Clean Energy Fuels Corp. — 2014 Q3 Form 10-Q Summary
Business context and reporting period
Clean Energy Fuels Corp. sells CNG, LNG and RNG fueling solutions, operates or supplies more than 525 natural-gas fueling stations in the United States and Canada, constructs and services fueling stations, manufactures CNG equipment, and sells renewable-fuel credits. The unaudited report covers the three and nine months ended September 30, 2014, compared with the corresponding 2013 periods.
Financial performance and condition
| Metric | Q3 2014 | Q3 2013 | 9M 2014 | 9M 2013 |
|---|---|---|---|---|
| Total revenue | $103.4 million | $86.3 million | $296.8 million | $267.5 million |
| Gross margin | $19.4 million | $31.5 million | $68.0 million | $100.0 million |
| Gross margin percentage | 18.8% | 36.5% | 22.9% | 37.4% |
| Operating loss | $17.9 million | $11.6 million | $58.2 million | $32.6 million |
| Net loss attributable to Clean Energy | $30.1 million | $18.8 million | $91.0 million | $34.7 million |
| Loss per share | $0.32 | $0.20 | $0.96 | $0.37 |
| Gasoline-gallon equivalents delivered | 68.6 million | 56.4 million | 192.7 million | 158.9 million |
Revenue increased 19.8% in the quarter and 11.0% year to date, primarily from higher fuel volumes and station construction. However, cost of sales rose faster than revenue, reducing gross margin. Product cost of sales increased to $79.0 million in Q3 from $51.9 million, while service cost of sales increased to $5.0 million from $2.9 million.
For the nine months, cash used in operating activities was $56.4 million, compared with $2.4 million used in 2013. Cash used in investing activities was $79.8 million, including $75.1 million of property and equipment purchases. Financing activities provided $10.7 million, compared with $292.0 million in 2013.
At September 30, 2014, cash and cash equivalents were $114.7 million, restricted cash was $17.0 million, and short-term investments were $133.4 million, totaling approximately $248.1 million of cash and short-term investments. Total debt and capital lease obligations were $619.6 million, including $15.9 million classified as current. Total assets were $1.18 billion and stockholders’ equity was $443.7 million.
Material changes versus the prior comparable period
- Total delivered volume increased 21.6% in Q3 and 21.3% for the nine months. Q3 CNG volume increased by 10.4 million gallons, LNG by 1.3 million gallons and RNG by 0.5 million gallons.
- Q3 station construction revenue increased by $16.6 million; year-to-date station construction revenue increased by $32.6 million.
- The federal VETC fuel tax credit expired December 31, 2013. The company recognized $6.0 million in Q3 2013 and $38.1 million for the first nine months of 2013, but no VETC revenue in 2014.
- Effective cost per gallon increased from $0.58 to $0.62 in Q3 and from $0.58 to $0.64 for the nine months. Q3 effective selling price declined from $0.93 to $0.90 per gallon.
- Interest expense increased to $10.7 million in Q3 and $30.3 million for the nine months, primarily because of additional Mavrix borrowings and the $250.0 million of 5.25% convertible notes issued in September 2013.
- SG&A declined 15.7% in Q3 and 5.4% for the nine months, helped by lower stock-based compensation and other operating costs. Depreciation and amortization increased with the expanded station network.
- On September 4, 2014, Cambrian purchased an additional 19% of Dallas Clean Energy, reducing Clean Energy’s ownership from 70% to 51%. Clean Energy must elect by March 4, 2015 whether to buy Cambrian’s 49% interest or sell its remaining 51% interest.
Guidance, outlook, commentary, risks and unusual items
Management expects long-term growth in natural-gas vehicle adoption and plans continued expansion in CNG, LNG and RNG fueling, station construction, LNG supply, RNG production and fleet markets. The company expected approximately $9.5 million of capital expenditures from October 1 through December 31, 2014, primarily for CNG stations, and stated that additional capital may be required for future investments and expansion.
The company decided it would not draw on the $200 million GE credit facility by December 31, 2014 and requested an extension to 2016; no extension had been granted as of September 30. The facility therefore represented a potential LNG-supply funding source but was subject to expiration and execution risks.
Significant risks include continued operating losses, negative operating cash flow, substantial debt-service requirements, dependence on additional financing, adoption of natural-gas vehicles and heavy-duty natural-gas trucks, competition, LNG supply constraints and take-or-pay commitments, volatility in natural-gas and environmental-credit prices, changing government incentives, construction and permitting risks, and operational issues at RNG facilities. Management reported lower-than-expected RNG production at the McCommas Bluff and Canton facilities and was pursuing remedies and corrective actions.
Off-balance-sheet commitments included $35.5 million of surety bonds, six LNG take-or-pay contracts, $5.4 million of commitments under equipment supply contracts, and operating leases. The company reported compliance with its debt covenants and no events of default as of September 30, 2014.
After quarter-end, the company acquired a majority interest in NG Advantage and a CNG station for an aggregate purchase price of $46.7 million, funded partly with cash and partly with $20.45 million of interest-free promissory notes due in 2015.
Important facts for investors to verify
- Whether fuel volumes and station construction activity can generate improved gross margins after the loss of VETC revenue.
- The company’s ability to fund ongoing capital expenditures, debt service and post-quarter-end NG Advantage obligations while operating cash flow remains negative.
- The outcome of the required March 4, 2015 election regarding the remaining DCE interest and the related Mavrix Note repayment implications.
- Whether GE granted the requested extension of the LNG-plant financing facility and how the company will secure future LNG supply.
- Progress in resolving underperformance at the McCommas Bluff and Canton RNG facilities.
- Exposure to dilution from convertible notes, warrants, options and restricted stock units, including approximately 35.2 million shares underlying convertible notes.
- Future changes to VETC, LCFS, RIN and other government programs and the effect on revenue and margins.