Clean Energy Fuels Corp. 10-Q Summary
Business Context and Reporting Period
Clean Energy Fuels Corp. provides CNG, LNG and RNG vehicle-fueling solutions, including station design, construction, operation and maintenance, fuel supply, equipment manufacturing, RNG production, credit sales and customer vehicle financing. The company primarily serves fleet operators in the United States and Canada.
This unaudited Form 10-Q covers the three and nine months ended September 30, 2015, with comparisons to the corresponding 2014 periods. At September 30, 2015, the company served approximately 954 fleet customers operating approximately 42,941 natural-gas vehicles and owned, operated or supplied 569 fueling stations.
Key Financial Metrics
| Metric | Q3 2015 | Q3 2014 | 9M 2015 | 9M 2014 |
|---|---|---|---|---|
| Total revenue | $92.3 million | $103.4 million | $265.0 million | $296.8 million |
| Gross margin | $25.5 million | $19.4 million | $69.7 million | $68.0 million |
| Gross margin percentage | 27.7% | 18.8% | 26.3% | 22.9% |
| Operating loss | $(15.8) million | $(17.9) million | $(56.5) million | $(58.2) million |
| Net loss attributable to Clean Energy | $(23.1) million | $(30.1) million | $(84.2) million | $(91.0) million |
| Loss per share | $(0.25) | $(0.32) | $(0.92) | $(0.96) |
| Gasoline gallon equivalents delivered | 80.6 million | 68.6 million | 230.2 million | 192.7 million |
Product revenue was $77.4 million in Q3 and $222.4 million for the first nine months. Service revenue was $14.9 million in Q3 and $42.6 million for the first nine months. The effective price per gallon declined to $0.81 in Q3 and $0.83 for the first nine months, versus $0.90 and $0.92, respectively, in the comparable 2014 periods.
Cash and cash equivalents were $51.8 million at September 30, 2015, compared with $92.4 million at December 31, 2014. Short-term investments were $114.1 million, producing total cash and short-term investments of approximately $166.0 million. Total assets were $1.045 billion and total stockholders’ equity was $373.4 million.
Net cash used in operating activities was $1.0 million for the first nine months of 2015, compared with $56.4 million in the prior-year period. Investing activities used $32.6 million, including $40.2 million of property and equipment purchases. Financing activities used $4.3 million. Net cash decreased by $40.5 million during the period.
Total debt and capital lease obligations were $574.2 million at September 30, 2015, including $295.0 million of 7.5% notes and SLG notes, $250.0 million of 5.25% convertible notes, and $65.0 million of related-party debt classified separately on the balance sheet. Approximately $150.2 million of debt was expected to mature in 2016, including the $145.0 million SLG Notes. Management anticipated repaying the SLG Notes with a combination of cash and common stock.
Material Changes Versus the Prior Comparable Period
- Revenue declined 10.8% in Q3 and 10.7% for the first nine months, primarily because of lower station construction sales and weaker Clean Energy Compression equipment revenue.
- Station construction revenue fell from $21.8 million to $11.5 million in Q3 and from $52.8 million to $27.5 million for the first nine months.
- Clean Energy Compression revenue declined from $19.3 million to $12.9 million in Q3 and from $63.4 million to $41.4 million for the first nine months, reflecting lower oil prices, a stronger U.S. dollar and slower-than-expected sales in China.
- Delivered volume increased 17.5% in Q3 and 19.5% for the first nine months, primarily from higher CNG volumes. CNG increased to 168.5 million GGEs for the first nine months from 130.5 million.
- Gross margin improved despite lower revenue, primarily because of lower fuel and equipment costs and the change in revenue mix. Effective cost per gallon declined to $0.55 in Q3 and $0.56 for the first nine months.
- SG&A declined by $0.4 million in Q3 and $9.1 million for the first nine months, primarily from company-wide cost reductions, partly offset by higher bad-debt expense.
- Depreciation and amortization increased by $1.7 million in Q3 and $4.9 million for the first nine months, reflecting the expanded station network and assets acquired with NG Advantage.
- The federal alternative fuels excise tax credit expired December 31, 2014. No VETC revenue was recognized in 2015; the company recognized $28.4 million in 2014 related to the credit.
- The company received $1.1 million in September 2015 from the sale of its former DCE subsidiary based on performance-test results. Q3 also included a $1.4 million litigation-settlement gain and $0.9 million of DCE earn-out income.
Guidance, Outlook, Commentary and Risks
Management expected long-term growth in natural-gas vehicle fuel demand and planned to expand fuel sales in heavy-duty trucking, refuse, airports, ready-mix, fleet services and public transit. No formal revenue or earnings guidance was provided in the filing.
The company expected approximately $19.6 million of capital expenditures from October 1 through December 31, 2015, primarily for CNG and LNG station construction and additional NG Advantage CNG trailers. Management stated that existing cash, operating cash generation and available credit under the GE facility were expected to satisfy routine business requirements for at least the next twelve months, but also warned that additional capital may be required for capital expenditures, investments and debt repayments.
The company had not drawn on the $200.0 million GE credit facility for two LNG plants as of September 30, 2015. The facility was subject to conditions, including site acquisition, permits and utility commitments, and the funding commitment would terminate if conditions were not satisfied by December 31, 2016.
- Profitability remains uncertain; the company has a history of substantial operating and net losses and may never achieve sustained profitability.
- Debt service and upcoming maturities create significant liquidity and refinancing risk. Repayment with common stock could dilute existing shareholders.
- Natural-gas vehicle adoption depends on fuel-price differentials, vehicle availability, engine technology, infrastructure utilization and government incentives.
- Lower oil, gasoline and diesel prices may reduce customer incentives to adopt natural-gas vehicles and may pressure fuel margins.
- The company had 44 completed America’s Natural Gas Highway stations that were not open for fueling operations, creating a risk that invested assets may not generate adequate returns.
- Two long-term LNG take-or-pay contracts require minimum purchases through March 2017 and October 2019, exposing the company to costs if demand is insufficient.
- Surety bonds totaled $59.1 million, and the company had operating leases and other contractual commitments.
- RIN and LCFS credit prices and related regulatory programs are volatile. Changes to tax credits, emissions rules or renewable-fuel programs could adversely affect results.
- Natural-gas equipment, LNG, RNG and station operations carry safety, environmental, product-liability and warranty risks.
- Foreign operations expose the company to currency risk; a 10% exchange-rate movement was estimated to affect related assets and liabilities by approximately $1.6 million.
Investor Verification Checklist
- Verify the company’s ability to fund the approximately $150.2 million of debt expected to mature in 2016, including the SLG Notes.
- Assess whether the improvement in gross margin is sustainable after adjusting for lower commodity prices, reduced station construction activity and the absence of VETC revenue.
- Monitor CNG, LNG and RNG volumes, effective prices per gallon, station utilization and the opening of the 44 completed but inactive ANGH stations.
- Evaluate the recovery or further deterioration of Clean Energy Compression sales, particularly in China and other international markets.
- Track operating cash flow after the collection of 2014 VETC receivables and determine whether the business can remain near cash-flow break-even.
- Review potential dilution from convertible notes, warrants, options, restricted stock units and any repayment of debt with common stock.
- Confirm the status and economics of the undrawn GE LNG-plant facility and the company’s required equity contributions.
- Monitor changes in federal and state fuel credits, LCFS and RIN markets, greenhouse-gas regulation, and LNG fuel-tax treatment effective January 1, 2016.