Clean Energy Fuels Corp. — FY2017 Form 10-K Summary
Business context and reporting period
Clean Energy Fuels Corp. supplies renewable natural gas (RNG), compressed natural gas (CNG) and liquefied natural gas (LNG) for vehicle fleets in the United States and Canada. It also provides station construction, operations and maintenance, equipment, vehicle financing, CNG transportation and environmental-credit services. The filing covers the fiscal year ended December 31, 2017; fourth-quarter figures are unaudited.
- Nearly 1,000 fleet customers and more than 46,000 natural-gas vehicles served at year-end.
- More than 530 stations owned, operated or supplied across 42 U.S. states and four Canadian provinces.
- Delivered 351.4 million gasoline-gallon equivalents, up from 329.0 million in 2016.
Financial performance and liquidity
| Metric | 2017 | 2016 | Change |
|---|---|---|---|
| Total revenue | $341.6 million | $402.7 million | Down $61.1 million |
| Volume-related revenue | $264.9 million | $283.9 million | Down $19.0 million |
| Compressor sales | $23.5 million | $27.3 million | Down $3.8 million |
| Station construction sales | $51.9 million | $64.9 million | Down $13.0 million |
| Gross margin | $85.8 million | $147.1 million | Down $61.3 million |
| Operating loss | $134.4 million | $17.6 million | Significantly wider loss |
| Net loss attributable to Clean Energy | $79.2 million | $12.2 million | Significantly wider loss |
| Loss per share | $0.53 | $0.10 | Higher loss |
| Cash flow from operations | $(5.4) million | $46.1 million | Declined $51.5 million |
Gross margin was approximately 25.1% of revenue, compared with approximately 36.5% in 2016. The operating margin was approximately negative 39.4% and the net margin approximately negative 23.8%. The 2017 results included an $81.1 million aggregate charge related to station closures, compressor-business impairments, workforce reductions, LCFS-credit payments and inventory valuation.
- Cash and cash equivalents were $36.1 million and short-term investments were $141.5 million at December 31, 2017, for total liquidity of approximately $177.5 million.
- Total debt and capital lease obligations were $260.1 million net of issuance costs, representing approximately $260.9 million of principal debt. Approximately $140.2 million of principal was scheduled to mature in 2018, including $110.5 million of 5.25% convertible notes due October 2018 and $25.0 million of 7.5% notes due July 2018.
- Expected 2018 interest payments were approximately $15.6 million.
- Total assets were $791.9 million and total Clean Energy stockholders’ equity was $427.0 million at year-end.
Material changes versus the prior comparable period
- Revenue fell 15.2%, primarily because 2017 did not include AFTC revenue, environmental-credit revenue declined following the BP transaction, and compressor and station-construction sales decreased.
- Natural-gas volumes increased despite lower revenue: CNG deliveries rose to 283.4 million GGEs from 259.2 million, while LNG deliveries declined modestly to 66.1 million GGEs from 66.8 million.
- RIN and LCFS credit revenue decreased to $24.1 million from $49.0 million. LCFS-credit revenue was restricted during the third and fourth quarters while the California Air Resources Board conducted an administrative review.
- The company completed the BP transaction on March 31, 2017, selling RNG-production assets and related contracts for net proceeds of approximately $142.2 million and recognizing a $70.7 million gain. Clean Energy continues to purchase and resell RNG, including under a long-term BP supply arrangement.
- On December 29, 2017, the company combined its CEC compressor business with Landi Renzo’s SAFE business. Clean Energy owns 49% of SAFE&CEC S.r.l.; the transaction produced a $6.5 million loss and will be accounted for under the equity method beginning in 2018.
- The company decided to close 42 underperforming fueling stations and reduced its workforce and overhead. Selling, general and administrative expense declined to $95.7 million from $105.5 million.
- The company terminated its at-the-market equity program on May 31, 2017. It had raised $117.9 million in cumulative net proceeds under the program since inception.
Outlook, management commentary, risks and unusual items
- Management expects approximately $15.0 million of 2018 capital expenditures. NG Advantage may spend up to $45.0 million on CNG trailers and equipment, with most expected to be financed by third parties.
- Management believes current cash, investments and expected operating and financing cash flows will satisfy requirements for at least the 12 months following the filing date, but acknowledges that additional capital may be needed for debt repayment, capital expenditures, investments or adverse operating conditions.
- The AFTC was reinstated on February 9, 2018 for 2017 fuel sales. Approximately $25.0 million of related revenue was expected to be recognized and collected in 2018. The credit is not available for fuel sales after December 31, 2017 unless reinstated by future legislation.
- CARB invalidated certain previously generated LCFS credits; the company is disputing the invalidation. The company also made approximately $7.0 million of cash payments to satisfy preexisting LCFS-transfer obligations while its account was restricted.
- Key risks include continued losses, low adoption of natural-gas vehicles, competition from gasoline, diesel, electric and hydrogen vehicles, commodity-price volatility, dependence on government incentives and environmental-credit programs, and the ability to refinance or repay near-term debt.
- The company had take-or-pay natural-gas commitments, long-term purchase obligations, surety bonds of approximately $25.3 million, and a commitment to purchase 124 used natural-gas heavy-duty trucks for approximately $7.9 million at year-end. Subsequent to year-end, 66 of those trucks were sold to third parties.
- Management reported effective disclosure controls and internal control over financial reporting. KPMG issued an unqualified audit opinion.
Important facts for investors to verify
- How the company funded or refinanced the $140.2 million of debt scheduled to mature in 2018, particularly the $110.5 million October maturity.
- The amount and timing of AFTC cash collections and whether any portion is subject to customer claims, administrative delays or other restrictions.
- The status and potential financial impact of CARB’s LCFS-credit invalidation and the company’s dispute.
- Whether station closures, workforce reductions and the SAFE&CEC transaction deliver the expected cost savings without materially reducing revenue or operating capacity.
- The sustainability and pricing of RIN and LCFS credit revenue after the BP transaction.
- Future operating cash flow, capital expenditures and additional financing requirements given the company’s continuing losses and contractual commitments.