Clean Energy Fuels Corp. quarterly report, Q1 FY2023

Clean Energy Fuels Corp. — Q1 2023 Form 10-Q Summary

Business context and reporting period

Clean Energy Fuels Corp. supplies renewable natural gas (RNG) and conventional compressed and liquefied natural gas to medium- and heavy-duty vehicle fleets, and provides fueling-station construction, operations and maintenance, equipment, virtual-pipeline, environmental-credit and RNG-project development services. The unaudited report covers the three months ended March 31, 2023, with comparison to the three months ended March 31, 2022. The Company operated or supplied 595 stations serving more than 1,000 fleet customers and over 50,000 vehicles as of March 31, 2023.

Financial performance and key metrics

Metric	Q1 2022	Q1 2023	Change
Total revenue	$83.5 million	$132.2 million	+58%
Product revenue	$72.5 million	$119.7 million	+65%
Service revenue	$11.0 million	$12.5 million	+13%
Operating loss	$(20.1) million	$(35.4) million	Worse by $15.4 million
Net loss attributable to Clean Energy	$(24.2) million	$(38.7) million	Worse by $14.5 million
Loss per share	$(0.11)	$(0.17)	Worse by $0.06
Cash flow from operations	$4.8 million provided	$19.0 million used	Declined by $23.8 million

Total fuel volume increased 18% to 68.8 million gasoline gallon equivalents, including RNG volume growth from 39.7 million to 53.4 million GGEs. O&M services volume increased 7% to 59.6 million GGEs.
Revenue benefited from higher fuel prices and volume, $4.5 million of alternative fuel excise tax credit revenue, and increased construction activity. RIN and LCFS credit revenue declined to $4.5 million and $2.3 million, respectively.
Product cost of sales increased to $119.7 million, or 90.5% of revenue, from $57.6 million, or 69.0%, in the prior-year quarter. Product gross profit was approximately $0.1 million; service gross profit was approximately $4.8 million. The filing does not present a consolidated gross-margin measure, but gross profit before selling, general and administrative expenses and depreciation was approximately $4.9 million, or roughly 3.7% of revenue.
Selling, general and administrative expense increased to $29.6 million from $27.9 million. Depreciation and amortization decreased to $10.7 million from $11.4 million.
Interest expense increased to $4.4 million from $3.1 million, while interest income increased to $2.7 million from $0.3 million.

Liquidity, capital resources and balance sheet

Cash, cash equivalents and current restricted cash were $166.8 million at March 31, 2023, compared with $126.0 million at December 31, 2022. Short-term investments were $55.1 million, down from $139.6 million.
Excluding restricted cash, cash and cash equivalents plus short-term investments totaled $219.9 million at quarter-end, compared with $263.5 million at year-end 2022.
Total assets were $1.070 billion and total liabilities were $365.9 million. Stockholders’ equity was $703.8 million.
Debt consisted primarily of a $150.0 million senior secured sustainability-linked Riverstone term loan due December 2026. Debt and finance leases totaled approximately $153.2 million in principal, with approximately $150.2 million expected to mature in 2026.
The Riverstone loan bears variable interest based on SOFR or the alternate base rate plus applicable margins. A 1% change in relevant interest rates would affect annual interest expense by approximately $1.5 million.
Management stated that liquidity is expected to support business requirements for at least the next 12 months, although additional capital may be required later for capital expenditures, RNG projects, debt repayment, investments or other activities.

Material changes versus the prior comparable period

Revenue growth was driven primarily by an 18% increase in fuel volume, higher fuel prices and the reinstatement of the federal alternative fuel excise tax credit. The credit contributed $4.5 million of Q1 2023 revenue versus $0.2 million in Q1 2022.
California natural-gas prices spiked during December 2022 through February 2023. Management estimates the spike reduced Q1 2023 gross profit by approximately $10.0 million, despite customer price increases.
Non-cash Amazon warrant contra-revenue charges increased from $3.8 million to $13.7 million, reducing reported fuel revenue and contributing to the deterioration in operating results.
Cash used in operations increased substantially because of higher natural-gas procurement costs and unfavorable working-capital timing. Investing cash flow increased to $60.5 million, primarily because of net maturities of short-term investments.
Capital spending on property and equipment was $17.8 million, and spending on RNG production projects and manure rights was $10.1 million.
On April 18, 2023, the Company announced a 50-50, CAD $70 million joint development agreement with Tourmaline Oil Corp. to develop up to 20 CNG stations in Western Canada over five years.

Guidance, outlook, commentary and risks

The 2023 business plan calls for approximately $90.0 million of capital expenditures and up to approximately $40.0 million of investment in anaerobic-digester RNG production facilities. Management expects to fund these activities primarily with cash on hand and operating cash flow.
The Company expects to recognize $27.9 million of remaining station-construction performance obligations over the next 12 to 24 months.
A fire at the South Fork Dairy farm on April 10, 2023 killed approximately 18,000 cows and may delay the related RNG project. The Company had invested $23.7 million in the project as of March 31, 2023; potential abandonment loss is estimated at $0.0 million to $8.4 million, although equipment may be redirected to other projects.
Key risks include continued operating losses, negative operating cash flow, variable-rate debt, dependence on AFTC and volatile RIN and LCFS credit prices, inability to pass through natural-gas cost increases, RNG project delays and permitting, competition from electric, hydrogen and other fuels, and changing zero-emission vehicle regulations.
California’s Advanced Clean Fleets regulation, adopted in April 2023, is cited as requiring truck fleets to become zero-emission by 2042 and seeking to end sales of combustion trucks in California by 2036, which could reduce long-term demand for natural-gas vehicles.
Off-balance-sheet and contingent exposures included $50.4 million of surety bonds, up to $5.5 million of delayed-draw loans to an equity-method investee, take-or-pay natural-gas purchase commitments of approximately $3.2 million for the remainder of 2023 and $2.0 million for 2024, and a fixed supply arrangement with UPS for 170.0 million GGEs through March 2026.
The Company stated that it was in compliance with all debt covenants as of March 31, 2023 and that disclosure controls and procedures were effective.

Most important facts for investors to verify

Whether higher fuel volumes and AFTC revenue can offset natural-gas costs, environmental-credit volatility and Amazon warrant charges.
Whether California gas-price normalization improves fuel margins and operating cash flow in subsequent quarters.
The timing, cost and production ramp-up of the Company’s RNG projects, including the impact of the South Fork Dairy incident.
Compliance with Riverstone’s leverage, interest-coverage and liquidity covenants, and exposure to rising variable interest rates.
The sustainability and timing of the stated $90.0 million capital-expenditure plan and up to $40.0 million of RNG-project investment while the Company remains loss-making.
The effect of zero-emission vehicle mandates and competing electric, hydrogen and renewable-diesel technologies on natural-gas-fuel demand.
The future prices and regulatory treatment of AFTC, RINs and LCFS credits, which materially affect reported revenue and project economics.