Clean Energy Fuels Corp. — FY2014 Form 10-K Summary
Business context and reporting period
Annual report for the fiscal year ended December 31, 2014, filed February 26, 2015. Clean Energy provides CNG, LNG and RNG vehicle-fueling solutions, station construction and operations, compressor equipment, CNG transportation, renewable-fuel credits and vehicle financing. The company operated or supplied more than 545 stations in 42 U.S. states and parts of Canada, serving approximately 943 fleet customers and 40,814 natural-gas vehicles.
The filing includes fourth-quarter results. Fourth-quarter 2014 revenue was $132.1 million and net income attributable to Clean Energy was $1.3 million, compared with fourth-quarter 2013 revenue of $85.0 million and a $32.3 million attributable net loss.
Financial performance and liquidity
| Metric | FY2014 | FY2013 | Change |
|---|---|---|---|
| Revenue | $428.9 million | $352.5 million | +21.7% |
| Gross margin | $120.2 million | $127.7 million | −5.9% |
| Gross margin percentage | 28.0% | 36.2% | −8.2 percentage points |
| Operating loss | $54.4 million | $51.7 million | Loss increased |
| Operating margin | −12.7% | −14.7% | Improved |
| Net loss attributable to Clean Energy | $89.7 million | $67.0 million | Loss increased |
| Loss per share | $0.96 | $0.71 | Loss increased |
| Gasoline-gallon-equivalents delivered | 265.1 million | 214.4 million | +23.6% |
| Cash used in operating activities | $76.0 million | $4.7 million | Use increased |
Revenue growth was driven by higher CNG, LNG and RNG volumes, station construction and higher IMW equipment revenue. Volume increased 24%, including CNG deliveries of 182.6 million GGEs, RNG of 12.2 million GGEs and LNG of 70.3 million GGEs. Cost of sales increased faster than revenue, reflecting higher natural-gas and LNG delivery costs, station-construction costs and IMW manufacturing costs.
FY2014 results included $28.4 million of federal alternative-fuel tax-credit revenue. The VETC program expired December 31, 2014. The company also recorded a $5.7 million non-cash gain from Series I warrant valuation, a $12.0 million gain on the sale of its Dallas RNG subsidiary, and a $4.8 million fourth-quarter impairment of an IMW-related intangible contract.
At December 31, 2014, cash and cash equivalents were $92.4 million, short-term investments were $122.5 million, and working capital was $293.4 million. Total debt and capital-lease obligations were $570.7 million, including $295.0 million of 7.5% notes and $250.0 million of 5.25% convertible notes. Expected 2015 interest obligations were approximately $37.5 million.
Material changes versus the prior comparable period
- Delivered volumes increased from 214.4 million to 265.1 million GGEs, while gross margin declined from $127.7 million to $120.2 million.
- Cash used in operations increased substantially, principally because $28.4 million of 2014 VETC revenue was recorded in December but not collected during the year, combined with higher interest payments and working-capital requirements.
- SG&A decreased $11.6 million to $126.4 million, primarily because of lower stock-based compensation, while depreciation and amortization increased $6.8 million to $49.1 million.
- Clean Energy acquired a 53.3% controlling interest in NG Advantage for $37.7 million and purchased a CNG station for $9.0 million. NG Advantage transports CNG by trailer to industrial and institutional users without pipeline access.
- The company formed Mansfield Clean Energy Partners, a 50/50 joint venture intended to develop fueling solutions for bulk fuel haulers.
- Clean Energy sold its remaining interest in Dallas Clean Energy for approximately $40.6 million in cash and recorded a $12.0 million gain. It retained rights to market biomethane under the Redeem brand.
- The GE LNG-plant credit agreement was amended to extend the deadline for satisfying conditions and drawing up to $200 million of project loans from December 31, 2014 to December 31, 2016. No amounts had been drawn at year-end.
Guidance, outlook, risks and unusual items
Management expects long-term growth in natural-gas vehicle adoption and plans to expand CNG, LNG and RNG sales, station infrastructure, LNG and RNG production, and industrial CNG delivery. The 2015 business plan calls for approximately $58.3 million of capital expenditures, primarily for fueling stations and CNG trailers. Management stated that additional capital may be required for capital expenditures, acquisitions, strategic investments and debt service.
- The expiration of VETC removes a material revenue source: VETC contributed $45.4 million in 2013 and $28.4 million in 2014.
- America’s Natural Gas Highway included approximately 92 stations completed before sufficient customer demand had developed, creating underutilization and potential LNG-related losses.
- The company remains exposed to gasoline, diesel and natural-gas price volatility, pricing pressure, competition from fuel providers and utilities, and uncertainty regarding heavy-duty natural-gas truck adoption.
- LNG supply is constrained and includes take-or-pay commitments. The principal LNG contract expires in October 2017; estimated fixed commitments were approximately $7.97 million for 2015, $4.63 million for 2016 and $3.86 million for 2017.
- Contractual obligations totaled approximately $791.6 million, including $700.1 million of debt and capital-lease payments, $59.4 million of operating leases, $13.1 million of LNG take-or-pay commitments and $18.9 million of construction commitments.
- Outstanding surety bonds totaled $45.2 million. Management stated that no material payment was considered probable.
- The company has a history of losses and reported a FY2014 pre-tax loss of $89.8 million. Debt maturities include approximately $148.8 million in 2016 and $303.6 million in 2018.
- Management reported compliance with applicable debt covenants, effective disclosure controls and effective internal control over financial reporting. The independent auditor issued an unqualified opinion.
Most important facts for an investor to verify
- Whether post-VETC fuel volumes and margins can support the business without the $28.4 million FY2014 tax-credit contribution.
- Actual cash generation, collection of 2014 fuel-tax-credit receivables and working-capital needs.
- Debt refinancing and repayment capacity, particularly the 2016 and 2018 maturities and approximately $37.5 million of expected 2015 interest payments.
- Utilization, profitability and impairment risk for America’s Natural Gas Highway stations.
- NG Advantage integration, required trailer capital expenditures and contribution to revenue and cash flow.
- Progress, funding requirements and conditions for the two proposed GE LNG plants, including the company’s required equity contributions.
- Exposure to take-or-pay LNG commitments, LNG supply availability and volatility in RIN and LCFS credit prices.
- Potential dilution from convertible notes, warrants, options and restricted stock units.