Clean Energy Fuels Corp. — 2020 Q3 Form 10-Q Summary
Business context and reporting period
Clean Energy Fuels sells renewable natural gas (RNG), compressed natural gas (CNG) and liquefied natural gas (LNG) as vehicle fuels, provides station design, construction, operation and maintenance services, sells renewable fuel credits, and transports CNG through its NG Advantage subsidiary. The company primarily serves medium- and heavy-duty fleets in the United States and Canada. As of September 30, 2020, it served more than 1,000 fleet customers operating more than 48,000 natural-gas vehicles and owned, operated or supplied approximately 550 stations.
This unaudited Form 10-Q covers the three and nine months ended September 30, 2020, compared with the corresponding 2019 periods. The company reported approximately 198.3 million common shares outstanding as of October 30, 2020.
Financial performance and key metrics
| Metric | Q3 2019 | Q3 2020 | 9M 2019 | 9M 2020 |
|---|---|---|---|---|
| Revenue | $74.4 million | $70.9 million | $224.5 million | $216.8 million |
| Gross profit | $24.5 million | $25.6 million | $68.1 million | $80.0 million |
| Gross margin | 32.9% | 36.1% | 30.3% | 36.9% |
| Operating loss | $(5.4) million | $(2.8) million | $(24.8) million | $(7.5) million |
| Net loss attributable to Clean Energy | $(4.3) million | $(2.3) million | $(20.7) million | $(7.3) million |
| Loss per share | $(0.02) | $(0.01) | $(0.10) | $(0.04) |
| Gasoline gallon equivalents delivered | 102.7 million | 97.7 million | 297.5 million | 286.5 million |
Q3 revenue declined 4.8% year over year, while nine-month revenue declined 3.4%. Volume-related revenue fell to $57.1 million in Q3 from $67.9 million and to $182.4 million for the nine months from $208.7 million. Station construction revenue increased to $8.7 million in Q3 and $19.5 million for the nine months. Alternative fuel excise tax credit revenue contributed $5.0 million in Q3 and $14.8 million for the nine months; no comparable credit revenue was recorded in 2019 periods.
Gross margin improved primarily because of lower natural gas and transportation costs, lower cost per gallon, AFTC revenue, and a favorable change in the fair value of commodity swap and customer contracts for the nine-month period. The nine-month derivative impact was a $4.0 million gain in 2020 versus a $3.3 million loss in 2019. Q3 volume-related revenue also reflected a $0.1 million derivative loss versus a $1.1 million gain in the prior-year quarter.
Operating expenses declined to $73.7 million in Q3 and $224.2 million for the nine months, compared with $79.8 million and $249.3 million, respectively. SG&A declined 6% in Q3 and 4% for the nine months, primarily due to lower advertising, travel and other COVID-19-related spending. Depreciation and amortization also declined modestly.
Cash flow, liquidity and debt
- Cash provided by operating activities was $53.1 million for the nine months ended September 30, 2020, compared with $4.6 million in 2019. The increase was driven principally by AFTC collections and working-capital timing, partially offset by the $7.8 million payment to terminate part of an NG Advantage contract with BP.
- Cash provided by investing activities was $57.3 million, primarily reflecting net maturities of short-term investments. Capital expenditures were approximately $8.5 million for the nine months.
- Cash used in financing activities was $67.9 million, including repayment of the remaining $50.0 million of 7.5% Notes and $13.7 million of common-stock repurchases.
- Cash, cash equivalents and restricted cash totaled $95.6 million at September 30, 2020. Cash, cash equivalents and short-term investments totaled $92.1 million, compared with $106.1 million at December 31, 2019.
- Debt principal totaled approximately $35.3 million, excluding finance leases, at September 30, 2020; total debt and finance leases were approximately $39.0 million. Current debt was approximately $6.1 million on the balance sheet, or approximately $7.1 million including applicable current obligations as presented in MD&A.
- Operating lease obligations totaled approximately $42.1 million. Management stated that it expected to meet principal and interest payments due during the next 12 months.
- The company had $4.7 million outstanding under the Zero Now-related SG Facility, which permits up to $100 million of total borrowings. The facility bears interest based on LIBOR plus 1.30% and has no financial covenants.
Material changes versus the prior comparable period
- COVID-19 reduced fuel volumes by 5% in Q3 year over year and 4% in September year over year. Q3 volumes improved 9% sequentially from Q2, but airports, public transit and government fleet markets remained down 16% to 37% year over year.
- RNG volumes under the Redeem brand increased to 40.1 million GGEs in Q3 from 37.4 million and to 112.1 million GGEs for the nine months from 111.1 million.
- Effective price per gallon declined to $0.59 in Q3 from $0.65 and to $0.62 for the nine months from $0.71, primarily because of lower natural gas prices and fuel mix. Effective cost per gallon declined to $0.38 from $0.43 in Q3 and to $0.42 from $0.47 for the nine months.
- The company increased its controlling interest in NG Advantage from 64.6% to 93.3% through debt conversion and additional unit issuance. The related noncontrolling-interest benefit to net income declined to $0.3 million in Q3 and $1.4 million for the nine months, from $1.7 million and $5.3 million, respectively.
- The remaining $50.0 million of 7.5% Notes was repaid in May 2020.
- The company repurchased 7.35 million shares for $13.7 million through September 30, 2020, under a $30 million authorization. It had repurchased 7.50 million shares for $13.9 million through October 30, 2020.
- NG Advantage’s BP-related guaranty exposure was reduced from $30 million plus fees to $15 million effective June 24, 2020.
Outlook, management commentary, risks and unusual items
Management estimated that COVID-19 would negatively affect 2020 net operating results by approximately $11 million. The company continued to view liquidity as sufficient for at least the next 12 months, but warned that prolonged pandemic effects, lower oil and diesel prices, weaker fleet activity and reduced natural-gas-vehicle adoption could materially affect revenue, margins and cash flow.
The current 2020 capital-expenditure plan called for approximately $18 million for Clean Energy and $2 million for NG Advantage, although management stated that actual spending could be lower. The company expects to collect approximately $16 million to $20 million related to 2020 AFTC revenue in the fourth quarter of 2020 and the first half of 2021. AFTC is authorized through December 31, 2020 and may not be extended.
Remaining station-construction performance obligations totaled $15.2 million at September 30, 2020, with expected revenue recognition over the following 12 to 24 months. The company paid $7.8 million in June 2020 to terminate part of NG Advantage’s BP arrangement, resulting in a net revenue impact of approximately $(0.8) million.
Key risks include continued COVID-19 disruption; slower adoption of natural-gas vehicles; competition from electric, hydrogen, renewable diesel and other fuels; volatility in natural gas, RIN and LCFS credit prices; expiration or modification of fuel incentives; California’s Advanced Clean Trucks regulation and zero-emission vehicle policies; NG Advantage’s losses, debt and financing needs; commodity swap exposure; potential LIBOR discontinuation; customer and counterparty credit risk; construction and safety liabilities; environmental and regulatory compliance; and possible goodwill impairment. The company reported compliance with its debt covenants and effective disclosure controls as of September 30, 2020.
Important facts for investors to verify
- Whether fuel volumes and airport, transit and government fleet demand continued recovering after September 30, 2020.
- The renewal or expiration of AFTC and the resulting effect on revenue, receivables, liquidity and profitability after 2020.
- Whether RIN and LCFS credit prices and regulatory programs support the reported RNG economics.
- The sustainability of improved gross margins excluding AFTC, derivative fair-value changes and other unusual items.
- NG Advantage’s operating performance, external financing capacity, BP obligations and potential need for additional parent-company funding.
- Exposure under Zero Now commodity swaps, the SG Facility, take-or-pay gas contracts, surety bonds and the $15 million NG Advantage guaranty.
- Progress of the $30 million share-repurchase program relative to capital needs and future debt or equity financing requirements.
- Potential effects of California zero-emission regulations and competing electric or hydrogen vehicle technologies on long-term natural-gas-fuel demand.