressor sales.
- VETC revenue was zero in 2017 versus $6.7 million in Q3 2016 and $19.6 million in the first nine months of 2016. The credit expired December 31, 2016.
- Volume increased despite lower revenue: gallons delivered rose 8.3% in Q3 and 8.2% for the nine months. The effective price per gallon fell to $0.69 from $0.85 in Q3 and to $0.76 from $0.86 for the nine months, primarily because of lower RIN and LCFS credit revenue.
- RIN and LCFS credit revenue decreased to $3.8 million in Q3 and $20.1 million for the nine months, versus $11.3 million and $35.2 million, respectively.
- Operating cash flow deteriorated from $44.2 million provided in the first nine months of 2016 to $4.9 million used in 2017.
- The company completed the sale of certain RNG production assets to BP on March 31, 2017, generating net proceeds of approximately $142.2 million and a $69.9 million gain. BP also assumed approximately $8.8 million of Canton Bond obligations and may pay up to an additional $25.0 million based on performance criteria.
- Debt declined from $314.3 million of principal at December 31, 2016 to $255.8 million at September 30, 2017. The company repurchased a $25.0 million related-party 7.5% note for $21.75 million and recognized a $3.2 million gain.
Outlook, management commentary, risks and unusual items
- Management cited continuing low oil prices and slower natural-gas-vehicle adoption as factors reducing the fuel-price advantage of natural gas and pressuring revenue and margins.
- The company decided to close 42 underperforming fueling stations by December 31, 2017, reduce its workforce and lower overhead. It is seeking a strategic partner for Clean Energy Compression and positioning the business for consolidation in the compressor sector.
- Management expects station closures and cost reductions to decrease revenue and expenses in the near term. The filing does not provide formal revenue or earnings guidance.
- Most of the $60.7 million asset impairment and other charges were non-cash. The charges included $32.3 million for Clean Energy Compression assets, $20.4 million for station impairments, $4.9 million of station-related charges and $3.1 million of workforce-reduction costs.
- LCFS credit sales were temporarily restricted while the California Air Resources Board conducted an administrative review. On October 23, 2017, the company paid $5.5 million to settle an LCFS credit delivery obligation. An unfavorable review could require an additional charge for credits that cannot be recovered.
- The company had an $8.8 million commitment to purchase 136 used natural-gas heavy-duty trucks for resale and two take-or-pay natural-gas purchase contracts expiring in 2020.
- Outstanding surety bonds totaled $28.9 million. The company reported compliance with its debt covenants and no debt defaults as of September 30, 2017.
- Management stated that available cash, short-term investments and expected operating and financing cash flows should satisfy requirements for at least the 12 months following the filing, but additional capital may be needed for debt repayment, capital expenditures or unanticipated needs.
- Principal risks include continued operating losses, debt maturities and refinancing needs, volatility in natural-gas and petroleum prices, weak adoption of natural-gas vehicles, competition from electric and other alternative-fuel vehicles, dependence on government incentives and environmental credit programs, regulatory review of LCFS credits, and potential additional asset or goodwill impairments.
Facts investors should verify
- Whether the 42 planned station closures and workforce reductions produce the expected cost savings without materially impairing fuel volumes or customer relationships.
- The outcome of the CARB administrative review and the recoverability of the company’s LCFS credits.
- The company’s ability to fund or refinance approximately $139.5 million of debt maturing in 2018 while operating cash flow remains negative.
- Whether natural-gas vehicle adoption and delivered volumes continue to grow despite low petroleum prices and increasing electric-vehicle competition.
- The sustainability of liquidity after considering debt service, planned capital expenditures, NG Advantage equipment commitments and the heavy-duty truck purchase commitment.
- The potential for further impairments, particularly in the compressor business, fueling stations or goodwill.