Clean Energy Fuels Corp. — Q2 2023 Form 10-Q Summary
Business context and reporting period
Clean Energy Fuels sells renewable natural gas (RNG) and conventional compressed and liquefied natural gas to vehicle fleets, primarily in the United States and Canada. It also designs, builds, operates and maintains fueling stations; develops RNG production projects; sells renewable fuel and low-carbon fuel credits; and provides related equipment and transportation services. The filing covers the three and six months ended June 30, 2023, with comparisons to the corresponding 2022 periods. The financial statements are unaudited and prepared under U.S. GAAP.
- Fueling network: 576 stations in 43 U.S. states and the District of Columbia, plus 24 stations in Canada.
- Customers and vehicles: more than 1,000 fleet customers operating more than 50,000 vehicles as of June 30, 2023.
- Total fuel volume sold increased to 72.7 million GGEs in Q2 2023 from 66.0 million, and to 141.5 million GGEs for the first six months from 124.3 million.
- RNG volume sold increased to 58.6 million GGEs in Q2 from 50.0 million, and to 112.0 million for the first six months from 89.7 million.
Financial performance and key metrics
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $90.5 million | $97.2 million | $222.7 million | $180.7 million |
| Product revenue | $75.6 million | $85.9 million | $195.4 million | $158.4 million |
| Service revenue | $14.9 million | $11.4 million | $27.4 million | $22.4 million |
| Gross profit | $26.4 million | $25.2 million | $31.3 million | $44.4 million |
| Gross margin | 29.1% | 25.9% | 14.0% | 24.6% |
| Operating loss | $(13.1) million | $(11.9) million | $(48.5) million | $(31.9) million |
| Net loss attributable to Clean Energy | $(16.3) million | $(13.2) million | $(55.0) million | $(37.4) million |
| Loss per share | $(0.07) | $(0.06) | $(0.25) | $(0.17) |
| Cash from operating activities | Not separately provided for the quarter | Not separately provided for the quarter | $(7.0) million | $32.2 million |
Q2 gross profit improved modestly despite lower revenue, primarily because lower natural gas prices reduced product cost of sales. Six-month gross profit and margin declined substantially because of the California natural gas price spike in January and February 2023. Management estimated that the spike reduced first-quarter 2023 gross profit by approximately $10.0 million.
- Q2 product revenue fell 12% year over year, driven by lower natural gas prices, lower RIN and LCFS credit prices, and $13.9 million of non-cash Amazon Warrant contra-revenue charges versus $4.8 million in Q2 2022.
- Q2 service revenue rose 31%, primarily from higher O&M volumes.
- Six-month revenue increased 23%, but product cost of sales increased 42% to $175.2 million, mainly due to higher natural gas costs and greater fuel volume.
- SG&A increased 8% in Q2 and 7% for the six-month period, principally from higher headcount, professional fees and administrative costs.
- Interest expense increased to $4.4 million in Q2 and $8.7 million for the six months, reflecting the Riverstone term loan and higher interest rates.
- Interest income increased to $2.8 million in Q2 and $5.5 million for the six months because of higher rates on short-term investments.
- The company recognized $5.1 million of AFTC revenue in Q2 and $9.6 million for the six months. The credit was unavailable in the comparable 2022 periods.
Balance sheet, cash flow, debt and liquidity
- Cash, cash equivalents and current restricted cash were $55.2 million at June 30, 2023, down from $126.0 million at December 31, 2022.
- Short-term investments were $138.6 million, producing cash, cash equivalents and short-term investments of $191.7 million excluding current restricted cash, compared with $263.5 million at year-end 2022.
- Total assets were $1.05 billion and total stockholders’ equity was $702.9 million at June 30, 2023.
- Total debt, net of financing costs, was approximately $144.9 million; principal debt outstanding was approximately $150.3 million. Including finance leases, total indebtedness was approximately $153.2 million in principal amount.
- The $150.0 million Riverstone sustainability-linked senior secured term loan matures December 22, 2026, bears variable interest based on SOFR or applicable base rates plus a margin, and is secured by substantially all personal property and certain real property interests.
- The company used $7.0 million in operating cash, $62.0 million in investing cash and $2.2 million in financing cash during the first six months, resulting in a $70.8 million decrease in cash and restricted cash.
- Capital expenditures were $42.8 million for the first six months. Management expects approximately $90.0 million of 2023 capital expenditures and up to approximately $40.0 million for ADG RNG production facilities.
- Management expects approximately $17.9 million of interest payments in 2023, of which $8.9 million had been paid by June 30, 2023, and stated that it expects to meet principal and interest obligations due within the next 12 months.
- The company was in compliance with its debt covenants as of June 30, 2023.
Material changes versus the prior comparable period
- Revenue increased for the first six months but declined in Q2, reflecting lower natural gas, RIN and LCFS credit prices and higher Amazon Warrant charges.
- Fuel volumes grew, particularly RNG, while conventional natural gas volume declined.
- Cash from operations changed from $32.2 million provided in the first half of 2022 to $7.0 million used in the first half of 2023, primarily because of higher natural gas procurement costs and working-capital timing.
- Property and equipment increased to $292.5 million from $264.1 million at year-end 2022, reflecting capital investment and construction activity.
- The company made a $5.5 million contribution and a separate $5.5 million advance to the TotalEnergies-related DR JV in June 2023. The advance was expected to be refunded before year-end 2023.
- Amazon Warrant charges increased to $27.7 million for the first six months from $8.5 million, reducing reported fuel revenue and earnings without a current-period cash outflow.
- The company and Tourmaline entered a CAD $70 million, 50-50 agreement to develop up to 20 CNG stations in Western Canada over five years.
Guidance, outlook, commentary, risks and unusual items
- Management expects approximately $90.0 million of 2023 capital expenditures and up to approximately $40.0 million of 2023 ADG RNG project development spending, primarily funded through cash on hand and operations.
- The company expects available cash, short-term investments and anticipated operating and financing cash flows to satisfy requirements for at least the 12 months following the filing date, but stated that additional capital may be needed thereafter or sooner if spending, investments, debt repayments or operating costs exceed expectations.
- The EPA’s June 2023 rule increased renewable volume obligation targets for 2023 through 2025 by an average of approximately 30% per year; management viewed this as supportive of RNG demand.
- The South Fork Dairy farm fire in April 2023 killed approximately 18,000 cows and injured one person. The related company-owned ADG RNG project had not begun onsite construction, and management expects a delay while assessing the incident’s effects.
- RIN and LCFS credit prices remain volatile and materially affect revenue and project economics. Government incentives, including AFTC, are subject to legislative, regulatory and program changes.
- The company remains exposed to natural gas price volatility, variable interest rates, supply-chain and labor costs, RNG project delays, permitting requirements and competition from electric, hydrogen, renewable diesel and other fuels.
- California’s Advanced Clean Trucks and Advanced Clean Fleets regulations and similar initiatives could accelerate zero-emission vehicle adoption and reduce long-term demand for combustion-based natural gas vehicles.
- Off-balance-sheet and contingent exposures include $50.4 million of surety bonds, a delayed-draw loan commitment of up to $5.5 million to an equity-method investee, take-or-pay natural gas purchase commitments, and a fixed supply arrangement with UPS for 170.0 million GGEs through March 2026.
- Remaining performance obligations were $28.5 million at June 30, 2023, relating to station construction contracts expected to be recognized over the next 12 to 24 months.
- Management reported no material pending legal proceedings and stated that disclosure controls and procedures were effective as of June 30, 2023.
Most important facts for investors to verify
- Whether fuel volumes and RNG adoption continue to grow sufficiently to offset lower commodity and environmental-credit prices.
- The sustainability of margins after the California natural gas price disruption and the company’s ability to pass through future commodity-cost increases.
- The cash impact of planned 2023 capital expenditures, RNG project development, joint-venture funding and the $150 million variable-rate term loan.
- The recurring effect of Amazon Warrant charges, including the remaining 40.6 million unvested warrant shares and potential future dilution.
- The timing, costs and commercial output of the company’s ADG RNG projects, including the delayed South Fork project and the bp and TotalEnergies joint ventures.
- The future availability and market value of AFTC, RINs and LCFS credits, and the effect of changing federal and state policies favoring zero-emission vehicles.
- Whether the company can achieve positive operating cash flow while funding approximately $90 million of planned capital expenditures and up to $40 million of RNG development spending in 2023.