Clean Energy Fuels Corp. — Q1 2015 Form 10-Q Summary
Business context and reporting period
Clean Energy Fuels provides CNG, LNG and RNG fueling solutions, including station design, construction, operation and maintenance, natural gas equipment, CNG transportation, renewable fuel credits and vehicle financing. The unaudited report covers the three months ended March 31, 2015, compared primarily with the three months ended March 31, 2014.
- At March 31, 2015, the Company served approximately 964 fleet customers operating approximately 41,669 natural gas vehicles.
- The Company owned, operated or supplied 557 fueling stations in 42 U.S. states and British Columbia and Ontario.
- Gasoline gallon equivalents delivered increased 26.9% to 75.2 million, including CNG of 52.4 million, RNG of 4.5 million and LNG of 18.3 million.
Financial performance and position
| Metric | Q1 2014 | Q1 2015 | Change |
|---|---|---|---|
| Total revenue | $95.3 million | $85.8 million | Down $9.5 million |
| Gross margin | $23.6 million | $21.1 million | Down $2.5 million |
| Gross margin percentage | 24.8% | 24.6% | Down 0.2 percentage points |
| Operating loss | $(16.9) million | $(21.1) million | Loss increased $4.2 million |
| Net loss attributable to Clean Energy | $(28.6) million | $(31.1) million | Loss increased $2.6 million |
| Loss per share | $(0.30) | $(0.34) | Worsened $0.04 |
| Cash provided by operating activities | $(14.5) million | $20.9 million | Improved $35.4 million |
- Product revenue declined to $69.3 million from $85.8 million, while service revenue increased to $16.6 million from $9.5 million.
- Natural gas sales revenue increased by $6.4 million and RIN credit revenue increased by $2.0 million. These gains were more than offset by lower station construction revenue and lower IMW equipment revenue.
- Station construction revenue fell to $6.5 million from $16.3 million. IMW revenue fell to $14.4 million from $22.3 million, primarily because of a soft global oil market and changes in customer mix.
- Effective price per gallon declined to $0.85 from $0.94, while effective cost per gallon declined to $0.58 from $0.67.
- SG&A declined to $30.2 million from $33.5 million, but depreciation and amortization increased to $12.9 million from $11.5 million.
- Interest expense increased to $9.9 million from $9.5 million. The Company recorded a $0.9 million non-cash gain from Series I warrant valuation, compared with a $4.5 million gain in the prior-year quarter.
- Cash, cash equivalents and short-term investments totaled $220.4 million at March 31, 2015. Cash and cash equivalents were $106.9 million and short-term investments were $113.6 million.
- Total assets were $1.121 billion and total stockholders’ equity was $427.6 million at March 31, 2015.
Material changes versus the prior comparable period
- Revenue decreased 10.0%, despite a 26.9% increase in fuel volumes, reflecting lower station construction activity, lower IMW sales and lower fuel prices.
- The federal alternative fuels excise tax credit expired December 31, 2014. No Q1 2015 VETC revenue was recorded, although the Company received $28.4 million in cash during March 2015 for 2014 credits.
- Operating losses widened because lower revenue and a reduced warrant valuation gain more than offset lower cost of sales and lower SG&A.
- Operating cash flow turned positive primarily because of collections of receivables, including the $28.4 million VETC cash receipt.
- Investing cash outflow decreased to $3.9 million from $78.0 million, principally because Q1 2014 included substantial station and equipment purchases.
- NG Advantage, acquired in October 2014, contributed to higher depreciation, amortization and interest expense and generated a $0.4 million noncontrolling-interest loss in Q1 2015.
- The Company’s accumulated deficit increased to $488.6 million from $457.4 million at December 31, 2014.
Debt, liquidity, outlook and risks
- Total debt and capital lease obligations were $574.6 million at March 31, 2015, including $295.0 million of 7.5% convertible notes, $250.0 million of 5.25% convertible notes, $11.6 million of bonds, $7.8 million of capital leases and $10.1 million of other debt.
- Approximately $4.1 million, $149.7 million, $5.1 million, $304.7 million and $54.3 million of consolidated debt was expected to mature in 2015, 2016, 2017, 2018 and 2019, respectively. Expected 2015 interest obligations were approximately $36.6 million.
- The Company planned approximately $46.9 million of capital expenditures from April 1 through December 31, 2015, primarily for fueling stations and CNG trailers.
- Management stated that additional capital may be required for capital expenditures, acquisitions, investments and debt repayment, and that financing may not be available on favorable terms or at all.
- The Company expects long-term growth in natural gas vehicle fuel demand and plans to expand CNG, LNG and RNG sales, station infrastructure and potentially rail-related markets. It also expects operating costs and capital expenditures to increase.
- Management expects increased competition and related pricing pressure, which could reduce operating margins.
- The Company had not drawn on its $200.0 million GE LNG-plant credit facility as of March 31, 2015. The facility was extended to permit initial funding through December 31, 2016, subject to conditions.
- Off-balance-sheet arrangements included $45.6 million of surety bonds, a long-term LNG take-or-pay contract expiring in October 2017 and operating leases.
- Key risks include continued losses, substantial debt service, dependence on adoption of natural gas vehicles and heavy-duty natural gas trucks, fuel-price volatility, expiration of government incentives, competition, LNG supply constraints, take-or-pay obligations, construction and execution risks, RNG production risks, regulatory changes and the potential need for additional financing.
- No debt covenant violations or debt-related events of default were reported at March 31, 2015. Disclosure controls and procedures were reported effective.
Important facts for investors to verify
- Whether the Company can replace the recurring economic benefit of the expired VETC program through volume growth, pricing, RINs, LCFS credits or other sources.
- Whether higher fuel volumes translate into improved gross margins and whether station construction and IMW revenue recover.
- The Company’s ability to fund approximately $46.9 million of remaining 2015 capital expenditures while meeting scheduled debt maturities and interest obligations.
- Actual utilization and profitability of the approximately 93 ANGH stations built before sufficient customer demand developed.
- Adoption rates for heavy-duty natural gas trucks and the availability of suitable engines and vehicles.
- Performance of NG Advantage, the Shelby RNG facility and other RNG projects, including production volumes and credit pricing.
- Potential dilution from convertible notes, warrants, options and restricted stock units; approximately 35.2 million shares were issuable under convertible notes at March 31, 2015.
- Potential additional payment of up to $3.0 million related to the 2014 sale of DCE, subject to performance tests scheduled for 2015.