Clean Energy Fuels Corp. annual report, FY2013

Clean Energy Fuels Corp. — Form 10-K Summary

Reporting period: Fiscal year ended December 31, 2013. The filing was signed February 27, 2014. Although the request references 2013 Q4, this is an annual report; fourth-quarter results are included where relevant. Clean Energy provides CNG, LNG and RNG vehicle fuel, fueling-station construction and operation, maintenance services, compressors and equipment, renewable-fuel credits, and related financing solutions in the United States, Canada and selected international markets.

Business Context

• At year-end, the company served approximately 779 fleet customers operating approximately 35,240 natural-gas vehicles.
• It owned, operated or supplied 471 fueling stations in 39 states and parts of Canada, including 229 owned stations.
• 2013 delivered volume was 214.4 million gasoline gallon equivalents: 143.9 million CNG, 10.5 million RNG and 60.0 million LNG.
• CNG and RNG represented 72% of natural-gas sales volume; LNG represented 28%.
• America’s Natural Gas Highway had 85 completed stations, 22 open and selling fuel, and 28 additional stations under development at December 31, 2013.

Financial Performance and Position

Metric	2013	2012	Change
Total revenue	$352.5 million	$334.0 million	+$18.5 million, 5.5%
Gross margin	$127.7 million	$80.3 million	+$47.4 million
Operating loss	$51.7 million	$70.5 million	Improved $18.8 million
Net loss attributable to Clean Energy	$67.0 million	$101.3 million	Improved $34.3 million
Loss per share	$0.71	$1.16	Improved
Cash used in operations	$4.7 million	$19.8 million	Improved $15.1 million
Capital expenditures	$86.7 million	$192.9 million	Down $106.2 million
Cash provided by financing	$290.7 million	$53.6 million	+$237.1 million

Reported gross margin benefited materially from $45.4 million of federal alternative-fuel tax credits, including $20.8 million related to 2012. The effective price per gallon increased to $0.89 from $0.82, while effective cost per gallon increased to $0.58 from $0.52.

• Product revenue was $310.8 million and service revenue was $41.7 million.
• SG&A increased to $138.0 million from $118.0 million, reflecting personnel, expansion, professional services, travel, headquarters relocation and other growth-related costs.
• Depreciation and amortization increased to $42.3 million from $36.3 million.
• Net interest expense increased to $29.3 million from $16.1 million as debt increased.
• Year-end cash and cash equivalents were $240.0 million, short-term investments were $138.2 million, and working capital was $401.0 million.
• Total debt and capital lease obligations were $620.4 million, compared with $331.0 million at year-end 2012. Current maturities were $23.4 million.
• Total assets increased to $1.251 billion from $975.2 million; total stockholders’ equity declined to $518.5 million from $546.6 million.

Material Changes Versus 2012

• Delivered volume increased 10.0% to 214.4 million GGEs, led by CNG growth of 13.4 million GGEs, LNG growth of 4.5 million and RNG growth of 1.6 million.
• Revenue growth was partly offset by a $57.7 million decline in station-construction revenue because four large transit-station sales in 2012 did not recur.
• BAF and ServoTech were sold to Westport on June 28, 2013. The divested businesses contributed approximately $7.0 million of 2013 revenue versus $24.3 million in 2012. The company recorded a $14.1 million gain from the sale, after a write-down of retained Westport shares.
• IMW revenue increased to approximately $77.5 million from $64.5 million.
• MGES was acquired in May 2013 for approximately $21.0 million, expanding CNG station design, construction and maintenance capabilities.
• LCFS and RIN credit revenue increased to $8.6 million from $2.9 million.
• Debt increased primarily from $250.0 million of 5.25% convertible senior notes issued in September, $50.0 million of additional 7.5% convertible notes, and $15.0 million drawn under the Mavrix Note.
• Fourth-quarter revenue was $85.0 million and net loss attributable to Clean Energy was $32.3 million, compared with fourth-quarter 2012 revenue of $99.1 million and net loss of $41.7 million. The 2013 fourth-quarter loss included a $1.4 million write-down related to retained Westport shares.

Cash Flow, Debt and Liquidity

Operating cash flow remained negative, although the deficit narrowed substantially because the company collected additional VETC amounts. Financing proceeds, particularly the 5.25% convertible-note offering, increased cash and investments. Management expected approximately $135.0 million of 2014 capital expenditures for fueling stations, ANGH, LNG-plant expansion and development, RNG projects and LNG trailers, and stated that additional capital might be required.

• Contractual obligations totaled approximately $940.7 million, including $818.8 million of debt and capital-lease obligations, $61.6 million of operating leases, $22.1 million of LNG take-or-pay commitments and $35.0 million of construction commitments.
• 2014 scheduled debt maturities were $23.4 million; larger maturities included $145.0 million of SLG Notes in 2016 and $250.0 million of 5.25% Notes in 2018.
• The company had an undrawn GE credit facility of up to $200.0 million for two LNG plants, subject to conditions. If initial loans were not made by December 31, 2014, the facility would terminate.
• The company reported compliance with its debt covenants at December 31, 2013 and no events of default under the 5.25% Notes.

Outlook, Commentary and Risks

• Management expected long-term growth in natural-gas vehicle adoption, particularly in heavy-duty trucking, supported by the commercial availability of the 400-horsepower Cummins Westport ISX 12G engine, vehicle financing through GE and ANGH infrastructure.
• The company planned to expand its Boron, California LNG plant, develop two additional LNG plants with GE, pursue regional LNG projects through Eagle LNG Partners, and expand RNG production, including a Tennessee facility expected to become operational in the first or second quarter of 2014.
• The federal VETC program expired December 31, 2013. VETC represented $45.4 million of 2013 revenue, or approximately 12.9% of total revenue; failure to renew the credit could materially reduce revenue and profitability.
• The company has a history of losses: pre-tax losses were $48.2 million in 2011, $99.6 million in 2012 and $63.2 million in 2013. Sustained profitability without tax credits and other incentives had not been achieved.
• Key risks include heavy-duty truck and engine adoption, underutilized ANGH stations, LNG supply constraints, take-or-pay commitments, natural-gas and petroleum-price volatility, intensifying competition, regulatory changes, access to capital and substantial debt-service requirements.
• RNG production at the McCommas Bluff and Canton facilities was below expectations because of contractor performance and equipment issues. The company was pursuing remedies and could incur additional costs.
• LCFS and RIN prices are volatile and depend on federal and state renewable-fuel programs. Changes to those programs could materially affect the RNG business.
• At December 31, 2013, the company had $7.7 million of vehicle-financing loans outstanding, $68.6 million of surety bonds, and four LNG take-or-pay contracts.
• The company reported no material unresolved legal proceedings, but stated that unfavorable outcomes from litigation, tax audits or other contingencies could affect liquidity or results.

Most Important Facts to Verify

• Whether the company can replace the $45.4 million of 2013 VETC revenue after the program’s expiration.
• Actual utilization, revenue and margins of ANGH stations, especially the 63 completed stations not yet open at year-end.
• 2014 operating cash flow relative to the planned $135.0 million capital program and scheduled debt payments.
• Progress, funding requirements and contractual status of the two GE LNG plants and the Boron expansion.
• RNG production recovery at McCommas Bluff and Canton, including contractor claims and required remediation spending.
• Exposure to LNG take-or-pay commitments if heavy-duty trucking demand does not develop as expected.
• Potential dilution from convertible notes, options, restricted stock units and warrants.
• Revenue quality and sustainability excluding tax credits, asset-sale gains and other unusual items.