Business Context and Reporting Period
Clean Energy Fuels Corp. filed an unaudited Form 10-Q for the quarter and six months ended June 30, 2020. The company supplies renewable natural gas, compressed natural gas and liquefied natural gas for vehicle fleets, provides station construction and operation and maintenance services, sells environmental credits, and operates NG Advantage, which transports compressed natural gas to industrial and institutional customers.
As of June 30, 2020, the company served more than 1,000 fleet customers operating over 48,000 natural gas vehicles and owned, operated or supplied approximately 550 fueling stations in the United States and Canada.
Key Financial Metrics
| Metric | Q2 2020 | Q2 2019 | Six Months 2020 | Six Months 2019 |
|---|---|---|---|---|
| Total revenue | $59.9 million | $72.3 million | $145.9 million | $150.0 million |
| Gross margin | $21.3 million | $24.7 million | $54.4 million | $43.6 million |
| Approximate gross margin percentage | 35.6% | 34.2% | 37.3% | 29.1% |
| Operating loss | $(7.2) million | $(5.8) million | $(4.7) million | $(19.5) million |
| Net loss attributable to Clean Energy | $(6.7) million | $(5.4) million | $(5.0) million | $(16.3) million |
| Loss per share | $(0.03) | $(0.03) | $(0.02) | $(0.08) |
| Net cash provided by operating activities | Not separately provided | Not separately provided | $49.8 million | $8.8 million |
- Q2 revenue included $50.2 million of volume-related revenue, $5.3 million of station construction revenue and $4.4 million of Alternative Fuel Excise Tax Credit revenue. Six-month AFTC revenue was $9.8 million.
- Q2 gross margin declined in dollars but improved as a percentage of revenue because lower natural gas costs and reduced station construction costs more than offset lower volumes.
- Gasoline gallon equivalents delivered declined 10% year over year in Q2, to 89.5 million from 99.6 million; six-month volumes declined to 188.8 million from 194.8 million.
- Cash, cash equivalents and current and long-term restricted cash totaled $83.2 million at June 30, 2020. Cash and short-term investments totaled $95.7 million, compared with $106.1 million at December 31, 2019.
- Total debt was $36.5 million net of financing costs, including $6.0 million classified as current. Total debt and finance lease principal was approximately $40.4 million.
- Total assets were $669.0 million and total stockholders’ equity was $527.4 million at June 30, 2020.
Material Changes Versus the Prior Comparable Period
- Q2 revenue decreased 17.2%, primarily because COVID-19 reduced fuel volumes and effective pricing. Volume-related revenue excluding derivative effects declined by $14.1 million.
- Q2 operating loss increased to $7.2 million from $5.8 million, while the six-month operating loss improved substantially because of lower costs, favorable derivative valuation changes and AFTC revenue.
- Q2 net loss attributable to Clean Energy increased modestly to $6.7 million from $5.4 million. The six-month loss improved to $5.0 million from $16.3 million.
- Q2 selling, general and administrative expense declined $1.0 million to $16.9 million, primarily due to COVID-19-related reductions in activity, advertising and travel.
- Six-month operating cash flow increased to $49.8 million, largely because the company collected approximately $47 million of 2018 and 2019 AFTC receivables and benefited from working-capital timing.
- The company repaid the remaining $50.0 million of 7.5% Notes in May 2020. Debt and finance lease repayments totaled $53.0 million during the first six months.
- The company repurchased 6.1 million shares for $10.7 million through June 30, 2020 under a $30.0 million authorization; repurchases reached $12.7 million through July 31, 2020.
- Clean Energy increased its controlling interest in NG Advantage to 93.3% through debt conversion and additional unit issuances.
Guidance, Outlook, Commentary and Risks
- Management estimated that COVID-19 would have a negative effect of approximately $11 million on 2020 net operating results. June 2020 volume was 13% below June 2019 despite increasing 5% from May.
- Airports, public transit and government fleet markets declined approximately 25% to 45% year over year in Q2, while trucking and refuse markets showed single-digit growth.
- Management expected volume declines to continue beyond June and recover more slowly than previously anticipated because of renewed COVID-19 restrictions.
- Management reduced 2020 capital expenditure expectations to $14.0 million for the core business and $2.0 million for NG Advantage. First-half capital expenditures were approximately $4.8 million and $1.5 million, respectively.
- Management expected 2020 AFTC revenue of approximately $16 million to $20 million, subject to COVID-19 effects. The credit is currently available through December 31, 2020 and may not be extended.
- Management stated that available liquidity should fund operations and expected debt payments for at least the next 12 months, while noting that additional capital may be needed thereafter or sooner if conditions deteriorate.
- Material risks include prolonged COVID-19 disruption, low oil and diesel prices, slower adoption of natural gas vehicles, competition from electric and hydrogen vehicles, volatility in RIN and LCFS credit prices, expiration or modification of government incentives, and potential goodwill or asset impairment.
- The Advanced Clean Trucks regulation adopted in California could slow natural gas vehicle adoption, particularly if federal approval permits implementation beginning in 2024.
- NG Advantage remains loss-making and highly leveraged. The company paid $7.8 million to terminate part of its BP arrangement and reduced its related guaranty exposure from $30.0 million to $15.0 million.
- Off-balance-sheet exposures included $31.3 million of surety bonds, take-or-pay natural gas purchase commitments, fixed supply commitments, and the NG Advantage/BP guaranty.
- The company reported compliance with its debt covenants and effective disclosure controls as of June 30, 2020. No material legal proceedings were pending according to management.
Important Facts for Investors to Verify
- Whether fuel volumes recover from COVID-19-related declines, particularly in airports, public transit and government fleets.
- The amount and timing of 2020 AFTC collections and whether the credit is extended beyond December 31, 2020.
- The sustainability of gross margins after the benefit of lower natural gas costs, AFTC revenue and favorable derivative valuation changes.
- RIN and LCFS credit pricing, regulatory eligibility and the related effect on revenue and cash flow.
- NG Advantage’s operating performance, financing needs, BP obligations and potential guaranty exposure.
- The pace of natural gas vehicle adoption relative to electric, hydrogen and other alternative-fuel technologies.
- Remaining debt, lease and take-or-pay obligations, including the potential for additional Zero Now borrowings and LIBOR-related rate risk.
- Whether ongoing share repurchases remain appropriate given the company’s losses, capital needs and exposure to prolonged business disruption.