Clean Energy Fuels Corp. — 2012 Q2 Form 10-Q Summary
Business context and reporting period
Clean Energy Fuels sells CNG, LNG and RNG fuel and provides fueling-station construction, operations and maintenance, compressor equipment, vehicle conversions, and related services. It served approximately 313 natural-gas fueling locations in 29 U.S. states and parts of Canada as of June 30, 2012. The filing covers the three and six months ended June 30, 2012, with comparisons to the same periods in 2011. The financial statements are unaudited.
Financial performance and liquidity
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Total revenue | $69.8 million | $69.1 million | $143.5 million | $134.5 million |
| Gross margin | $21.3 million | $18.7 million | $39.1 million | $37.0 million |
| Approximate gross margin percentage | 30.5% | 27.0% | 27.2% | 27.5% |
| Operating loss | $6.6 million | $5.8 million | $35.4 million | $16.0 million |
| Net loss attributable to Clean Energy | $11.3 million | $5.6 million | $43.2 million | $15.4 million |
| Loss per diluted share | $0.13 | $0.08 | $0.50 | $0.22 |
| Gasoline-gallon equivalents delivered | 48.6 million | 39.2 million | 92.3 million | 74.7 million |
- Revenue increased 1.1% in Q2 and 6.7% for the first six months. Volume increased 24.0% in Q2 and 23.6% year over year for the first six months.
- Gross margin improved in Q2 because of higher volumes, lower natural-gas costs and a greater mix of O&M contracts, but declined modestly as a percentage of revenue for the six-month period.
- SG&A rose to $27.9 million in Q2 and $52.8 million for the first six months, driven by higher headcount, growth-related expenses and stock-based compensation. Employees increased from 829 to 1,110 year over year.
- Cash used in operating activities was $6.3 million for the six months ended June 30, 2012, compared with $9.9 million provided in the prior-year period.
- Cash used in investing activities was $63.1 million, including $89.3 million of property and equipment purchases, primarily for the initial America’s Natural Gas Highway build-out.
- Cash and cash equivalents were $172.7 million at June 30, 2012, down from $238.1 million at December 31, 2011. Short-term investments were $37.1 million, and restricted cash totaled $28.4 million.
- Total debt and capital lease obligations were $287.6 million, including $253.8 million classified as long term. The balance included $199.0 million of convertible notes issued in 2011, before the July 2012 issuance described below.
- Total assets were $937.7 million and stockholders’ equity was $522.2 million at June 30, 2012.
Material changes versus the prior comparable period
- Revenue growth was supported by additional CNG, LNG and RNG volumes, station construction, and $2.1 million of Low Carbon Fuel Standard credits recognized after a federal court injunction was lifted.
- The federal Volumetric Excise Tax Credit expired December 31, 2011. The company recorded no VETC revenue in 2012, compared with $4.7 million in Q2 2011 and $8.9 million in the first six months of 2011.
- Effective price per gallon declined from $0.87 to $0.80 in Q2 and from $0.86 to $0.82 for the first six months, reflecting lower natural-gas prices and a higher proportion of lower-revenue O&M contracts.
- The Q2 Series I warrant valuation produced an $8.9 million non-cash gain, compared with a $4.8 million gain in the prior-year quarter. For the six months, the company recorded a $4.6 million non-cash loss versus a $1.5 million gain in 2011.
- Interest expense increased to $3.3 million in Q2 and $7.0 million for the first six months, primarily because of the $200 million of convertible notes issued in July and August 2011.
- Property and equipment increased to $355.0 million from $277.3 million at year-end 2011, reflecting station and infrastructure investment.
- The company acquired the remaining interest in ServoTech on April 30, 2012 for $4.0 million, including $1.4 million payable in October 2012.
Guidance, outlook, risks and unusual items
- Management did not provide conventional revenue or earnings guidance. It planned approximately $128.2 million of capital expenditures from July 1 through December 31, 2012, primarily for ANGH stations, LNG capacity, RNG facilities and LNG trailers.
- The first phase of ANGH was expected to include approximately 150 stations, with approximately 70 stations anticipated to be open in 33 states by the end of 2012 and the balance in 2013.
- Management stated that additional capital may be required to fund planned expenditures, acquisitions and investments. Financing may not be available on favorable terms or at all.
- On July 10, 2012, the company issued the second $50.0 million Chesapeake convertible note. A third $50.0 million note was expected in June 2013. The notes bear interest at 7.5% and are convertible at $15.80 per share.
- Key risks include continued operating losses, the loss of federal fuel-tax incentives, execution and customer-adoption risk for ANGH, LNG supply constraints and take-or-pay commitments, competition and pricing pressure, dependence on governmental customers, natural-gas price volatility, foreign-exchange exposure, and the need for additional financing.
- The IRS is seeking approximately $5.1 million related to disputed VETC claims. The company is contesting the matter and estimated the possible loss range at $0 to $5.1 million.
- Outstanding surety bonds totaled $81.4 million. The company also had two LNG take-or-pay contracts, fixed-price fuel-sale commitments, leases and other off-balance-sheet arrangements.
- All reported debt covenants were in compliance as of June 30, 2012. Disclosure controls were also assessed as effective.
Important facts for investors to verify
- Whether ANGH station construction and customer adoption progress sufficiently to generate returns on the substantial capital deployed.
- Available cash, restricted cash, short-term investments and financing capacity relative to the planned $128.2 million second-half 2012 capital program and continuing operating cash use.
- The effect of the expired VETC program on sustainable revenue, margins and profitability.
- Future cash interest, maturities, conversion or dilution associated with the Chesapeake and SLG convertible notes and other debt.
- The ultimate resolution of the IRS VETC dispute and any other litigation, tax audits or contingencies.
- The effect of warrant revaluations, contingent consideration and other non-cash fair-value adjustments on reported earnings.
- LNG supply availability, take-or-pay obligations, RNG facility expansion and the company’s ability to maintain margins amid competition and changing fuel prices.