Clean Energy Fuels Corp. 10-Q Summary
Reporting period: Three months ended March 31, 2014; comparative period is the three months ended March 31, 2013. The interim financial statements are unaudited and prepared under U.S. GAAP.
Business Context
Clean Energy sells CNG, LNG and RNG fueling solutions, operates or supplies approximately 500 natural-gas fueling stations in the United States and Canada, constructs fueling stations, provides operation and maintenance services, manufactures fueling compressors, sells renewable and environmental credits, and finances certain customer vehicle purchases. The company is investing heavily in America’s Natural Gas Highway and related LNG infrastructure.
Key Financial Metrics
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Total revenue | $95.3 million | $93.0 million |
| Product revenue | $85.8 million | $83.5 million |
| Service revenue | $9.5 million | $9.6 million |
| Gross profit | $23.6 million | $42.3 million |
| Gross margin | 24.8% | 45.5% |
| Operating loss | $16.9 million | $1.2 million |
| Operating margin | (17.8%) | (1.3%) |
| Net loss attributable to Clean Energy | $28.6 million | $3.9 million |
| Net loss per diluted share | $0.30 | $0.04 |
| Cash used in operating activities | $14.5 million | $16.9 million |
| Cash used in investing activities | $78.0 million | $2.9 million |
| Cash provided by financing activities | $6.2 million | $5.9 million used |
| Cash and cash equivalents at period end | $154.3 million | $82.6 million |
Total gasoline gallon equivalents delivered increased to 59.3 million from 49.9 million, including CNG of 39.4 million, RNG of 3.2 million and LNG of 16.7 million. The effective price per gallon increased to $0.94 from $0.83, while effective cost per gallon increased to $0.67 from $0.55.
At March 31, 2014, cash and short-term investments totaled $318.8 million, down from $378.3 million at December 31, 2013. Total assets were $1.225 billion and total stockholders’ equity was $494.2 million. Consolidated debt and capital lease obligations were $622.9 million, including $295.0 million of Series 2011 convertible notes and $250.0 million of 5.25% convertible senior notes. Interest expense increased to $9.5 million from $5.1 million.
Material Changes Versus the Prior Comparable Period
- Revenue increased $2.3 million, or approximately 2.4%, despite the expiration of the federal volumetric excise tax credit program. Q1 2013 included $26.2 million of VETC revenue, including $20.8 million related to 2012; no comparable VETC revenue was recorded in Q1 2014.
- Higher station construction activity, increased CNG and LNG volumes, and higher IMW revenue offset the loss of VETC revenue and reduced BAF revenue following its June 2013 sale.
- Gross profit declined $18.7 million and gross margin fell approximately 20.7 percentage points, primarily because Q1 2013 benefited from VETC revenue and Q1 2014 had higher product and station construction costs.
- The operating loss increased $15.7 million. Product cost of sales rose $21.1 million, depreciation and amortization increased $1.4 million, and SG&A increased $0.6 million.
- A $4.5 million non-cash gain from the change in fair value of Series I warrants partially offset Q1 2014 losses; Q1 2013 included a $0.5 million warrant valuation loss and a $4.7 million gain on the sale of the Peru joint venture.
- Capital expenditures increased substantially, including $46.9 million of property and equipment purchases versus $21.7 million in Q1 2013. The company purchased 67 CNG-In-A-Box units for $18.4 million.
- In March 2014, Canton Renewables issued $12.4 million of revenue bonds, primarily to refinance construction costs for its Michigan RNG project.
Guidance, Outlook, Risks and Unusual Items
Management expects long-term growth in natural-gas vehicle adoption, supported by the anticipated cost advantage of natural gas versus gasoline and diesel and expansion in trucking, refuse, airport, transit, marine and rail markets. Management expects operating costs and capital expenditures to increase as the station network, LNG production capacity, RNG projects and sales organization expand.
The company planned approximately $40.0 million of additional capital expenditures from April 1 through December 31, 2014, primarily for CNG and LNG fueling stations. Management stated that additional capital may be required for capital expenditures, acquisitions, strategic investments and other growth initiatives.
- The VETC program expired December 31, 2013, creating a significant revenue and profitability headwind.
- America’s Natural Gas Highway requires substantial capital and depends on adoption of suitable heavy-duty natural-gas engines, customer utilization, LNG availability, construction execution and adequate financing.
- The company has four LNG take-or-pay contracts. One expires in June 2014, two in December 2015 and one in October 2017; weak demand could increase costs and reduce margins.
- RNG production at the McCommas Bluff and Canton facilities has been below expectations due to plant performance and equipment issues. The company is pursuing remedies and expects additional repair costs.
- Natural-gas prices, gasoline and diesel prices, environmental programs, RIN and LCFS credit prices, competition, regulatory changes and customer adoption materially affect results.
- Outstanding surety bonds totaled $77.6 million. The company also has operating leases and LNG purchase commitments. Management did not believe a material payment under the surety bonds was probable.
- The company reported compliance with its disclosed debt covenants and no events of default as of March 31, 2014. It had not drawn on the $200.0 million GE LNG facility.
- Foreign-currency transaction losses were approximately $0.9 million in Q1 2014. The company had no natural-gas futures contracts outstanding at quarter-end.
- Management stated that disclosure controls were effective and that no material changes affected internal control over financial reporting during the quarter.
Important Facts for Investors to Verify
- Whether increased fuel volumes and station construction revenue can offset the permanent or extended absence of VETC revenue.
- Whether gross margins improve as station utilization increases and construction activity normalizes.
- Cash-burn trends, planned capital expenditures and the timing or terms of any additional financing.
- Debt service requirements, convertible-note dilution potential and refinancing needs.
- Customer adoption and utilization of America’s Natural Gas Highway stations and heavy-duty natural-gas trucks.
- Progress in correcting McCommas Bluff and Canton RNG production issues and the related financial impact.
- Exposure under LNG take-or-pay contracts, surety bonds, leases and other commitments.
- Volatility from Series I warrant revaluation, environmental credits, natural-gas prices and foreign exchange.