Clean Energy Fuels Corp. 2011 Q3 Form 10-Q Summary
Reporting period: Quarterly and nine months ended September 30, 2011; filed November 8, 2011. The company sells CNG, LNG, biomethane, fueling stations, compressors, vehicle conversion systems, and related operations and maintenance services. It operated or supplied approximately 257 natural-gas fueling locations across the United States and Canada.
Financial Performance
| Metric | Q3 2011 | Q3 2010 | 9M 2011 | 9M 2010 |
|---|---|---|---|---|
| Total revenue | $72.1 million | $45.7 million | $206.5 million | $128.7 million |
| Gross margin | $19.3 million | $12.1 million | $56.4 million | $37.0 million |
| Gross margin percentage | 26.8% | 26.6% | 27.3% | 28.8% |
| Operating loss | $6.8 million | $1.4 million | $22.8 million | $17.1 million |
| Net loss attributable to Clean Energy | $11.4 million | $1.8 million | $26.7 million | $16.3 million |
| Loss per share | $0.16 | $0.03 | $0.38 | $0.27 |
| Gasoline-gallon-equivalents delivered | 40.9 million | 31.3 million | 115.6 million | 91.0 million |
Revenue increased 58% in the quarter and 60% year to date, driven by higher fuel volumes, station construction, the IMW and Northstar acquisitions, and $4.5 million and $13.4 million of federal volumetric excise tax credit revenue in the quarter and nine months, respectively. Product revenue represented approximately 89% of total revenue.
Gross margin increased in dollars but declined year to date as a percentage of revenue. Management attributed lower effective revenue per gallon primarily to a greater mix of lower-margin O&M contracts. Selling, general and administrative expense increased to $20.1 million in Q3 and $59.8 million year to date, partly reflecting headcount growth from 622 to 937 employees. Depreciation and amortization also increased due to the expanded station network and acquired intangible assets.
Cash Flow, Liquidity and Capital Structure
- Cash and cash equivalents were $159.0 million at September 30, 2011, compared with $55.2 million at December 31, 2010.
- Operating cash flow was $2.0 million for the first nine months, down from $11.8 million in the comparable 2010 period.
- Investing cash outflow was $125.2 million, including $49.5 million of property and equipment purchases and $70.9 million placed into restricted cash and related accounts.
- Financing cash inflow was $227.5 million, primarily from $50 million of Chesapeake convertible notes, $150 million of SLG convertible notes, and the $40.2 million DCEMB revenue-bond financing, partly offset by debt repayments.
- Total debt and capital lease obligations were $288.2 million at September 30, 2011, compared with $64.4 million at December 31, 2010. Long-term debt and capital lease obligations, net of current amounts, were $265.7 million.
- Restricted cash included approximately $47 million for LNG station development and approximately $25.3 million associated with DCEMB’s revenue-bond financing.
Material Changes Versus Prior Comparable Period
- Fuel volumes increased 30% in Q3 and 27% for the first nine months. CNG volume increased to 75.1 million gallons year to date, while LNG increased to 35.5 million gallons; biomethane declined to 5.0 million gallons.
- IMW contributed approximately $46.5 million of nine-month revenue in 2011 versus $3.3 million in the comparable 2010 period; Northstar contributed approximately $7.6 million.
- BAF revenue declined to approximately $18.8 million from $29.3 million, reflecting lower vehicle-equipment sales.
- Interest expense increased by $5.5 million year to date because of acquisition-related debt, DCEMB bonds, and the new convertible notes.
- The Q3 2011 net loss was affected by a smaller non-cash Series I warrant valuation gain of $1.5 million versus $7.9 million in Q3 2010. The nine-month gains were $3.1 million and $5.9 million, respectively.
- Common shares outstanding increased to 70.4 million at September 30, 2011 from 69.6 million at December 31, 2010. Potential dilution included 10.8 million options, 17.1 million warrants, and 13.2 million shares underlying convertible notes.
Guidance, Outlook, Risks and Unusual Items
Management planned approximately $18.8 million of additional capital expenditures from October 1 through December 31, 2011, primarily for new fueling stations and a Michigan biomethane project. This excludes LNG station spending funded by Chesapeake and DCEMB capital spending funded by its bonds. Management expected continued expansion of LNG fueling, including the planned “America’s Natural Gas Highway,” and anticipated higher operating costs, capital expenditures, competition, and potential additional capital raising.
- The federal $0.50-per-gallon VETC program was scheduled to expire December 31, 2011. The credit represented approximately 6.5% of nine-month 2011 revenue. The IRS was seeking repayment of approximately $5.1 million of disputed historical claims; the company was appealing.
- The $200 million of 7.5% convertible notes issued in July and August 2011 mature in 2016 and 2018. The company also expected to issue an additional $50 million Chesapeake note in each of 2012 and 2013, subject to the financing agreement.
- IMW and DCEMB were in compliance with their debt covenants at September 30, 2011. Nevertheless, a breach of IMW covenants could make its demand debt immediately payable, while DCEMB covenant or payment defaults could impair the company’s rights in the subsidiary.
- DCEMB’s biomethane facility was undergoing expansion and upgrades expected to continue into the first half of 2012, potentially causing downtime and lower sales. Its Shell gas-sale agreement could be terminated if minimum production thresholds were not met or renewable-fuel eligibility changed.
- Off-balance-sheet commitments included $80.3 million of surety bonds, two LNG take-or-pay contracts, leases, and fixed-price CNG and LNG sales commitments.
- Key operating risks included natural-gas and LNG price volatility, supply interruptions, margin calls on futures contracts, reduced government incentives, customer concentration and contract losses, adoption of natural-gas vehicles, competition, regulatory and environmental costs, foreign-exchange exposure, and integration of IMW and Northstar.
Investor Verification Priorities
- Verify the continuation or expiration of the VETC program and the ultimate resolution of the IRS claim for approximately $5.1 million.
- Assess whether fuel-volume growth and LNG station expansion can offset continuing operating losses, increased interest expense, and lower O&M-related pricing and margins.
- Review the maturity, conversion, dilution, covenant, and cash-interest implications of the $200 million issued convertible notes and the additional $100 million of expected Chesapeake financing.
- Track operating performance, downtime, debt-service coverage, and covenant compliance at DCEMB and IMW.
- Evaluate liquidity after restricted cash, planned capital expenditures, acquisition-related payments, take-or-pay obligations, and potential margin calls are considered.
- Reconcile reported growth with one-time or non-operating contributors, including VETC revenue, warrant valuation gains, contingent-consideration gains, and acquisition contributions.