Clean Energy Fuels Corp. — Q1 2016 Form 10-Q Summary
Business context and reporting period
Clean Energy Fuels supplies CNG, LNG and RNG vehicle fuel, operates and maintains fueling stations, constructs stations, sells natural-gas fueling equipment, transports CNG, produces RNG and monetizes RIN and LCFS credits. The unaudited filing covers the three months ended March 31, 2016, compared with the three months ended March 31, 2015.
At March 31, 2016, the company served approximately 988 fleet customers operating approximately 44,733 natural-gas vehicles and owned, operated or supplied more than 570 fueling stations. Gasoline-gallon-equivalent volumes delivered increased 3% to 77.5 million.
Key financial metrics
| Metric | Q1 2015 | Q1 2016 | Change |
|---|---|---|---|
| Total revenue | $85.8 million | $95.8 million | +$10.0 million, 11.6% |
| Gross margin | $21.1 million | $36.5 million | +$15.4 million |
| Gross margin percentage | 24.6% | 38.1% | +13.5 percentage points |
| Operating income (loss) | $(21.1) million | $(4.0) million | Improved by $17.1 million |
| Net income (loss) attributable to Clean Energy | $(31.1) million | $2.8 million | Improved by $34.0 million |
| Diluted earnings (loss) per share | $(0.34) | $0.03 | Improved |
| Cash provided by operating activities | $20.9 million | $26.8 million | +$5.9 million |
| Capital expenditures and equipment purchases | $12.5 million | $5.2 million | Decreased by $7.3 million |
Revenue growth reflected higher volumes, increased station construction activity and $6.4 million of VETC revenue. Product revenue increased to $84.0 million from $69.3 million, while service revenue declined to $11.8 million from $16.6 million. Compressor revenue declined by approximately $6.1 million to $8.3 million.
Cost of sales decreased to $59.3 million from $64.7 million, primarily because of lower compressor activity and lower natural-gas prices. Selling, general and administrative expense declined $4.6 million to $25.6 million, while depreciation and amortization increased $2.1 million to $15.0 million.
Q1 2016 net income included a $15.9 million gain from repurchasing and retiring $32.5 million principal amount of 5.25% Notes for approximately $16.8 million. Interest expense decreased to $9.2 million from $9.9 million, mainly because of debt principal reductions.
Balance sheet, debt and liquidity
- Cash and cash equivalents were $87.2 million at March 31, 2016, compared with $43.7 million at December 31, 2015.
- Short-term investments were $75.7 million, producing total cash, cash equivalents and short-term investments of approximately $162.9 million.
- Total principal indebtedness was approximately $528.8 million at March 31, 2016, with approximately $88.8 million expected to mature during 2016.
- Debt and capital lease obligations, net of financing costs, totaled $524.5 million, including $139.99 million classified as current.
- The company drew $50.0 million under a new one-year PlainsCapital Bank revolving credit facility secured by cash and certain investment securities.
- The company expects approximately $31.4 million of interest payments and approximately $25.5 million of capital expenditures for full-year 2016.
- Management stated that existing liquidity and expected operating and financing cash flows should meet routine requirements for at least the next twelve months, but additional capital may be required for capital expenditures, investments or debt repayments.
Material changes versus the prior comparable period
- Revenue increased 11.6%, while delivered volumes increased 3%; CNG volumes rose, but LNG and non-vehicle RNG volumes declined.
- Gross margin expanded substantially because of lower natural-gas costs, fewer compressor sales with lower related costs, higher credit revenue and increased station construction activity.
- VETC revenue was $6.4 million in Q1 2016. The credit was extended through December 31, 2016 and made retroactive to January 1, 2015.
- RIN and LCFS credit revenue increased to approximately $5.6 million and $5.4 million, respectively, from approximately $2.4 million and $0.8 million.
- The company began recognizing station-construction revenue using the percentage-of-completion method after implementing a detailed cost-tracking system. This change contributed $9.4 million of revenue and $1.1 million of operating income in Q1 2016 that would not otherwise have been recognized in the period under the completed-contract method.
- The company issued 7.66 million shares through its at-the-market program for $21.4 million of net proceeds, increasing outstanding shares to 100.2 million at March 31, 2016 from 92.4 million at December 31, 2015.
- The company prepaid $60.0 million of SLG Notes and repurchased $32.5 million principal amount of 5.25% Notes during the quarter.
Guidance, outlook, commentary and risks
The filing does not provide formal revenue or earnings guidance. Management expects long-term growth in natural-gas vehicle fuel demand but noted that low oil prices have reduced the economic advantage of natural gas versus gasoline and diesel, slowing customer adoption. Competition, commodity-price volatility and changes in government incentives remain significant uncertainties.
- Forty-three completed America’s Natural Gas Highway stations were not open for fueling at March 31, 2016. Management does not know when sufficient customer demand will support opening them.
- Heavy-duty natural-gas truck adoption has been slower and more limited than anticipated, creating utilization and impairment risk for the station network.
- The company has substantial debt service and maturity requirements and may repay up to $235.0 million of debt at maturity with common stock, which could materially dilute shareholders.
- Off-balance-sheet arrangements included $68.5 million of surety bonds, two long-term take-or-pay natural-gas contracts expiring in 2020, and operating leases.
- RIN and LCFS credit markets are volatile and depend on federal and state regulatory programs.
- Government contracts, tax credits, environmental requirements, station construction, RNG production, equipment manufacturing and international operations create additional execution and regulatory risks.
- Subsequent to quarter-end, the company repurchased an additional $6.5 million principal amount of 5.25% Notes and exchanged $25.0 million principal amount for 6,265,829 common shares on May 4, 2016.
Important facts for investors to verify
- Whether the company can fund 2016 maturities, projected interest obligations and capital expenditures without substantial additional equity or debt financing.
- The timing and economics of opening the 43 completed but inactive ANGH stations and the related asset-utilization outlook.
- The sustainability of Q1 gross-margin improvement after separating the effects of VETC, RIN and LCFS credits, lower gas prices and the new construction revenue-recognition method.
- Future natural-gas vehicle adoption, particularly in heavy-duty trucking, and the effect of oil and diesel prices on customer economics.
- Future RIN and LCFS credit prices, program changes and the company’s ability to produce sufficient RNG and credits.
- The potential dilution from the ATM program, convertible notes, warrants, restricted stock units and any debt repaid with shares.
- Compliance with debt covenants, take-or-pay obligations, surety bonds and other contingencies.
- The filing states that disclosure controls were effective and that no debt defaults or material legal contingencies were identified as of March 31, 2016; investors should verify subsequent developments.